-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FzX61gh9h0447upgGkRSrmrU8NqjreYowvXxe7xDIElkUDjOZSkvTTtXe8UJQeFj qjbskkkH87a1NI8HdFQ2Sw== 0000950130-99-003729.txt : 19990621 0000950130-99-003729.hdr.sgml : 19990621 ACCESSION NUMBER: 0000950130-99-003729 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 27 FILED AS OF DATE: 19990618 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LOISLAW COM INC CENTRAL INDEX KEY: 0001088820 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 750655999 STATE OF INCORPORATION: AK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-81107 FILM NUMBER: 99649078 BUSINESS ADDRESS: STREET 1: 105 NORTH 28TH STREET CITY: VAN BUREN STATE: AK ZIP: 72956 BUSINESS PHONE: 5014715581 MAIL ADDRESS: STREET 1: 105 NORTH 28TH STREET CITY: VAN BUREN STATE: AK ZIP: 72956 S-1 1 FORM S-1 As filed with the Securities and Exchange Commission on June 18, 1999 Registration No. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM S-1 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 ---------------- LOISLAW.COM, INC. (Exact name of Registrant as specified in its charter) Delaware 7374 71-0655999 (State or other (Primary Standard (I.R.S. Employer jurisdiction of Industrial Identification No.) incorporation or Classification Code organization) Number) ---------------- 105 North 28th Street Van Buren, Arkansas 72956 (501) 471-5581 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) ---------------- KYLE D. PARKER Chairman of the Board and Chief Executive Officer Loislaw.com, Inc. 105 North 28th Street Van Buren, Arkansas 72956 (501) 471-5581 (Name, address, including zip code, and telephone number, including area code, of agent for service) ---------------- Copies to: Kenn W. Webb, Esq. Lawrence S. Wittenberg, Esq. Thompson & Knight, P.C. Testa, Hurwitz & Thibeault, LLP 1700 Pacific Avenue, Suite 3300 125 High Street Dallas, Texas 75201 Boston, Massachusetts 02110 (214) 969-1700 (617) 248-7000 ---------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this Form is filed to register additional securities for an Offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same Offering. [_] If this Form is a post effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same Offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same Offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] ---------------- CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Proposed Maximum Aggregate Title of Each Class of Offering Amount of Securities to be Registered Price(2) Registration Fee - -------------------------------------------------------------------------------- Common Stock ($0.001 par value)............... $75,000,000 $20,850 - --------------------------------------------------------------------------------
(1) Includes shares that the Underwriters have the option to purchase to cover any over-allotments. (2) Estimated solely for the purpose of calculating the registration fee. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this prospectus is not complete and may be changed. + +Loislaw.com may not sell these securities until the registration statement + +filed with the Securities and Exchange Commission is effective. This + +prospectus is not an offer to sell these securities and it is not soliciting + +of an offer to buy these securities in any state where the offer or sale is + +not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION-- , 1999 PROSPECTUS - -------------------------------------------------------------------------------- Shares [LOGO] Loislaw.com, Inc. Common Stock - -------------------------------------------------------------------------------- Loislaw.com, Inc. is offering shares of its common stock and a selling stockholder is offering shares of common stock in an initial public offering. Prior to this offering, there has been no public market for Loislaw.com's common stock. Loislaw.com provides comprehensive, affordable and easy-to-use legal and related information over the Internet and on CD-ROM. It is anticipated that the public offering price will be between $ and $ per share. The shares of Loislaw.com will be quoted in the Nasdaq National Market under the symbol "LOIS."
Per Share Total Public offering price...................................... $ $ Underwriting discounts and commissions..................... $ $ Proceeds, before expenses, to Loislaw.com.................. $ $ Proceeds to selling stockholder............................ $ $
See "Risk Factors" on pages 6 to 13 for factors that you should consider before investing in the shares of Loislaw.com. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense. - -------------------------------------------------------------------------------- The underwriters may, under certain circumstances, purchase up to additional shares from Loislaw.com at the public offering price, less underwriting discounts and commissions. Delivery and payment for the shares will be on , 1999. Prudential Securities U.S. Bancorp Piper Jaffray Dain Rauscher Wessels a division of Dain Rauscher Incorporated , 1999 TABLE OF CONTENTS
Page ---- Prospectus Summary................... 1 Risk Factors......................... 6 Forward-Looking Statements........... 14 Use of Proceeds...................... 15 Dividend Policy...................... 15 Capitalization....................... 16 Dilution............................. 17 Selected Financial Data.............. 18 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 20
Page ---- Business............................ 29 Management.......................... 40 Certain Transactions................ 46 Principal and Selling Stockholders.. 48 Description of Capital Stock........ 50 Shares Eligible for Future Sale..... 52 Underwriting........................ 54 Legal Matters....................... 55 Experts............................. 55 Available Information............... 56 Index to Financial Statements....... F-1
- ------------------------------------------------------------------------------- The terms "Loislaw.com", "we", "our" and "us" refer to Loislaw.com, Inc. unless the context suggests otherwise. The term "you" refers to a prospective investor. We have obtained federal trademark registrations for LOIS PROFESSIONAL LIBRARY(R), N-line(R), PITA(R) and THE TECHNOLOGY COMPANY WITH A LAW DEGREE(R), and have pending trademark applications for LOIS SM and the LOIS logo SM. We have also obtained copyright registrations for the following proprietary software programs: PITA(R), CaseBase: The Arkansas Reports, and Law Office Information Systems: Master Menu Systems. Other trademarks and trade names in this prospectus are the property of other owners. - ------------------------------------------------------------------------------- You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized anyone to provide you with different information. We are not making an offer of these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front cover of this prospectus. PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information that investors should consider before investing in our common stock. You should read the entire prospectus carefully. Loislaw.com Our Business Loislaw.com provides comprehensive, affordable and easy-to-use legal and related information to lawyers and law firms over the Internet and on CD Rom. We offer more than 950 databases that we estimate to contain over 50 million pages of federal and state law, continuing legal education materials and other legal information. We believe this is the largest collection of legal databases in hypertext mark-up language, or HTML, the standard format language used on the Internet. We offer powerful and intuitive search tools designed to make our information easily accessible and valuable to our users. Through LOIS LawWatch, we provide personalized, intelligent search agents that automatically and continuously search our web site and notify our users when new documents match their search criteria. Our news feeds provide up to 150,000 news articles a month from more than 400 domestic and international sources. Our legal information is available through our web site at loislaw.com or through our CD- ROM products at a low annual subscription price. We have historically targeted our marketing efforts to law firms with fewer than 20 lawyers. Small law firms typically require legal information for the states in which they practice, while large law firms typically require information for all 50 states. Currently, we provide statutes, regulations and rules of court for all state and federal jurisdictions. We also provide comprehensive court decisions for the U.S. Supreme Court and all federal circuit courts of appeal. In addition, with the completion of databases for 11 new states in the last six months, we currently provide comprehensive legal information for 31 of the 50 states. The lawyers in these states represent over 80% of the total number of active practicing lawyers in the U.S. We intend to complete our state law databases for all 50 states by December 31, 1999. Upon completion of these databases, we plan to aggressively market to additional small law firms, large law firms and legal departments of corporations. Since we launched our web site in 1996, our web-based products have represented an increasing percentage of our sales. We expect this trend to continue as we sell more web-based products to existing customers and gain new customers, and as our existing CD-ROM customers migrate to our web-based products. During the month of March 1999, we exceeded 1.4 million searches on our web site compared to 146,000 during March 1998. At March 31, 1999, we had a total of 7,251 customers of which 2,393 purchased our web-based products and 4,858 purchased our CD-ROM products. The percentage of customers that renewed their subscriptions to our products was 89.3% in 1998. We generated revenues of $5.0 million in 1998 and $1.3 million in the first quarter of 1999, and incurred a net loss of $8.6 million in 1998 and $2.7 million in the first quarter of 1999. Through March 31, 1999, our accumulated deficit totaled $17.5 million. Our Market The market for web-based and other on-line legal, tax and public record information is large and growing. According to an industry source, the market for web-based and other on-line legal, tax and public record information was $1.7 billion in 1998 and is projected to grow to $2.7 billion in 2002, representing a compound annual growth rate of 12.3%. We believe that the following are the key drivers of growth in the market for web-based and other on-line legal information: .An increase in the number of lawyers; .An increase in litigation; and .The growth of the Internet. 1 Our Strategy Our objective is to become the leading Internet destination for lawyers, law students, business people and consumers who need legal and related information. We developed our core products to serve the research needs of lawyers. As we expand our product offerings, we plan to address additional needs of lawyers and offer legal information designed to meet the needs of consumers. To achieve our business objectives, we plan to do the following: . Continue to market aggressively to small law firms to expand our small law firm customer base; . Complete our state law databases for all 50 states by December 31, 1999, at which time we intend to aggressively market our products to large law firms and legal departments of corporations; . Continue to build the depth and breadth of our databases through internal development and by licensing and acquiring information from third parties; . Continue to promote brand awareness through expansion of our direct sales force, reliable product offerings, excellent customer service and effective marketing and promotion; . Continue to forge alliances with state and national bar associations, continuing legal education associations and court systems; and . Develop a new web site linked to our loislaw.com web site that will offer legal and related information to consumers. Loislaw.com was incorporated in Arkansas as Law Office Information Systems, Inc. on October 13, 1987 and reincorporated in the State of Delaware on June 18, 1999. Our principal executive offices are located at 105 North 28th Street, Van Buren, Arkansas 72956 and our telephone number is (501) 471-5581. Our web site address is www.loislaw.com. The information contained on our web site is not a part of this prospectus. 2 The Offering Shares offered by Loislaw.com................ shares Shares offered by the selling stockholder.... shares Total shares outstanding after this offering.................................... shares Use of proceeds by Loislaw.com............... For debt reduction, redemption of preferred stock, continued development of legal databases, expansion of marketing and sales activities, potential acquisitions and other general corporate purposes. Proposed Nasdaq National Market symbol....... LOIS
The common stock to be outstanding after the offering is based on the shares outstanding as of March 31, 1999 and does not include the following: . 500,000 shares of common stock reserved for issuance under our employee stock option plan, of which options to purchase 291,561 shares are currently outstanding; . 320,000 shares of common stock that we intend to reserve for issuance under a stock option plan for nonemployee directors, including shares that will be covered by options we intend to grant with exercise prices equal to the initial public offering price; . shares that we intend to reserve for issuance under an employee stock purchase plan; and . 17,768 shares reserved for issuance under outstanding warrants. Unless otherwise indicated, all information contained in this prospectus reflects: . a -for-one stock split to be effected before the completion of this offering; . the conversion of Series A convertible preferred stock and Series C convertible preferred stock into common stock, which will occur immediately upon the completion of this offering; and . does not include shares subject to the underwriters' over-allotment option. Risk Factors You should consider the risk factors before investing in Loislaw.com's common stock, and the impact of various events that could adversely affect our business. 3 Summary Financial Data The summary financial data set forth below should be read in conjunction with Loislaw.com's financial statements and notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this prospectus.
Years Ended December Three Months 31, Ended March 31, ------------------------- ---------------- 1996 1997 1998 1998 1999 ------- ------- ------- ------- ------- (unaudited) Statement of Operations Data: (in thousands, except per share data) Web-based product revenue....... $ 28 $ 208 $ 842 $ 115 $ 499 CD-ROM product revenue.......... 1,855 3,157 3,182 737 837 Other........................... -- -- 1,000 117 -- ------- ------- ------- ------- ------- Total revenues................... 1,883 3,365 5,024 969 1,336 ------- ------- ------- ------- ------- Costs and expenses............... 5,125 5,574 12,111 2,555 3,484 ------- ------- ------- ------- ------- Loss from operations............. (3,242) (2,209) (7,087) (1,586) (2,148) Other income (expenses).......... (249) (461) (1,507) (278) (592) ------- ------- ------- ------- ------- Net loss......................... (3,491) (2,670) (8,594) (1,864) (2,740) Accrued preferred stock dividends and accretion on redeemable preferred stock and common stock warrants........................ -- (34) (500) (105) (206) ------- ------- ------- ------- ------- Net loss applicable to common stock........................... $(3,491) $(2,704) $(9,094) $(1,969) $(2,946) ======= ======= ======= ======= ======= Net loss per share--basic and diluted......................... $ (0.99) $ (0.76) $ (2.52) $ (0.55) $ (0.75) ======= ======= ======= ======= ======= Weighted average common stock outstanding--basic and diluted.. 3,529 3,581 3,611 3,590 3,950 ======= ======= ======= ======= =======
Three Months Years Ended Ended December 31, March 31, ------------- ------------- 1997 1998 1998 1999 ------ ------ ------ ------ (in thousands) Other Data (unaudited): Web-based new sales(1)................. $ 485 $1,985 $ 181 $ 608 CD-ROM new sales(1).................... 2,370 2,081 462 256 ------ ------ ------ ------ Total new sales(1).................... $2,855 $4,066 $ 643 $ 864 ====== ====== ====== ======
- -------- (1) New sales represent the total contract value of all new product sales to existing and new customers, excluding renewals of existing subscriptions of web-based or CD-ROM products. The Pro Forma column included in the Balance Sheet Data adjusts the numbers in the Actual column to give effect to: . the exercise on May 19, 1999 of warrants for 1,056,616 shares of common stock at $.01 per share; . the issuance on May 25, 1999 of 2,495,697 shares of Series C convertible preferred stock and 86,059 shares of common stock, in each case at $5.81 per share, a portion of which was paid for by conversion of the 12.5% Senior Subordinated Convertible Notes, and the use of the proceeds to pay accrued interest related to the convertible notes and $555,000 of costs of issuance; and . the elimination of the redemption features on 365,346 shares of common stock. 4 The Pro Forma as Adjusted column included in the Balance Sheet Data set forth below adjusts the numbers in the Actual column to give effect to the proforma adjustments described in the preceding paragraph and: . the sale of shares of common stock at an assumed public offering price of $ per share by us in this offering; . the conversion of 931,044 shares of Series A convertible preferred stock and 2,495,697 shares of Series C convertible preferred stock into 3,426,741 shares of common stock immediately upon completion of this offering; . the elimination of the redemption feature of outstanding warrants for 17,768 shares of common stock; and . our application of $4,855,385 to redeem 439,589 shares of Series B redeemable preferred stock and accrued dividends on this stock and $ to repay outstanding debt with a portion of the net proceeds of this offering. . the loss or extinguishment of debt attributable to the write-off of deferred loan costs in the amount of $ as a result of repaying the related debt.
As of March 31, 1999 ------------------------------- Pro Forma Actual Pro Forma as Adjusted Balance Sheet Data (unaudited): -------- --------- ----------- (in thousands) Cash and cash equivalents..................... $ 20 $12,454 $ Working capital (deficit)..................... (6,341) 6,114 Total assets.................................. 22,016 34,451 Total debt (including capital lease obligations)................................. 17,589 15,589 Deferred revenues............................. 3,802 3,802 Redeemable equity securities.................. 12,353 25,119 Total stockholders' deficit................... (17,065) (15,375)
5 RISK FACTORS You should consider carefully the following risk factors in addition to the other information set forth in this prospectus before purchasing shares of common stock of Loislaw.com. Each of these risk factors could adversely affect our business, operating results and financial condition as well as adversely affect the value of an investment in our common stock. Risks Particular to Loislaw.com We have operated at a loss in recent periods and may not become profitable in the future. We had net operating losses of $3.5 million in 1996, $2.7 million in 1997, $8.6 million in 1998 and $2.7 million in the three months ended March 31, 1999. These losses have resulted principally from expenses related to data conversion and the marketing costs incurred with the introduction of our new products in the various state markets. We expect operating losses and negative cash flows to continue for the foreseeable future as we continue to incur significant operating expenses and make capital investments in our business. We may never generate sufficient revenues to achieve profitability. Even if we do become profitable, we may not be able to sustain or increase profitability on a quarterly or annual basis. At March 31, 1999, we had an accumulated deficit of $17.5 million. The competition in our industry is intense, our principal competitors have significantly greater resources than we do and this competition may adversely affect our financial results. The market for electronic legal information is currently dominated by LEXIS/NEXIS, which is owned by Reed-Elsevier, and West Group, a division of The Thomson Corporation. These competitors are both large, well-established companies. They offer databases that are similar to or in some cases larger than the databases that we offer. Our competitors have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources than Loislaw.com. This may enable them to undertake more extensive marketing campaigns, to respond more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the development, promotion and sale of their products than we can. LEXIS/NEXIS and West Publishing Company have significant penetration in the large law firm market, a market in which we intend to compete. In addition, we compete with companies that offer fee-based access to selected legal databases over the Internet. These companies may be more successful than we may be in capturing market share. Our results of operations are subject to significant quarterly fluctuations and may not be a good indicator of future results, which could result in lower prices for our common stock. Our quarterly operating results have been affected by the spending patterns of small law firms, which constitute our primary customers. In the future, our quarterly results may also be affected by other factors that are beyond our control, including: .introduction of new products or pricing programs by our competitors; .difficulties in managing growth; .technical difficulties or system downtime affecting our web-based products; .other business interruptions; .increases in selling and marketing expenses, as well as other operating expenses; .Year 2000 problems with our technology or the technology of third parties with which we do business; 6 .the amount and timing of costs associated with the development and introduction of new database products; . economic conditions specific to the Internet or to the legal profession, as well as general economic conditions; and .costs and risks associated with potential acquisitions. In addition, a substantial portion of our expenses, including most product development and selling and marketing expenses, must be incurred in advance of revenue generation. If our projected revenue does not meet our expectations, then our operating profit (loss) may fall short of our expectations. Further, we may change our pricing strategy for our products due to the rapidly evolving market for electronic legal information, and this may affect our quarterly results. Any one or more of these factors could affect our business, financial condition and results of operations, and this makes the prediction of results of operations on a quarterly basis unreliable. As a result, we believe that period-to-period comparisons of our historical results of operations are not necessarily meaningful and that you should not rely on them as an indication of future performance. Also, due to these and other factors, it is possible that our quarterly results of operations may be below the expectations of public market analysts and investors. This could adversely affect the price of our common stock. We could be subject to legal liability relating to the information on our web site. Although we perform extensive quality control tests on information we include in our databases, we cannot achieve 100% accuracy. We may be subject to claims based on negligence or other theories relating to the information we distribute. These types of claims could be time-consuming and expensive to defend and could result in the diversion of our management's time and attention. We maintain business liability insurance and provide no express or implied warranties to our customers, but our insurance and our contracts with customers may not fully protect us against these types of claims. Rapid growth could strain our operational and financial resources. Since we began delivering our legal information databases over the Internet in July 1996, we have experienced rapid growth in our operations. This growth has placed a strain on our operational and financial resources. Any increase in the volume of users of our computer system could strain the capacity of our software or hardware, which could lead to slower response times or system failures. Any future growth may require us, among other things, to: . expand and upgrade our hardware and software systems; . expand and improve our operational and financial procedures, systems and controls; . improve our financial and management information systems; . expand, train and manage a larger workforce; and . improve the coordination among our technical, sales and marketing, financial, accounting and management personnel. We cannot assure you that our personnel, systems and controls will be adequate to support future growth, if any. Our inability to manage growth effectively or to maintain the quality of our products and services could materially and adversely affect our business, results of operations and financial condition. If we do not increase awareness of our brand name, our ability to reach new customers will be limited. Our future success will depend, in part, on our ability to increase awareness of our brand name and our loislaw.com web site by potential customers. In order to do so, we must succeed in our marketing efforts, provide high-quality products and services and increase traffic to our web site. We intend to increase our marketing budget substantially as part of our brand- building efforts. If our marketing efforts are unsuccessful or if we cannot increase our brand awareness, our business, financial condition and results of operations will be materially and adversely affected. 7 Our inability to penetrate the large law firm, corporate legal department and consumer markets could adversely affect our business. Substantially all of our revenues to date have been generated by sales of our products to law firms having 20 or fewer lawyers. Our business plan calls for increased sales to large law firms and legal departments of corporations and the development of a consumer-oriented web site. The large law firm market for electronic legal information is dominated, and is likely to be dominated for the near future, by West Group and LEXIS-NEXIS, our two principal competitors. Moreover, we have little experience designing products and serving the needs of large law firms, legal departments of corporations or consumers. In addition, if we do not complete our comprehensive state law databases for all 50 states by December 31, 1999, it could have a material adverse effect on our ability to penetrate the large law firm, and corporate legal department markets. Our inability to market our products to large law firms, legal departments of corporations or consumers successfully would prevent us from carrying out our business plan. The loss of our relationships with courts and legislatures could adversely affect our business by increasing the time and expense required to convert legal data. Loislaw.com maintains databases consisting of court decisions, statutes, regulations, administrative decisions and other legal information that has been provided to us by various courts and legislatures. We have formal agreements with some but not all of these data providers. Our ability to maintain our relationships with courts and legislatures and to build new relationships with additional data providers is critical to the success of our business. If we were not able to obtain data directly from courts and legislatures, we would have to obtain it in printed format, which would significantly increase the time and expense required to convert the information into the format we use for our products. We obtain data from most courts and legislatures free of charge or at nominal costs. If any of them began to charge us significant fees for providing court decisions, statutes and other data, our costs of data acquisition could increase significantly. The loss of any relationships with data providers, or any significant increase in data acquisition costs, could materially and adversely affect our business, operating results or financial condition. System failures could interrupt delivery of our web site service and adversely affect our business. The continued and uninterrupted performance of our computer system is critical to our success. Any system failure that causes interruptions in our ability to deliver our products to our customers, including failures that affect our ability to collect information from our data providers, could reduce customer satisfaction and, if sustained or repeated, would reduce the attractiveness of our services. We also face the risk of a security breach of our computer system which could disrupt the distribution of our legal information. The number of visits to our web site has been increasing, and we have had to purchase additional computer equipment to handle the increased traffic. Further increases in traffic on our web site could strain our systems and increase the likelihood of system failures. Any of these problems could materially and adversely affect our business, results of operations and financial condition. Our operations are dependent on our ability to protect our computer system against damage from computer viruses, fire, power loss, telecommunications failures, vandalism and other malicious acts, and similar unexpected adverse events. In addition, a failure of our telecommunication providers to provide the data communications capacity in the time frame required by us for any reason could cause interruptions in the delivery of our products. Substantially all of our computer and communications hardware is located at a single facility in Van Buren, Arkansas, and the loss of this hardware or the data it contains would cause us not to be able to operate our business for a substantial period of time. Unanticipated problems could interrupt or delay access to our web- based products. Although we carry general liability insurance, our insurance may not cover any claims by dissatisfied subscribers or may not be adequate to indemnify us for any liability we may incur if we are sued. Any system failure, security breach or other damage that interrupts or delays our operations could materially and adversely affect our business, results of operations and financial condition. 8 Our reliance on third parties for critical products and services creates risks of business interruption. We rely on third parties to convert some of our printed materials into electronic format, which we then edit and code into our legal databases. Our ability to expand our product offering depends upon the simultaneous expansion of our legal databases. Any interruption or termination of our arrangements with third-party data converters could result in increased costs to us or a slow-down in our expansion and product introduction plans while we locate alternative sources for the data conversion or increase our own conversion capabilities. Our three primary third-party data converters are located in foreign countries. There are numerous risks related to our business with foreign companies, including the adoption of laws and changes in political and economic conditions that could restrict or eliminate our ability to do business in certain jurisdictions. We depend heavily on our management team, which has little experience working together or in managing a public company. Our success depends, to a significant extent, upon the efforts and abilities of Kyle D. Parker, our Chairman of the Board and Chief Executive Officer, Mark O. Beyland, our President and Chief Financial Officer, and other members of senior management. Loss of their services could materially and adversely affect our business, results of operations and financial condition. In addition, the rapid growth of our operations has strained our managerial resources. Until recently, Mr. Parker also performed the duties of president and chief financial officer. We hired Mr. Beyland in May 1999 to serve as our President and Chief Financial Officer. The short period of time that our senior officers have worked together, or their inability to work successfully together, may adversely affect our ability to manage growth. Moreover, none of our officers has ever been a senior executive of a public company. Our management team may not be able to manage future growth, if any, or the demands of successfully operating a public company. There is intense competition for qualified personnel necessary to the success of our business. Our future success also depends upon our ability to attract and retain qualified computer programmers and other technical personnel and sales and marketing personnel. We do not have employment agreements with any of our employees, other than senior management. Competition for talented personnel, particularly technical personnel, is intense. This competition could increase the costs of hiring and retaining personnel. We may not be able to attract, retain and adequately motivate our personnel or to integrate new personnel into our operations successfully. Our failure to do so could adversely affect our business. If our software becomes defective, it could be costly for us to correct. Complex software such as the software we develop for our products may contain errors or defects, especially when first implemented, that may be costly to correct. Defects or errors also could result in downtime and our business could suffer significantly from potential adverse customer reaction, negative publicity and harm to our reputation. We may not be able to protect our proprietary technology and we may infringe the proprietary rights of others. Our services are highly dependent upon proprietary technology. We rely on contracts, copyright, trademark and trade secrecy laws and confidentiality agreements to protect our proprietary rights in our technology. We have also obtained several trademark registrations for our various product names. These measures may not be adequate to protect our proprietary technology. Our competitors or potential competitors may independently develop technologies that are substantially equivalent or superior to our technology. We have developed many of our software programs in-house. These programs interact with and perform numerous functions similar to software available from third parties. Therefore, although we do not believe we infringe any proprietary rights, we could be subject to claims that our technology infringes the proprietary rights of third parties. These claims, even if without merit, could subject us to costly litigation and could divert the time and attention of our technical and management teams. 9 Potential problems related to the Year 2000 may decrease use of Internet services, cause harm to our reputation and adversely affect our business. Our business could be adversely affected if the systems on which we depend to conduct our operations are not Year 2000 compliant. Our potential areas of exposure include products purchased from third parties and computers, software, telephone systems and other equipment used internally. If any of our significant hardware or software systems are not Year 2000 compliant, our web site could be unavailable and we would not be able to deliver products to our users over the Internet. Many third parties with which our computer systems interact have not responded to our inquiries about their Year 2000 compliance. Any failure by us to address our Year 2000 compliance issues successfully, or of our suppliers and other third parties with which we conduct business to address their Year 2000 issues successfully, could materially and adversely affect our business, operating results and financial position. We may be unable to make attractive acquisitions or integrate acquired companies, and our inability to do so may disrupt our business. Our business strategy calls for acquisitions of businesses or technologies that complement our current business. We cannot assure you that we will be able to identify attractive acquisition opportunities. Even if we do identify attractive candidates, we cannot assure you that we will be able to complete the acquisition of them or do so on commercially acceptable terms. If we acquire another business, we could have difficulty integrating its operations, systems, management and other personnel and technology with our own. These difficulties could disrupt our ongoing business, distract our management and employees, increase our expenses and adversely affect our results of operations. Even if these difficulties could be overcome, we cannot assure you that the anticipated benefits of any acquisition would be realized. In addition, we may incur debt or issue equity securities to pay for any future acquisitions. The issuance of equity securities could be dilutive to our existing stockholders. Risks Related to Our Industry Our market is new and rapidly evolving and we may not be able to accurately predict and respond to market developments. The market for web-based distribution of electronic legal information has only recently begun to develop and it is rapidly evolving. This makes it difficult to predict demand and market acceptance for our products as well as an appropriate pricing strategy for our products. We cannot guarantee that the market for our products will grow, that our products will become widely accepted or that our pricing strategy will be successful. If the market for our products does not develop as quickly as we expect, if our products are not accepted by customers or if our pricing strategy is not successful our future financial results will be adversely affected. Availability of free information from Internet portal companies may lessen the demand for our products. We compete with Internet portal companies that offer free access to government sponsored sites that provide some of the same information that we provide. These companies often expect to achieve high 10 enough usage to allow them to achieve profitability by selling advertising on their sites. Substantial amounts of free legal information is also available over the Internet and from other sources, such as courts and other government agencies. This free information may lessen the demand for our products. If we do not respond to rapid technological change and evolving industry standards, we will be at a competitive disadvantage. The market for web-based products and services is characterized by rapid technological developments, evolving industry standards and customer demands and frequent new product and service introductions and enhancements. As a result, our success depends upon our ability to improve the performance, content and reliability of our products in response to both evolving demands of the legal community and competitive product offerings. We cannot assure you that we will be able to do so successfully or that any enhancements or new products that we introduce will gain acceptance in the marketplace. A downturn in the legal industry could adversely affect our business. Our business depends on the continued demand for legal information in electronic format. Therefore, any downturn in business for the legal profession could materially and adversely affect our business, results of operations and financial condition. Our success is tied to the adequacy of the Internet infrastructure and the continued growth and commercial viability of the Internet. Loislaw.com's success depends in large part on the maintenance of the Internet infrastructure as a reliable network backbone that provides adequate speed, data capacity and security. Our success also depends on the timely development of products, such as high-speed modems, that enable reliable Internet access and services. The Internet may continue to experience significant growth in the number of users, frequency of use and amount of data transmitted. The Internet infrastructure may not be able to support the demands placed on it and the performance or reliability of the Internet may be adversely affected by this continued growth. In addition, the Internet could lose its commercial viability if the number of people who use the Internet does not continue to grow. A number of factors, including unreliable service or concerns about security, could impede this growth. The infrastructure or complementary products and services necessary to maintain the Internet as a viable commercial medium may not be developed, and the Internet may not continue to be a viable commercial medium for Loislaw.com. Changes in government regulations could adversely affect our business by increasing costs. Currently there are few laws or regulations that specifically regulate communications or commerce on the Internet. However, laws and regulations may be adopted that address issues such as pricing and the characteristics of products and services. In addition, several telecommunications companies have petitioned the Federal Communications Commission to regulate Internet and on- line service providers in a manner similar to long distance telephone carriers and to impose access fees on them. This could increase the cost of transmitting data over the Internet. Finally, state tax laws and regulations relating to the provision of products and services over the Internet are still developing. A few states have tried to impose taxes on products and services provided over the Internet. If additional states try to do so, the cost of our products may increase and we may not be able to increase the price that we charge for our products to cover these costs. Most states impose sales taxes on sales of information delivered in CD-ROM format. Any new laws or regulations or new interpretations of existing laws and regulations relating to the Internet, or any increases in taxes imposed on CD-ROM sales, could adversely affect our business. 11 Risks Related to This Offering You will suffer immediate and substantial dilution of your investment in Loislaw.com. You will experience an immediate and substantial dilution of $ per share in the net tangible book value per share of common stock from the initial public offering price. Assuming an initial public offering price of $ per share of common stock, our net tangible book value as of June , 1999, after giving effect to this offering, is $ per share. See "Dilution" for more detailed information about the dilution that you will incur. Existing stockholders will continue to control Loislaw.com. Following this offering, Kyle D. Parker, Mark O. Beyland, Capital Resource Lenders III, L.P., CRP Investment Partners III, LLC, Sandler Capital Partners IV, L.P., Sandler Capital Partners IV, FTE, L.P., Exeter Capital Partners IV, L.P., Rowland Moriarty and Dublind Partners Inc. will beneficially own % of our outstanding common stock ( % if the underwriters' over-allotment option is exercised in full). If these persons acted together, they would have sufficient voting power to control the outcome of corporate actions submitted to the stockholders for approval and to control the management and affairs of the company. In addition, our existing stockholders have agreed that for so long as each of (a) Capital Resource Lenders III, L.P. and (b) Sandler Capital Partners IV, L.P. and Sandler Capital Partners IV, FTE, L.P. own at least 10% of the common stock of Loislaw.com, they will vote their shares of common stock in favor of the election to our Board of Directors of one representative designated by Capital Resource Lenders III, L.P. and one representative designated by the Sandler parties pursuant to an Amended and Restated Stockholders' Agreement dated May 25, 1999. There has been no prior public market for our stock and our stock price may be extremely volatile. Prior to this offering, there has not been a public market for our common stock. We intend to include the common stock for quotation in the Nasdaq National Market. We do not know the extent to which investor interest in Loislaw.com will lead to the development of a trading market for the common stock or how the common stock will trade in the future. The public offering price will be determined by negotiations among us, the selling stockholder and the representatives of the underwriters. You may not be able to resell your shares at or above the initial public offering price. The price at which our common stock will trade depends upon a number of factors, including our historical and anticipated operating results and general market and economic conditions, some of which are beyond our ability to control. Factors such as fluctuations in our financial and operating results and developments affecting us and the markets or industry in which we compete could also cause the market price of our common stock to fluctuate substantially. In addition, the stock market, and the technology sector of the stock market, have from time to time experienced extreme price and volume fluctuations. These market fluctuations may adversely affect the market price of our common stock. The large number of shares of our stock eligible for future sale, and registration rights we have granted to third parties, may cause the price of our common stock to drop. After this offering, we will have outstanding shares of common stock ( shares if the underwriters' over-allotment option is exercised in full). This includes the shares we are selling in this offering ( shares if the underwriters' over-allotment option is exercised in full), which may be resold in the public market immediately without restrictions under the Securities Act, except for any shares purchased by "affiliates" of Loislaw.com (as defined in Rule 144 under the Securities Act). All of our officers, directors and current stockholders, including the selling stockholder, option holders and warrant holders, who collectively own the remaining 8,829,091 shares of our common stock, have entered into lock-up agreements pursuant to which they have agreed not to offer or sell any shares of common stock for a period of 180 days after the date 12 of this prospectus without the prior written consent of Prudential Securities, on behalf of the underwriters. Prudential Securities may, at any time and without notice, waive the terms of these lock-up agreements specified in the underwriting agreement. Upon expiration of the lock-up period, these 8,829,091 shares may be sold in the future subject to compliance with the volume limitations and other restrictions of Rule 144. See "Underwriting." We have granted to certain stockholders the right to require us to file with the Securities and Exchange Commission a registration statement covering the resale of their 3,444,509 shares of common stock. These stockholders purchased preferred stock from Loislaw.com that will be converted into common stock immediately upon completion of this offering. In addition, if we register common stock for sale in the future, these stockholders and several other stockholders who purchased common stock from us, or who have warrants to purchase common stock, have the right to include their shares of common stock in the registration. See "Description of Capital Stock." The market price of our common stock could drop due to sales of a large number of shares of our common stock or the perception that they could occur. These factors could also make it more difficult to raise funds through future offerings of common stock. You should not expect to receive dividends from us. We do not expect to declare or pay any cash dividends in the near future. In addition, our agreement with Fleet National Bank, N.A., with whom we have lines of credit, prohibits us from paying dividends. Our management has broad discretion over the use of the net proceeds from this offering and may allocate these net proceeds in ways in which you do not agree. A significant portion of the anticipated net proceeds to Loislaw.com from this offering have not been designated for specific uses. Accordingly, management will have broad discretion with respect to the use of these funds. Our charter and the Delaware General Corporation Law may inhibit a takeover. Certain provisions of our certificate of incorporation and bylaws may make it more difficult for a third party to acquire Loislaw.com, or may discourage acquisition bids for Loislaw.com and could limit the price that certain investors might be willing to pay in the future for shares of our common stock. For example, we have a classified board and after the completion of this offering and the conversion of the Series A convertible preferred stock and the Series C convertible preferred stock into common stock, and after the redemption of the Series B redeemable preferred stock, the Board of Directors of Loislaw.com will have the authority to issue up to 10,000,000 additional shares of preferred stock and to fix the rights, preferences, privileges and restrictions of those shares without any further vote or action by the stockholders. 13 FORWARD-LOOKING STATEMENTS This prospectus includes forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting the financial condition of our business. These forward-looking statements are subject to a number of risks, uncertainties and assumptions including, among other things: . General economic and business conditions, both nationally and in our markets; . Assumed growth in usage of the Internet; . Assumed growth in the number of lawyers; . Our expectations and estimates concerning future financial performance, financing plans and the impact of competition; . The impact of year 2000 problems; . Anticipated trends in our business; . Existing and future regulations affecting our business; . Our acquisition opportunities; and . Other risk factors set forth under "Risk Factors" in this prospectus. In addition, in this prospectus, the words "believe", "may", "will", "estimate", "continue", "anticipate", "intend", "expect" and similar expressions, as they relate to Loislaw.com, our business or our management, are intended to identify forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially from those anticipated or implied in the forward- looking statements. 14 USE OF PROCEEDS The net proceeds to Loislaw.com from the sale of common stock by us in this offering, assuming a public offering price of $ per share, are estimated to be $ ($ if the underwriters exercise their over-allotment option in full), after deducting underwriting discounts and commissions and estimated offering expenses of $ . We intend to use these net proceeds for the following purposes: . We intend to use approximately $10.2 million of the net proceeds to us to repay principal and interest on three senior subordinated notes issued by us to Capital Resource Lenders III, L.P., CRP Investment Partners III, L.P. and Rowland Moriarty. These notes bear interest at a rate of 12.5% per year and are due November 30, 2003, unless accelerated upon the occurrence of any one of several events; . We will use approximately $5.0 million of the net proceeds to us to redeem the 439,589 shares of Series B redeemable preferred stock plus accrued dividends held by Melissa Parker. For more information, see "Certain Transactions"; . We intend to use a significant amount of the net proceeds to us to continue to develop our legal databases; . We will repay $1.2 million outstanding under our secured converting equipment line of credit and $3.1 million under our two secured lines of credit for database development with Fleet National Bank, N.A. Amounts outstanding under these lines of credit bear interest at a rate of prime plus 1.5%; . We will pay $250,000 to Dublind Partners, Inc. for financial advisory services; and . We intend to use a significant portion of the net proceeds to us to expand our marketing and sales activities. We have broad discretion regarding the use of some of the proceeds to us from this offering. We intend to use the remaining net proceeds for general corporate purposes, including working capital. We may also use a portion of the net proceeds to acquire or invest in complementary businesses or products or to obtain the right to use complementary technologies. Pending these uses, we may invest the net proceeds temporarily in short- term, investment grade, interest-bearing securities or guaranteed obligations of the U.S. government. We will not receive any proceeds from the sale of common stock by the selling stockholder. DIVIDEND POLICY We have not declared or paid and do not anticipate declaring or paying any dividends on our common stock in the near future. Any future payment of dividends will be at the discretion of our Board of Directors and will depend on then existing conditions, including our financial condition, results of operations, contractual restrictions, capital requirements, business prospects and other factors as our Board of Directors deems relevant. Moreover, we have an existing line of credit with Fleet National Bank, N.A., that prohibits us from declaring any dividend on any class of our stock, including the common stock. 15 CAPITALIZATION The following table displays our Actual, Pro Forma and Pro Forma as Adjusted capitalization as of March 31, 1999. Capitalization consists of long-term debt, including the current portion, redeemable equity securities and stockholders' equity (deficit). Our Pro Forma capitalization reflects (a) the issuance on May 25, 1999 of 2,495,697 shares of Series C convertible preferred stock and 86,059 shares of common stock, in each case at $5.81 per share, a portion of which was paid for by conversion of the 12.5% Senior Subordinated Convertible Notes, and the use of the proceeds to pay accrued interest related to the convertible notes and $555,000 of costs of issuance; (b) the elimination of the redemption features on 365,346 shares of common stock and (c) the exercise on May 19, 1999 of warrants for 1,056,616 shares of common stock at $.01 per share. Our Pro Forma As Adjusted capitalization reflects the pro forma adjustments described in the previous sentence and: (a) the conversion of 931,044 shares of Series A convertible preferred stock and 2,495,697 shares of Series C convertible preferred stock into 3,426,741 shares of common stock immediately upon completion of this offering; (b) the sale of shares of common stock at an assumed public offering price of $ per share by us in this offering; (c) the elimination of the redemption feature of warrants for 17,768 shares of common stock; (d) our application of $4,855,385 to redeem 439,589 shares of Series B redeemable preferred stock and accrued dividends on this stock and $ to repay outstanding debt with a portion of the net proceeds of this offering; and the loss or extinguishment of debt attributable to the write-off of deferred loan costs in the amount of $ as a result of repaying the related debt.
March 31, 1999 -------------------------------- Pro Forma Actual Pro Forma as Adjusted -------- --------- ----------- (in thousands) Long-term debt, including current portion: 12.5% Senior Subordinated Notes.............. $ 10,000 $ 10,000 $ 12.5% Senior Subordinated Convertible Note... 2,000 -- Notes payable due in monthly installments.... 4,222 4,222 Revolving line of credit..................... 1,336 1,336 Capital lease obligation..................... 32 32 -------- -------- --- Total long-term debt....................... 17,590 15,590 -------- -------- --- Redeemable equity securities: Series A preferred........................... 2,674 2,674 Series B preferred, including accrued dividends................................... 4,855 4,855 Series C preferred........................... -- 13,964 Common stock................................. 1,208 3,566 Common stock warrants........................ 3,616 60 -------- -------- --- 12,353 25,119 -------- -------- --- Stockholders' equity (deficit)(1): Common stock, $.001 par value; 10,000,000 shares authorized; 3,955,346 shares issued and 5,098,021 and shares issued pro forma and pro forma as adjusted, respectively................................ 4 5 Additional paid-in capital................... 1,638 5,685 Accumulated deficit.......................... (17,483) (17,483) Redeemable common stock...................... (1,208) (3,566) Treasury stock at cost, 5,000 common shares.. (16) (16) -------- -------- --- Total stockholders' equity (deficit)....... (17,065) (15,375) -------- -------- --- Total capitalization....................... $ 12,878 $ 25,334 $ ======== ======== ===
- -------- (1) Excludes 500,000 shares of common stock reserved for issuance under our incentive stock option plan, of which options to purchase 291,561 shares are currently outstanding, 320,000 shares of common stock that we intend to reserve for issuance under a stock option plan for nonemployee directors, and shares of common stock that we intend to reserve for issuance under an employee stock purchase plan. Also excludes 17,768 shares reserved for issuance pursuant to outstanding warrants. 16 DILUTION Purchasers of the common stock in this offering will experience immediate and substantial dilution in the net tangible book value of the common stock from the initial public offering price. Net tangible book value per share represents the amount of the total tangible assets less total liabilities of Loislaw.com, divided by the number of shares of common stock outstanding. At June , 1999, Loislaw.com had a net tangible book value of $ million or $ per share of common stock. After giving effect to the sale of shares of common stock offered by Loislaw.com at an assumed initial public offering price of $ per share and after the deduction of underwriting discounts and commissions and estimated offering expenses payable by us, the pro forma net tangible book value of Loislaw.com at June , 1999 would have been $ million or $ per share. This represents an immediate increase in net tangible book value of $ per share to existing stockholders and an immediate and substantial dilution of $ per share to new investors purchasing common stock in this offering. The following table illustrates this per share dilution: Assumed initial public offering price............................. $ Net tangible book value as of June , 1999...................... $ Increase attributable to new investors.......................... $ Pro forma net tangible book value after this offering............. ---- Dilution in pro forma net tangible book value to new investors.... $ ====
The following table summarizes, on the pro forma basis set forth above as of June , 1999, the differences between existing stockholders and new investors in this offering with respect to the number of shares of common stock purchased from us, the total consideration paid and the average consideration paid per share (before the deduction of underwriting discounts and commissions and offering expenses payable by us):
Shares Purchased Total Consideration Average ------------------- ---------------------- Price Number Percent Amount Percent Per Share -------- -------- ---------- ---------- --------- Existing stockholders... % $ % $ New investors........... % % -------- -------- ---------- --------- ---- Total................. 100% $ 100% $ ======== ======== ========== ========= ====
The foregoing tables assume no exercise of the options or warrants outstanding to purchase an additional shares of common stock at a weighted average exercise price of $ per share. To the extent that these options or warrants are exercised, there will be further dilution to new stockholders in the net tangible book value of their shares. For more information, see "Management--Equity Plans." In addition, the second table does not reflect the sale of shares by the selling stockholder in this offering. These sales will reduce the shares held by existing stockholders to of the total shares of common stock to be outstanding after this offering, and will increase the number of shares to be purchased by the new stockholders to of the total shares of common stock to be outstanding after this offering. Finally, the number of shares disclosed for existing stockholders includes 3,426,741 shares of common stock expected to be issued immediately upon the completion of this offering upon conversion of the outstanding Series A convertible preferred stock and Series C convertible preferred stock. For more information, see "Principal and Selling Stockholders." 17 SELECTED FINANCIAL DATA The selected financial data set forth below should be read in conjunction with our financial statements and notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations," appearing elsewhere in this prospectus. The Statement of Operations data for the years ended December 31, 1996, 1997 and 1998, and the Balance Sheet Data as of December 31, 1997 and 1998, have been derived from our audited financial statements and notes appearing elsewhere in this prospectus. The balance sheet data as of December 31, 1996 has been derived from our audited balance sheet that does not appear in this prospectus. The statements of operations data and balance sheet data as of and for the two years ended December 31, 1994 and 1995 have been derived from our unaudited financial statements that do not appear in this prospectus. The statement of operations data and balance sheet data as of and for the three-month periods ended March 31, 1998 and 1999 are derived from unaudited financial statements appearing elsewhere in this prospectus. In the opinion of management, all unaudited financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of our financial position and results of operations for the periods presented. The historical results are not necessarily indicative of the operating results to be expected in the future.
Three Months Years Ended December 31, Ended March 31, ------------------------------------------ ---------------- 1994 1995 1996 1997 1998 1998 1999 ------ ------- ------- ------- ------- ------- ------- (unaudited) (unaudited) (in thousands, except per share data) Statement of Operations Data: Revenues: Web-based products.... $ -- $ -- $ 28 $ 208 $ 842 $ 115 $ 499 CD-ROM products....... 93 1,742 1,855 3,157 3,182 737 837 Other................. 1,381 -- -- -- 1,000 117 -- ------ ------- ------- ------- ------- ------- ------- Total revenues...... 1,474 1,742 1,883 3,365 5,024 969 1,336 ------ ------- ------- ------- ------- ------- ------- Costs and expenses: Database cost......... 738 1,442 1,850 2,013 5,527 1,165 1,066 Costs of other revenues............. 600 -- -- -- 393 46 -- Selling and marketing............ 208 935 2,153 2,363 4,414 750 1,706 General and administrative....... 301 289 1,071 1,150 1,331 451 525 Product development... 27 108 51 48 446 143 187 ------ ------- ------- ------- ------- ------- ------- Total costs and expenses........... 1,874 2,774 5,125 5,574 12,111 2,555 3,484 ------ ------- ------- ------- ------- ------- ------- Loss from operations.... (400) (1,032) (3,242) (2,209) (7,087) (1,586) (2,148) ------ ------- ------- ------- ------- ------- ------- Other income (expenses): Interest, net......... 13 (69) (251) (455) (1,549) (278) (593) Other, net............ (74) 5 2 (6) 42 -- 1 ------ ------- ------- ------- ------- ------- ------- (61) (64) (249) (461) (1,507) (278) (592) ------ ------- ------- ------- ------- ------- ------- Loss before income taxes.................. (461) (1,096) (3,491) (2,670) (8,594) (1,864) (2,740) Income tax benefit...... (99) (259) -- -- -- -- -- ------ ------- ------- ------- ------- ------- ------- Net loss................ (362) (837) (3,491) (2,670) (8,594) (1,864) (2,740) Accrued preferred stock dividends and accretion on redeemable preferred stock and common stock warrants .............. -- -- -- (34) (500) (105) (206) ------ ------- ------- ------- ------- ------- ------- Net loss applicable to common stock........... $ (362) $ (837) $(3,491) $(2,704) $(9,094) $(1,969) $(2,946) ====== ======= ======= ======= ======= ======= ======= Net loss per share-- basic and diluted...... $(0.10) $ (0.24) $ (0.99) $ (0.76) $ (2.52) $ (0.55) $ (0.75) ====== ======= ======= ======= ======= ======= ======= Weighted average common shares outstanding-- basic and diluted...... 3,500 3,500 3,529 3,581 3,611 3,590 3,950 ====== ======= ======= ======= ======= ======= =======
18
Three Months Years Ended Ended December 31, March 31, ------------- ------------- 1997 1998 1998 1999 ------ ------ ------ ------ (in thousands) Other Data (unaudited): Web-based new sales(1).............................. $ 485 $1,985 $ 181 $ 608 CD-ROM new sales(1)................................. 2,370 2,081 462 256 ------ ------ ------ ------ Total new sales(1)................................ $2,855 $4,066 $ 643 $ 864 ====== ====== ====== ======
As of As of December 31, March 31, -------------------------------------- --------------- 1994 1995 1996 1997 1998 1998 1999 ------ ----- ------ ------ ------- ------ ------- (unaudited) (unaudited) (in thousands) Balance Sheet Data: Cash and cash equivalents............ $ 40 318 102 3,233 99 3,621 20 Working capital (deficit).............. (37) (629) (3,397) (514) (4,751) (177) (6,341) Total assets............ 2,011 3,476 5,799 16,067 17,012 17,443 22,016 Total debt (including capital lease obligations)........... 116 1,744 3,963 4,107 12,272 7,099 17,589 Deferred revenues....... -- 157 1,754 3,522 3,928 3,616 3,802 Redeemable equity securities............. -- -- -- 11,216 11,720 11,322 12,353 Total stockholders' equity (deficit)....... 1,592 755 (2,436) (4,990) (14,100) (6,960) (17,065)
- -------- (1) New sales represent the total contract value of all new product sales to existing and new customers, excluding renewals of existing subscriptions of web-based or CD-ROM products. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis in conjunction with the "Selected Financial Data" and the accompanying financial statements and related notes included elsewhere in this prospectus. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including but not limited to those set forth under "Risk Factors" and included elsewhere in this prospectus. Overview Loislaw.com provides comprehensive, affordable and easy-to-use legal and related information over the Internet. We offer more than 950 databases that we estimate to contain over 50 million pages of federal and state law, continuing legal education materials and other legal information. Since our inception in 1987, and our release of the first known comprehensive legal research CD-ROM in 1989, we have concentrated on producing high quality, comprehensive coverage of state and federal legal information. Our first CD-ROM product contained legal information for Arkansas, and we have added legal databases each year since then. From August 1991 to July 1994, Thomson Legal Publishing Company marketed our products pursuant to an exclusive marketing agreement. Substantially all of our other revenues of $1.4 million in 1994 represent payments made to us by Thomson in connection with this agreement. This agreement was terminated by mutual consent in 1994. In August 1994, we began marketing our own CD-ROM products. At that time, we had 42 databases containing legal information for five states. We generate revenues from the sale of web-based products and CD-ROM products. Sales of web-based products and CD-ROM products consist primarily of fixed annual subscription fees. The list price for unlimited Internet access to substantially all federal and state law databases is $1,176 per seat per year. The list price for unlimited Internet access to substantially all state law for one state is $720 per seat per year. Continuing legal education and bar materials are available for purchase at an additional charge. The list prices for annual subscriptions for our CD-ROM products range from $300 to $700 per state or federal jurisdiction. Pricing discounts on CD-ROM products are offered mainly to customers who also purchase our web-based products. Our pricing strategy may change as a result of our evolving market. Upon the sale of a new subscription, the total amount of the subscription fee is accounted for as deferred revenue. Revenues from subscription sales are then recognized and charged against deferred revenue on a monthly basis over the subscription period, which is typically one year. Subscription fees are paid up front in cash or on a monthly basis by electronic funds transfer. Revenues from CD-ROM products also include a small amount of revenue from one- time sales of certain bar association publications. Database costs consist primarily of database production costs that support both our web-based products and our CD-ROM products. Since January 1, 1996, we have spent more than $20 million on our database development. Database development costs represent amounts incurred for data acquisition and conversion, editing, coding and quality control of legal information, related salaries and benefits, facilities cost allocation and related expenses associated with computers for data processing. We capitalize costs related to the production of databases containing court decisions. Court decisions establish legal precedent that is valid until the decision is reversed by the court or overruled by a higher court. Many court decisions are never reversed or overruled. Therefore, court decisions, particularly those of the U.S. and state supreme courts, have significant value for long periods of time or indefinitely. We amortize our court decision databases over 20 years. We expense as incurred costs related to the production of databases containing statutes and regulations, the value of which declines rapidly if they are not continually updated. We also expense as incurred database maintenance and updating costs. 20 During 1995, 1996 and 1997, substantially all of our new sales were sales of CD-ROM products. We launched our web site, loislaw.com, in July 1996 and began selling subscriptions to our web-based products in October 1996. Since then, we have experienced a significant shift in the mix of new sales. New sales represent the total contract value of all new product sales to existing and new customers, excluding renewals of existing subscriptions of web-based or CD-ROM products. In 1997, web-based products produced 17.0% of new sales and CD-ROM products produced 83.0% of new sales. In 1998, web-based products produced 48.8% of new sales and CD-ROM products produced 51.2% of new sales. In the first quarter of 1999, web-based products generated 70.4% of new sales, while CD-ROM products fell to 29.6% of new sales. We expect that this trend will continue and that sales of subscriptions to our web-based products will represent an increasing percentage of new sales in future periods. This trend in new sales, together with the continuing migration of existing CD-ROM customers to our web-based products, will ultimately result in a larger portion of total revenues being attributable to subscriptions to our web-based products than to subscriptions to our CD-ROM products. Internet searches have also increased rapidly. During the month of March 1999, we exceeded 1.4 million searches on our web site compared to 146,000 during March 1998. As of March 31, 1999, we had deferred loan costs of $3.8 million. These deferred loan costs relate to debt that we plan to pay off with the net proceeds from this offering. In the period that the debt is paid off, the related deferred loan costs will be expensed and accounted for as an extraordinary item. Results of Operations Comparison of Results for the Quarters Ended March 31, 1999 and 1998 Revenues. Total revenues increased 37.8% to $1.3 million for the quarter ended March 31, 1999 from $969,000 for the quarter ended March 31, 1998. Revenues from web-based products increased 332.8% to $499,000 for the quarter ended March 31, 1999 from $115,000 for the quarter ended March 31, 1998. We believe the increase in revenues from web-based products was due primarily to the addition of new state-law databases, the increase in marketing efforts and the expansion of our sales staff. We expect that this trend will continue and that web-based product revenues will represent an increasing percentage of total revenues in future periods. Revenues from CD-ROM products increased 11.3% to $837,000 for the quarter ended March 31, 1999 from $737,000 for the quarter ended March 31, 1998. This increase was less than the increase in web-based product revenues due to the migration of some CD-ROM customers to our web-based products and to the high percentage of new sales generated by web-based products. Other revenues of $117,000 and costs of other revenues of $46,000 in the first quarter of 1998 related to a customized database project that did not recur in the first quarter of 1999. Database costs. Total database costs decreased 8.6% to $1.1 million for the quarter ended March 31, 1999 from $1.2 million for the quarter ended March 31, 1998. The decline in the costs in the first quarter of 1999 compared to the first quarter of 1998 is attributable to our production of more court decision databases, which we capitalized, in 1999, compared to our production of more statute and regulation databases, which we expensed, in 1998. Selling and Marketing Expense. Selling and marketing expense increased 127.5% to $1.7 million for the quarter ended March 31, 1999 from $750,000 for the quarter ended March 31, 1998. This was principally due to a 93% increase in compensation expense associated with an increase in the number of sales and marketing personnel to 128 at March 31, 1999 from 60 at March 31, 1998. Selling and marketing expense consists primarily of: . employee salaries and benefits for marketing and customer support personnel; . sales commissions paid to our sales force; . advertising expenses; . the cost of direct marketing promotional materials; and . facilities cost allocation and related expenses. 21 We pay sales commissions when subscription agreements are signed. We record commissions as prepaid commissions and amortize them ratably over the term of the contract, typically one year, as we recognize the associated revenues. We do not pay commissions on renewals of subscriptions. We expense all other selling and marketing costs as incurred. General and Administrative Expense. General and administrative expense increased 16.4% to $525,000 for the quarter ended March 31, 1999 from $451,000 for the quarter ended March 31, 1998. This increase resulted primarily from an increase in our number of employees and executive recruiting costs in the first quarter of 1999. General and administrative expense consists primarily of employee salaries and benefits, facilities cost allocation and related expenses associated with our management, finance, human resources, management information systems and administrative groups. Product Development Expense. Product development expense increased 30.7% to $187,000 for the quarter ended March 31, 1999 from $143,000 for the quarter ended March 31, 1998. This increase was due to an increase in personnel performing product development functions. Product development expense consists primarily of employee salaries and benefits, facilities cost allocation and expenses related to the development and enhancement of core software supporting our products. Product development expense does not include the cost of acquiring or converting the data that we include in our databases. Interest Expense, Net. Interest expense, net of interest income, increased 113.1% to $593,000 for the quarter ended March 31, 1999 from $278,000 for the quarter ended March 31, 1998. This increase was due primarily to an increase in borrowings to support the rapid expansion of database production and the related increase in selling and marketing efforts. Comparison of Results for the Years Ended December 31, 1998 and December 31, 1997 Revenues. Total revenues increased 49.3% to $5.0 million in 1998 from $3.4 million in 1997. Revenues from web-based products increased 304.2% to $842,000 in 1998 from $208,000 in 1997. The increase in web-based revenues was due in part to an increase in the number of legal databases we offered to 517 at December 31, 1998 from 323 at December 31, 1997, expanded sales and marketing efforts and the migration of some CD-ROM customers to our web-based products. In addition, in October 1998 we changed our pricing strategy by eliminating the requirement that customers purchase at least three "seats," or concurrent user licenses. This change made our products more affordable to small law firms and sole practitioners, and we believe it positively impacted sales of web-based products in late 1998. By eliminating the package pricing associated with the mandatory three-seat license, we also increased the average price of a single seat. Revenues from CD-ROM products remained relatively flat at $3.2 million in 1998 and in 1997. Other revenues of $1.0 million and costs of other revenue of $393,000 in 1998 resulted from a customized database development project for a publishing company that was started and completed in 1998. We earned no revenue from customized database development projects in 1997. Database Costs. Total database costs increased 174.5% to $5.5 million in 1998 from $2.0 million in 1997. The increase in costs for 1998 compared to 1997 is attributable to our production of more databases containing statutes and regulations, the costs of which we expensed as incurred, in 1998, compared to our production of more databases containing court decisions, the costs of which we capitalized, in 1997. Selling and Marketing Expense. Selling and marketing expense increased 86.8% to $4.4 million in 1998 from $2.4 million in 1997. This increase was principally due to a 21.9% increase in sales commissions due to increased product sales and a 124.0% increase in compensation expense associated with an increase in the number of sales and marketing personnel to 87 at December 31, 1998 from 44 at December 31, 1997. General and Administrative Expense. General and administrative expense increased 15.7% to $1.3 million in 1998 from $1.2 million in 1997. This increase primarily resulted from an increase in the number of employees performing general and administrative functions. 22 Product Development Expense. Product development expense increased 840.2% to $446,000 in 1998 from $47,000 in 1997. The increase was due to an increase in personnel performing development functions. Interest Expense, Net. Interest expense, net of interest income, increased 240.7% to $1.5 million in 1998 from $455,000 in 1997. The increase was due primarily to an increase in borrowings to support the rapid expansion of database production and the related increase in selling and marketing efforts. Comparison of Results for the Years Ended December 31, 1997 and December 31, 1996 Revenues. Total revenues increased 78.7% to $3.4 million in 1997 from $1.9 million in 1996. Revenues from web-based products increased to $208,000 in 1997 from $28,000 in 1996. We launched our loislaw.com web site in July 1996 and began selling subscriptions to our web-based products in October 1996. Revenues from CD-ROM products increased 67.7% to $3.2 million in 1997 from $1.9 million in 1996. The increase in total revenues was due in part to a significant increase in the number of legal databases we offered. At December 31, 1997, we had 323 databases, compared to 223 at December 31, 1996. Database costs. Total database costs increased 8.9% to $2.0 million in 1997 from $1.8 million in 1996. The increase in cost of revenues is attributable to our production of more databases. Selling and Marketing Expense. Selling and marketing expense increased 9.8% to $2.4 million in 1997 from $2.2 million in 1996. This increase was principally due to an increase in sales commissions due to increased product sales and an increase in compensation expense associated with an increase in the number of sales and marketing personnel. Prior to June 1996, we outsourced selling and marketing to a third party. General and Administrative Expense. Although general and administrative expense remained relatively unchanged at $1.1 million in 1997 and in 1996, bad debt expense declined from $525,000 in 1996 to $94,000 in 1997. This is attributable primarily to the transfer of our sales, billing and collection functions from third parties to in-house personnel in June 1996. This was offset by the settlement of a lawsuit with a third party to which we outsourced administrative tasks, consulting fees paid for the development of our enterprise systems and an increase in the number of employees performing general and administrative functions. Product Development Expense. Product development expense remained relatively unchanged at $47,000 in 1997 and $52,000 in 1996 as production personnel efforts were focused primarily on development of databases in both 1996 and 1997. Interest Expense, Net. Interest expense, net of interest income, increased 81.2% to $455,000 in 1997 from $251,000 in 1996. The increase was due primarily to an increase in borrowings to support the rapid expansion of database production and the related increase in selling and marketing efforts. 23 Quarterly Results of Operations and Other Data The following Statement of Operations Data table sets forth a summary of our unaudited quarterly operating results for each of the five quarters in the 15- month period ended March 31, 1999. This information has been derived from unaudited interim financial statements that, in the opinion of management, have been prepared on a basis consistent with the financial statements appearing elsewhere in this prospectus and include all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of this information when read in conjunction with our financial statements and notes. Our operating results and other data for any quarter do not necessarily indicate what the results for any future period may be.
1998 1999 ------------------------------------------- -------- March 31 June 30 September 30 December 31 March 31 -------- ------- ------------ ----------- -------- (Unaudited, in thousands) Statement of Operations Data: Revenues: Web-based products..... $ 115 $ 157 $ 257 $ 313 $ 499 CD-ROM products........ 737 778 801 866 837 Other.................. 117 236 255 392 -- ------- ------- ------- ------- ------- Total revenues....... 969 1,171 1,313 1,571 1,336 ------- ------- ------- ------- ------- Costs and expenses: Database costs......... 1,165 700 1,362 2,300 1,066 Costs of other revenues.............. 46 101 102 144 -- Selling and marketing.. 750 1,035 1,228 1,402 1,706 General and administrative........ 451 350 243 287 525 Product development.... 143 192 77 34 187 ------- ------- ------- ------- ------- Total costs and expenses............ 2,555 2,378 3,012 4,167 3,484 ------- ------- ------- ------- ------- Loss from operations..... (1,549) (1,207) (1,699) (2,596) (2,148) ------- ------- ------- ------- ------- Costs and other income (expense)............... (278) (364) (410) (455) (593) ------- ------- ------- ------- ------- Net loss................. $(1,864) $(1,571) $(2,109) $(3,051) $(2,740) ======= ======= ======= ======= ======= Other Data: Web-based new sales(1)... $ 181 $ 552 $ 444 $ 807 $ 608 CD-ROM new sales(1)...... 462 626 593 401 256 ------- ------- ------- ------- ------- Total new sales(1)... $ 643 $ 1,178 $ 1,037 $ 1,208 $ 864 ======= ======= ======= ======= =======
- -------- (1) New sales represent the total contract value of all new product sales to existing and new customers, excluding renewals of existing subscriptions of web-based or CD-ROM products. Our quarterly revenues and results of operations have fluctuated significantly in the past, and we expect them to continue to fluctuate significantly in the future. Other revenues in all four quarters of 1998 resulted from a customized database development project for a publishing company that was started and completed in 1998. Database costs have fluctuated because during certain quarters we have had more costs related to statutes and regulations that we expensed and in other quarters we have had more costs related to court decisions that we capitalized. Other causes of quarterly fluctuations have included and may include, among other factors: .introduction of new products or pricing programs by our competitors; 24 . difficulties in managing growth; . technical difficulties or system downtime affecting our web-based products; . other business interruptions; . changes in pricing strategy; . increases in selling and marketing expenses, as well as other operating expenses; . Year 2000 problems with our technology or the technology of third parties with which we do business; . amount and timing of the costs associated with the development and introduction of new database products; . economic conditions specific to the Internet or to the legal profession, as well as general economic conditions; and . costs and risks associated with potential acquisitions. Our quarterly operating results have also been subject to seasonal fluctuations. Our results are affected by the spending patterns of small law firms, which constitute our primary customers. These timing variations can cause our revenues to fall short of our expectations and have an adverse effect on our operating results. In addition, we must incur a substantial portion of our expenses, including certain product development and selling and marketing expenses in advance of revenue generation. If our projected revenue does not meet our expectations, then our operating profit (loss) is likely to fall even shorter of our expectations. Liquidity and Capital Resources We have used substantial amounts of cash in the growth of our company. Operating activities provided $199,000 in cash during 1996. Operating activities used cash of $1.9 million in 1997 and $7.2 million in 1998, primarily resulting from our net losses, reduced by depreciation and amortization during those years. Although our net loss was $2.7 million in the three months ended March 31, 1999, we used only $905,000 of cash in operations due to longer payment terms with our third-party data converters. We expect to continue to incur significant database production costs for the foreseeable future. The continued development of new databases is expected to generate losses for 1999 through the end of 2000. Investing activities used cash of $2.8 million in 1996, $1.9 million in 1997, $4.0 million in 1998 and $4.5 million during the three months ended March 31, 1999. In 1996 and 1997, the primary use of cash was the payment of our database development costs, which are capitalized. In 1998, $2.6 million of these expenditures was for the payment of our database development costs, which we capitalized, and $1.2 million was for property and equipment purchased to support the growth of our business. In the first quarter of 1999, $3.5 million of these expenditures was for the payment of our database development costs, which we capitalized, and $860,000 of these expenditures was for property and equipment purchased to support the growth of our business. To finance our operations and continued expansion we have obtained additional capital through a private placement of debt and equity and from related party and bank financing. Total financing, net of repayments, was approximately $2.4 million in 1996, $6.9 million in 1997 and $8.1 million in 1998 and $5.3 million during the three months ended March 31, 1999. Subsequent to March 31, 1999, we have obtained additional financing from a private placement of common stock and convertible preferred stock in the amount of $15.0 million. During the final nine months of 1999, we are obligated to pay $1.2 million to a third party for data conversion services. During the final nine months of 1999, we anticipate spending significant amounts for data conversion costs in connection with updating existing and acquiring new databases, for the purchase of property and equipment and in connection with the development of a shadow site fully equivalent to our current web site. We believe the recent private placement of equity, available borrowings under our bank credit facility, cash generated by operations and the proceeds of this offering will be adequate to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. 25 As part of our growth strategy, we may consider acquiring companies or businesses, and any acquisition could significantly increase our cash requirements. We are not currently involved in any negotiations relating to any acquisition. An acquisition, or any other increase in our anticipated cash requirements, could require us to obtain additional financing. We cannot assure you that additional financing would be available to us or, if available, that we would be able to obtain it on terms we considered satisfactory. If we raise capital through the issuance of additional equity securities, you may suffer additional dilution in the value of the common stock you purchase in this offering. Our credit agreement with Fleet National Bank dated August 20, 1998, as amended, establishes the following: . a working capital revolving line of credit in the maximum principal amount of $2.5 million; . an equipment line of credit in the maximum principal amount of $1.0 million; . a second equipment line of credit in the maximum principal amount of $1.5 million; and . a line of credit to finance the development of our databases in the maximum principal amount of $7.0 million. Each of these lines bears interest at a floating rate equal to a specified percentage above the bank's prime rate. We must pay a commitment fee with respect to the revolving line of credit in the amount of $6,250 per fiscal quarter. In addition, the Fleet credit facility contains certain restrictive covenants that obligate us to meet certain requirements and that, without the prior written consent of the bank, prohibit us from incurring indebtedness (other than certain permitted indebtedness) or declaring or paying dividends or other distributions. As of March 31, 1999, we were in technical default under the credit facility for failing to meet specified financial ratios. The bank waived these covenants for the 12 months ended March 31, 1999 and, as of the date of this prospectus, we are in compliance with the financial covenants under the credit facility as amended on May 25, 1999. As of March 31, 1999, we had outstanding borrowings under the credit facility as follows: . $1.3 million under the revolving line of credit, . $722,000 under the first equipment line, . $0 under the second equipment line, and . $3.5 million under the line of credit for database development costs. All borrowings under the credit facility are secured by a pledge of most of our assets. Net Operating Loss Since 1994, we have incurred significant net losses. Through March 31, 1999, our accumulated deficit totaled $17.5 million. At December 31, 1998, we had net operating loss carry-forwards of approximately $17.3 million for federal income tax purposes that begin to expire in 2010 and state net operating loss carry- forwards of approximately $19.0 million that begin to expire in 2000. We cannot assure you that we will have income, if any, that is sufficient to allow us to use these loss carry-forwards. Year 2000 Disclosure The Year 2000 issue is the result of computer programs being written using two rather than four digits to define the applicable year. The arrival of the year 2000 poses a unique worldwide challenge to the ability of systems to recognize the date change from December 31, 1999 to January 1, 2000. The Year 2000 issue could result in system failures or miscalculations causing disruptions of operations. Among other things, our customers may temporarily be unable to access our databases or we may be unable to engage in other normal business activities. For purposes of this discussion, the terms "computer equipment" and "software" include systems that are commonly thought of as IT systems, including accounting, data processing, data conversion 26 and telephone/PBX systems, as well as systems that are not commonly thought of as IT systems, such as heating and air conditioning systems, fax machines, or other miscellaneous systems. Both IT and non-IT systems may contain embedded technology, which complicates our identification, assessment, remediation and testing efforts. We have taken various steps intended to ensure that our computer equipment and software will function properly on January 1, 2000 and thereafter. We have completed assessments of our IT systems and our non-IT systems, which consist primarily of minor office equipment. Based upon our identification and assessment of our IT systems, we have replaced or modified certain computer equipment and software including our telephone/PBX system. Based upon our identification and assessment of our non-IT systems, we have not identified any equipment or software requiring replacement or modification. In addition, in the ordinary course of replacing computer equipment and software, we only purchase replacement parts that manufacturers represent are Year 2000 compliant. Using both internal and external resources to identify and assess needed Year 2000 remediation, we currently anticipate that our Year 2000 identification, assessment, remediation and testing efforts, which began in August 1997, will be completed by November 1999, and that these efforts will be completed prior to any currently anticipated impact on our computer equipment and software. At June 15, 1999, we had completed approximately 85 percent of our Year 2000 initiatives and the remaining ones are in process and we expect them to be completed on or about November 1, 1999. Our remediation of central system issues is 85% complete and we expect it to be completed by July 1, 1999. Our remediation of desktop and individual systems is 85% complete and we expect it to completed by November 1, 1999. We have mailed letters to our overseas data convertors to determine the extent to which their IT and Non-IT systems are vulnerable to Year 2000 issues. Based on their responses, we believe that these data converters are year 2000 compliant. We do not believe that there are any Year 2000 issues with respect to the electronic data we receive from our third party data providers. We typically receive the data in both electronic and printed form and believe that if a Year 2000 issue should arise with respect to the electronic data, we could convert the same data from printed form with minimal delay. In addition, we are in the process of mailing letters to significant vendors and service providers to determine the extent to which our interfaces with them are vulnerable to Year 2000 issues and whether the products obtained from and services provided by them are Year 2000 compliant. A follow-up telephone survey to significant vendors and service providers that do not initially respond, or whose responses we deem unsatisfactory, will be completed by July 30, 1999, with responses due by August 16, 1999. We believe the total cost of our Year 2000 identification, assessment, remediation and testing efforts, as well as costs we expect to incur with respect to Year 2000 issues of our third party IT vendors, will not exceed $200,000, which will be funded from operating cash flows. As of May 27, 1999, we had incurred costs of approximately $35,000 related to our Year 2000 program. All of this amount relates to analysis, repair or replacement of existing software, upgrades of existing software, or evaluation of information received from significant vendors, service providers or customers. This amount represents approximately 6.0% of our total actual and anticipated IT expenditures for fiscal 1999. Other non-Year 2000 IT efforts have not been materially delayed or impacted by Year 2000 projects. We believe that the Year 2000 issue will not pose significant operational problems for us. However, if we do not properly identify all Year 2000 issues, do not successfully complete remediation and testing with respect to problems that we identify, or do not do so in a timely manner, we cannot assure you that the Year 2000 issue will not materially adversely affect our relationships with customers, vendors or others. Additionally, we cannot assure you that the Year 2000 issues of other entities will not have a material adverse impact on our systems or business. We have begun, but not yet completed, a comprehensive analysis of the operational problems and costs (including loss of revenues) that would be reasonably likely to result from our and certain third parties' failure to achieve Year 2000 compliance on a timely basis. We have not yet developed a contingency plan for dealing with the most reasonably likely worst case scenario, and we have not yet clearly identified the worst case scenario. We plan to complete the worst case scenario analysis and contingency planning by November 1, 1999. 27 We do not plan to engage an independent expert to evaluate our Year 2000 identification, assessment, remediation and testing efforts. However, we have engaged a third party to perform an overall review and assessment of our web site architecture, and that review will include Year 2000 compliance of the systems included in the review. We expect this review to be completed by August 1999. In addition, the firm that provided installation, training and certain other services in connection with our new accounting and sales force management software is reviewing Year 2000 issues related to that software. Certain problems have been identified and are being corrected. We expect this review and related remediation to be completed by July 1999. The costs of our Year 2000 identification, assessment, remediation and testing efforts and the dates on which we believe we will complete those efforts are based upon our management's best estimates, which were made using numerous assumptions regarding future events, including the continued availability of certain resources, third-party remediation plans and other factors. We cannot assure you that these estimates will prove to be accurate and actual results could differ materially from those we currently anticipate. Specific factors that could cause such material differences include, but are not limited to, the availability and cost of personnel trained in Year 2000 issues, the ability to locate and correct all relevant computer codes, and the ability to identify, assess, remediate and test all embedded technology and similar uncertainties. Recently Issued Accounting Pronouncements In March 1998, the Accounting Standards Executive Committee ("AcSEC") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 establishes the accounting for costs of software products developed or purchased for internal use, including when such costs should be capitalized. We do not expect SOP 98- 1, which is effective for Loislaw.com beginning January 1, 1999, to have a material effect on our financial condition or results of operations. In April 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of Start- Up Activities." Start-up activities are defined broadly as those one-time activities relating to opening a new facility, introducing a new product or service, conducting business in a new territory, conducting business with a new class of customer, commencing some new operation or organizing a new entity. Under SOP 98-5, the cost of start-up activities should be expensed as incurred. SOP 98-5 is effective for Loislaw.com's 1999 financial statements and we do not expect its adoption to have a material effect on our financial condition or results of operations. Quantitative and Qualitative Disclosures About Market Risk We do not engage in commodity futures trading or hedging activities and do not enter into derivative financial instrument transactions for trading or other speculative purposes. We also do not engage in transactions in foreign currencies or in interest rate swap transactions that could expose us to market risk. We are subject to some interest rate risk in connection with our bank credit facility. This facility permits us to borrow up to $12.0 million, consisting of up to $2.5 million under a secured working capital revolving line of credit, up to $2.5 million under two secured equipment lines of credit and up to $7.0 million under a secured line of credit to develop our databases. All amounts that we borrow under the credit facility bear interest at floating rates. At March 31, 1999, the outstanding principal balance under the credit facility was $5.6 million, and during 1998 the average outstanding principal balance was $2.9 million. 28 BUSINESS Overview Loislaw.com provides comprehensive, affordable and easy-to-use legal and related information to lawyers and law firms over the Internet and on CD-Rom. We offer more than 950 databases that we estimate to contain over 50 million pages of federal and state law, continuing legal education materials and other legal information. We believe this is the largest collection of legal databases in hypertext mark-up language, or HTML, the standard format language used on the Internet. We offer powerful and intuitive search tools designed to make our information easily accessible and valuable to our users. Through LOIS LawWatch, we provide personalized, intelligent search agents that automatically and continuously search our web site and notify our users when new documents match their search criteria. Our news feeds provide up to 150,000 news articles a month from more than 400 domestic and international sources. Our legal information is available through our web site at loislaw.com or through our CD- ROM products at a low annual subscription price. At March 31, 1999, we had a total of 7,251 customers of which 2,393 purchased our web-based products and 4,858 purchased our CD-ROM products. The percentage of customers that renewed their subscriptions to our products was 89.3% in 1998. We have historically targeted our sales to small law firms with fewer than 20 lawyers. Currently, we provide statutes, regulations and rules of court for all state and federal jurisdictions. We also provide comprehensive court decisions for the U.S. Supreme Court and all federal circuit courts of appeal. In addition, with the completion of databases for 11 new states in the last six months, we currently provide comprehensive legal information for 31 of the 50 states, representing over 80% of the total number of active practicing lawyers in the U.S. Small firms typically require legal information for the states in which they practice, while large firms typically require legal information for all 50 states. We intend to complete our state law databases for all 50 states by December 31, 1999. Upon completion of these databases, we plan to aggressively market to additional small law firms, large law firms and legal departments of corporations. Our objective is to become the leading Internet destination for lawyers, law students, business people and consumers who need legal and related information. We developed our core products to serve the research needs of lawyers. As we expand our product offerings, we plan to address additional needs of lawyers and offer legal information in a format designed to meet the needs of consumers. Industry Overview The market for web-based and other on-line legal, tax and public record information is large and growing. According to an industry source, the market for web-based and other on-line legal, tax and public record information was $1.7 billion in 1998 and is projected to grow to $2.7 billion in 2002, representing a compound annual growth rate of 12.3%. We believe that the following are the key drivers of growth in the market for web-based and other on-line legal information: . An increase in the number of lawyers; .An increase in litigation; and .The growth of the Internet. Users of legal information include lawyers, law students, business people and consumers. Lawyers are the largest users of legal information. According to an industry analyst, there were approximately 980,000 lawyers in the United States as of December 31, 1998 and this number is projected to grow to 1,065,000 in 2002. 29 In recent years the number of lawsuits has increased. According to a report by the National Center for State Courts, from 1984 to 1997 the number of civil lawsuits grew by 28% and criminal caseloads increased by 55% in the state court systems. The explosive growth of the Internet is rapidly transforming the market for legal information. The Internet is an increasingly significant medium for distributing, collecting and manipulating information. This growth is being driven by, among other things, the increased use of personal computers and modems, lower cost access to the Internet, increased awareness of the Internet and more compelling interactive content available on the Internet. These factors are also fueling the growth of Internet use in law firms. According to a February 1998 survey by the American Bar Association, nearly 99% of large law firms surveyed had Internet access. Increasingly, Internet use has penetrated small law firms with fewer than 20 lawyers, which we believe represent approximately 55% of all lawyers in the U.S. According to the February 1998 American Bar Association survey, nearly 80% of small law firms surveyed had Internet access and 37% of small firms without Internet access planned to obtain it in 1998. Although Internet access at small law firms has increased, many lawyers at small law firms continue to rely on books and reference guides for their legal research needs. Books and reference guides are inefficient, cumbersome and sometimes not updated in a timely manner to reflect changes in the law. Moreover, the capital investment required to acquire a printed law library is substantial, and prohibitive for many small law firms. As a result, lawyers in small law firms often must travel to local law libraries to conduct legal research. Electronic legal information has emerged as an alternative to printed legal information because it can be more rapidly updated, more easily stored and more quickly searched than printed legal information. The dominant providers of electronic legal information have been LEXIS-NEXIS and West Group. Until recently, they have provided their information through closed networks accessed through a dial-up modem. These traditional electronic legal information providers built their network infrastructures based upon mainframe computer systems. Recently, these traditional providers have offered an Internet gateway to their closed systems. However, the source information in their legal databases is generally not organized in HTML, the standard format language used on the Internet. Databases that are not organized in HTML or another Internet-based language are not designed to provide full functionality and ease of use over the Internet. In addition, we believe these traditional electronic legal information providers' infrastructures, computer systems, business models and distribution methods have resulted in pricing that has traditionally made their products too expensive for many small firms. Currently, there are other providers of legal information on the Internet. However, we believe that most of them do not provide comprehensive and current legal information required by lawyers and business professionals. Most legal Internet sites act as portals to free legal information that is on government- sponsored sites. These legal sites are simply aggregators of information, which often is not edited or reviewed to ensure the integrity of the information. Furthermore, the information may not be in a format that allows researchers to complete tasks in a timely manner. While some of this information may be an improvement over law books, it generally does not match the functionality of traditional electronic legal databases. Traditional electronic legal information providers, book publishers and Internet portal companies do not adequately meet the information needs of many legal professionals in today's highly litigious and competitive legal environment. We believe there is a significant opportunity to provide comprehensive, easy-to-use, web-based legal information to meet the needs of law firms, corporations and other consumers of legal information. The Loislaw.com Solution Through our web site, loislaw.com, we provide comprehensive, affordable and easy-to-use legal information on the Internet. We believe that we were the first company to provide this comprehensive 30 information on the Internet and that we have the largest collection of databases of federal and state law in HTML. We offer an attractive alternative to law firms, legal departments of corporations, government bodies and law schools that previously could only choose between law books and expensive electronic legal information. Internet delivery model Our Internet delivery model allows us to provide easily accessible legal information in a user-friendly format. To access our legal information, a subscriber needs only an Internet connection. Our databases are based on standard Internet technology and our customers need no additional installation or systems support and have full access to the databases at all times and from anywhere via the Internet. Price leadership Access to our loislaw.com web site is available at a fixed annual subscription price that is significantly less than the fees charged by traditional electronic legal information providers for full access to their networks. Our fixed price model encourages lawyers to use our web site as needed without concern for additional charges. Advanced Functionality Our loislaw.com web site provides advanced functionality. For example, we provide: . simultaneous searching of multiple databases and fields using sophisticated search technology that employs both traditional and plain language searches; . the ability to save multiple searches for an indefinite period of time; . summaries of documents produced by a search that gives a user the ability to determine the relevance of the search results prior to reviewing the full text; . automatic notification by email of new information matching the user's specified search criteria; . HTML formatting, which permits hyperlinking, cutting-and-pasting and printing; . pop-up abilities, which permit simultaneous review of original and hyperlinked documents; and . complete multi-media tutorials. Breadth of Information We have more than 950 databases that we estimate to contain over 50 million pages of federal and state law, continuing legal education materials and other legal information. We provide statutes, regulations and rules of court for all state and federal jurisdictions. We currently provide comprehensive court decisions for the U.S. Supreme Court, all federal circuit courts of appeal and 31 states as well as a limited number of court decisions for the remaining 19 states. Over 80% of lawyers in the U.S. practice in states in which we have comprehensive legal databases. We expect to provide comprehensive court decisions for all 50 states by December 31, 1999 and for bankruptcy courts, tax courts and selected federal district courts by the second quarter of 2000. Through Loislaw.com news feeds, we also provide access to up to 150,000 news articles per month extracted from more than 400 domestic and international sources of legal, business, financial, health, technology and political news. Timeliness Our infrastructure and relationships with data providers enable us to meet or exceed the industry standards in timeliness. We have relationships with over 500 governmental entities and independent publishers from 31 whom we receive court decisions, statutes, regulations and administrative decisions. We have over 200 employees in our production department who process this legal information and make it available on our web site. We are usually able to make newly-released legal information available on our web site within 24 hours after we receive it in electronic format and within 72 hours after we receive it in print. Accuracy We maintain databases consisting of court decisions, statutes, regulations and administrative decisions that we have tested to a 99.995% rate of accuracy. We believe this rate is comparable to the accuracy rates of our principal competitors and is substantially better than the typical accuracy rates of many legal web sites accessed through Internet portal companies. To achieve our accuracy standards, we follow a strict quality control process involving 56 testing procedures. Strategy Our goal is to gain a significant share of the market for web-based and other on-line legal information and to become the leading Internet destination for legal and related information. The key elements of our strategy include: . Expand Current Loislaw.com Customer Base. We believe that substantially all of our existing customer base is small law firms. We believe this segment of the market is underserved by traditional electronic legal information providers and, as a result, we intend to continue to market aggressively to small law firms to expand our small firm customer base. We believe there are substantial opportunities to expand our presence in this underserved segment through completion of databases in new states, increased sales to our current customer base, aggressive marketing to potential new customers and continued conversion of our CD-ROM customers to web-based customers. . Aggressively Market Products to Large Law Firms and Legal Departments of Corporations. After we complete our state law databases for all 50 states, we intend to aggressively market our products to large law firms and legal departments in corporations. We have not focused our marketing efforts on these potential customers to date because they generally require access to comprehensive court decisions from all 50 states. We expect to complete databases of comprehensive court decisions for all 50 states by December 31, 1999. We believe our ability to provide low-cost, comprehensive and easy-to-use legal information will present an attractive alternative or complement to information currently purchased from traditional providers of legal information. . Expand Content and Features. We intend to continue to build the depth and breadth of our databases through internal development and by licensing and acquiring information from third parties. For example, in addition to completing the state law databases for the remaining 19 states by December 31, 1999, we intend to add tax court and bankruptcy court and selected federal district court decisions by the second quarter of 2000. In addition to expanding content, we intend to expand features available through our web site and are currently developing personalized database management capabilities and tools for personalized customer homepages. . Build Brand Awareness. We believe it is critical to continue to build brand awareness in order to market our products to large law firms and legal departments of corporations as well as to our existing small law firm customer base. We intend to continue to promote brand awareness through expansion of our direct sales force, reliable product offerings, excellent customer service and effective marketing and promotion. Further, in an effort to increase law student awareness of Loislaw.com, we instituted a program of introducing our products to law librarians at law schools across the U.S. Currently, we provide law librarians at law schools free training as well as access to our Internet product for a nominal charge. We have entered into similar relationships with many state bar associations and continuing legal education associations offering lawyers who are members of these 32 associations the opportunity to learn about and try our products at reduced rates. We intend to pursue relationships with additional state bar associations and continuing legal education organizations. . Form Strategic Alliances and Make Acquisitions. We intend to continue to forge alliances with state and national bar associations, continuing legal education associations and court systems. Moreover, we may seek additional information sources, distribution channels or technology through selective acquisitions or strategic alliances. . Enter the Consumer Market. We are currently developing a new web site linked to Loislaw.com that will offer legal information and related services to nonlawyers. We intend to leverage the content on our current web site, together with our experience in the legal market, to enter this new market. We expect that this new web site will include news feeds, selected legal information from our current web site and legal forms. In addition, the web site may include attorney referrals, an ask- an-attorney service and other services. Products Loislaw.com Web Site Our web site offers Internet access to federal and state law, continuing legal education materials, current news feeds and other legal information. We have more than 950 databases that we estimate to contain over 50 million pages of information. . Federal Law. The following table sets forth the content of our federal law databases. In addition, by the second quarter of 2000 we intend to offer bankruptcy court, tax court and selected federal district court decisions. Description of Federal Law Databases -------------------------------------------------------- U.S. Reports (official court decisions of the U.S. Supreme Court) 1899-present U.S. Constitution U.S. Code (federal statutory law) U.S. Code of Federal Regulations and Federal Register U.S. Federal Reports (official court decisions of all 13 U.S. Circuit Courts of Appeal) 1971-present Rules of the U.S. Supreme Court 33 . State Law. We currently offer 31 comprehensive state law databases and intend to complete the databases for the remaining 19 states by December 31, 1999. Over 80% of the lawyers in the U.S. practice in states in which we have comprehensive legal databases. A comprehensive state database provides all statutes, regulations, acts and court rules as well as at least 45 years of court decisions. The map and table below depict the states for which we provide comprehensive databases and the years in which they were completed. [U.S. MAP APPEARS HERE] Comprehensive State Legal Information Coverage - --------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999 (1) -------------- --------- -------------- ------------- -------- ------------ Colorado Missouri South Carolina Kansas Indiana Maryland Arkansas Wisconsin Massachusetts Rhode Island Florida Illinois North Carolina Georgia Oklahoma New Hampshire Arizona Michigan Louisiana New York Washington Connecticut Texas California Nebraska Pennsylvania New Jersey Alabama Virginia Tennessee Ohio
(1) Represents coverage through June 15, 1999. . Continuing Legal Education. Under cooperative marketing alliances with state bar associations and continuing legal education associations, we provide continuing legal education and bar materials to lawyers in over 10 states. We provide more than 280 databases related to the continuing legal education programs administered by these groups. 34 . Loislaw.com News Feeds. Our web site provides news feeds of up to 150,000 news articles per month from more than 400 domestic and international sources of legal, business, financial, health, technology and political news. The news feeds can be filtered to reflect the user's personal search criteria or interests. Ninety days of news is stored in our servers and can be searched by the user. A subscription to the products we offer on our web site includes the following features and benefits: . LOIS LawWatch. Our web site provides personalized, intelligent search agents that automatically and continuously search our federal and state law databases and news feeds. LOIS LawWatch delivers results of these searches to users by email or by saving search results on users' personalized homepages on our web site. LOIS LawWatch is in an easy-to- use format with on-screen tutorials to guide users in establishing ongoing, personalized search instructions. . Advanced Functionality. We offer intuitive search tools designed to make our information easily accessible and valuable to our users. Users may search for information in any combination of multiple jurisdictions simultaneously and may do so simply by entering a string of words. Moreover, all of our data is hyperlinked to enable the user to retrieve a second document and view it simultaneously with the initial document. Loislaw.com also offers a time clock to assist lawyers in timekeeping as well as a citation checking service that allows a user, among other things, to confirm that a court decision has not been overruled. . Exceptional Service. Our web site is user friendly, offering tips and navigational instructions on each page. In addition, we provide our subscribers with 24-hour customer telephone and email support and provide company field sales representatives who will assist with training. We sell our web-based products through annual subscriptions. Unlimited Internet access to substantially all federal and state law databases lists for $1,176 per seat per year. Unlimited Internet access to substantially all state law for one state lists for $720 per seat per year. Continuing legal education and bar materials are available for purchase at an additional charge. CD-ROM Products Prior to our introduction of the loislaw.com web site in 1996, we distributed federal and state law databases exclusively on CD-ROM. We expect to continue to produce and sell CD-ROMs as long as customer demand exists. In addition, we will continue to provide our CD-ROM customers with an updating service called N-Line that allows users to receive weekly electronic updates via modem. N-Line integrates these updates with existing information to permit users to use a single search to find old and new law. We expect our CD-ROM customers to continue to transition to our web-based products. The list prices for annual subscriptions for our CD-ROM products range from $300 to $700 per state or federal jurisdiction. Production of Databases Our customers require access to highly accurate, searchable and up-to-date legal databases. Accordingly, the process of producing our databases is critical to our success. We generally receive all statutes, court decisions, regulations and rules directly from official sources within each jurisdiction. We convert this information into standard mark-up language, or SGML, and hypertext mark-up language, or HTML, to make it easy for users to search the databases. By using HTML and SGML programming languages we require fewer lines of code than mainframe computer language and thereby reduce our costs. When we initially establish a database of legal information, we typically must convert large amounts of historical information from printed text to electronic form. Currently, we have agreements with three foreign companies to convert this data. We pay these companies based on the number of characters converted, the accuracy of the converted data and the timeliness of the conversion. After the information is converted to electronic format, it is forwarded to us for further processing. 35 We continually update our databases by adding new court decisions, statutes, regulations and other legal information. We receive this new information in both electronic and printed format. For information delivered to us in printed format, we scan the printed text on imaging equipment, convert it to an electronic format and run macros to correct errors. With respect to both electronic data converted overseas and electronic data received or converted by us, we perform extensive quality control and editing functions including: . spell checks; . translation of information into SGML and HTML; . input of page numbers, carriage returns and line feeds, reference lines and other information; and . assembly of the information into logical blocks. After the editing process, our paralegals code the information using up to 30 different codes, such as parties' names, dates and judges' names, to provide fields for accurately searching the information in each database. To complete this process, we perform both automated and manual quality control tests to assure that we have completed the imaging/scanning, editing and coding processes successfully. We compile and index the information and then submit it to a final, more stringent, quality control test. If the information does not satisfy our accuracy standards, we send the information back to editing or coding to restart the entire process. If the information passes the second quality control test, we place it on our Internet server. This quality control process includes 56 testing procedures and results in data that we have tested to an accuracy rate of 99.995%. The following graphic depicts these database production processes: [Graph containing six horizontal rows of boxes with arrows pointing downward from each box (other than the box on the bottom row) to a box or boxes below it. The top row contains one box with text: "Receive Print from Data Providers." The arrow from this box points downward to a box in the second row (which is the third box from the left, of three total), which contains text: "Convert Print to Electronic Data." The other two boxes on the second row (from left to right) contain text: "Receive Electronic Data From Third Party Converters" and "Receive Electronic Data From Data Providers." There is an arrow pointing downward from each box on this row to the single box on the third row, which contains text: "Editing." There is an arrow pointing downward from this box to the single box in the fourth row, which contains text: "Coding." There is an arrow pointing downward from this box to the single box in the fifth row, which contains text: "Quality Assurance." There are two arrows pointing downward from this box to the two boxes in the sixth row, which contain text (from left to right): "CD-ROM Products" and "Web-based Products."] 36 We have committed significant resources to establish our production capabilities and processes. At March 31, 1999, our production staff included 128 converters and editors, 37 coders and 39 quality control specialists. As a result, we usually are able to make updated legal information available to our Internet users within 24 hours of receipt in electronic format and within 72 hours of receipt in paper format. We have been producing data since 1989. From January 1, 1996 through March 31, 1999, we spent over $20 million on database production, including costs of converting, editing, coding and quality control. Product Development In addition to enhancing content, we conduct product development efforts focused on continuously improving the search capabilities, tools and applications available at our loislaw.com web site. At March 31, 1999, we had five employees devoted to this aspect of product development. We will continue to add new features to our products, such as searchable tables of contents and personal email, that will make our sites easier and more enjoyable to use. We intend to offer subscribers to our loislaw.com web site the ability to convert word processing, billing and other electronic files into personal databases stored at our web site. These databases may include all types of documents, such as briefs, motions, interrogatories, memoranda, contracts, correspondence and other forms, and will be searchable in the same manner as the law databases. Access to the databases will be password-protected and can be shared among, for example, a law firm and specific clients or co-counsel. We are currently developing a consumer web site. This web site will be free of charge and will offer, among other products, limited access to some of our existing databases. Sales and Marketing We sell our products through a sales force that as of March 31, 1999 included 79 company field sales representatives based in 25 states and 42 inside sales representatives. Our sales force is compensated with a base salary plus a commission. In addition, we have a marketing department that at March 31, 1999 consisted of seven people responsible for direct mail, advertising and cooperative marketing programs. We also market our products by seeking endorsements from organizations that are likely to influence lawyers' purchasing decisions. We offer our products for a nominal per-student charge to law schools and to state bar associations and courts. Eleven state bar associations have agreed to promote our products. We provide free CD-ROM products to the supreme courts of 12 states. We also develop relationships with individual leaders of the legal community in cities throughout the country, as we believe recommendations of respected peers and mentors significantly influence many lawyers' purchasing decisions. After we complete our state law databases for all 50 states we intend to hire additional sales professionals and to aggressively market our products to large law firms and legal departments of corporations. Customers At March 31, 1999, we had a total of 7,251 customers of which 2,393 purchased our web-based products and 4,858 purchased our CD-ROM products. At December 31, 1998, we had a total of 6,976 customers of which 1,841 purchased our web-based product and 5,135 purchased our CD-ROM products. A customer represents a single account, which in many cases includes subscriptions for multiple seats or concurrent users. Substantially all of our customers are law firms having fewer than 20 lawyers. Customer Support We provide telephone and email support for our clients 24 hours a day, 365 days a year. Our customer service employees assist customers with preparing searches and our technical support employees assist 37 customers with technical issues. At March 31, 1999, we had eight customer service employees and 13 technical support employees. In addition, our field sales representatives provide on-site support. Web Site Architecture and Operations We currently host our loislaw.com web site at our office in Van Buren, Arkansas. We have designed our web site architecture to be flexible, scalable and reliable. Our web site operates using Verity searching software, Microsoft NT Operating System software and Novell Networking software that runs on Hewlett-Packard servers. Our databases and searching software are platform independent and could be moved to another operating system, if necessary. Our web site architecture is designed to be able to expand easily by adding additional servers. We currently have two information servers that we use to maintain identical versions of our legal information. Each information server is connected to three search servers that use the Verity database searching software to process search queries. Our server system is redundant and employs load balancing router technology ahead of the servers to enhance the distribution of incoming user requests. We believe our servers have sufficient capacity to support our planned growth over the next 12 months; nevertheless, we have ordered two additional information servers to create additional system capacity. We currently have backup systems in place to protect our data and we intend to create additional backup systems. Our legal databases are backed up on temporary tapes each night and backed up on permanent tapes once a week. The weekly backup tapes are kept in a safety deposit box at a local commercial bank. We currently have enough battery power to operate our web site for one hour if there is a power outage at our facility. In addition, we are in the process of installing a power generator that should be operational in the next several months. We are also currently analyzing alternatives for a shadow site fully equivalent or live web site. This shadow web site would be fully operational and could completely replace the operations of our existing web site, if necessary. We selected industry-standard hardware and software components to provide the maximum amount of flexibility going forward. Internet connectivity is provided by AT&T and is currently scheduled to increase from one to four T1 connections within the next few months. AT&T monitors our service and provides a watchdog function to lock out unauthorized access 24 hours a day, 365 days a year. Monitoring of the web site is a continuous process. Monitoring software watches for key service problems of the various servers and reports to our Information Systems staff by email and pager if any of the servers stop responding. Additional software is in place to analyze server activity to profile the performance and usage of the web site. Trademarks and Copyrights We have obtained federal trademark registrations for LOIS PROFESSIONAL LIBRARY(R), N-line(R), PITA(R) and THE TECHNOLOGY COMPANY WITH A LAW DEGREE(R), and have pending trademark applications for LOIS SM and the LOIS logo SM. We use the service mark LOIS LAWWATCH SM and claim common law service mark rights in this mark. We have also obtained copyright registrations for the following proprietary software programs: PITA(R), CaseBase: The Arkansas Reports, and Law Office Information Systems: Master Menu Systems. Other trademarks and trade names in this prospectus are the property of other owners. Competition The market for electronic legal information is intensely competitive. Historically, this market has been dominated by West Publishing Company, which is owned by Thomson Corporation, and LEXIS-NEXIS, which is owned by Reed- Elsevier. Our competitors have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources than we do. See "Risk 38 Factors--The competition in our industry is intense, our principal competitors have significantly greater resources than we do and this competition may adversely affect our financial results." The principal competitive factors in our industry are: . price; . quality and accuracy of data; . comprehensiveness of data; . ease of use; . support and training required; and . performance characteristics of the database. As a new entrant in a market dominated by these major corporations, we are in the position of having to ease customer concerns over accuracy and reliability. Furthermore, our products are not as comprehensive as those of LEXIS-NEXIS or the West Group because we do not provide as many forms of legal commentary and analysis and other specialized legal information as they provide and we do not yet provide comprehensive court decisions for all 50 states or federal district court decisions. We also compete with a few smaller Internet portal companies that offer free access to government sponsored sites that provide some of the same information that we provide. A few offer fee-based access to selected legal databases. We do not believe that any of these companies are comparable to Loislaw.com with respect to breadth and depth of coverage, reliability and quality of data or sophistication of functionality. Employees We had 399 full-time employees at March 31, 1999, including five in product development, 79 in field sales, 42 in inside sales, seven in marketing, 165 in converting and production, 39 in quality assurance, 25 in technical support and MIS, eight in customer service, 15 in finance and 15 in administration. Our employees are not represented by any collective bargaining organization. We have never experienced a work stoppage and we believe that our relationships with our employees are good. Facilities Our corporate headquarters are located in a 36,200 square foot leased facility in Van Buren, Arkansas, under a lease expiring in May 2004, with an option to renew for two, five-year periods. The lessor of our headquarters is The Parker Law Firm, an entity owned by Kyle D. Parker and Douglas W. Parker, Sr. We believe that these facilities and additional or alternative space available to us will be adequate to meet our needs for the foreseeable future. Litigation Loislaw.com is not a party to any material litigation. 39 MANAGEMENT Executive Officers and Directors The following table sets forth information with respect to the executive officers and directors of Loislaw.com as of June , 1999.
Name Age Position - ---- --- -------- Kyle D. Parker(1)....... 42 Chief Executive Officer and Chairman of the Board Mark O. Beyland(2)...... 49 President, Chief Financial Officer and Director W. Clark Wigley......... 46 Vice President of Business Development Reves W. Dillon, Jr. ... 45 Vice President of Operations Jay Scott Thompson...... 41 Chief Technology Officer Pamela G. Rogers........ 39 Controller Douglas W. Parker, Sr. ................... 74 Secretary Robert C. Ammerman(1)... 45 Director D. Randy Laney(2)....... 45 Director Hannah C. Stone(1)(2)... 34 Director
- -------- (1) Member of compensation committee. (2) Member of audit committee. Kyle D. Parker founded Loislaw.com in 1987 and has served as Chief Executive Officer and Chairman of the Board since that time. Mr. Parker served as President of Loislaw.com from 1987 to May 1999. Since 1985 Mr. Parker has been a partner at the Parker Law Firm in Fort Smith, Arkansas. Mr. Parker served on the Legal Automation Committee of the Arkansas Bar Association and the American Association of Law Librarian's Task Force on Citation Formats. Mr. Parker holds a J.D., with highest honors, from Franklin Pierce Law Center and a B.A., cum laude, from Arkansas Tech University. Mr. Parker is the son of Douglas W. Parker, Sr. Mark O. Beyland joined Loislaw.com as President, Chief Financial Officer and a Director in May 1999. Prior to joining Loislaw.com, Mr. Beyland served as President and Chief Executive Officer of Reed Technology and Information Services, Inc. a subsidiary of Reed-Elsevier from September 1993 to March 1998. Mr. Beyland holds a B.S. in Business and Science from Ohio State University and an M.B.A. from the University of Dayton. W. Clark Wigley joined Loislaw.com as Chief Operating Officer in February 1995 and became Vice President of Business Development in April 1998. Prior to joining Loislaw.com, Mr. Wigley served as Vice President at Barclays Law Publishers in California from 1993 to February 1995, a legal publishing company. From 1990 to 1993, Mr. Wigley was a Vice President and a general manager at Thomson Electronic Publishing, a division of Thomson Legal Publishing, a legal publishing company. Mr. Wigley holds a B.S. and an M.S. in Engineering from Lehigh University and an M.B.A. from U.C.L.A. Reves W. Dillon, Jr. joined Loislaw.com in September 1989 as a scanning and editing operator. Mr. Dillon served as Director of Production from May 1994 to November 1997 and served as Chief Operations Officer from November 1997 to May 1999. Mr. Dillon became Vice President of Operations in May, 1999. Mr. Dillon has over 25 years of experience serving in production management capacities in various industries. Jay Scott Thompson joined Loislaw.com in April 1992 as assistant MIS Director. Mr. Thompson served as Director of Information Systems from February 1995 to November 1997. Mr. Thompson became Chief Technology Officer in December 1998. Mr. Thompson has over 15 years of experience in the electronics industry. Pamela G. Rogers joined Loislaw.com as Controller in October 1997. Prior to joining Loislaw.com, Ms. Rogers served as Controller for Stapleton Corporation, a manufacturing company, from March 1997 to October 40 1997. Ms. Rogers also served as Controller for Exsorbet Administration, Inc., an environmental remediation company, from January 1996 to February 1997 and Controller for Consolidated Environmental Services, Inc., an environmental consulting company from January 1995 to January 1996. Ms. Rogers holds a B.A. in Accounting from the University of Central Arkansas and is a certified public accountant. Douglas W. Parker, Sr. has served as Secretary of Loislaw.com since October 1987. Prior to June 1999, he served as Director and Treasurer of Loislaw.com from October 1987 to June 1999. Mr. Parker practiced law at the Parker Law Firm for over 36 years. Mr. Parker is the father of Kyle D. Parker. Mr. Parker holds a B.S. from the University of Arkansas and an L.L.B. from LaSalle University. Robert C. Ammerman has served as a Director of Loislaw.com since November 1997. Since 1987 Mr. Ammerman has served as Treasurer of Capital Resource Management, Inc., a private capital investment firm, and as general partner of several private capital funds affiliated with Capital Resource Management. Mr. Ammerman holds a B.A. and an M.S. from Carnegie Mellon University. D. Randy Laney has served as a Director of Loislaw.com since June 1999. Since October 1998 Mr. Laney has served as Chief Executive Officer, President and Chairman of BAV Software, Inc., a web-enabling supply chain software development company. From August 1995 to October 1998, Mr. Laney served as a partner of Bentonville Associates Ventures, LLC, a financial and business consulting company. In addition, Mr. Laney was employed by Wal-Mart from 1980 to 1993 and served as Vice President of Finance and Treasurer for a portion of that time. He holds a B.S. and a J.D. from the University of Arkansas. Hannah C. Stone has served as a Director of Loislaw.com since June 1999. In 1993 Ms. Stone joined Sandler Capital Management, a private capital investment firm, and she is a general partner of various partnerships associated with Sandler Capital Management. She holds a B.A. from Stanford University and an M.B.A. from Harvard Business School. She is also a director of Millbrook Press. Election of Officers and Directors The executive officers of Loislaw.com are elected by the Board of Directors on an annual basis and serve until their successors are duly elected and qualified. Under an Amended and Restated Stockholders' Agreement dated as of May 25, 1999, as long as each of (a) Capital Resource Lenders III, L.P. and (b) Sandler Capital Partners IV, L.P. and Sandler Capital Partners IV, FTE, L.P. collectively hold at least 10% of the outstanding shares of common stock of Loislaw.com, the existing stockholders of Loislaw.com have agreed to vote their shares to elect one representative of Capital Resource Lenders III, L.P. and one representative of the Sandler parties to the Board of Directors of Loislaw.com. Mr. Ammerman will continue as a director and Ms. Stone was selected as a director of Loislaw.com pursuant to this agreement. For more information, see "Certain Transactions." Board Composition The Board of Directors of Loislaw.com is divided into three classes. The Board currently consists of one Class I Director (Ms. Stone), two Class II Directors (Mr. Laney and Mr. Ammerman) and two Class III Directors (Messrs. Parker and Beyland). At each annual meeting of stockholders, a class of directors will be elected for a three-year term to succeed the directors of the same class whose terms are then expiring. The terms of the Class I Director, Class II Directors and Class III Directors will expire upon the election and qualification of successor directors at the annual meeting of stockholders to be held during calendar years 2000, 2001 and 2002, respectively. 41 Committees of the Board of Directors The Board of Directors has appointed a compensation committee consisting of Messrs. Ammerman and Parker and Ms. Stone. The compensation committee reviews and evaluates the compensation and benefits of all officers of Loislaw.com, reviews general policy matters relating to compensation and benefits of Loislaw.com employees and makes recommendation concerning these matters to the Board of Directors. The compensation committee also administers Loislaw.com's 1996 Stock Option Plan and its Employee Stock Purchase Plan. For more information, see "--Equity Plans." The Board of Directors has also appointed an audit committee consisting of Messrs. Laney and Beyland and Ms. Stone. The audit committee reviews, with Loislaw.com's independent auditors, the scope and timing of the auditors' services, the auditors' report on Loislaw.com's financial statements following completion of their audit, and Loislaw.com's policies and procedures with respect to internal accounting and financial controls. In addition, the audit committee will make annual recommendations to the Board of Directors for the appointment of independent auditors for the ensuing year. Compensation of Directors Loislaw.com pays each non-employee director an annual fee of $10,000 and reimburses each director for reasonable expenses incurred in attending board meetings. In addition, directors who are not officers or employees of Loislaw.com are eligible to receive options under our stock option plan for nonemployee directors. Nonemployee Directors Stock Option Plan. We intend to adopt a nonqualified stock option plan for nonemployee directors before the completion of this offering. The nonemployee directors plan will provide for the issuance of a maximum of 320,000 shares of common stock. See "Equity Plans." Compensation Committee Interlocks and Insider Participation The compensation committee is comprised of Messrs. Ammerman and Parker and Ms. Stone. Mr. Parker is an executive officer of Loislaw.com. No member of the compensation committee serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of Loislaw.com's Board of Directors or compensation committee. Executive Compensation Summary Compensation The following table sets forth the compensation paid by Loislaw.com for the fiscal year ended December 31, 1998 to our Chief Executive Officer and the one other executive officer of Loislaw.com whose compensation exceeded the threshold for inclusion in the table: Summary Compensation Table for Last Fiscal Year
Annual Compensation ---------------------- Name and Principal Position Salary Bonus Other - --------------------------- ------------ --------------- Kyle D. Parker, Chief Executive Officer........ $ 150,000 $ 0 $ 0 W. Clark Wigley, Vice President of Business Development................................... $ 144,000 $ 0 $6,000(1)
- -------- (1) Consists of a monthly car allowance of $500. 42 Employment Agreements We have entered or will enter into the following employment agreements with our Named Executive Officers:
Officer Term Base Salary Position ------- --------------------- ----------- -------------------------------------- Kyle D. Parker.......... June 1999-June 2002 $225,000 Chairman and Chief Executive Officer Mark O. Beyland......... June 1999-June 2002 $175,000 President and Chief Financial Officer W. Clark Wigley......... July 1996-August 1999 $144,000 Vice President of Business Development
The respective agreements of Messrs. Parker and Beyland entitle each of them to participate in any bonus or employee benefit plans or arrangements from time to time in effect. If we terminate the employment of Mr. Parker or Mr. Beyland without "cause," as defined in the respective agreements, Mr. Parker or Mr. Beyland, as the case may be, will be entitled to receive payments equal to one year's annual salary. If such termination of employment is in connection with a change of control (as defined in the agreement) of Loislaw.com, Mr. Parker and Mr. Beyland each will be entitled to receive a lump-sum payment equal to two times his annual salary plus bonuses and continuing coverage under our medical plan for one year. Under the respective agreements, Messrs. Parker and Beyland each agree not to engage, directly or indirectly, in certain activities in competition with Loislaw.com either as an employee, employer, consultant, agent, principal, partner, stockholder, corporate officer, director, or in any other individual or representative capacity. Mr. Wigley's agreement terminates on the earlier of August 1, 1999 or two years after our initial public offering and it provides for an annual base salary of $144,000. If we terminate the employment of Mr. Wigley without cause, Mr. Wigley will be entitled to receive a lump-sum payment of one-half of his annual salary plus health benefits for six months. Equity Plans 1996 Stock Option Plan. The Board of Directors and our stockholders adopted the Loislaw.com 1996 Stock Option Plan on June 17, 1996. We have reserved 500,000 shares of common stock for issuance under the 1996 Plan to employees and consultants. The 1996 Plan provides for the grant of options that are intended to qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and options not intended to qualify as incentive stock options. Incentive stock options may be granted only to employees of Loislaw.com. The maximum number of shares with respect to which awards may be granted to any employee under the 1996 Plan may not exceed 100,000 shares of common stock during any calendar year. The Board of Directors, or a committee to which the Board has delegated authority, administers the 1996 Plan. Options granted under the 1996 Plan are not transferrable or assignable other than by will or the laws of descent and distribution and may be exercised during the grantee's lifetime only by the grantee. Subject to the provisions of the 1996 Plan, the Board of Directors or the committee appointed by the Board, as the case may be, has the authority to select the individuals to whom options may be granted and determine the terms of each award, including the number of shares of common stock subject to any option, the exercise date and the vesting requirements. Payment of the exercise price may be made in cash or by shares of common stock valued at the fair market value on the date of exercise or by a combination of such methods of payment. If we merge with or into another corporation or sell all or substantially all our assets, each outstanding option under the 1996 Plan will automatically vest and become fully exercisable if the successor corporation does not assume or provide for the substitution of each outstanding option. To date, we have granted stock options to purchase an aggregate of 291,561 shares of common stock pursuant to the 1996 Plan. We have not granted any options under the 1996 Plan to either of the officers named in the Summary Compensation Table. 43 On May 25, 1999, in connection with our hiring of Mark O. Beyland to serve as our President and Chief Financial Officer, we granted him incentive stock options pursuant to the 1996 Plan covering a total of 220,727 shares of our common stock at an exercise price of $5.81. One-half of these options vested on the date of grant and the remaining options vest at the rate of 1/48th per month until fully vested. In addition we intend to grant to of our employees pursuant to the 1996 plan incentive stock options to purchase a total of shares at an exercise price equal to the initial public offering price. Twenty- five percent of each of these options will vest one year from the date of the grant and the balance of the options will vest at a rate of 1/48th per month beginning after that first year. Employee Stock Purchase Plan. We intend to adopt an employee stock purchase plan before the completion of this offering . The stock purchase plan will provide for the purchase by employees of a maximum of 300,000 shares of common stock after the completion of this offering. Shares purchased under the plan may be newly issued shares of common stock or treasury shares, including shares purchased by us on the open market for sale under the plan. A committee of three or more employees appointed by the Board of Directors will administer the stock purchase plan. All full-time employees of Loislaw.com who have been employed by us for more than six months on or before the first day of any payment period and whose customary employment is more than 20 hours per week will be eligible to participate in the stock purchase plan. Employees who would own 5% or more of the total combined voting power or value of Loislaw.com's stock immediately after the grant will not be eligible to participate in the stock purchase plan. To participate in the stock purchase plan, an employee must authorize Loislaw.com to deduct an amount (not less than one percent nor more than ten percent of an employee's total cash compensation) from his or her pay during six-month payment periods. The first payment period will commence on the first day of the month following the registration of Loislaw.com's common stock under the Exchange Act and will end on December 31, 1999. Thereafter, the payment periods will commence on each January 1 and July 1 and end on the following June 30 and December 31, respectively, of each year, but in no case will an employee be entitled to purchase in any one payment period a number of shares that has a fair market value (determined at the beginning of the period) of more than $12,500. The purchase price for the stock that employees are entitled to purchase in any payment period is equal to the lesser of 85% of the fair market value of the common stock and the beginning of the payment period and 85% of the fair market value of the common stock at the end of the payment period. If an employee is not a participant on the last day of the payment period, the employee will not be entitled to purchase any shares for that period, and the amount of his or her accumulated payroll deductions will be refunded. An employee's rights under the stock purchase plan will terminate upon his or her voluntary withdrawal from the plan at any time or upon termination of his or her employment.. 1999 Nonqualified Stock Option Plan for Nonemployee Directors. We intend to adopt a nonqualified stock option plan for nonemployee directors before the completion of this offering. The nonemployee directors plan will provide for the issuance of a maximum of 320,000 shares of common stock. Each nonemployee director will be granted an option to purchase 40,000 shares of common stock at an exercise price that will be equal to the initial public offering price of the common stock in this offering. Subject to the director's continued membership on the Board, each option will vest in annual increments of 25% beginning one year from the date of grant. Directors, including new members to the Board of Directors after the completion of this offering, may be granted options at the discretion of the committee of the Board administering the plan. All options granted to nonemployee directors will be nonstatutory options with an exercise price equal to 100% of the fair market value of common stock on the date of grant. The nonemployee directors plan will be administered by a committee of disinterested directors. 401(k) Plan We have established a tax-qualified employee savings and retirement plan. Employees must complete 12 months of service at Loislaw.com before they are eligible to participate. Employees may contribute a 44 percentage of their pre-tax compensation and Loislaw.com may, in its discretion from year-to-year, make matching and profit sharing contributions to the employees. Amounts contributed by Loislaw.com vest over six years. Limitation of Liability and Indemnification of Officers and Directors Our certificate of incorporation and by-laws provide that the directors and officers of Loislaw.com shall be indemnified by Loislaw.com to the fullest extent authorized by Delaware law, as it now exists or may in the future be amended, against all expenses and liabilities reasonably incurred in connection with their service for or on behalf of Loislaw.com. In addition, the restated certificate of incorporation provides that the directors of Loislaw.com will not be personally liable for monetary damages to Loislaw.com for breaches of their fiduciary duty as directors, unless they violated their duty of loyalty to Loislaw.com or its stockholders, acted in bad faith, knowingly or intentionally violated the law, authorized illegal dividends or redemptions or derived an improper personal benefit from their action as directors. Further, we have entered into indemnification agreements with each of our officers and directors in which we have agreed to indemnify them in addition to the indemnification provided for in our certificate of incorporation and by-laws. These agreements indemnify our directors and officers for certain expenses (including attorneys' fees and associated legal expenses), judgments, fines and amounts paid in settlement, actually and reasonably incurred by any such person in connection with services as a director or officer of Loislaw.com. In order to receive the indemnification, the director or officer must have acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of Loislaw.com or, with respect to any criminal proceeding, must have had reasonable cause to believe that his or her conduct was lawful. We intend to obtain insurance that insures the directors and officers of Loislaw.com against specified losses and that insures Loislaw.com against specific obligations to indemnify its directors and officers. We believe these provisions and agreements are necessary to attract and retain qualified directors and officers. 45 CERTAIN TRANSACTIONS Sale of Series C Preferred Stock. Pursuant to a stock purchase agreement, on May 25, 1999, we sold an aggregate of $14.5 million of Series C Preferred Stock to Capital Resource Lenders III, L.P., Mark O. Beyland, Sandler Capital Partners IV, L.P., Sandler Capital Partners IV, FTE, L.P., and Exeter Capital Partners IV, L.P. and approximately $500,000 of common stock to Dublind Partners, Inc. In connection with such sale, we entered into an Amended and Registration Rights Agreement and an Amended and Restated Stockholders Agreement, both of which are described below. Capital Resource Lenders III, L.P. is one of our Series A Convertible Preferred stockholders. Mark O. Beyland is our President and Chief Financial Officer. We paid $475,000 to Dublind Investments LLC on May 25, 1999 pursuant to the terms of a financial advisory services contract with Dublind Partners, Inc. and Dublind Securities, Inc., affiliates of Dublind Investments LLC . In addition, Capital Resource Lenders III, L.P. purchased its portion of the Series C Preferred Stock by converting notes issued to it by us with an aggregate outstanding principal balance of $5 million. Registration Rights. Pursuant to an Amended and Restated Registration Rights Agreement dated as of May 25, 1999 among Loislaw.com and certain stockholders of Loislaw.com, Capital Resource Lenders III, L.P., CRP Investment Partners III, LLC, Rowland T. Moriarty, Mark O. Beyland, Sandler Capital Partners IV, L.P., Sandler Capital Partners IV, FTE, L.P., Exeter Capital Partners IV, L.P. and certain transferees of Dublind Partners, Inc. have the right to require us to register under the Securities Act all or any part of the shares of Loislaw.com that they own, and we are required to use our best efforts to cause such registration to occur, subject to certain limitations and conditions, including that we shall not be required to effect such a registration (i) more than one time for the former holders of the Series A Convertible Preferred Stock, (ii) more than one time for the former holders of Series C Convertible Preferred Stock and (iii) if the reasonably anticipated aggregate price to the public will not exceed $5 million. Additionally, if we propose to register common stock under the Securities Act, the above stockholders as well as Charles J. Lindsay, George P. Lindsay, Charles M. Dubroff, Nester J. Olivier and Dublind Partners, Inc., have the right to request the inclusion of their shares of common stock in the registration, subject to certain limitations and conditions, among them the right of the underwriters of such registered offering to exclude or limit the number of their shares included in such offering. Finally, all former holders of Series A Convertible Preferred Stock and Series C Convertible Preferred Stock have the right to request any number of registrations on Form S-3, subject to certain limitations and conditions, including that the reasonably anticipated aggregate price to the public must exceed $500,000. We have agreed to pay the expenses of the registrations described above. These costs include filing fees, printing expenses, fees of legal counsel (including up to $10,000 for one counsel for all the selling stockholders) and other related costs. The selling stockholders will pay any underwriting discounts and commissions associated with the sale of their securities. We have agreed that in the event of any registration of securities pursuant to the Amended and Restated Registration Rights Agreement, we will indemnify the selling stockholders against certain liabilities incurred in connection with such registration, including liabilities under the Securities Act. The selling stockholders will provide a similar indemnity for liabilities incurred as a result of information furnished in writing to us by any selling stockholder for inclusion in the registration statement. Subject to certain limitations and conditions, the registration rights held by these selling stockholders may be transferred with their securities. Amended and Restated Stockholders Agreement. On May 25, 1999, we and our existing stockholders entered into an Amended and Restated Stockholders' Agreement. After the completion of this offering, this agreement will continue to provide that the stockholders will vote their shares to elect to the Board of Directors of Loislaw.com one person designated by each of (a) Capital Resource Lenders III, L.P. and (b) Sandler Capital Partners IV, L.P. and Sandler Capital Partners IV, FTE, L.P., so long as they each hold at least 10% of the outstanding shares of common stock of Loislaw.com. Also, each of Capital Resource Lenders III, L.P. and the Sandler entities retain observer rights to attend meetings of our Board of Directors as long as, among other 46 things, they continue to hold at least 25% of their Series A Preferred Stock and Series C Preferred Stock, respectively. In addition, these stockholders as well as the Parker Family Trust, will have co-sale rights entitling them to include shares of their stock in any sale of a control block of securities of Loislaw.com or the sale of shares of Loislaw.com by any party to the stockholders' agreement to a designated competitor of Loislaw.com. Finally, all stockholders that are parties to this agreement have transfer restrictions on their shares of capital stock of Loislaw.com in the event that they attempt to sell their stock in a control block sale or a private sale to a designated competitor. Series B Preferred Stock. On November 1, 1995, we entered into a promissory note and loan agreement with Melissa A. Parker, sister-in-law of Kyle D. Parker and daughter-in-law of Douglas W. Parker, Sr., pursuant to which Loislaw.com borrowed $2.0 million. We borrowed additional funds from Mrs. Parker such that as of June 30, 1996 the outstanding principal balance borrowed was $4.0 million. In November 1997, the original $4.0 million loan plus accrued interest in the amount of $395,891.01 was converted into 439,589 shares of Series B Redeemable Preferred Stock. These shares earn dividends at a rate of 7.735% per year and such dividends are paid as and when declared by the Board. We intend to redeem these shares of Series B Preferred Stock upon the completion of this offering. Advisory Fees. On February 5, 1999, Loislaw.com renewed a letter agreement with Dublind Partners, Inc. and Dublind Services, Inc. originally dated July 8, 1997 pursuant to which the Dublind entities provided financial advisory services to Loislaw.com relating to private financings and an initial public offering. We paid Dublind Investments LLC, an affiliate of Dublind Partners, Inc. and Dublind Securities, Inc., $475,000 on May 25, 1999 in connection with this letter agreement. Upon the closing of this offering, we will also pay to Dublind a fee of $250,000 in exchange for financial advisory services provided to us. Stockholder Loans. We have borrowed money from Capital Resource Lenders III, L.P., CRP Investment Partners III, LLC and Rowland T. Moriarty and have executed three senior subordinated notes, which as of March 31, 1999 had a combined outstanding principal balance of $10,000,000.00. These notes accrue interest at a rate of 12.5% per annum and are due on November 30, 2003. Interest on these notes is payable quarterly in arrears on the last business day of March, June, September and December of each year. For 1997 and 1998, we paid interest in the total amounts of $53,000 and $820,000 on these notes. These notes are subject to the terms and conditions of a Senior Subordinated Note and Securities Agreement, dated as of November 24, 1997, as subsequently amended. We intend to repay these notes upon completion of this offering. Board Members. Robert C. Ammerman, a member of the Board of Directors, is a managing member of Capital Resource Partners III, L.L.C., the general partner of Capital Resource Lenders III, L.P., and a managing member of CRP Investment Partners III, LLC. Hannah C. Stone, a member of the Board of Directors, is a managing director of Sandler Capital Management, an affiliate of Sandler Capital Partners IV, L.P. and Sandler Capital Partners IV, FTE, L.P. Kyle D. Parker, Chairman of the Board, Chief Executive Officer and a member of the Board of Directors, is trustee of the Parker Family Trust. The beneficiaries of this trust include Kyle D. Parker, Douglas W. Parker, Sr. and Melissa Parker. Also, W. Clark Wigley has been granted options by this trust covering 140,000 shares of common stock. Lease. Loislaw.com leases its principal executive office and operations facility in Van Buren, Arkansas from the Parker Law Firm, of which Douglas W. Parker, Sr. and Kyle D. Parker are partners. The lease provides for a five-year term expiring in May 2004 with two five-year renewals. Monthly payments under the lease were increased to $14,200 during May 1999 as a result of expansion of space under lease. During 1996, 1997 and 1998, we paid $49,834, $49,834 and $65,984, respectively, under this lease. Future Transactions. All future transactions, including loans between us and our officers, directors, principal stockholders and their affiliates will be approved by a majority of the Board of Directors, including a majority of the disinterested directors of the Board of Directors, and will be on terms no less favorable to us than could be obtained from unaffiliated third parties. 47 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of Loislaw.com's common stock as of June 18, 1999 and as adjusted to reflect the completion of this offering by: . each of our directors, . each named executive officer listed in the Summary Compensation Table, . all directors and executive officers of Loislaw.com as a group, and . each person who is known by us to own beneficially more than five percent of the outstanding shares of the common stock (including the selling stockholder). Unless otherwise indicated, (1) each person or entity named in the table has sole voting power and investment power (or shares such power with his or her spouse) with respect to all shares of capital stock listed as beneficially owned by such person or entity and (2) the address of each beneficial owner is c/o Loislaw.com, Inc., 105 North 28th Street, Van Buren, Arkansas 72956. The number of shares of common stock outstanding used in calculating the percentage for each person listed includes the shares of common stock underlying options held by such person that are exercisable within 60 days of June 18, 1999, but excludes shares of common stock underlying options held by any other person. Percentage of beneficial ownership is based on 8,519,762 shares of common stock outstanding as of June 18, 1999, after giving effect to the conversion of the convertible preferred stock, and shares of common stock outstanding after completion of this offering.
Shares Beneficially Shares Beneficially Owned Owned Prior to the Offering After the Offering ---------------------------- Shares ----------------------- Name of Beneficial Owner Number Percent Offered Number Percent - ------------------------ ------------- ----------- ------- ------------ ---------- Kyle D. Parker, Trustee(1)............. 3,395,000 39.8% 3,395,000 W. Clark Wigley(1)...... 140,000(2) 1.6 0 140,000 * Mark O. Beyland(3)...... 253,247 2.9 0 253,247 Robert C. Ammerman(4)... 2,832,085 33.2 0 2,832,085 Hannah C. Stone(5)...... 1,118,760 13.1 0 1,118,760 D. Randy Laney.......... 0 * 0 0 * Capital Resource Lenders III, L.P.(4)........... 2,832,085 33.2 0 2,832,085 Sandler Capital Partners IV, L.P.(5)............ 1,118,760 13.1 0 1,118,760 Sandler Capital Partners IV, FTE, L.P.(5)....... 1,118,760 13.1 0 1,118,760 Douglas W. Parker, Sr.(1)................. 779,800 9.2 All directors and executive officers as a group (10 persons)........... 7,619,882 87.9 0
- -------- * Less than 1% (1) Kyle D. Parker is the trustee of the Parker Family Trust. Under the terms of the Trust, Mr. Parker has sole voting power of all of the shares held of record by the trust and he is the beneficiary of 1,559,600 shares. Douglas W. Parker, Sr. is the beneficiary of 779,800 shares and Melissa Parker is the beneficiary of 779,800 shares. Further, W. Clark Wigley has been granted an option by the trust to purchase 140,000 shares, and another employee of Loislaw.com beneficially owns 135,800 shares held of record by the trust. Kyle D. Parker holds a right of first refusal to purchase the 135,800 shares held by the employee upon the employee's resignation, termination, incapacity or death. Kyle D. Parker disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest therein. (2) Consists of (i) an option to purchase 35,000 shares of common stock from the Parker Trust that vests on the date that we file this registration statement and (ii) an option to purchase 105,000 shares of common stock from the Parker Trust that vests on August 1, 1999. (3) Includes 124,159 shares subject to options held by Mr. Beyland that are presently exercisable or will be exercisable within 60 days. 48 (4) Consists of (i) an aggregate of 2,829,771 shares held of record by Capital Resource Lenders III, L.P. of which 1,056,616 shares are common stock, 915,646 shares are Series A Convertible Preferred Stock and 857,509 shares are Series C Convertible Preferred Stock; and (ii) an aggregate of 2,314 shares held of record by CRP Investment Partners III, LLC, of which 1,074 shares are Series A Convertible Preferred Stock and 1,240 shares are covered by a warrant to purchase our common stock. Mr. Ammerman is a managing member of Capital Resource Partners III, LLC, the general partner of Capital Resource Lenders III, L.P. Capital Resource Partners III, LLC has sole voting and investment power with respect to the shares held of record by Capital Resource Lenders III, L.P. Mr. Ammerman is also a managing member of CRP Investment Partners III, LLC. Mr. Ammerman shares with three other managing members the voting and investment power with respect to the shares held of record by CRP Investment Partners III, LLC. Mr. Ammerman disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest therein. The address for Mr. Ammerman, Capital Resource Lenders III, L.P. and CRP Investment Partners III, LLC is 85 Merrimac Street, Suite 200, Boston, Massachusetts 02114. (5) Consists of 793,680 shares held of record by Sandler Capital Partners IV, L.P. and 325,080 shares held of record by Sandler Capital Partners IV, FTE, L.P. Ms. Stone is a Managing Director of Sandler Capital Management, a general partnership, the general partner of Sandler Capital Partners IV, L.P and Sandler Capital Partners IV, FTE, L.P. Ms. Stone shares voting and investment power with respect to the shares held of record by Sandler Capital Partners IV, L.P. and Sandler Capital Partners IV, FTE, L.P. with several other managing directors. Ms. Stone disclaims beneficial ownership of such shares, except to the extent of her pecuniary interest therein. The address for Ms. Stone, Sandler Capital Partners IV, L.P. and Sandler Capital Partners IV, FTE, L.P. is 767 Fifth Avenue, 45th Floor, New York, New York 10153. 49 DESCRIPTION OF CAPITAL STOCK General Our authorized capital stock consists of 50,000,000 shares of common stock, $.001 par value, and 10,000,000 shares of preferred stock, $.001 par value. The following summary of the terms and provisions of our capital stock does not purport to be complete, and we refer you to the certificate of incorporation and bylaws, which we filed as exhibits to the registration statement of which this prospectus is a part, and applicable law. Common Stock As of June 18, 1999, there were 5,093,021 shares of common stock outstanding. Based upon the number of shares outstanding as of that date and giving effect to the issuance of 3,426,741 shares of common stock upon the conversion of the Series A Convertible Preferred Stock and the Series C Convertible Preferred Stock upon the completion of this offering, after this offering, there will be shares of common stock outstanding. Upon completion, the shares of Series A and Series C convertible preferred stock will cease to be outstanding and will assume the status of authorized but unissued shares of preferred stock without designation. The holders of common stock are entitled to one vote for each share of common stock held on all matters voted upon by stockholders, including the election of directors. Subject to the rights of any then outstanding shares of preferred stock, the holders of the common stock are entitled to such dividends as may be declared in the discretion of the Board of Directors out of funds legally available for the payment of dividends. The holders of common stock are entitled to share ratably in our net assets upon liquidation after we pay or provide for all liabilities and for any preferential liquidation rights of any preferred stock then outstanding. The common stockholders have no preemptive rights to purchase shares of our stock. Shares of common stock are not subject to any redemption provisions and are not convertible into any of our other securities. All outstanding shares of common stock are, and the shares of common stock we sell in this offering will be, fully paid and nonassessable when we receive payment for such shares. Preferred Stock As of June 18, 1999, there were 3,866,330 shares of preferred stock designated as follows: (i) 931,044 shares were designated as Series A Convertible Preferred Stock, (ii) 439,589 shares were designated as Series B Redeemable Preferred Stock, and (iii) 2,495,697 shares were designated as Series C Convertible Preferred Stock. A total of 1,133,670 shares of preferred stock are authorized but have not been designated. Our Board of Directors has the authority, without further action by our stockholders, to issue shares of undesignated preferred stock from time to time in one or more series and to fix the related number of shares and the designations, voting powers, preferences, optional and other special rights, and restrictions or qualifications of such Preferred Stock. The rights, preferences, privileges and restrictions or qualifications of different series of preferred stock may differ with respect to dividend rates, amounts payable on liquidation, voting rights, conversion rights, redemption provisions, sinking fund provisions and other matters. The issuance of such preferred stock could: (i) decrease the amount of earnings and assets available for distribution to holders of common stock; (ii) adversely affect the rights and powers, including voting rights, of holders of common stock; and (iii) have the effect of delaying, deferring or preventing a change in control. We have no present plans to issue any shares of undesignated preferred stock. We intend to redeem the outstanding shares of Series B Redeemable Preferred Stock upon the completion of this offering, and upon such redemption, the Series B Redeemable Preferred Stock will cease to be outstanding and will assume the status of authorized but unissued shares of preferred stock without designation. Delaware Law and Certain Charter and By-Law Provisions, Anti-Takeover Effects Upon completion of this offering, Loislaw.com will be subject to the provisions of Section 203 of the General Corporation Law of Delaware. Section 203 prohibits a publicly-held Delaware corporation from 50 engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. A "business combination" includes mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an "interested stockholder" is a person who, together with affiliates and associates, owns, or within the prior three years did own, 15% or more of the corporation's outstanding voting stock. Our certificate of incorporation and by-laws provide that directors may be removed only for cause by the affirmative vote of the holders of a majority of the combined voting power of the then outstanding shares of capital stock of Loislaw.com entitled to vote. In addition, under the certificate of incorporation, any vacancy on the board of directors, however occurring, including a vacancy resulting from an enlargement of the board, may be filled only by vote of a majority of the directors then in office. The likely effect of the limitations on the removal of directors and filling of vacancies is an increase in the time required for the stockholders to change the composition of the board of directors. Our by-laws provide that any action required or permitted to be taken by the stockholders of Loislaw.com at an annual meeting or special meeting of stockholders may be taken only if Loislaw.com is given proper advance notice of the action. The by-laws further provide that special meetings of stockholders may be called only by the board of directors, the chairman of the board of directors, the president of Loislaw.com. or the holders of a majority of the outstanding shares of capital stock entitled to vote. The foregoing provisions could have the effect of delaying until the next stockholders' meeting stockholder actions that are favored by the holders of a majority of the outstanding voting securities of Loislaw.com. The General Corporation Law of Delaware provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation's certificate of incorporation or by-laws, unless a corporation's certificate of incorporation or by-laws, as the case may be, requires a greater percentage. The majority stockholder vote would be in addition to any separate class vote that might be required pursuant to the terms of any series of preferred stock that might be outstanding at the time any amendments are submitted to stockholders. Transfer Agent and Registrar The transfer agent and registrar for the common stock will be . 51 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no public market for our common stock. The market price of our common stock could drop due to sales of a large number of shares of our common stock or the perception that such sales could occur. These factors could also make it more difficult to raise funds through future offerings of common stock. After this offering, shares of common stock will be outstanding ( shares if the underwriters exercise their over-allotment option in full and shares if, in addition, common stock is issued upon the exercise of outstanding options and warrants). See "Capitalization". Of these shares, the shares ( shares if the underwriters exercise their over-allotment option in full) sold in this offering will be freely tradeable without restriction under the Securities Act except for any shares purchased by "affiliates" of Loislaw.com, as defined in Rule 144 under the Securities Act. The remaining 8,519,762 shares (8,829,091 shares if common stock is issued upon the exercise of outstanding options and warrants) are "restricted securities" within the meaning of Rule 144 under the Securities Act. The restricted securities generally may not be sold unless they are registered under the Securities Act or are sold pursuant to an exemption from registration, such as the exemption provided by Rule 144. All of our officers, directors, stockholders, including the selling stockholder, and option holders have entered into lock-up agreements pursuant to which they have agreed not to offer or sell any shares of common stock for a period of 180 days after the date of this prospectus without the prior written consent of Prudential Securities, on behalf of the underwriters. See "Underwriting". Prudential Securities may, at any time and without notice, waive any of the terms of these lock-up agreements specified in the underwriting agreement. Following the lock-up period, these shares will not be eligible for sale in the public market without registration under the Securities Act unless such sales meet the conditions and restrictions of Rule 144 as described below. In general, under Rule 144 as currently in effect, any person (or persons whose shares are aggregated), including an affiliate, who has beneficially owned shares for a period of at least one year (including the holding period of any prior owner other than an affiliate of Loislaw.com) is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of (i) 1% of the then-outstanding shares of common stock and (ii) the average weekly trading volume in the common stock during the four calendar weeks immediately preceding the date on which the stockholder files notice of such sale with the SEC. Sales under Rule 144 are also subject to certain provisions relating to notice, manner of sale and the availability of current public information about Loislaw.com. In addition, a person (or persons whose shares are aggregated) who has not been an affiliate of Loislaw.com at any time during the 90 days immediately preceding a sale, and who has beneficially owned the shares for at least two years (including the holding period of any prior owner other than an affiliate of Loislaw.com), would be entitled to sell such shares under Rule 144(k) without regard to the volume limitation and other conditions described above. The foregoing summary of Rule 144 is not intended to be a complete description. Rule 701 provides that shares of common stock acquired upon the exercise of currently outstanding options (or pursuant to other rights granted under our stock plan) may be resold by persons, other than affiliates, beginning 90 days after the effective date of the registration statement of which this prospectus is a part, subject only to the manner of sale provisions of Rule 144, and by affiliates under Rule 144, without compliance with its one-year minimum holding period requirement, subject to certain limitations. As of the date of this prospectus, the board of directors has authorized up to 500,000 shares of common stock for issuance pursuant to our employee stock option plan, up to 320,000 shares of common stock for issuance pursuant to our nonemployee directors stock option plan and up to shares of common stock for issuance pursuant to our employee stock purchase plan. At June 30, 1999, 145,015 shares of common stock were issuable pursuant to outstanding vested options under our stock option plans, 146,546 shares of common stock are issuable pursuant to outstanding options that are not yet exercisable, and 208,439 shares of common stock are available for future grants under our stock option plans. 52 We intend to file one or more registration statements on Form S-8 under the Securities Act within 90 days after the date of this prospectus to register all shares of common stock that are issuable pursuant to our stock option plans and our employee stock purchase plan. The registration statements are expected to become effective upon filing. Shares covered by the registration statements on Form S-8 will be eligible for sale in the public markets, subject to the lock- up period, and for our affiliates, subject to certain conditions and restrictions (other than the holding period) of Rule 144. After this offering, a majority of the holders of the 931,044 shares of common stock that were issued upon conversion of the Series A Convertible Preferred Stock and the holders of at least 30% of the 2,495,697 shares of common stock that were issued upon conversion of the Series C Convertible Preferred Stock may request that we register all or any portion of their registrable securities. Registrable securities include the 931,044 shares of common stock issuable upon conversion of the Series A Convertible Preferred Stock, 2,495,697 shares of common stock issuable upon conversion of the Series C Preferred Stock and 17,768 shares of common stock issued or issuable upon exercise of warrants. All holders of common stock that was issued upon conversion of the Series A Convertible Preferred Stock and the Series C Convertible Preferred Stock have the right to request any number of registrations on Form S-3 by us. Additionally, the holders of approximately 451,405 shares of common stock are entitled to notice if we propose to register any of our securities under the Securities Act, either for our own account or for the account of other security holders exercising registration rights and are, subject to certain limitations, entitled to include shares of common stock in such registration. All current stockholders of Loislaw.com are parties to an Amended and Restated Stockholders' Agreement dated May 25, 1999. This agreement imposes transfer restrictions on their shares of capital stock of Loislaw.com in the event that they attempt to sell their stock in a control block sale or a private sale to a designated competitor. See "Certain Transactions." 53 UNDERWRITING We have entered into an underwriting agreement with the underwriters named below, for whom Prudential Securities Incorporated, U.S. Bancorp Piper Jaffray Inc. and Dain Rauscher Wessels are acting as representatives. We, and the selling stockholder, are obligated to sell, and the underwriters are obligated to purchase, all of the shares offered on the cover page of this prospectus, if any are purchased. Subject to conditions of the underwriting agreement, each underwriter has severally agreed to purchase the shares indicated opposite its name:
Number Underwriters of Shares ------------ --------- Prudential Securities Incorporated................................... U.S. Bancorp Piper Jaffray Inc. ..................................... Dain Rauscher Wessels................................................ ---- Total.............................................................. ====
The underwriters may sell more shares than the total number of shares offered on the cover page of this prospectus and they have, for a period of 30 days from the date of this prospectus, an over-allotment option to purchase up to additional shares from us. If any additional shares are purchased, the underwriters will severally purchase the shares in the same proportion as per the table above. The representatives of the underwriters have advised us that the shares will be offered to the public at the offering price indicated on the cover page of this prospectus. The underwriters may allow to selected dealers a concession not in excess of $ per share and such dealers may reallow a concession not in excess of $ per share to certain other dealers. After the shares are released for sale to the public, the representatives may change the offering price and the concessions. The representatives have informed us that the underwriters do not intend to sell shares to any investor who has granted them discretionary authority. We, and the selling stockholder, have agreed to pay to the underwriters the following fees, assuming both no exercise and full exercise of the underwriters' over-allotment option to purchase additional shares:
Total Fees ------------------------------------------- Fee Without Exercise of Full Exercise of Per Share Over-Allotment Option Over-Allotment Option --------- --------------------- --------------------- Fees paid by us......... $ $ $ Fees paid by the selling stockholder............ $ $ $
In addition, we estimate that we will spend approximately $ in expenses for this offering, including those of the selling stockholder. We and the selling stockholder have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or contribute to payments that the underwriters may be required to make in respect of these liabilities. We, our officers and directors, and all stockholders, including the selling stockholder and option holders, of Loislaw.com have entered into lock-up agreements pursuant to which we and they have agreed not to offer or sell any shares of common stock or securities convertible into or exchangeable or exercisable for shares of common stock for a period of 180 days from the date of this prospectus without the prior written consent of Prudential Securities, on behalf of the underwriters. Prudential Securities may, at any time and without notice, waive the terms of these lock-up agreements specified in the underwriting agreement. 54 Prior to this offering, there has been no public market for the common stock of Loislaw.com. The public offering price, negotiated among us, the selling stockholder and the representatives, is based upon various factors such as the Loislaw.com's financial and operating history and condition, its prospects, the prospects for the industry we are in and prevailing market conditions. Prudential Securities, on behalf of the underwriters, may engage in the following activities in accordance with applicable securities rules: . Over-allotments involving sales in excess of the offering size, creating a short position. Prudential Securities may elect to reduce this short position by exercising some or all of the over-allotment option. . Stabilizing and short covering; stabilizing bids to purchase the shares are permitted if they do not exceed a specified maximum price. After the distribution of shares has been completed, short covering purchases in the open market may also reduce the short position. These activities may cause the price of the shares to be higher than would otherwise exist in the open market. . Penalty bids permitting the representatives to reclaim concessions from a syndicate member for the shares purchased in the stabilizing or short covering transactions. Such activities, which may be commenced and discontinued at any time, may be effected on the Nasdaq National Market, in the over-the-counter market or otherwise. Each underwriter has represented that it has complied and will comply with all applicable laws and regulations in connection with the offer, sale or delivery of the shares and related offering materials in the United Kingdom, including: . the Public Offers of Securities Regulations 1995, . the Financial Services Act of 1986, and . the Financial Services Act 1986, (Investment Advertisements) (Exemptions) Order 1996 (as amended). We have asked the underwriters to reserve shares for sale at the same offering price directly to our officers, directors, employees and other business affiliates or related third parties. The number of shares available for sale to the general public in the offering will be reduced to the extent such persons purchase the reserved shares. LEGAL MATTERS The validity of the shares of common stock to be issued in this offering will be passed upon for Loislaw.com by Thompson & Knight, P.C., Dallas, Texas. Various legal matters in connection with the offering will be passed upon for the underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts. EXPERTS The financial statements of Loislaw.com as of December 31, 1997 and 1998 and for each of the years in the three-year period ended December 31, 1998 have been included in this prospectus and in the registration statement in reliance upon the report, which appears elsewhere in this prospectus, of KPMG LLP, independent certified public accountants, and upon their authority as experts in accounting and auditing. 55 AVAILABLE INFORMATION Loislaw.com has filed with the SEC a registration statement on Form S-1 (including all amendments and exhibits thereto) under the Securities Act with respect to the common stock in this offering. As permitted by the rules and regulations of the SEC, this prospectus omits certain information contained in the registration statement. For further information with respect to Loislaw.com and the common stock offered in this offering, you should refer to the registration statement and its exhibits and schedules. Statements contained in this prospectus regarding the contents of any agreement or other document filed as an exhibit to the registration statement are not necessarily complete, and in each instance reference is made to the copy of that agreement or document filed as an exhibit to the registration statement, and each such statement is qualified in all respects by such reference. You may obtain copies of all or any portion of the registration statement at prescribed rates from the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549, at its regional offices located at Seven World Trade Center, New York, New York 10007 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, or by calling the Commission at 1-800-SEC-0330. In addition, the Commission maintains a web site that contains reports, proxy statements and information statements and other information regarding registrants (including Loislaw.com) that file electronically with the Commission, which can be accessed at http://www.sec.gov. We intend to furnish to our stockholders annual reports containing financial statements audited by an independent public accounting firm and with quarterly reports for each of the quarters of each fiscal year containing unaudited financial statements. 56 INDEX TO FINANCIAL STATEMENTS
Page ---- Independent Auditors' Report............................................. F-2 Balance Sheets at December 31, 1997 and 1998 and March 31, 1999 (unaudited) and March 31, 1999 (pro forma).............................. F-3 Statements of Operations for the years ended December 31, 1996, 1997 and 1998 and the three months ended March 31, 1998 (unaudited) and 1999 (unaudited)............................................................. F-4 Statements of Redeemable Equity Securities and Stockholders' Equity (Deficit) for the years ended December 31, 1996, 1997 and 1998 and the three months ended March 31, 1999 (unaudited)........................... F-5 Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998 and the three months ended March 31, 1998 (unaudited) and 1999 (unaudited)............................................................. F-7 Notes to Financial Statements............................................ F-8
F-1 When the transactions referred to in Note 7(c) of the Notes to Financial Statements have been consummated, we will then be in a position to render the following report. KPMG LLP Little Rock, Arkansas June 18, 1999 INDEPENDENT AUDITORS' REPORT The Board of Directors Loislaw.com, Inc.: We have audited the accompanying balance sheets of Loislaw.com, Inc. as of December 31, 1997 and 1998, and the related statements of operations, redeemable equity securities and stockholders' equity (deficit) and cash flows for each of the years in the three-year period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Loislaw.com, Inc. as of December 31, 1997 and 1998, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles. Little Rock, Arkansas May 29, 1999, except as to note 7(c) which is as of June , 1999 F-2 LOISLAW.COM, INC. BALANCE SHEETS
March 31, December 31, 1999 ------------------------- March 31, Pro Forma 1997 1998 1999 (note 5) ----------- ------------ ------------ ------------ (unaudited) (unaudited) Assets Current assets: Cash and cash equivalents........... $ 3,233,172 $ 99,042 $ 20,031 $ 12,454,467 Accounts receivable, net of allowance for doubtful accounts of $375,000 and $124,974 at December 31, 1997 and 1998, respectively, and $115,440 at March 31, 1999 (note 5)......... 896,001 1,540,052 1,671,558 1,671,558 Prepaid commissions.... 114,936 311,394 587,383 587,383 Prepaid software licenses.............. -- 96,958 196,958 196,958 Other current assets... 19,654 138,811 374,925 374,925 ----------- ------------ ------------ ------------ Total current assets... 4,263,763 2,186,257 2,850,855 15,285,291 Databases, net (notes 3 and 5)................. 6,228,884 8,566,529 11,980,513 11,980,513 Property and equipment, net (notes 4 and 5).... 501,218 1,446,459 2,233,172 2,233,172 Deferred loan costs, net of accumulated amortization of $48,076 and $728,201 at December 31, 1997 and 1998, respectively, and $905,248 at March 31, 1999................... 4,528,723 3,992,278 4,223,595 4,223,595 Other assets............ 544,081 820,721 728,517 728,517 ----------- ------------ ------------ ------------ Total assets........... $16,066,669 $ 17,012,244 $ 22,016,652 $ 34,451,088 =========== ============ ============ ============ Liabilities and Stockholders' Equity (Deficit) Current liabilities: Current installments of long-term debt (note 5).................... 26,443 954,893 1,395,927 1,395,927 Accounts payable....... 1,906,319 2,559,631 4,063,819 4,063,819 Deferred revenue....... 2,540,459 2,961,067 3,146,616 3,146,616 Accrued expenses....... 304,708 461,549 585,931 564,799 ----------- ------------ ------------ ------------ Total current liabilities........... 4,777,929 6,937,140 9,192,293 9,171,161 Deferred revenue........ 981,722 967,046 655,198 655,198 Long-term debt, excluding current installments (note 5).. 4,080,941 11,317,631 16,193,671 14,193,671 Other noncurrent liabilities............ -- 170,373 686,986 686,986 ----------- ------------ ------------ ------------ Total liabilities...... 9,840,592 19,392,190 26,728,148 24,707,016 ----------- ------------ ------------ ------------ Redeemable equity securities (notes 5 and 7): Series A convertible preferred, 931,044 shares................ 2,492,100 2,605,840 2,674,454 2,674,454 Series B 7.735% preferred, redemption value of $4,395,890 plus accrued dividends, 439,589 shares................ 4,430,358 4,770,380 4,855,385 4,855,385 Series C convertible preferred, 2,495,697 shares................ -- -- -- 13,963,500 Common stock........... -- 1,189,158 1,208,110 3,566,000 Common stock warrants.. 4,293,821 3,154,975 3,615,451 60,017 ----------- ------------ ------------ ------------ Total redeemable equity securities............ 11,216,279 11,720,353 12,353,400 25,119,356 ----------- ------------ ------------ ------------ Stockholders' equity (deficit) (notes 5 and 7): Common stock, $.001 par value. 10,000,000 shares authorized; shares issued-- 3,590,000 at December 31, 1997, 3,955,346 at December 31, 1998 and March 31, 1999 and 5,098,021 on a pro forma basis at March 31, 1999.............. 3,590 3,955 3,955 5,098 Additional paid-in capital............... 449,910 1,638,703 1,638,703 5,685,062 Accumulated deficit.... (5,443,702) (14,537,699) (17,483,344) (17,483,344) Redeemable common stock, 365,346 shares at December 31, 1998 and March 31, 1999 and 1,056,616 on a pro forma basis at March 31, 1999.............. -- (1,189,158) (1,208,110) (3,566,000) Treasury stock, at cost, 5,000 shares in 1998 and 1999......... -- (16,100) (16,100) (16,100) ----------- ------------ ------------ ------------ Total stockholders' equity (deficit)...... (4,990,202) (14,100,299) (17,064,896) (15,375,284) ----------- ------------ ------------ ------------ Commitments and contingencies (notes 5, 7 and 8) Total liabilities and stockholders' equity (deficit)............. $16,066,669 $ 17,012,244 $ 22,016,652 $ 34,451,088 =========== ============ ============ ============
See accompanying notes to financial statements. F-3 LOISLAW.COM, INC. STATEMENTS OF OPERATIONS
Three Months Ended Years Ended December 31, March 31, ------------------------------------- ------------------------ 1996 1997 1998 1998 1999 ----------- ----------- ----------- ----------- ----------- (unaudited) Revenues: Web-based products.... $ 28,333 208,357 842,112 115,342 499,247 CD-ROM products....... 1,854,605 3,157,056 3,182,067 737,160 836,634 Other................. -- -- 1,000,000 116,913 -- ----------- ----------- ----------- ----------- ----------- Total revenues...... 1,882,938 3,365,413 5,024,179 969,415 1,335,881 ----------- ----------- ----------- ----------- ----------- Costs and expenses: Database cost......... 1,849,893 2,013,716 5,526,731 1,165,684 1,065,503 Selling and marketing............ 2,152,638 2,363,028 4,413,645 749,956 1,706,399 General and administrative....... 1,071,094 1,150,304 1,331,429 450,645 524,767 Product development... 51,642 47,396 445,615 143,015 186,925 Cost of other revenues............. -- -- 393,357 46,185 -- ----------- ----------- ----------- ----------- ----------- Total operating expenses........... 5,125,267 5,574,444 12,110,777 2,555,485 3,483,594 ----------- ----------- ----------- ----------- ----------- Loss from operations......... (3,242,329) (2,209,031) (7,086,598) (1,186,070) (2,147,713) ----------- ----------- ----------- ----------- ----------- Other income (expense): Interest expense, net.................. (250,964) (454,667) (1,548,931) (278,624) (593,704) Other, net............ 2,644 (6,353) 41,953 250 1,503 ----------- ----------- ----------- ----------- ----------- (248,320) (461,020) (1,506,978) (278,374) (592,201) ----------- ----------- ----------- ----------- ----------- Net loss............ (3,490,649) (2,670,051) (8,593,576) (1,864,444) (2,739,914) Accrued preferred stock dividends and accretion on redeemable preferred stock and common stock warrants............... -- (34,468) (500,421) (105,321) (205,731) ----------- ----------- ----------- ----------- ----------- Net loss applicable to common stock........... $(3,490,649) $(2,704,519) $(9,093,917) $(1,969,765) $(2,945,645) =========== =========== =========== =========== =========== Net loss per share-- basic and diluted...... $ (0.99) (0.76) (2.52) (0.55) (0.75) =========== =========== =========== =========== =========== Weighted average common stock outstanding-- basic and diluted...... 3,528,603 3,581,370 3,611,172 3,590,000 3,950,346 =========== =========== =========== =========== ===========
See accompanying notes to financial statements. F-4 LOISLAW.COM, INC. STATEMENTS OF REDEEMABLE EQUITY SECURITIES AND STOCKHOLDERS' EQUITY (DEFICIT) (Notes 5 and 7)
Redeemable Equity Securities ------------------------------------------------------------------ Series A Series C Common convertible Series B convertible Common stock preferred preferred preferred stock warrants Total ----------- --------- ----------- --------- ---------- ---------- Balances at December 31, 1995............ $ -- -- -- -- -- -- Issuance of 60,000 shares of common stock for cash............ -- -- -- -- -- -- Net loss........ -- -- -- -- -- -- --------- --------- --------- --------- ---------- ---------- Balances at December 31, 1996............ -- -- -- -- -- -- Issuance of 30,000 shares of common stock for cash............ -- -- -- -- -- -- Issuance of 931,044 shares of Series A preferred stock for cash, net of issuance costs of $507,900..... 2,492,100 -- -- -- -- 2,492,100 Conversion of notes payable into 439,589 shares of Series B preferred stock........... -- 4,395,890 -- -- -- 4,395,890 Issuance of warrants to purchase 1,337,639 shares of redeemable common stock.... -- -- -- -- 4,293,821 4,293,821 Accrued dividends on Series B preferred stock.. -- 34,468 -- -- -- 34,468 Net loss........ -- -- -- -- -- -- --------- --------- --------- --------- ---------- ---------- Balances at December 31, 1997............ 2,492,100 4,430,358 -- -- 4,293,821 11,216,279 Accrued dividends on Series B preferred stock.. -- 340,022 -- -- 340,022 Accretion on redeemable equity securities...... 113,740 -- -- -- 46,659 160,399 Exercise of warrants for 365,346 shares of redeemable common stock.... -- -- -- 1,189,158 (1,185,505) 3,653 Purchase of treasury stock, 5,000 shares.... -- -- -- -- -- -- Net loss........ -- -- -- -- -- -- --------- --------- --------- --------- ---------- ---------- Balances at December 31, 1998............ 2,605,840 4,770,380 -- 1,189,158 3,154,975 11,720,353 Issuance of warrants to purchase 102,091 shares of redeemable common stock (unaudited)..... -- -- -- -- 408,364 408,364 Accrued dividends on Series B preferred stock (unaudited)..... -- 85,005 -- -- -- 85,005 Accretion on redeemable equity securities (unaudited)..... 68,614 -- -- 18,952 52,112 139,678 Net loss (unaudited)..... -- -- -- -- -- -- --------- --------- --------- --------- ---------- ---------- Balances at March 31, 1999 (unaudited)..... 2,674,454 4,855,385 -- 1,208,110 3,615,451 12,353,400 --------- --------- --------- --------- ---------- ---------- Stockholders' Equity (Deficit) ------------------------------------------------------------------ Retained Additional earnings/ Redeemable Common paid-in (accumulated Treasury common stock capital (deficit) stock stock Total ------ ---------- ------------- --------- ----------- ------------ Balances at December 31, 1995............ 3,500 -- 751,466 -- -- 754,966 Issuance of 60,000 shares of common stock for cash............ 60 299,940 -- -- -- 300,000 Net loss........ -- -- (3,490,649) -- -- (3,490,649) ------ ---------- ------------- --------- ----------- ------------ Balances at December 31, 1996............ 3,560 299,940 (2,739,183) -- -- (2,435,683) Issuance of 30,000 shares of common stock for cash............ 30 149,970 -- -- -- 150,000 Issuance of 931,044 shares of Series A preferred stock for cash, net of issuance costs of $507,900..... -- -- -- -- -- -- Conversion of notes payable into 439,589 shares of Series B preferred stock........... -- -- -- -- -- -- Issuance of warrants to purchase 1,337,639 shares of redeemable common stock.... -- -- -- -- -- -- Accrued dividends on Series B preferred stock.. -- -- (34,468) -- -- (34,468) Net loss........ -- -- (2,670,051) -- -- (2,670,051) ------ ---------- ------------- --------- ----------- ------------ Balances at December 31, 1997............ 3,590 449,910 (5,443,702) -- -- (4,990,202) Accrued dividends on Series B preferred stock.. -- -- (340,022) -- -- (340,022) Accretion on redeemable equity securities...... -- -- (160,399) -- -- (160,399) Exercise of warrants for 365,346 shares of redeemable common stock.... 365 1,188,793 -- -- (1,189,158) -- Purchase of treasury stock, 5,000 shares.... -- -- -- (16,100) -- (16,100) Net loss........ -- -- (8,593,576) -- -- (8,593,576) ------ ---------- ------------- --------- ----------- ------------ Balances at December 31, 1998............ 3,955 1,638,703 (14,537,699) (16,100) (1,189,158) (14,100,299) Issuance of warrants to purchase 102,091 shares of redeemable common stock (unaudited)..... -- -- -- -- -- -- Accrued dividends on Series B preferred stock (unaudited)..... -- -- (85,005) -- -- (85,005) Accretion on redeemable equity securities (unaudited)..... -- -- (120,726) -- (18,952) (139,678) Net loss (unaudited)..... -- -- (2,739,914) -- -- (2,739,914) ------ ---------- ------------- --------- ----------- ------------ Balances at March 31, 1999 (unaudited)..... 3,955 1,638,703 (17,483,344) (16,100) (1,208,110) (17,064,896) ------ ---------- ------------- --------- ----------- ------------
(Continued) F-5 LOISLAW.COM, INC. STATEMENTS OF REDEEMABLE EQUITY SECURITIES AND STOCKHOLDERS' EQUITY (DEFICIT) (Notes 5 and 7)--(Continued)
Redeemable Equity Securities -------------------------------------------------------------------- Series A Series C Common convertible Series B convertible Common stock preferred preferred preferred stock warrants Total ----------- --------- ----------- ---------- ---------- ---------- Pro forma adjustments (unaudited): Exercise of warrants for 1,056,616 shares of redeemable common stock.... $ -- -- -- 3,566,000 (3,555,434) 10,566 Issuance of 2,495,697 shares of Series C preferred stock for cash, net of issuance costs of $536,000..... -- -- 13,963,500 -- -- 13,963,500 Issuance of 86,059 shares of common stock for cash, net of issuance costs of $18,500...... -- -- -- -- -- -- Cancellation of redemption feature on 365,346 shares of redeemable common stock.... -- -- -- (1,208,110) -- (1,208,110) ---------- --------- ---------- ---------- ---------- ---------- Pro forma at March 31, 1999 (unaudited)...... $2,674,454 4,855,385 13,963,500 3,566,000 60,017 25,119,356 ========== ========= ========== ========== ========== ========== Stockholders' Equity (Deficit) ------------------------------------------------------------------ Retained Additional earnings/ Redeemable Common paid-in (accumulated Treasury common stock capital (deficit) stock stock Total ------ ---------- ------------- --------- ----------- ------------ Pro forma adjustments (unaudited): Exercise of warrants for 1,056,616 shares of redeemable common stock.... 1,057 3,564,943 -- -- (3,566,000) -- Issuance of 2,495,697 shares of Series C preferred stock for cash, net of issuance costs of $536,000..... -- -- -- -- -- -- Issuance of 86,059 shares of common stock for cash, net of issuance costs of $18,500...... 86 481,416 -- -- -- 481,502 Cancellation of redemption feature on 365,346 shares of redeemable common stock.... -- -- -- -- 1,208,110 1,208,110 ------ ---------- ------------- --------- ----------- ------------ Pro forma at March 31, 1999 (unaudited)...... 5,098 5,685,062 (17,483,344) (16,100) (3,566,000) (15,375,284) ====== ========== ============= ========= =========== ============
See accompanying notes to financial statements. F-6 LOISLAW.COM, INC. STATEMENTS OF CASH FLOWS
Three months ended Years ended December 31, March 31, ----------------------------------- ---------------------- 1996 1997 1998 1998 1999 ----------- ---------- ---------- ---------- ---------- (unaudited) Cash flows from operating activities: Net loss............... $(3,490,649) (2,670,051) (8,593,576) (1,864,444) (2,739,914) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Depreciation and amortization......... 375,207 462,245 1,166,925 267,428 338,943 Loss on disposal of property and equipment............ -- -- 3,979 -- -- Change in operating assets and liabilities: Accounts receivable.. (154,920) (1,025,210) (758,773) 70,123 89,498 Prepaid commissions and other current assets.............. 174,168 (132,655) (412,573) (308,036) (612,103) Accounts payable..... 1,371,768 (175,172) 823,685 352,552 2,020,801 Accrued expenses..... 326,070 (132,129) 156,841 (197,438) 124,382 Deferred revenue..... 1,597,149 1,768,429 405,932 93,754 (126,299) ----------- ---------- ---------- ---------- ---------- Net cash provided (used) by operating activities.......... 198,793 (1,904,543) (7,207,560) (1,586,061) (904,692) ----------- ---------- ---------- ---------- ---------- Cash flows from investing activities: Legal database costs... (2,592,251) (1,762,453) (2,606,474) (349,547) (3,502,161) Purchase of property and equipment......... (218,045) (92,528) (1,224,665) (533,601) (860,432) Decrease (increase) in other assets.......... 8,892 (8,827) (161,918) 138,788 (128,800) ----------- ---------- ---------- ---------- ---------- Net cash used by investing activities.......... (2,801,404) (1,863,808) (3,993,057) (1,021,936) (4,491,393) ----------- ---------- ---------- ---------- ---------- Cash flows from financing activities: Repayment of capital lease obligation...... -- (25,183) (15,385) (3,947) (2,926) Deferred loan costs (note 5).............. -- (553,614) (143,681) -- -- Proceeds from sale of Class A preferred stock, net of $237,263 costs of issuance (note 5).............. -- 2,762,737 -- -- -- Proceeds from notes payable............... 253,705 4,300,000 8,661,077 3,423,077 5,320,000 Repayment of notes payable............... (573,905) (423,409) (423,077) (423,077) -- Proceeds from related party borrowing (note 7).................... 2,406,944 688,946 -- -- -- Proceeds from exercise of warrants (note 5).. -- -- 3,653 -- -- Proceeds from sale of common stock.......... 300,000 150,000 -- -- -- Repurchase of treasury stock................. -- -- (16,100) -- -- ----------- ---------- ---------- ---------- ---------- Net cash provided by financing activities.......... 2,386,744 6,899,477 8,066,487 2,996,053 5,317,074 ----------- ---------- ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents............ (215,867) 3,131,126 (3,134,130) 388,056 (79,011) Cash and cash equivalents at beginning of year...... 317,913 102,046 3,233,172 3,233,172 99,042 ----------- ---------- ---------- ---------- ---------- Cash and cash equivalents at end of year................... $ 102,046 3,233,172 99,042 3,621,228 20,031 =========== ========== ========== ========== ========== Supplemental cash flow information: Cash paid for interest.............. $ 104,217 581,154 683,761 5,612 344,107 Cash received from income tax refunds 134,007 -- -- -- -- Non cash investing and financing transactions: Acquisition of equipment through capital lease......... 132,567 -- -- -- -- Accrued Series B preferred stock dividends............. -- 34,468 340,022 85,005 85,005 Satisfaction of capital lease obligation through return of equipment... -- -- 57,475 -- -- Conversion of related party borrowing to Series B preferred stock (note 7)........ -- 4,395,890 -- -- -- Issuance of warrant (note 5).............. -- 1,172,761 -- -- 408,364 Accretion on redeemable equity securities............ -- -- 160,399 20,316 139,678 =========== ========== ========== ========== ==========
See accompanying notes to financial statements. F-7 LOISLAW.COM, INC. NOTES TO FINANCIAL STATEMENTS (Information as of March 31, 1999 and with respect to the three months ended March 31, 1998 and 1999 is unaudited) (1) Operations Loislaw.com, Inc. ("the Company") designs, develops and markets state and Federal legal research libraries in CD-ROM and Internet formats. (2) Significant Accounting Policies (a) Management Estimates Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (b) Cash and Cash Equivalents The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. (c) Concentration of Credit Risk Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of trade accounts receivable. Concentrations of credit risk related to subscription receivables are limited as the Company sells its products direct to numerous users in the states for which the Company offers law libraries. The amount of loss should customers fail to pay the receivables is limited to the notional amount of such receivables. At December 31, 1998, the Company's management does not believe any significant concentration of credit risk exists. (d) Product Development, Software and Database Costs Product development expense consists primarily of employee salaries and benefits, facilities cost allocations and expenses related to the development of core software supporting the Company's products. Statement of Financial Accounting Standards ("SFAS") No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed, requires capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based upon Loislaw.com's product development process, technological feasibility is established upon completion of a working model. Costs incurred by Loislaw.com between completion of the working model and the point at which the product is ready for general release have been insignificant. As a result, Loislaw.com has expensed software development costs. Prepaid software licenses are amortized straight line over the remaining economic life of the license, or the amortization that would be recorded by using the ratio of gross revenues derived from the use of the license to total current and anticipated future gross revenues from the use of the license. The noncurrent portion of prepaid software licenses is included in other assets and amount to $169,677 at December 31, 1998. F-8 LOISLAW.COM, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of March 31, 1999 and with respect to the three months ended March 31, 1998 and 1999 is unaudited) Database costs represent amounts incurred for data acquisition and conversion costs, editing, coding, and quality control of legal information and include salaries and benefits and overhead allocations. Costs to develop court ruling databases are capitalized and amortized to production costs once the product is released, on a straight-line basis over the expected lives of the databases, which is estimated at twenty years. Costs to develop statutes and regulations databases and costs to maintain and enhance databases are expensed as incurred. Amortization expense related to capitalized legal databases totaled approximately $240,000, $260,000 and $270,000 in 1996, 1997 and 1998, respectively. The Company currently contracts with three companies to perform a significant amount of the initial data conversion for its databases. (e) Property and Equipment Property and equipment are stated at cost. Depreciation of property and equipment is calculated on the straight-line method over the estimated useful lives of 7 years for office furniture and equipment and 5 years for data processing equipment. Leasehold improvements are amortized over the lesser of the lease term or 15 years. (f) Revenue Recognition Subscription revenue from web-based and CD-ROM products is recognized as revenue ratably over the subscription period (1 to 5 years). Substantially all subscriptions sold are billed annually, quarterly or monthly. Unearned portions of subscription revenue are deferred. The noncurrent portion of amounts to be received under long-term subscription agreements amounted to approximately $489,000 and $603,000, respectively, at December 31, 1997 and 1998 and is included in other assets in the accompanying balance sheets. Other revenue in 1998 results from producing databases for a third party and is recognized under the percentage of completion method as production costs are incurred. Web-based and CD-ROM subscriptions are both sold from the same databases. Accordingly, there are no separate production costs for web-based and CD-ROM products. Cost of revenue related to the customized database was approximately $46,000 for the first quarter of 1998 and $393,000 for the entire year. (g) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of Long-lived assets and certain identifiable intangibles, including database costs, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the asset. If such assets are considered to be impaired the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The Company believes that no significant impairment of its long- lived assets and intangibles, including database costs, has occurred. (h) Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. F-9 LOISLAW.COM, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of March 31, 1999 and with respect to the three months ended March 31, 1998 and 1999 is unaudited) (i) Stock Option Plan The Company has adopted the disclosure requirements of SFAS No. 123, Accounting for Stock-Based Compensation and, as permitted under SFAS No. 123, applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for compensation costs for its stock option plans. Accordingly, compensation expense is recognized on the date of grant only if the current market price of the underlying common stock at date of grant exceeds the exercise price. (j) Advertising Costs Advertising costs are expensed as incurred. Advertising costs amounted to approximately $28,000, $17,000 and $300,000 for the years ended December 31, 1996, 1997 and 1998, respectively, and are included in selling and marketing expenses in the accompanying statements of operations. (k) Financial Instruments The fair value of the company's accounts receivable and accounts payable approximate their carrying values due to the relatively short maturities of these instruments. The fair value of the Company's revolving credit borrowings and notes payable approximate their carrying value since the interest rate on these obligations fluctuates with prime rate. The fair value of the subordinated notes can not be determined without incurring excessive costs due to the related party nature of such instruments. (l) Loss Per Share Loss per share has been computed by dividing the net loss attributable to common stock by the weighted average shares of common stock outstanding during the period as shown below:
Three months ended Year ended December 31, March 31, -------------------------------- -------------------- 1996 1997 1998 1998 1999 ---------- --------- --------- --------- --------- Net loss................ $3,490,649 2,670,051 8,593,576 1,864,444 2,739,914 Accrued dividends on preferred stock........ -- 34,468 340,022 85,005 85,005 Accretion on redeemable common stock warrants.. -- -- 46,659 -- 52,112 Accretion on redeemable preferred stock........ -- -- 113,740 20,316 68,614 ---------- --------- --------- --------- --------- Net loss attributable to common shareholders.... $3,490,649 2,704,519 9,093,997 1,969,765 2,945,645 ========== ========= ========= ========= ========= Weighted average common shares outstanding..... 3,528,603 3,581,370 3,611,172 3,590,000 3,950,346 ========== ========= ========= ========= ========= Loss per share.......... $ (0.99) (0.76) (2.52) (0.55) (0.75) ========== ========= ========= ========= =========
Potentially dilutive securities were excluded from the above calculations because they were antidilutive in accordance with Statement of Financial Accounting Standards No. 128. The number of shares under common stock options and warrants which were excluded were 105,000, 1,371,639, and 1,043,127, respectively, for the years ended December 31, 1996, 1997 and 1998 and 1,408,473 and 1,145,218, respectively, for the three months ended March 31, 1998 and 1999. F-10 LOISLAW.COM, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of March 31, 1999 and with respect to the three months ended March 31, 1998 and 1999 is unaudited) (3) Database Costs Database costs consist of the following:
December 31, -------------------- March 31, 1997 1998 1999 ---------- --------- ---------- Database costs............................... $6,696,994 9,303,468 12,805,629 Less accumulated amortization.............. 468,110 736,939 825,116 ---------- --------- ---------- $6,228,884 8,566,529 11,980,513 ========== ========= ==========
(4) Property and Equipment Property and equipment consist of the following:
December 31, -------------------- March 31, 1997 1998 1999 ---------- --------- --------- Office furniture and equipment.............. $ 241,952 246,172 358,183 Data processing equipment................... 906,243 1,916,936 2,600,855 Leasehold improvements...................... 18,073 149,611 214,113 ---------- --------- --------- 1,166,268 2,312,719 3,173,151 Less accumulated depreciation and amortization............................... 665,050 866,260 939,979 ---------- --------- --------- $ 501,218 1,446,459 2,233,172 ========== ========= =========
(5) Long-Term Debt Long-term debt consists of the following:
December 31, ---------------------- March 31, 1997 1998 1999 ---------- ---------- ---------- 12.5% Senior Subordinated Notes........ $4,000,000 8,000,000 10,000,000 12.5% Senior Subordinated Convertible Promissory Notes...................... -- -- 2,000,000 Notes payable.......................... -- 2,907,000 4,222,000 8.25% revolving line of credit, due June 2000............................. -- 1,331,000 1,336,000 Capital lease obligation............... 107,384 34,524 31,598 ---------- ---------- ---------- Total long-term debt............... 4,107,384 12,272,524 17,589,598 Less: Current installments................. (26,443) (954,893) (1,395,927) ---------- ---------- ---------- $4,080,941 11,317,631 16,193,671 ========== ========== ==========
Interest expense on related party borrowings was $204,344 in 1996 and $271,823 in 1997 (none in 1998). F-11 LOISLAW.COM, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of March 31, 1999 and with respect to the three months ended March 31, 1998 and 1999 is unaudited) On November 24, 1997, the Company entered into an agreement ("CRL Agreement") with Capital Resource Lenders III, L.P. ("CRL") under which CRL agreed to purchase from the Company up to $10,000,000 of 12.5% Senior Subordinated Notes and a Warrant ("Notes") and $3,000,000 of Series A Preferred Stock ("Series A Preferred"). See note 7. At closing, CRL purchased $4,000,000 of the Notes and all of the Series A Preferred (931,044 shares). In accordance with the CRL Agreement, CRL purchased an additional $4,000,000 of the Notes during 1998 and purchased the remaining $2,000,000 of the Notes during January and February 1999. Interest on the Notes is payable quarterly beginning December 31, 1997 and principal is due in sixteen equal quarterly installments beginning December 31, 2000 with the final installment due September 30, 2004. The Warrant entitles CRL to purchase 972,293 shares of common stock of the Company at $.01 per share at any time prior to September 30, 2004. The value assigned to the warrant was $3,121,060 which has been reflected as deferred loan costs. Such deferred loan costs and discount are being amortized over the term of the notes using the interest method. On January 1, 1998 CRL assigned 16,080 of its warrants and a proportionate share of its other obligations and rights under the CRL Agreement to CRP Investment Partners III, L.P. ("CRP") and Rowland Moriarty ("Moriarty"). The Company paid $650,000 in cash and issued a warrant to purchase 365,346 shares of the Company's common stock at $.01 per share, at any time prior to September 30, 2004, to a third party for its assistance in obtaining the CRL Agreement. The value assigned to the warrant was $1,172,761 which has been allocated to deferred loan costs and cost of issuance of the Series A Preferred in the amounts of $902,124 and $270,637, respectively. Deferred loan costs are being amortized into expense over the life of the Notes using the interest method. During 1998, this warrant was exercised with the net proceeds reflected as an increase in redeemable common stock in the accompanying financial statements. The proceeds from the CRL Agreement were used to repay indebtedness of $2,240,855, to pay the $650,000 private placement fee referred to above and other closing costs of $141,418 (of which amount $237,263 has been charged to cost of issuance of the Series A Preferred) and to provide working capital for the Company. In connection with the CRL Agreement, a shareholders' agreement was entered into whereby the preferred shareholders and warrant holders were given put options which entitle such holders to put their preferred stock, warrants or any common shares obtained upon exercise of warrants or conversion of preferred shares to the Company between September 30, 2003 and September 30, 2005. Accordingly, all such preferred shares warrants and common shares obtained upon exercise of warrants have been classified as redeemable equity securities in the accompanying balance sheets. The puts entitle such holders to have their underlying shares redeemed at the fair market value of the common stock as of the redemption date. The difference between the carrying value of such shares and the estimated fair market value of common stock is being accreted through a charge to retained earnings and, with respect to the preferred shares and warrants, is presented as an increase in loss attributable to common shareholders. In 1998, the Company entered into a credit agreement with Fleet National Bank ("Fleet") whereby Fleet agreed to advance up to a maximum of $12,000,000 to the Company. Borrowings under this agreement are evidenced by three separate notes including a working capital revolving line of credit ("Revolving Credit"), a converting equipment line of credit ("Equipment LOC"), and a converting SBLC line of credit ("SBLC LOC"). F-12 LOISLAW.COM, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of March 31, 1999 and with respect to the three months ended March 31, 1998 and 1999 is unaudited) In accordance with the terms and conditions of the Revolving Credit note, the Company may borrow up to the lesser of $2,500,000 or the borrowing base of eligible receivables as defined by the Fleet agreement ($1,336,240 at December 31, 1998). Advances under the Revolving Credit note at December 31, 1998 amount to $1,331,000, bear interest, payable monthly, at Fleet's prime rate plus 1/2% (8.25% at December 31, 1998), and are due June 30, 2000. In addition, the Company is required to pay a quarterly commitment fee of $6,250. Under the Equipment LOC note, the Company may borrow up to $2,500,000 for the purchase of qualified equipment, as defined by the Fleet agreement. Advances under the Equipment LOC note amounted to $407,000 at December 31, 1998 and bear interest, payable monthly, at Fleet's prime rate plus 1 1/2% (9.25% at December 31, 1998). Aggregate advances under the Equipment LOC note at June 30, 1999 and June 30, 2000 shall automatically convert to term note A and term note B, respectively. Advances under term note A and term note B shall be repaid by the Company in thirty-six equal monthly installments, plus interest, beginning July 1999 and July 2000, respectively. Pursuant to the provisions of the SBLC LOC note, the Company may borrow up to $4,000,000 from Fleet through June 30, 2000 to finance development of its law library databases. Additionally, the Company may request and Fleet shall arrange to issue standby letters of credit, provided, however, that aggregate advances and outstanding letters of credit under the SBLC LOC note shall not exceed $7,000,000. Aggregate advances under the SBLC LOC note (excluding the letters of credit) amounted to $2,500,000 at December 31, 1998 ($3,500,000 at March 31, 1999). Such advances bear interest, payable monthly, at Fleet's prime rate plus 1 1/2% (9.25% at December 31, 1998). Borrowings under the SBLC LOC note are due in thirty-two monthly installments of $109,375, plus interest, commencing May 1999. At December 31, 1998, letters of credit amounting to approximately $2,100,000 are outstanding under the SBLC LOC note securing the Company's performance under its data compilation contract with its foreign supplier. Obligations under the CRL Agreement are subordinate to the Fleet borrowings. In addition, CRL, CRP and Moriarty have guaranteed 45% of any borrowings outstanding under the SBLC LOC. In exchange for this guaranty, the Company issued 102,091 additional warrants in February 1999 to the guarantors. The warrants have the same terms as the original warrants issued in November 1997 and, accordingly, have been classified as redeemable equity securities in the accompanying balance sheets. The value assigned to the warrants ($408,364) has been recorded as deferred loan costs and is being amortized into expense over the remaining term of the related Fleet debt. On May 19, 1999 CRL exercised all of the warrants it held (1,056,616 shares). After exercise of these warrants, all remaining warrants (17,768 shares) are held by CRP and Moriarty. Prior to and in anticipation of the financing transaction discussed in the following paragraph, CRL advanced to the Company $5,000,000 in exchange for 12.5% Senior Subordinated Convertible Promissory Notes. These notes are subordinated to the Fleet borrowings and were issued as follows: March 10, 1999, $2,000,000; April 13, 1999, $2,000,000; and May 7, 1999, $1,000,000. On May 25, 1999, the Company entered into an agreement ("Dublind Agreement") with CRL, Dublind Partners, Inc. ("Dublind") Mark Beyland ("Beyland"), the president of the Company, and other purchasers whereby the Company issued 86,059 shares of common stock to Dublind for $500,002 in cash and 2,495,697 shares of Series C Convertible Preferred Stock ("Series C Preferred") to CRL, Beyland and the other purchasers for $14,500,000 of which 857,509 shares were issued in exchange for the $5,000,000 of senior subordinated convertible notes plus accrued interest thereon held by CRL and the remaining shares were issued to Beyland (129,088 shares) and the other purchasers (1,509,100 shares) for cash. In connection with the agreement, the Company paid Dublind a brokers' fee of $475,000 and paid other costs in connection with the F-13 LOISLAW.COM, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of March 31, 1999 and with respect to the three months ended March 31, 1998 and 1999 is unaudited) financing amounting to approximately $80,000. These costs of issuance will be allocated between common stock and the Series C Preferred in the amounts of $18,500 and $536,500, respectively. The net proceeds from the Dublind Agreement are to be used for database development costs and other general corporate purposes. In connection with the Dublind Agreement, a new shareholders' agreement was entered into whereby all remaining warrants and the shares obtained by CRL upon exercise of warrants would have the same redemption feature as the Series A and Series C shares, which entitles these shareholders to have the underlying shares redeemed at the fair value of the common stock at the redemption date. The common shares issued to Dublind and the 365,346 shares previously obtained from exercising warrants in 1998 are no longer subject to such redemption agreements. Accordingly, such shares will be reclassified into common stock and additional paid-in capital as of May 25, 1999. The unaudited pro forma balance sheet at March 31, 1999 is based upon the historical unaudited balance sheet and gives effect to the exercise of the warrants by CRL, the additional issuances of the convertible notes to CRL and the Dublind Agreement as if all of these transactions had occurred on March 31, 1999. The CRL Agreement and the Fleet agreement contain certain covenants requiring the Company to maintain certain financial ratios including minimum profitability, minimum tangible capital base, as defined, debt service coverage, and liquidity. At December 31, 1998, the Company was not in compliance with certain of these covenants. On May 25, 1999, CRL and Fleet waived compliance with these covenants. Additionally, CRL, Fleet and the Company amended their agreements to revise certain of the covenants such that the Company's management expects to be in compliance with the covenants, as amended, during future periods. Should the Company fail to meet the revised covenants, CRL and Fleet could accelerate the due dates of amounts due them by the Company. The aggregate maturities of long-term debt for the five years ending December 31, 2003 are as follows: 1999, $954,893; 2000, $3,292,227; 2001, $2,457,571; 2002, $2,067,833; 2003, $2,000,000; and thereafter, $1,500,000. (6) Income Taxes There was no income tax expense for the years ended December 31, 1996, 1997 or 1998. The actual income tax benefit differs from the expected tax benefit (computed by applying the U.S. Federal corporate tax rate of 34% to loss before income taxes) as follows:
1996 1997 1998 ----------- --------- ---------- Computed expected tax benefit........... $(1,186,821) (907,817) (2,926,816) Increase (reduction) in income taxes resulting from: State income taxes, net of Federal income tax benefit and change in valuation allowance applicable to state taxes of $226,322 in 1996; $172,283 in 1997; and $555,356 in 1998................................. (149,373) (113,707) (366,535) Change in valuation allowance due to operating losses not utilized........ 1,333,213 1,014,879 3,271,474 Other, net............................ 2,981 6,645 16,877 ----------- --------- ---------- $ -- -- -- =========== ========= ==========
F-14 LOISLAW.COM, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of March 31, 1999 and with respect to the three months ended March 31, 1998 and 1999 is unaudited) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 1998 and 1997 are presented below.
1997 1998 ----------- ---------- Deferred tax assets: Net operating loss carryforwards................ $ 3,029,026 7,109,861 Accrued revenues and expenses reported on cash basis for tax purposes......................... 1,800,632 1,898,815 Valuation allowance............................. (2,417,790) (5,689,264) ----------- ---------- Total deferred tax assets..................... 2,411,868 3,319,412 ----------- ---------- Deferred tax liabilities: Capitalized database production costs expensed as incurred for tax purposes................... (2,385,040) (3,280,124) Other, net...................................... (26,828) (39,288) ----------- ---------- Total deferred tax liabilities................ (2,411,868) (3,319,412) ----------- ---------- Net deferred tax liability.................... $ -- -- =========== ==========
The valuation allowance at January 1, 1997 was $1,402,911. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the levels of historical taxable losses and uncertainty regarding the generation of taxable income in future years, management has established a valuation allowance equal to net deferred tax assets at December 31, 1997 and 1998. At December 31, 1998, the Company has Federal net operating loss carryforwards of approximately $17,300,000 which begin to expire in 2010 and state net operating loss carryforwards of approximately $19,000,000 which begin to expire in 2000. (7) Stockholders' Equity (a) Capital Stock The Company has authorized 15,000,000 shares of stock consisting of 10,000,000 shares of $.001 par value common stock and 5,000,000 shares of $.001 par value preferred stock. The Board of Directors of the Company may designate the relative rights and preferences of the preferred stock when and if issued. Such rights and preferences could include liquidation preferences, redemption rights, voting rights and dividends and the shares could be issued in multiple series with different rights and preferences. During 1997, the Board of Directors designated and issued 931,044 shares of Series A Preferred and during May 1999 designated and issued 2,495,697 shares of Series C Preferred. Simultaneous with the closing of the CRL Agreement discussed in note 5, the Company designated and issued 439,589 shares of Series B Preferred to a related party in exchange for the note payable to the related party. The Series B Preferred pays annual dividends at the rate of $.7735 per share which accrue from day to day beginning on November 24, 1997. On December 31, 2005 the Company shall redeem all outstanding shares of the Series B Preferred Stock for $10 per share plus unpaid dividends. As of May 25, 1999, there are 1,133,670 shares of undesignated and unissued preferred stock. F-15 LOISLAW.COM, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of March 31, 1999 and with respect to the three months ended March 31, 1998 and 1999 is unaudited) The Series A Preferred, which has an initial liquidation value of $3,000,000, and the Series C Preferred, which has an initial liquidation value of $15,000,002, are convertible, at the option of the holder, into common stock on a share for share basis and are entitled to receive non-cumulative dividends ratably and on a parity with such dividends as may be paid on the common stock as if such Series A Preferred and Series C Preferred shares had been converted into common stock. The Series A Preferred and Series C Preferred are redeemable at the option of the holder, beginning May 25, 2004, and will automatically convert to common stock upon an initial public offering of the Company's common stock. As discussed in note 5, all of the common and preferred shareholders as well as all of the warrant and common stock option holders have entered into a shareholders' agreement which provides for the naming of directors by certain shareholder groups and restricts the sale of stock by parties to the agreement. (b) Stock Option Plan In June, 1996 the Board of Directors and shareholders adopted the 1996 Stock Option Plan ("Plan") which provides for the granting of options to purchase up to 500,000 shares of the Company's common stock. Incentive stock options may be granted to employees of the Company at an exercise price per share of not less than the fair value per common share at the date of the grant. Nonqualified stock options may be granted to employees, officers or directors of, or consultants or advisers to, the Company at an exercise price per share as determined by the Board of Directors. The options expire on dates as determined by the Board of Directors, not to exceed 10 years from the date of grant. Twenty-five percent of these options vest twelve months after the grant date, and the remaining shares vest ratability over the forty-eight months thereafter. At December 31, 1998, the weighted-average remaining contractual life of outstanding options was 3.53 years. The per share weighted-average fair value of stock options granted during 1996, 1997 and 1998 was 0.84, $1.09 and $0.36, respectively, on the date of grant using the Black Scholes option pricing model with the following weighted- average assumptions: no expected dividend yield; risk-free interest rate of 4.5% in 1996, 1997 and 1998; and an expected life of 5 years. The Company applies APB Opinion No. 25 in accounting for its Plan and, accordingly, no compensation cost has been recognized for its stock options in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's pro forma net loss would not have been significantly different than the loss reported in the statement of operations for 1997 or 1998. Stock option activity during the periods indicated is as follows:
Number Weighted- Number of average of shares shares exercise price exercisable ------- -------------- ----------- Balance at December 31, 1995............. -- -- -- Granted................................ 105,000 $5.00 ------- Balance at December 31, 1996............. 105,000 5.00 -- Granted................................ 6,000 5.00 Forfeited.............................. (77,000) (5.00) ------- Balance at December 31, 1997............. 34,000 5.00 7,000 Granted................................ 36,834 5.00 ------- Balance at December 31, 1998............. 70,834 5.00 14,781 ======= ===== ======
F-16 LOISLAW.COM, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information as of March 31, 1999 and with respect to the three months ended March 31, 1998 and 1999 is unaudited) Under the terms of an employment agreement dated April 22, 1999 with Beyland, the Company is required to grant options equal to 2.5% of its fully diluted equity after giving effect to the financing transaction completed on May 25, 1999 (see note 5) and accordingly granted an option to Beyland on May 25, 1999 for 220,727 shares at an option price of $5.81 per share. The option will vest over a five year period with 50% vesting at the date of grant and the remaining options vesting in equal monthly amounts over the remaining four years. The option price will be determined by the Board of Directors at the time such options are granted. (c) Subsequent Event The Company was originally incorporated in 1987 in Arkansas as Law Office Information Systems, Inc. On June , 1999 the Company was reincorporated in Delaware as Loislaw.com, Inc. On June , 1999, the Board of Directors declared a -for-one stock split, effected in the form of a stock dividend, which was distributed on , 1999. All share and per share data in the financial statements have been restated to give effect to the stock split. (Alternatively, if holding company or Delaware company is to be formed, this transaction will need to be disclosed). (8) Commitments and Contingencies (a) Leases The Company leases parking and office space under an operating lease with a related party that expires in December, 2004. The lease is renewable for two additional successive periods of five years each. Rent expense was approximately $46,000, $50,000 and $66,000 for 1996, 1997 and 1998, respectively. Effective May 5, 1999 the lease was amended to provide for annual rentals of approximately $170,000 as a result of the expansion of space under lease. (b) Retirement Plan Effective January 1, 1999, the Company adopted a 401(k) plan which covers substantially all employees. Under the terms of the Plan, employees may contribute up to 15% of their annual compensation, subject to Internal Revenue Service limitations. The Company, at its discretion, may make matching contributions of employee deferrals. (c) Other The Company is involved in certain claims and pending litigation arising from the normal conduct of business. Based on the present knowledge of the facts and, in certain cases, opinions of outside counsel, management believes the resolution of these claims and pending litigation will not have a material adverse effect on the financial position, results of operations or liquidity of the Company. F-17 - -------------------------------------------------------------------------------- Until , all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. - -------------------------------------------------------------------------------- [Loislaw.com Logo] Prudential Securities U.S. Bancorp Piper Jaffray Dain Rauscher Wessels a division of Dain Rauscher Incorporated - -------------------------------------------------------------------------------- Part II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. Other Expenses of Issuance and Distribution The following is an itemized statement of the estimated amounts of all expenses payable by Loislaw.com in connection with the registration of the common stock offered hereby, other than underwriting discounts and commissions: SEC Registration Fee................................................ $20,850 NASD Filing Fee..................................................... $ 8,000 Nasdaq National Market application and listing fees................. $ * Accountants' fees and expenses...................................... $ * Legal fees and expenses............................................. $ * Printing and engraving expenses..................................... $ * Transfer agent's and registrar's fees............................... $ * Blue sky fees and expenses.......................................... $ * Miscellaneous....................................................... $ * ------- Total............................................................. $ =======
- -------- * To come ITEM 14. Indemnification of Directors and Officers Section 145 of the Delaware General Corporation Law ("Section 145") permits indemnification of directors, officers, agents and controlling persons of a corporation under certain conditions and subject to certain limitations. Article VI of our Certificate of Incorporation (Exhibit 3.1 hereto) and Article VI of our Bylaws (Exhibit 3.2 hereto) provide for the indemnification of its directors, officers and other authorized representatives to the maximum extent permitted by the Delaware General Corporation Law. Section 145 empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director, officer or agent of the corporation or another enterprise if serving at the request of the corporation. Depending on the character of the proceeding, a corporation may indemnify against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding if the person indemnified acted in good faith and in a manner he reasonably believed to be in or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. In the case of an action by or in the right of the corporation, no indemnification may be made with respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the court of chancery or the court in which such action or suit was brought shall determine that despite the adjudication of liability such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. Section 145 further provides that to the extent a director or officer of a corporation has been successful in the defense of any action, suit or proceeding referred to above or in the defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. Our Bylaws permit us to purchase insurance on behalf of any such person against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not we would have the power to indemnify him against such liability under the applicable provisions of our Bylaws. We currently carry directors and officers liability insurance with policy limits of $ . Prior to consummation of this offering, we will enter into indemnification agreements with each of our directors and executive officers that provide for indemnification and expense advances in addition to those provided for in our certificate of incorporation and bylaws. II-1 Reference is made to Section 8 of the underwriting agreement filed as Exhibit 1.1 hereto, indemnifying the officers and directors of Loislaw.com against certain liabilities. ITEM 15. Recent Sales of Unregistered Securities Issuance of Capital Stock. In the three years preceding the filing of this registration statement, we have issued and sold the following securities that were not registered under the Securities Act:
Title and Amount of Name or Class of Date of Sale Securities Sold Purchaser of Securities Consideration ------------ ------------------------ ------------------------ --------------------- July 11, 1996........... 60,000 shares of common Johnnie L. Hernreich and $300,000 stock Larry Murray April 23, 1997.......... 30,000 shares of common Johnnie L. Hernreich and $150,000 stock Larry Murray November 20, 1997....... 439,589 shares of Series Melissa Parker Conversion of B Redeemable Preferred $4,395,890 in outstanding debt November 24, 1997....... Warrant for the right to Dublind Investments, LLC Financial investment purchase 365,346 shares services of common stock November 24, 1997....... 931,044 shares of Series Capital Resource $2,998,934.12 A Convertible Preferred Lenders III, L.P. November 24, 1997....... Warrant for the right to Capital Resource (1) purchase of 972,293 Lenders III, L.P. shares of common stock December 9, 1998........ 365,346 shares of common Dublind Investments, LLC $3,653.46 stock upon exercise of warrant February 9, 1999........ Warrant for the right to Capital Resource (2) purchase of 100,403 Lenders III, L.P. shares of common stock February 9, 1999........ Warrant for the right to CRP Investment (2) purchase of 118 shares Partners, LLC of common stock February 9, 1999........ Warrant for the right to Rowland T. Moriarity (2) purchase of 1,570 shares of common stock March 10, 1999.......... Convertible Note Capital Resource $2,000,000 principal Lenders III, L.P. amount of note April 13, 1999.......... Convertible Note Capital Resource $2,000,000 principal Lenders III, L.P. amount of note May 7, 1999............. Convertible Note Capital Resource $1,000,000 principal Lenders III, L.P. amount of note May 19, 1999............ 1,056,616 shares of Capital Resource $10,566.16 common stock upon Lenders III, L.P. exercise of warrant May 25, 1999............ 857,509 shares of Series Capital Resource Conversion of notes C Convertible Preferred Lenders III, L.P. totaling $5,000,000 in principal amount
II-2
Title and Amount of Name or Class of Date of Sale Securities Sold Purchaser of Securities Consideration ------------ ------------------------ ----------------------- --------------------- May 25, 1999............ 86,059 shares of common Dublind Partners, Inc. $500,002.79 stock May 25, 1999............ 390,340 shares of Series Exeter Capital $2,267,875.40 C Convertible Preferred Partners IV, L.P. May 25, 1999............ 793,680 shares of Series Sandler Capital $4,982,127.29 C Convertible Preferred Partners IV, L.P. May 25, 1999............ 325,080 shares of Series Sandler Capital $1,888,714.80 C Convertible Preferred Partners IV, FTE, L.P. May 25, 1999............ 129,088 shares of Series Mark O. Beyland $750,001.28 C Convertible Preferred
- -------- (1) Loislaw.com issued a warrant to purchase 972,293 shares of its common stock to Capital Resource Lenders III at a purchase price of $.01 per share in connection with Capital Resource Lenders III, L.P.'s purchase of certain 12.5% Senior Subordinated Notes due 2003 under a Senior Subordinated Note and Securities Purchase Agreement dated November 24, 1997 between Loislaw.com and Capital Resource Lenders III, L.P., as amended. (2) Loislaw.com issued warrants to purchase 100,403, 118 and 1,570 shares of common stock to Capital Resource Lenders III, L.P., CRP Investment Partners LLC and Rowland T. Moriarity, respectively, at a purchase price of $.01 per share in connection with the execution of Amendment No. 4 to the Senior Subordinated Note and Securities Purchase Agreement dated as of November 24, 1997 between Loislaw.com and Capital Resource Lenders III, L.P., as amended. No underwriters were involved in the foregoing sales of securities. Except for the sales made on May 19 and May 25, 1999, such sales were made in reliance upon an exemption from the registration provisions of the Securities Act set forth in Section 4(2) thereof relative to sales by an issuer not involving any public offering or the rules and regulations thereunder. The sales made on May 19 and May 25, 1999 were made in reliance upon the exemption from the registration process provided by Rule 506 of the Securities Act. All of the foregoing securities are deemed restricted securities for purposes of the Securities Act. Grants of Stock Options and Warrants. From November 24, 1996 to June 18, 1999, we granted incentive stock options to purchase an aggregate of 291,561 shares of common stock to employees and officers of Loislaw.com under the 1996 Stock Option Plan at exercise prices ranging from $5.00 to $5.81. These options vest over a period of time following their respective dates of grant. These issuances were exempt from registration under Section 4(2) of, and Rule 701 promulgated under, the Securities Act of 1933, as amended. In addition, on January 1, 1998 and on February 1, 1999, Loislaw.com granted warrants to three investors to purchase an aggregate of 1,074,384 shares of common stock of Loislaw.com at an exercise price of $.01 per share. These issuances were exempt from registration under Section 4(2) of, and Rule 506 promulgated under, the Securities Act of 1933, as amended. On May 19, 1999, one investor exercised its warrants and purchased a total of 1,056,616 shares of common stock of Loislaw.com. II-3 ITEM 16. Exhibits and Financial Statement Schedules (a) Exhibits
Exhibit Number Description ------- ----------- 1.1 Form of Underwriting Agreement *2.1 Agreement and Plan of Merger, dated as of June 16, 1999 *2.2 Certificate and Articles of Merger of Law Office Information Systems, Inc. (an Arkansas Corporation) with and into Loislaw.com, Inc. (a Delaware Corporation). *3.1 Certificate of Incorporation of Loislaw.com, as filed with the Secretary of State of Delaware on June 16, 1999. *3.2 Bylaws of Loislaw.com 4.1 Specimen Certificate for shares of common stock *4.2 Amended and Restated Stockholders' Agreement, dated as of May 25, 1999 by and among Loislaw.com and certain stockholders *4.3 Amended and Restated Registration Rights Agreement, dated as of May 25, 1999 by and among Loislaw.com and certain stockholders 5.1 Opinion of Thompson & Knight, P.C. *10.1 1996 Stock Option Plan *10.2 Form of Employment Agreement by and between Loislaw.com and Kyle D. Parker *10.3 Form of Employment Agreement by and between Loislaw.com and Mark O. Beyland *10.4 Reimbursement Agreement by and among Kyle D. Parker, as Trustee for The Parker Trust, Melissa Ann Parker and Capital Resource Lenders III, L.P. dated as of November 24, 1997, as amended on June 17, 1999. *10.5 Employment Agreement, effective as of July 2, 1996, by and between Loislaw.com and W. Clark Wigley *10.6 Corporate License and Services Agreement, effective as of February 18, 1998, by and between Loislaw.com and Verity, Inc., as amended *10.7 Credit Agreement between Loislaw.com and Fleet National Bank, N.A., dated August 20, 1998 *10.8 First Amendment to Credit Agreement, by and between Loislaw.com and Fleet National Bank, N.A., dated December 31, 1998 *10.9 Second Amendment and Waiver to Credit Agreement, by and between Loislaw.com and Fleet National Bank, N.A., dated April 30, 1999 *10.10 Third Amendment to Credit Agreement, by and between Loislaw.com and Fleet National Bank, N.A., dated May 25, 1999 *10.11 Form of Indemnity Agreement with a schedule of pending director and officer signatories. *10.12 Lease Agreement by and between Loislaw.com and the Parker Law Office dated May 5, 1999. 10.13 Agreement by and between Loislaw.com and Pacific Data Conversion Corporation, dated December 29, 1998. 10.14 Agreement by and between Loislaw.com and Infocon, dated July 1, 1998 10.15 Master Services Agreement by and among Loislaw.com, Digital Publishing International Ltd. and Innodata Corporation, dated June 10, 1998 10.16 Employee Stock Purchase Plan. 10.17 1999 Nonqualified Directors Stock Option Plan for Non-Employee Directors *10.18 Senior Subordinated Note and Securities Purchase Agreement, dated as of November 24, 1997, by and between Loislaw.com and Capital Resource Lenders III, L.P., as amended.
II-4
Exhibit Number Description ------- ----------- *10.19 Internet Services General Agreements by and between Loislaw.com and AT&T, dated as of December 21, 1998. *10.20 AT&T Contract Tariff Order Form by and between AT&T Corp. and Loislaw.com, dated as of April 6, 1999. *10.21 Agreement by and between AT&T Corp. and Loislaw.com for AT&T WorldNetSM Services, dated as of September 25, 1995. *10.22 Form of Customer Subscription Agreement. *21.0 Subsidiaries of Loislaw.com 23.1 Consent of Thompson & Knight, P.C. (included in its opinion filed as Exhibit 5 hereto) *23.2 Consent of KPMG LLP *24.1 Power of Attorney (included on signature page of the Registration Statement as initially filed) *27.1 Financial Data Schedule
- -------- * Filed herewith (b) Financial Statement Schedules None. Schedules not listed above have been omitted because they are not required, are not applicable, or the information is included in the Financial Statements or Notes thereto. ITEM 17. Undertakings Loislaw.com hereby undertakes to provide to the underwriters, at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of Loislaw.com pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person of Loislaw.com in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Loislaw.com hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by Loislaw.com pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, Loislaw.com has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Van Buren, State of Arkansas, on June 18, 1999. Law Office Information Systems, Inc. /s/ Kyle D. Parker By: _________________________________ Kyle D. Parker Chief Executive Officer KNOW ALL PERSONS BY THESE PRESENTS, that each of the persons whose names appear below hereby appoint and constitute Kyle D. Parker and Mark O. Beyland, and each of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to execute any and all amendments to the within Registration Statement, and to sign any and all registration statements relating to the same offering of securities as this Registration Statement that are filed pursuant to Rule 462(b) of the Securities Act of 1933, as amended, and to file the same, together with all exhibits thereto, with the Securities and Exchange Commission, the National Association of Securities Dealers, Inc., and such other agencies, offices and persons as may be required by applicable law, granting unto each said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each said attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons on June 18, 1999 in the capacities indicated:
Signature Title Date --------- ----- ---- /s/ Kyle D. Parker Chairman of the Board and June 18, 1999 ______________________________________ Chief Executive Officer Kyle D. Parker (principal executive officer) /s/ Mark O. Beyland President, Chief Financial June 18, 1999 ______________________________________ Officer and Director Mark O. Beyland /s/ Pamela G. Rogers Controller and chief June 18, 1999 ______________________________________ accounting officer Pamela G. Rogers /s/ Robert C. Ammerman Director June 18, 1999 ______________________________________ Robert C. Ammerman /s/ Randy Laney Director June 18, 1999 ______________________________________ D. Randy Laney /s/ Hannah C. Stone Director June 18, 1999 ______________________________________ Hannah C. Stone
II-6 SCHEDULE II LOISLAW.COM, INC. VALUATION AND QUALIFYING ACCOUNTS Years ended December 31, 1996, 1997 and 1998
Additions Balance at charged to Bad debts Bad Balance beginning costs and written debts at end of year expenses off recovered of year ---------- ---------- --------- --------- ------- 1996: Allowance for doubtful accounts................... $ -- 525,000 -- -- 525,000 ======== ======= ======== ====== ======= 1997: Allowance for doubtful accounts................... $525,000 94,381 (244,381) -- 375,000 ======== ======= ======== ====== ======= 1998: Allowance for doubtful accounts................... $375,000 -- (279,244) 29,218 124,974 ======== ======= ======== ====== =======
S-1 EX-2.1 2 AGREEMENT AND PLAN OF MERGER EXHIBIT 2.1 AGREEMENT AND PLAN OF MERGER ---------------------------- This AGREEMENT AND PLAN OF MERGER (this "Agreement"), executed as of the 16th day of June, 1999, by and between Law Office Information Systems, Inc., an Arkansas corporation ("LOIS (Arkansas)"), and Loislaw.com, Inc., a Delaware corporation ("Loislaw.com"); W I T N E S S E T H: ------------------- WHEREAS, Loislaw.com is a wholly-owned subsidiary of LOIS (Arkansas); and WHEREAS, it is in the best interests of LOIS (Arkansas) and Loislaw.com that LOIS (Arkansas) be merged with and into Loislaw.com in accordance with the laws of the State of Arkansas and the laws of the State of Delaware; NOW, THEREFORE, in consideration of the premises, mutual covenants, conditions, terms and provisions set forth in this Agreement, LOIS (Arkansas) and Loislaw.com do hereby agree as follows: ARTICLE I MERGER OF LOIS (Arkansas) WITH AND INTO LOISLAW.COM LOIS (Arkansas) will be merged with and into Loislaw.com in accordance with, as applicable, Section 4-27-1101 of the Arkansas Business Corporation Act and Section 252 of the Delaware General Corporation Law, with the effective date (the "Effective Date") of such merger (the "Merger") to be 10:00 a.m. central standard time on June 16, 1999. Loislaw.com will be the surviving corporation in the Merger (the "Surviving Corporation," whenever reference is made to it as of the Effective Date or thereafter), and will continue both (i) to use its present corporate name and (ii) to be governed by and incorporated in accordance with the laws of the State of Delaware. ARTICLE II EFFECT OF MERGER The Merger shall in all respects have the effects provided for in Section 4-27-1106 of the Arkansas Business Corporation Act and Section 259 of the General Corporation Law of the State of Delaware, with all rights and obligations of LOIS (Arkansas) being allocated to the Surviving Corporation. Without limiting the generality of the foregoing, in addition to the effects hereinafter set forth, on the Effective Date, the separate existence of LOIS (Arkansas) will cease and the Surviving Corporation (the separate corporate existence and corporate name of which shall continue unimpaired by the Merger) will immediately (i) succeed, without other transfer, to all of the assets, properties, rights and claims of LOIS (Arkansas) and (ii) be subject to all of the debts, duties, obligations and liabilities of LOIS (Arkansas) in the same manner and to the same extent as if such had been incurred by the Surviving Corporation itself. Neither the rights of creditors with respect to LOIS (Arkansas) nor any liens upon the assets or properties of LOIS (Arkansas) will be impaired by the Merger. Any lawsuit, proceeding or claim pending or existing by or against LOIS (Arkansas) may be prosecuted or continued as if the Merger had not occurred or, alternatively, the Surviving Corporation may be substituted for LOIS (Arkansas) with respect to any such lawsuit, proceeding or claim. ARTICLE III TREATMENT OF SHARES On the Effective Date: (i) Each share of common stock, par value $.001 per share, of LOIS (Arkansas) (the "LOIS (Arkansas) Common Stock") that is issued and outstanding immediately prior to the Effective Date shall by virtue of the Merger be changed and converted into one fully paid and nonassessable share of Loislaw.com common stock, par value $.001 per share (the "Loislaw.com Common Stock"); (ii) Each share of Series A Convertible Preferred Stock, par value $.001 per share, of LOIS (Arkansas) (the "LOIS (Arkansas) Series A Preferred Stock") that is issued and outstanding immediately prior to the Effective Date shall by virtue of the Merger be changed and converted into one fully paid and nonassessable share of Loislaw.com Series A Convertible Preferred Stock, par value $.001 per share (the "Loislaw.com Series A Preferred Stock"); (iii) Each share of Series B Redeemable Preferred Stock, par value $.001 per share, of LOIS (Arkansas) (the "LOIS (Arkansas) Series B Preferred Stock") that is issued and outstanding immediately prior to the Effective Date shall by virtue of the Merger be changed and converted into one fully paid and nonassessable share of Loislaw.com Series B Redeemable Preferred Stock, par value $.001 per share (the "Loislaw.com Series B Preferred Stock"); (iv) Each share of Series C Convertible Preferred Stock, par value $.001 per share, of LOIS (Arkansas) (the "LOIS (Arkansas) Series C Preferred Stock") that is issued and outstanding immediately prior to the Effective Date shall by virtue of the Merger be changed and converted into one fully paid and nonassessable share of Loislaw.com Series C Convertible Preferred Stock, par value $.001 per share (the "Loislaw.com Series C Preferred Stock"); (v) Each stock option and warrant to purchase LOIS (Arkansas) Common Stock that is outstanding immediately prior to the Effective Date shall by virtue of the Merger be changed and converted into an option or warrant, as the case may be, to purchase the same number of shares of Loislaw.com Common Stock at the same exercise price and on the same terms and conditions as in effect at such time; and (vi) Each share of Loislaw.com Common Stock issued and outstanding immediately prior to the Effective Date shall be canceled and retired and shall cease to exist. 2 ARTICLE IV CORPORATE AUTHORIZATION This Agreement and the Merger shall be authorized by LOIS (Arkansas) and Loislaw.com as provided by the applicable laws of the State of Arkansas and the State of Delaware. If this Agreement is duly authorized and adopted by such corporations, this Agreement shall be executed, filed and recorded in accordance with the laws of the State of Arkansas and the State of Delaware as soon as practicable. ARTICLE V CERTIFICATE OF INCORPORATION The Certificate of Incorporation of Loislaw.com as in effect immediately prior to the Effective Date shall be and continue to be the Certificate of Incorporation of the Surviving Corporation. ARTICLE VI BYLAWS, OFFICERS AND DIRECTORS The Bylaws of Loislaw.com, as existing immediately prior to the Effective Date, shall continue in full force and effect as the Bylaws of the Surviving Corporation, until such Bylaws are thereafter modified, amended or repealed in accordance with the laws of the State of Delaware and the applicable provisions of such Bylaws. The officers and directors of Loislaw.com immediately prior to the Effective Date shall continue after the Merger to serve as the officers and directors of the Surviving Corporation, until such time as the successor of each such officer or director is chosen and qualified or until his or her earlier death, resignation, retirement, disqualification or removal from office. ARTICLE VII SERVICE OF PROCESS The Surviving Corporation may be served with process in the State of Arkansas in any proceeding for enforcement of any obligation of LOIS (Arkansas), as well as for enforcement of any obligation of the Surviving Corporation arising from the Merger, and in any proceeding for the enforcement of the rights of dissenting shareholders of LOIS (Arkansas) and it does hereby irrevocably appoint the Secretary of State of Arkansas as its agent to accept service of process in any such suit or other proceeding. Copies of such process shall also be mailed to: Loislaw.com, Inc., 105 North 28/th/ Street, Van Buren, Arkansas 72956, Attention: President, and to Thompson & Knight, A Professional Corporation, 1700 Pacific Avenue, Suite 3300, Dallas, Texas 75201, Attention: Kenn W. Webb. 3 ARTICLE VIII DISSENTING SHAREHOLDERS The Surviving Corporation will promptly pay to any dissenting shareholders of LOIS (Arkansas) the amount, if any, to which they shall be entitled under Section 4-27-1301 et seq. of the Arkansas Business Corporation Act with respect to the rights of dissenting shareholders. ARTICLE IX ABANDONMENT At any time prior to the Effective Date of the Merger, this Agreement may be terminated and abandoned by the Board of Directors of either of the constituent corporations to this Agreement, notwithstanding favorable action on the Merger by the shareholders of both or either of such constituent corporations. * * * * [Remainder of page intentionally left blank.] 4 IN WITNESS WHEREOF, LOIS (Arkansas) and Loislaw.com have caused this Agreement to be executed as of the date first above written. LAW OFFICE INFORMATION SYSTEMS, INC., an Arkansas corporation By: /s/ Kyle D. Parker __________________________________ Kyle D. Parker Chief Executive Officer LOISLAW.COM, INC., a Delaware corporation By: /s/ Kyle D. Parker ___________________________________ Kyle D. Parker Chief Executive Officer 5 EX-2.2 3 ARTICLES AND PLAN OF MERGER EXHIBIT 2.2 CERTIFICATE OF MERGER of LAW OFFICE INFORMATION SYSTEMS, INC. (an Arkansas corporation) with and into LOISLAW.COM, INC. (a Delaware corporation) (UNDER SECTION 252 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE) ========================================= Loislaw.com, Inc., a Delaware corporation ("Loislaw.com"), hereby certifies that: (1) The name and state of incorporation of each of the constituent corporations are: (a) Loislaw.com, Inc., a Delaware corporation; and (b) Law Office Information Systems, Inc., an Arkansas corporation ("LOIS (Arkansas)"). (2) An Agreement and Plan of Merger has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations in accordance with the provisions of Section 252 of the General Corporation Law of the State of Delaware. (3) The name of the surviving corporation is Loislaw.com., Inc., a Delaware corporation. (4) The Certificate of Incorporation of Loislaw.com, which is the surviving corporation, shall be the Certificate of Incorporation of the surviving corporation. (5) The executed Agreement and Plan of Merger is on file at the principal place of business of Loislaw.com at 105 North 28/th/ Street, Van Buren, Arkansas, 72956. (6) A copy of the Agreement and Plan of Merger will be furnished by Loislaw.com, on request and without cost, to any stockholder of either constituent corporation. (7) The authorized capital stock of each foreign corporation which is a party to the merger is as follows:
Corporation Class Series Number of Shares Par Value - ----------------- ------------ -------------------- ---------------- --------- LOIS (Arkansas) Common Stock None 10,000,000 $.001 Preferred Series A Convertible 931,044 $.001 Preferred Series B Redeemable 439,589 $.001 Preferred Series C Convertible 2,495,697 $.001 Preferred Undesignated 1,133,670 $.001
8. In accordance with the Plan, the Merger shall become effective upon filing this document with the Secretary of State of Delaware. IN WITNESS WHEREOF, Loislaw.com, has caused this Certificate to be signed by the undersigned on the 16th day of June, 1999. LOISLAW.COM, INC., a Delaware corporation By: /s/ Kyle D. Parker ----------------------------- Kyle D. Parker Chief Executive Officer 2 EXHIBIT 2.2 (cont.) LAW OFFICE INFORMATION SYSTEMS, INC. ARTICLES OF MERGER Pursuant to the provisions of Section 4-27-1105 of the Arkansas Business Corporation Act, each of the undersigned corporations hereby adopts the following Articles of Merger for the purpose of effecting a merger in accordance with the provisions of Section 4-27-1101 of the Arkansas Business Corporation Act (the "Act"). 1. The name of each of the undersigned corporations and the state under the laws of which each is incorporated are: Name of Entity State -------------- ----- Law Office Information Systems, Inc. Arkansas Loislaw.com, Inc. Delaware 2. An Agreement and Plan of Merger, attached hereto as Exhibit A (the "Plan"), --------- providing for the merger of Law Office Information Systems, Inc., an Arkansas corporation ("LOIS (Arkansas)") with and into Loislaw.com, Inc., a Delaware corporation ("Loislaw.com") (the "Merger") has been approved by each of the undersigned corporations. 3. The name of the surviving corporation in the Merger is Loislaw.com, Inc. (the "Surviving Corporation"). 4. An executed copy of the Plan is on file at the principal place of business of the Surviving Corporation, whose address is 105 North 28/th/ Street, Van Buren, Arkansas 72956. A copy of the Plan will be furnished by the Surviving Corporation on written request and without cost to any shareholder of the undersigned corporations. 5. As to each of the undersigned corporations, the approval of whose shareholders is required, the designation, number of outstanding shares and number of votes entitled to be cast by each voting group entitled to vote separately on the Plan are as follows:
Name of Entity and Voting Group(s) Entitled to Vote Number of Shares Separately Outstanding Number of Votes ------------------------- ---------------- --------------- LOIS (Arkansas) Common Stock, par value 5,093,021 5,093,021 $.001 per share Series A Convertible 931,044 931,044 Preferred Stock, par value $.001 per share Series C Convertible 2,495,697 2,495,697 Preferred Stock, par value $.001 per share Loislaw.com Common Stock, par value 1,000 1,000 $.001 per share
6. As to each of the undersigned corporations, the approval of whose shareholders is required, the number of outstanding shares of each voting group entitled to vote separately on the Plan that voted for and against the Plan, respectively, are as follows: 2
Name of Entity and Voting Group(s) Entitled to Vote Separately Total Voted For Total Voted Against -------------------------- --------------- ------------------- LOIS (Arkansas) Common Stock, par value 5,093,021 -0- $.001 per share Series A Convertible 931,044 -0- Preferred Stock, par value $.001 per share Series C Convertible 2,495,697 -0- Preferred Stock, par value $.001 per share Loislaw.com Common Stock, par value 1,000 -0- $.001 per share
The total number of votes cast in favor of the Plan by each voting group entitled to vote separately on the Plan was sufficient for approval by each such voting group. 7. As to each of the undersigned corporations, the Plan and the performance of its terms were duly authorized by all action required by the laws of Arkansas and Delaware, respectively, and by the constituent documents of such corporation. 8. In accordance with the Plan, the Merger shall become effective upon filing this document with the Secretary of State of Arkansas. * * * * [Remainder of page intentionally left blank.] 3 IN WITNESS WHEREOF, LOIS (Arkansas) and Loislaw.com have caused these Articles of Merger to be signed by the undersigned on the 16th day of June, 1999. LAW OFFICE INFORMATION SYSTEMS, INC., an Arkansas corporation By: /s/ Kyle D. Parker ----------------------------------- Kyle D. Parker Chief Executive Officer LOISLAW.COM, INC., a Delaware corporation By: /s/ Kyle D. Parker ----------------------------------- Kyle D. Parker Chief Executive Officer 4 EX-3.1 4 CERTIFICATE OF INCORPORATION OF LOISLAW.COM EXHIBIT 3.1 CERTIFICATE OF INCORPORATION OF LOISLAW.COM, INC. ARTICLE I The name of the corporation is Loislaw.com, Inc. (the "Corporation"). ARTICLE II The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle 19801. The name of its registered agent at such address is The Corporation Trust Company. ARTICLE III The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law. ARTICLE IV A. Authorized Shares. The aggregate number of shares of capital stock ----------------- that the Corporation shall have the authority to issue is 60,000,000 consisting of (i) 50,000,000 shares of common stock, par value $.001 per share ("Common Stock"), and (ii) 10,000,000 shares of preferred stock, par value $.001 per share ("Preferred Stock"). B. Common Stock. ------------ 1. Dividends. Subject to the preferential rights, if any, of the Preferred Stock, the holders of shares of Common Stock shall be entitled to receive, when and if declared by the Board of Directors, out of the assets of the Corporation which are by law available therefor, dividends payable in cash, in property, or in shares of Common Stock or other securities of the Corporation. 2. Voting Rights. At every annual or special meeting of stockholders of the Corporation, every holder of Common Stock shall be entitled to one vote, in person or by proxy, for each share of Common Stock standing in his or her name on the books of the Corporation. 3. Liquidation, Dissolution or Winding Up. In the event of any voluntary or involuntary liquidation, dissolution, or winding up of the affairs of the Corporation, after payment or provision for payment of the debts and other liabilities of the Corporation and of the preferential amounts, if any, to which the holders of Preferred Stock may be entitled, the holders of all outstanding shares of Common Stock shall be entitled to share ratably in the remaining net assets of the Corporation. 4. Redemption. The Common Stock is not redeemable. C. Preferred Stock. Shares of Preferred Stock may be issued from time to --------------- time in one or more series, without further stockholder approval. Pursuant to Section 151 of the Delaware General Corporation Law, the Board of Directors of the Corporation is hereby authorized, by resolution or resolutions, to fix or alter the rights, preferences, privileges and restrictions granted to or imposed upon each series of Preferred Stock, and the number of shares constituting any such series and the designation thereof, or of any of them. The Board of Directors is also authorized to increase or decrease the number of shares of any series prior or subsequent to the issue of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. ARTICLE V The following provisions are inserted for the management of the business and for the conduct of the affairs of the Corporation and for defining and regulating the powers of the Corporation and its directors and stockholders: A. The directors, other than those who may be elected by the holders of the Preferred Stock or any series thereof, shall be classified, with respect to the time for which they severally hold office, into three classes, Class One to serve for a term expiring at the annual meeting of stockholders to be held in 2000, Class Two to serve for a term expiring at the annual meeting of stockholders to be held in 2001, and Class Three to serve for a term expiring at the annual meeting of stockholders to be held in 2002, with each class to hold office until its successors are duly elected and qualified or until their earlier resignation, death or removal. At each annual meeting of the stockholders of the Corporation, the date of which shall be fixed by or pursuant to the Bylaws of the Corporation, the successors of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election and until their successors are duly elected and qualified or until their earlier resignation, death or removal. The directors who shall initially serve as Class One directors, Class Two directors and Class Three directors are set forth in Article VIII of this Certificate of Incorporation. B. The number of directors constituting the entire Board of Directors of the Corporation is four. Subject to the provisions of law and the rights of holders of the Preferred Stock or any series thereof, the number of directors of the Corporation may be increased or decreased from time to time pursuant to the Bylaws of the Corporation. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director, and no action shall be taken by the directors (whether through amendment to the Bylaws or otherwise) to increase the number of directors unless at least 75% of the directors then in office shall concur in said action. C. Advance notice of nominations for the election of directors and other stockholder proposals shall be given in the manner and to the extent provided in the Bylaws of the Corporation. 2 D. Subject to the provisions of law and the rights of holders of the Preferred Stock or any series thereof, newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, removal or other cause shall be filled only by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors, or by a sole remaining director. Any director elected in accordance with the preceding sentence of this paragraph shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been duly elected and qualified. E. Subject to provisions of law and the rights of the holders of the Preferred Stock or any series thereof, any director may be removed from office only for cause and only by the affirmative vote of the holders of a majority of the combined voting power of the then outstanding shares of voting capital stock of the Corporation, voting together as a single class. For purposes of this paragraph, "cause" shall mean the willful and continuous failure of a director substantially to perform such director's duties to the Corporation (other than any such failure resulting from incapacity due to physical or mental illness) or the willful engaging by a director in gross misconduct materially and demonstrably injurious to the Corporation. F. The Board of Directors of the Corporation is expressly authorized and empowered to make, alter or repeal the Bylaws, subject only to such limitation, if any, as may be from time to time imposed by law. G. Any merger or consolidation between the Corporation and any other corporation or business entity that requires the approval of the stockholders of the Corporation under the provisions of the Delaware General Corporation Law, or a sale, lease or exchange of all or substantially all of the assets of the Corporation, or a voluntary dissolution of the Corporation, may be authorized only by the affirmative vote of the holders of at least two-thirds of the outstanding shares of capital stock of the Corporation entitled to vote thereon (including the affirmative vote of the holders of at least two-thirds of the shares of any class or series of capital stock entitled to vote separately thereon). H. The stockholders of the Corporation shall not be permitted to take any action required or permitted to be taken at any meeting of the stockholders of the Corporation by a written consent or consents of the holders of less than all of the outstanding shares of capital stock of the Corporation entitled to vote thereon. I. Elections of directors need not be by written ballot unless otherwise provided in the Bylaws of the Corporation. J. The provisions of this Article V may only be amended by the vote of the holders of at least two-thirds of the capital stock of the Corporation issued, outstanding and entitled to vote thereon (including the holders of at least two-thirds of the issued and outstanding shares or any class or series entitled to vote separately thereon). 3 ARTICLE VI No director of the Corporation shall be personally liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (a) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section 174 of the Delaware General Corporation Law, or (d) for any transaction from which the director derived any improper personal benefit. Neither the amendment nor repeal of this Article VI, nor the adoption of any provision of the Corporation's Certificate of Incorporation inconsistent with this Article VI, shall eliminate or reduce the effect of this Article VI in respect of any matter occurring, or any cause of action, suit or claim that, but for this Article VI, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. ARTICLE VII To the fullest extent permitted by applicable law, the Corporation shall indemnify any officer or director as set forth in the Bylaws of the Corporation, pursuant to Section 145 of the Delaware General Corporation Law. ARTICLE VIII The names and mailing addresses of the persons who are to serve as the initial directors of the Corporation until the expiration of their respective terms, as set forth in the Bylaws of the Corporation, and until their respective successors are duly elected and qualified, are as follows:
Name Mailing Address Director Class ---- --------------- -------------- Kyle D. Parker 105 North 28/th/ Street Three Van Buren, Arkansas 72956 Mark O. Beyland 105 North 28/th/ Street Three Van Buren, Arkansas 72956 Robert Ammerman 85 Merrimac Street, Suite 200 Two Boston, Massachusetts 02114 Hannah Stone 767 Fifth Avenue, 45/th/ Floor One New York, New York 10153
ARTICLE IX The name of the incorporator of the Corporation is Kenn W. Webb, and the mailing address of such incorporator is Thompson & Knight, P.C., 1700 Pacific Avenue, Suite 3300, Dallas, Texas 75201. IN WITNESS WHEREOF, the undersigned, being the incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the Delaware General Corporation Law, does make 4 this Certificate, hereby declaring and certifying that the facts herein are true, and accordingly has hereunto set his hand as of the 15th day of June, 1999. /s/ Kenn W. Webb --------------------------- Kenn W. Webb 5 EX-3.2 5 BYLAWS OF LOISLAW.COM EXHIBIT 3.2 BYLAWS OF LOISLAW.COM, INC. ARTICLE I CORPORATE OFFICES Section 1.1 Registered Office. The address of the Corporation's ----------------- registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington County of New Castle Center 19801. The name of its registered agent at such address is the Corporation Trust Company. Section 1.2 Other Offices. The Board of Directors may at any time ------------- establish other offices at any place or places where the Corporation is qualified to do business. ARTICLE II MEETINGS OF STOCKHOLDERS Section 2.1 Place of Meetings. Meetings of stockholders shall be held ----------------- at any place, within or outside the State of Delaware, designated by the Board of Directors. In the absence of any such designation, stockholders' meetings shall be held at the registered office of the Corporation. Section 2.2 Annual Meeting. -------------- (a) The annual meeting of stockholders shall be held each year on a date and at a time designated by the Board of Directors. At the meeting, directors shall be elected and any other proper business may be transacted. (b) For nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be transacted by the stockholders may be made at an annual meeting of stockholders (i) pursuant to the Corporation's notice with respect to such meeting, (ii) by or at the direction of the Board of Directors or (iii) by any stockholder of the Corporation who was a stockholder of record at the time of giving of the notice provided for in this Section 2.2, who is entitled to vote at the meeting and who has complied with the notice procedures set forth in this Section 2.2. (c) Nominations of persons for election as directors of the Corporation or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of paragraph (b) of this Section 2.2, the stockholder must have given timely notice thereof in writing to the secretary of the Corporation and such business must be a proper matter for stockholder action under the Delaware General Corporation Law. To be timely, a stockholder's notice shall be delivered to the secretary at the principal executive offices of the Corporation not less than 30 days nor more than 90 days prior to the first anniversary of the preceding year's annual meeting of stockholders; provided, however, that in the event that the date of the annual meeting is more than 30 days prior to or more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the 90th day prior to such annual meeting and not later than the close of business on the later of the 20th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. Such stockholder's notice shall set forth (i) as to each person whom the stockholder proposes to nominate for election or re-election as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (ii) as to any other business that the stockholder proposes to bring before the meeting, a brief description of such business, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made: (A) The name and address of such stockholder, as they appear on the Corporation's books, and of such beneficial owner; and (B) The class and number of shares of capital stock of the Corporation that are owned beneficially and of record by such stockholder and such beneficial owner. (d) Only such business shall be conducted at an annual meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 2.2. The chairman of the meeting shall determine whether a nomination or any business proposed to be transacted by the stockholders has been properly brought before the meeting and, if any proposed nomination or business has not been properly brought before the meeting, the chairman shall declare that such proposed business or nomination shall not be presented for stockholder action at the meeting. (e) For purposes of this Section 2.2, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or a comparable national news service or the filing of information with the Securities and Exchange Commission via the EDGAR filing system. (f) Nothing in this Section 2.2 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 (or any successor rule) promulgated under the Exchange Act. Section 2.3 Special Meeting. --------------- (a) A special meeting of the stockholders may be called at any time by the Board of Directors, the chairman of the board, the president or the holders of a majority of the outstanding shares of capital stock entitled to vote on such matters properly coming before a special meeting of the stockholders of the Corporation. (b) Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to such notice of 2 meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in Section 2.5, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in Section 2.5. Section 2.4 Notice of Stockholder's Meetings; Affidavit of Notice. ----------------------------------------------------- (a) All notices of meetings of stockholders shall be in writing and shall be sent or otherwise given in accordance with this Section 2.4 of these Bylaws not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting (or such longer or shorter time as is required by Section 2.5 of these Bylaws, if applicable). The notice shall specify the place, date, and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. (b) Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his or her address as it appears on the records of the Corporation. An affidavit of the secretary or an assistant secretary or of the transfer agent of the Corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. Section 2.5 Quorum. The holders of a majority of the stock issued and ------ outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (a) the chairman of the meeting or (b) a majority of the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 2.6 Conduct of Business. The chairman of any meeting of ------------------- stockholders shall determine the order of business and the procedure at the meeting, including the manner of voting and the conduct of business. Section 2.7 Voting. The stockholders entitled to vote at any meeting of ------ stockholders shall be determined in accordance with the provisions of Section 2.9 of these Bylaws, subject to the provisions of Sections 217 and 218 of the Delaware General Corporation Law (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements). Except as may be otherwise provided in the Certificate of Incorporation, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder. Section 2.8 Waiver of Notice. Whenever notice is required to be given ---------------- under any provision of the Delaware General Corporation Law or of the Certificate of Incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the 3 time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or these Bylaws. Section 2.9 Record Date for Stockholder Notice. In order that the ---------------------------------- Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. If the Board of Directors does not so fix a record date: (a) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (b) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 2.10 Proxies. Each stockholder entitled to vote at a meeting of ------- stockholders may authorize another person or persons to act for such stockholder by a written proxy, signed by the stockholder and filed with the secretary of the Corporation, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the stockholder or the stockholder's attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(e) of the Delaware General Corporation Law. Section 2.11 Stockholder Action by Unanimous Written Consent without a --------------------------------------------------------- Meeting. Unless otherwise restricted by the Certificate of Incorporation or - ------- these Bylaws, any action required or permitted to be taken at any meeting of the stockholders of the Corporation may be taken without a meeting if holders of all the shares of capital stock entitled to vote thereon consent thereto in writing. Written consents representing actions taken by the stockholders of the Corporation may be executed by telex, telecopy or other facsimile transmission, and such facsimile shall be valid and binding to the same extent as if it were an original. 4 ARTICLE III DIRECTORS Section 3.1 Powers. Subject to the provisions of the Delaware General ------ Corporation Law and any limitations in the Certificate of Incorporation or these Bylaws relating to action required to be approved by the stockholders, the business and affairs of the Corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors. Section 3.2 Number of Directors. The number of directors constituting ------------------- the initial Board of Directors shall be as set forth in the Certificate of Incorporation. Subject to the limitations contained in the Certificate of Incorporation, the number of directors of the Corporation shall be fixed from time to time by resolution adopted by a vote of a majority of the entire Board of Directors, provided that the number so fixed shall not be less than four nor more than 15. Section 3.3 Election, Qualification and Term of Office of Directors. ------------------------------------------------------- Subject to the provisions of Article V of the Certificate of Incorporation concerning a classified board of directors and except as provided in Section 3.4 of these Bylaws, the successors of the class of directors whose term expires at that annual meeting of stockholders shall be elected to hold office until the annual meeting of stockholders held in the third year following the year of their election. Directors need not be stockholders unless so required by the Certificate of Incorporation, wherein other qualifications for directors may be prescribed. Each director, including a director elected to fill a vacancy, shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. Elections of directors need not be by written ballot. Section 3.4 Resignation and Vacancies. Any director may resign at any ------------------------- time upon written notice to the attention of the secretary of the Corporation. When one or more directors so resign and the resignation is effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have the sole power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective. Subject to the rights of holders of capital stock of the Corporation pursuant to any valid and binding agreement, any vacancy occurring on the Board of Directors created by reason of newly created directorships resulting from the issuance of any class or series of capital stock of the Corporation or newly created directorships resulting from any increase in the number of directors and any vacancy occurring on the Board of Directors resulting from death, resignation, removal or other cause shall be filled solely by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors, or by a sole remaining director. Any such director elected to fill a vacancy on the Board of Directors shall hold such office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified. Unless otherwise provided in the Certificate of Incorporation or these Bylaws, whenever any holders of a class or series of capital stock of the Corporation have the right to elect one or more directors pursuant to the Certificate of Incorporation or the provisions of any valid and binding agreement, vacancies in directorships to which such right relates may be filled by a majority of the directors elected by the holders of such class or classes or series then in office, or by a sole remaining director so elected. If at any time, by reason of death or resignation or other cause, the Corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or 5 guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the Certificate of Incorporation or these Bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the Delaware General Corporation Law. Section 3.5 Place of Meetings; Meetings by Telephone. ---------------------------------------- (a) The Board of Directors of the Corporation may hold meetings, both regular and special, either within or outside the State of Delaware. (b) Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. Section 3.6 Regular Meetings. Regular meetings of the Board of ---------------- Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board of Directors. Section 3.7 Special Meetings; Notice. ------------------------ (a) Special meetings of the Board of Directors for any purpose or purposes may be called at any time by the chairman of the board, the president or any two directors. (b) Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the Corporation. If the notice is mailed, it shall be deposited in the United States mail at least four days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or by telegram, it shall be delivered personally or by telephone or to the telegraph company at least 24 hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the Corporation. Section 3.8 Quorum. At all meetings of the Board of Directors, a ------ majority of the authorized number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation. If a quorum is not present at any meeting of the Board of Directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. 6 A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting. Section 3.9 Waiver of Notice. Whenever notice is required to be given ---------------- under any provision of the Delaware General Corporation Law or of the Certificate of Incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or these Bylaws. Section 3.10 Board Action by Written Consent without a Meeting. Unless ------------------------------------------------- otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Written consents representing actions taken by the board or committee may be executed by telex, telecopy or other facsimile transmission, and such facsimile shall be valid and binding to the same extent as if it were an original. Section 3.11 Fees and Compensation of Directors. Unless otherwise ---------------------------------- restricted by the Certificate of Incorporation or these Bylaws, the Board of Directors shall have the authority to fix the compensation of directors and no such compensation shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Section 3.12 Approval of Loans to Officers. The Corporation may lend ----------------------------- money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the Corporation or of its subsidiary, including any officer or employee who is a director of the Corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the Corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the Corporation. Nothing contained in this Section 3.12 shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the Corporation at common law or under any statute. Section 3.13 Removal of Directors. Subject to provisions of the Delaware -------------------- General Corporation Law and the rights of the holders of any shares of capital stock of the Corporation, any director may be removed from office only for cause and only by the affirmative vote of the holders of a majority of the combined voting power of the then outstanding shares of voting capital stock of the Corporation, voting together as a single class. For purposes of this Section 3.13, "cause" shall mean the willful and continuous failure of a director substantially to perform such director's duties to the Corporation (other than any such failure resulting from incapacity due to physical or mental 7 illness) or the willful engaging by a director in gross misconduct materially and demonstrably injurious to the Corporation. Section 3.14 Chairman of the Board of Directors. The Corporation may ---------------------------------- also have, at the discretion of the Board of Directors, a chairman of the Board of Directors who shall not be considered an officer of the Corporation. ARTICLE IV COMMITTEES Section 4.1 Committees of Directors. The Board of Directors may, by ----------------------- resolution passed by a majority of the whole Board of Directors, designate one or more committees, with each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors or in the Bylaws of the Corporation, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (a) amend the Certificate of Incorporation (except that committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors as provided in Section 151(a) of the Delaware General Corporation Law, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), (b) adopt an agreement of merger or consolidation under Sections 251, 252, 254, 255, 256, 257, 258, 263 or 264 of the Delaware General Corporation Law, (c) recommend to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, (d) recommend to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or (e) amend the Bylaws of the Corporation; and, unless the Board resolution establishing the committee, the Bylaws or the Certificate of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law. Section 4.2 Committee Minutes. Each committee shall keep regular ----------------- minutes of its meetings and report the same to the Board of Directors when required. Section 4.3 Meetings and Action of Committees. Meetings and actions of --------------------------------- committees shall be governed by, and held and taken in accordance with, the provisions of Section 3.5 (place of meetings and meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special meetings 8 and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and Section 3.10 (action without a meeting) of these Bylaws, with such changes in the context of such provisions as are necessary to substitute the committee and its members for the Board of Directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the Board of Directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the Board of Directors and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board of Directors may adopt rules for the governance of any committee not inconsistent with the provisions of these Bylaws. ARTICLE V OFFICERS Section 5.1 Officers. The officers of the Corporation shall be a chief -------- executive officer, a president, a secretary, and a chief financial officer. The Corporation may also have, at the discretion of the Board of Directors, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and any such other officers as may be appointed in accordance with the provisions of Section 5.3 of these Bylaws. Any number of offices may be held by the same person. Section 5.2 Appointment of Officers. The officers of the Corporation, ----------------------- except such officers as may be appointed in accordance with the provisions of Sections 5.3 or 5.5 of these Bylaws, shall be elected by the Board of Directors, subject to the rights, if any, of an officer under any contract of employment. Section 5.3 Subordinate Officers. The Board of Directors may appoint, -------------------- or empower the chief executive officer or the president to appoint, such other officers and agents as the business of the Corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these Bylaws or as the Board of Directors may from time to time determine. Section 5.4 Removal and Resignation of Officers. Subject to the rights, ----------------------------------- if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board of Directors at any regular or special meeting of the Board of Directors or, except in the case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors. Any officer may resign at any time by giving written notice to the attention of the secretary of the Corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Corporation under any contract to which the officer is a party. Section 5.5 Vacancies in Offices. Any vacancy occurring in any office -------------------- of the Corporation shall be filled by the Board of Directors. 9 Section 5.6 Chief Executive Officer. Subject to such supervisory ----------------------- powers, if any, as may be given by the Board of Directors to the chairman of the board, if any, the chief executive officer of the Corporation shall, subject to the control of the Board of Directors, have general supervision, direction, and control of the business and the officers of the Corporation. He or she shall preside at all meetings of the stockholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the Board of Directors and shall have the general powers and duties of management usually vested in the office of chief executive officer of a corporation and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. Section 5.7 President. Subject to such supervisory powers, if any, as --------- may be given by the Board of Directors to the chairman of the board (if any) or the chief executive officer, the president shall have general supervision, direction, and control of the business and other officers of the Corporation. He or she shall have the general powers and duties of management usually vested in the office of the chief operating officer of a corporation and such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. Section 5.8 Vice Presidents. In the absence or disability of the chief --------------- executive officer and president, the vice presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a vice president designated by the Board of Directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors, these Bylaws, the chief executive officer, the president or the chairman of the board. Section 5.9 Secretary. The secretary shall keep or cause to be kept, at --------- the principal executive office of the Corporation or such other place as the Board of Directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, the names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the Corporation or at the office of the Corporation's transfer agent or registrar, as determined by resolution of the Board of Directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors required to be given by law or by these Bylaws. He or she shall keep the seal of the Corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by these Bylaws. Section 5.10 Chief Financial Officer. The chief financial officer shall ----------------------- keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, 10 receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director. The chief financial officer shall deposit all moneys and other valuables in the name and to the credit of the Corporation with such depositories as may be designated by the Board of Directors. He or she shall disburse the funds of the Corporation as may be ordered by the Board of Directors, shall render to the president, the chief executive officer, or the directors, upon request, an account of all his or her transactions as chief financial officer and of the financial condition of the Corporation, and shall have other powers and perform such other duties as may be prescribed by the Board of Directors or the Bylaws. Section 5.11 Representation of Shares of Other Corporations. The ---------------------------------------------- chairman of the board, the chief executive officer, the president, any vice president, the chief financial officer, the secretary or assistant secretary of this Corporation, or any other person authorized by the Board of Directors or the chief executive officer or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this Corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this Corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by the person having such authority. Section 5.12 Authority and Duties of Officers. In addition to the -------------------------------- foregoing authority and duties, all officers of the Corporation shall respectively have such authority and perform such duties in the management of the business of the Corporation as may be designated from time to time by the Board of Directors or the stockholders. ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS Section 6.1 Indemnification of Directors and Officers. The Corporation ----------------------------------------- shall, to the maximum extent and in the manner permitted by the Delaware General Corporation Law, indemnify each of its directors and officers against expenses (including attorneys' fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was a director or officer of the Corporation. For purposes of this Section 6.1, a "director" or "officer" of the Corporation includes any person (a) who is or was a director or officer of the Corporation, (b) who is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or (c) who was a director or officer of a corporation which was a predecessor corporation of the Corporation or of another enterprise at the request of such predecessor corporation. Section 6.2 Indemnification of Others. The Corporation may indemnify ------------------------- each of its employees and agents (other than directors and officers) against expenses (including attorneys' fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an employee or agent of the Corporation. For purposes of this Section 6.2, an "employee" or "agent" of the Corporation (other than a director or officer) includes any person (a) who is or was an employee or agent of the 11 Corporation, (b) who is or was serving at the request of the Corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (c) who was an employee or agent of a corporation which was a predecessor corporation of the Corporation or of another enterprise at the request of such predecessor corporation. Section 6.3 Payment of Expenses in Advance. Expenses incurred in ------------------------------ defending any action or proceeding for which indemnification is required pursuant to Section 6.1 or for which indemnifications permitted pursuant to Section 6.2 following authorization thereof by the Board of Directors shall be paid by the Corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined that the indemnified party is not entitled to be indemnified as authorized in this Article VI. Section 6.4 Indemnity Not Exclusive. The indemnification provided by ----------------------- this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any Bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent that such additional rights to indemnification are authorized in the Certificate of Incorporation. Section 6.5 Insurance. The Corporation may purchase and maintain --------- insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of the Delaware General Corporation Law. Section 6.6 Conflicts. No indemnification or advance shall be made --------- under this Article VI, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears: (a) That it would be inconsistent with a provision of the Certificate of Incorporation, these Bylaws, a resolution of the stockholders or an agreement in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or (b) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement. 12 ARTICLE VII RECORDS AND REPORTS Section 7.1 Maintenance and Inspection of Records. The Corporation ------------------------------------- shall, either at its principal executive offices or at such place or places as designated by the Board of Directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these Bylaws as amended to date, accounting books, and other records. Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the Corporation at its registered office in Delaware or at its principal place of business. Section 7.2 Inspection by Directors. Any director shall have the right ----------------------- to examine the Corporation's stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his or her position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the Corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper. Section 7.3 Annual Statement to Stockholders. The Board of Directors -------------------------------- shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the Corporation. ARTICLE VIII GENERAL MATTERS Section 8.1 Checks. From time to time, the Board of Directors shall ------ determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the Corporation, and only the persons so authorized shall sign or endorse those instruments. Section 8.2 Execution of Corporate Contracts and Instruments. The Board ------------------------------------------------ of Directors, except as otherwise provided in these Bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation; such authority may be general or confined to specific instances. Unless so authorized 13 or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. Section 8.3 Stock Certificates; Partly Paid Shares. The shares of the -------------------------------------- Corporation shall be represented by certificates, provided that the Board of Directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the Corporation by the chairman or vice chairman of the Board of Directors, or the chief executive officer or the president or vice president, and by the chief financial officer or an assistant treasurer, or the secretary or an assistant secretary of the Corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue. The Corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the Corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the Corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon. Section 8.4 Special Designation on Certificates. If the Corporation is ----------------------------------- authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the Delaware General Corporation Law, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 8.5 Lost Certificates. Except as provided in this Section 8.5, ----------------- no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the Corporation and canceled at the same time. The Corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate previously issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or the owner's legal representative, to give the Corporation a bond sufficient to indemnify 14 it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares. Section 8.6 Construction; Definitions. Unless the context requires ------------------------- otherwise, the general provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. Section 8.7 Dividends. The directors of the Corporation, subject to any --------- restrictions contained in (a) the Delaware General Corporation Law or (b) the Certificate of Incorporation, may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property, or in shares of the Corporation's capital stock. The directors of the Corporation may set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the Corporation, and meeting contingencies. Section 8.8 Fiscal Year. The fiscal year of the Corporation shall be ----------- fixed by resolution of the Board of Directors and may be changed by the Board of Directors. Section 8.9 Seal. The Corporation may adopt a corporate seal, which may ---- be altered at pleasure, and may use the same by causing it or a facsimile thereof, to be impressed or affixed or in any other manner reproduced. Section 8.10 Transfer of Stock. Upon surrender to the Corporation or the ----------------- transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books. Section 8.11 Stock Transfer Agreements. The Corporation shall have power ------------------------- to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the Corporation to restrict the transfer of shares of stock of the Corporation of any one or more classes owned by such stockholders in any manner not prohibited by the Delaware General Corporation Law. Section 8.12 Registered Stockholders. The Corporation shall be entitled ----------------------- to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. 15 ARTICLE IX AMENDMENTS The Bylaws of the Corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the Corporation may, in its Certificate of Incorporation, confer the power to adopt, amend or repeal Bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal Bylaws. 16 EX-4.2 6 AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT EXHIBIT 4.2 EXECUTION COPY AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT THIS AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT (this "Agreement") is --------- entered into as of May 25, 1999 by and among (i) Law Office Information Systems, Inc., an Arkansas corporation (the "Company"), (ii) Capital Resource Lenders ------- III, L.P., a Delaware limited partnership ("CRL III"), (iii) CRP Investment ------- Partners III, LLC, a Delaware limited liability company ("CRP"), (iv) Rowland --- Moriarty ("Moriarty," and together with CRL III and CRP, the "Capital Resource -------- ---------------- Parties"), (v) Sandler Capital Partners IV, L.P., a Delaware limited partnership - ------- ("Sandler IV"), (vi) Sandler Capital Partners IV FTE, L.P., a Delaware limited ---------- partnership ("Sandler IV FTE", and together with Sandler IV, the "Sandler -------------- ------- Parties"), (vii) Kyle D. Parker ("Parker"), individually and as Trustee of The - ------- ------ Parker Trust ("Parker Trust"), created by instrument dated March 15, 1989, and ------------ amended and restated by two Trust Agreements dated November 25, 1997, (viii) each of the other Persons listed as a Holder on the signature pages hereto who presently owns or has the right to acquire shares of capital stock of the Company or who, as a beneficiary under the Parker Trust, are equitable owners of capital stock of the Company, (ix) Mark Beyland, an individual ("Beyland"), (x) Exeter Capital Partners IV, L.P., a Delaware limited partnership ("Exeter"), and (xi) each of the Persons who shall, after the date hereof, acquire shares of the capital stock of the Company and join in and become a party to this Agreement by executing and delivering to the Company an Instrument of Accession in the form of Exhibit I attached hereto. Each of the persons described in clauses (ii) --------- through (xi) of the preceding sentence in their capacities as holders of capital stock of the Company are hereinafter referred to collectively as the "Holders" ------- and singularly as a "Holder". ------ RECITALS WHEREAS, the Company, CRL III and certain of the parties identified in clauses (vii) and (viii) in the preamble of this Agreement, together with Dublind Investments LLC, a Delaware limited liability company ("Dublind LLC"), are parties to the Stockholders' Agreement ("Existing Stockholders Agreement"), ------------------------------- dated November 24, 1997, among the Company and such Stockholders; WHEREAS, CRL III has transferred some of its Series A Preferred Shares and Warrants to CRP and Moriarty pursuant to that certain Assignment, Assumption and Consent dated as of January 1, 1998; WHEREAS, CRL III exercised the Warrants held by it in full immediately prior to the execution and delivery of this Agreement; WHEREAS, Dublind LLC has exercised its Warrant dated November 24, 1997 to purchase 365,346 shares of Common Stock and has transferred such shares of Common Stock to certain individuals, each of whom is a party hereto as described in clause (x) in the preamble of this Agreement; WHEREAS, the Company proposes to sell (i) to the Sandler Parties, CRL III, Exeter and Beyland an aggregate of 2,495,697 shares of the Company's Series C Convertible Preferred Stock, $0.001 par value per share, and (ii) to Dublind Partners Inc., a New York corporation, 86,059 shares of the Company's Common Stock, pursuant to the Stock Purchase Agreement entered into on or about the date hereof ("Series C Purchase Agreement") by and among the Company and the --------------------------- other parties thereto; and WHEREAS, as a condition to the execution and delivery of the Series C Purchase Agreement and the consummation of the transactions contemplated thereby the parties have agreed to amend and restate the Existing Stockholders' Agreement so as to include the parties to the Series C Purchase Agreement and the other parties hereto as parties to the agreement and to revise the terms of the agreement in the manner provided herein. NOW, THEREFORE, in consideration of the premises, the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby amend and restate in its entirety the Existing Stockholders' Agreement as follows: 1. DEFINITIONS ----------- Section 1.1. As used in this Agreement, the following terms have the meanings indicated: "Affiliate" means, with respect to any Person, any other Person which --------- directly or indirectly controls, or is under common control with, or is controlled by, such first Person. For the purposes of this definition, "control", as used with respect to any Person, shall mean the possession, directly or indirectly through or with one or more intermediaries, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. The terms "controlled by" and "under common control with" shall have correlative meanings. For purposes of this Agreement, no Stockholder or group of Stockholders shall be deemed to be an Affiliate of the Company, any other Stockholder or any of the Company's or such other Stockholders' respective Affiliates by reason of the ownership of any Shares or other securities or by reason of the possession or exercise of the right to elect directors of the Company or any other rights hereunder. "Beneficial Owner" means a beneficial owner within the meaning of Rules ---------------- 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as amended ("Exchange -------- Act"), as interpreted by the Securities and Exchange Commission, provided that a - --- Person shall be deemed to have beneficial ownership of all securities that such Person has a right to acquire without regard to the 60-day limitation in subdivision (d)(i) of such Rule 13d- 3. The terms (whether or not capitalized) "beneficially own" and "owned beneficially" shall have correlative meanings. "Business Day" means any day other than a Saturday, a Sunday or a day on ------------ which banking institutions in either New York, New York, or the city and state in which the principal executive offices of the Company within the United States are located are not open for business. "Change in Control" means any Person other than Parker or a Person ----------------- controlled by Parker at any time becomes the Beneficial Owner, directly or indirectly and whether as a result of issuances, redemptions or repurchases by the Company of Common Stock or transfers of Common Stock by stockholders of the Company, of Common Stock representing 50% or more of the combined voting power with respect to the election of directors of the Company represented by all then outstanding Common Stock of the Company. "Charter" means the Articles of Incorporation of the Company, as filed with ------- the Secretary of State of the State of Arkansas, as they may be amended or restated from time to time. "Common Stock" means the common stock of the Company, par value $0.001 per ------------ share. "Control Block Sale" means a Transfer of Shares in a single transaction or ------------------ series of related transactions that is (i) not registered under the Securities Act and (ii) for a number of Shares equal to or greater than ten percent of the number of Shares outstanding (including the number of shares of Common Stock that would be received upon conversion of any Rights, whether or not they are then convertible). "Current Market Price" means, in respect of any share of Common Stock as of -------------------- any time, (a) if the Common Stock shall not then be Publicly Traded, the Fair Market Value per share of Common Stock as at such date as determined by the Board in good faith, or (b) if the Common Stock is then Publicly Traded, the average of the reported last sales prices for the ten consecutive Trading Days commencing 20 Trading Days before the date in question. The reported last sales price for each Trading Day shall be (i) the reported last sales price, regular way, as reported on the New York Stock Exchange Composite Tape, or (ii) if not listed or admitted to trading on the New York Stock Exchange, on the National Market tier of The Nasdaq Stock Market, or (iii) if the Common Stock is not listed or admitted to trading on the National Market tier of the Nasdaq Stock Market at such time, in the principal consolidated or composite transaction reporting system on the principal national securities exchange on which such security is listed or admitted to trading, or (iv) if such security is not quoted on such National Market tier or any national securities exchange, the average of the highest bid and lowest asked prices on such day as reported by The Nasdaq Stock Market . As used herein, the term "Trading Day" means a day on which the New York Stock Exchange, each national securities exchange on which the Common Stock is listed and The Nasdaq Stock Market are open for business, provided that if no sales of the Common Stock take place on such day on the relevant exchange or stock market determined under the immediately preceding sentence, such day shall not be a Trading Day. The Common Stock shall be considered to be "Publicly Traded" as of any date if on such date (i) the Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act and (ii) the Common Stock is listed for trading on a national securities exchange registered under the Exchange Act or traded in the over-the- counter market and quoted on The Nasdaq Stock Market. "Designated Competitor" means each Person listed on Exhibit II so long as --------------------- such Person or any of its Affiliates is engaged in the legal publishing business. "Disinterested Outside Director" means, unless any such requirement is ------------------------------ waived by the Majority Senior Holders, an individual who satisfies each of the following requirements: (i) has a significant strategic position or expertise relative to the business of the Company, (ii) is not (A) an officer or employee of the Company or any of its Subsidiaries, (B) a director, employee, partner, manager or other member of management of any Affiliate of the Company (except a director of a Subsidiary of the Company), (C) a relative of any Person described in subclause (ii)(A) or (ii)(B) or (D) a trustee of any trust or estate in which any Person described in subclause (ii)(A), (ii)(B) or (ii)(C) is a beneficiary or has a substantial beneficial interest and (iii) does not have any other relationship which would interfere with the exercise of independent judgment in carrying out the responsibilities of a Director of the Company. "Fair Market Value" means, in respect of any security, asset or other ----------------- property, the price at which a willing seller would sell and a willing buyer would buy such security, asset or other property having full knowledge of the facts, in an arm's-length auction transaction without time constraints, and without being under any compulsion to buy or sell. The Fair Market Value of a share of Common Stock as of any time shall be determined as of the last day of the most recent calendar month which ended prior to such time, shall be determined without giving effect to any discount for a minority interest, to any lack of liquidity of the Common Stock or to the fact that the Company may have no class of equity security registered under the Exchange Act. The Fair Market Value of the Company shall be determined on a going concern basis, and on the basis that the management and other key employees of the Company and its subsidiaries will continue to be employed indefinitely and without treating as liabilities the amount, if any, payable or which may be payable by the Company pursuant to the indemnification provisions of the Series A Stock Purchase Agreement or the Series C Stock Purchase Agreement. "Family Member" means, with respect to any person, such person's spouse, ------------- children, grandchildren, parents or siblings, or any spouse of any children, grandchildren, parents or siblings of such person, or any children or grandchildren of any siblings of such person, or heirs or devisees and any trust for the benefit of any of the foregoing. "Holder" means at any time any Person that holds Shares who (i) is one of ------ the Holders identified in the preamble to this Agreement or (ii) hereafter becomes a party to this Agreement in accordance with the provisions hereof by executing and delivering to the Company an Instrument of Accession in the form attached at Exhibit I. "IPO" means the consummation of an underwritten initial public offering of --- the Company's stock registered under the Securities Act. "IPO Date" means the closing date of the IPO. -------- "Majority Series A Holder" and "Majority Series C Holder" have the meanings ------------------------ ------------------------ given to such terms in the Charter. "Majority Senior Holders" means, as of any time, any Holder who holds, or ----------------------- Holders who hold, in the aggregate, more than fifty percent (50%) of the Shares then held by all Senior Holders. "Majority Warrant Holders" means, as of any time, any Holder who holds, or ------------------------ Holders who hold, in the aggregate, more than fifty percent (50%) of the Warrants and Warrant Shares then held by all Holders. "New Securities" means, subject to Section 4.4, any newly issued shares of -------------- capital stock of the Company, including Common Stock and any class or series of preferred stock, whether authorized or not, and Rights to acquire shares of Common Stock or preferred stock. "New Securities Purchaser" has the meaning set forth in the definition of ------------------------ "Preissuance Notice" set forth below in this Section 1.1. "Notes" has the meaning given to such term in the Series A Purchase ----- Agreement. "Number of Common Shares Outstanding" as of any time means the sum of (i) ----------------------------------- the number of shares of Common Stock which then are actually issued and outstanding, plus (ii) the total number of additional shares of Common Stock which would then be issued and outstanding if it were assumed that all Preferred Shares and Warrants then outstanding, if any, were then duly converted or exercised in full (whether or not then convertible or exercisable). "Parker Holder" means Parker, any Family Member of Parker, the Parker ------------- Trust, any beneficiary of the Parker Trust and any Permitted Transferee of any such Person, in each case in such Person's capacity as a Holder. "Part A" and "Part C" refer to Part A and Part C, respectively, of Article ------ ------ Fourth of the Charter. "Person" means any individual, corporation, limited liability company, ------ general or limited partnership, joint venture, association, joint stock company, trust, unincorporated business or organization, governmental authority or other entity or legal person, whether acting in an individual, fiduciary or other capacity. "Preferred Shares" means the Series A Preferred Shares and the Series C ---------------- Preferred Shares. "Preissuance Notice" shall be a written notice given to the Investors ------------------ pursuant to Section 4.1 no later than ten days prior to the date the Company plans to issue New Securities. Each Preissuance Notice shall (i) specify the kind and amount of New Securities proposed to be issued, (ii) if such New Securities consist of or include Rights to acquire Common Stock, briefly describe the terms of such Rights, (iii) identify each Person to whom such New Securities are proposed to be issued (each a "New Securities Purchaser"), if ------------------------ then known by the Company, (iv) state the method or manner of issuance, (v) state the kind(s) and amount(s) of consideration for which such New Securities are proposed to be issued and the determination of the Company's Board of Directors of the Fair Market Value of any such consideration other than cash and (vi) describe the other material terms and conditions of the proposed issuance of New Securities. "Private Sale" means, with respect to any Transfer, a privately negotiated ------------ transaction between the Transferor and the Transferee. "Pro Rata" means with respect to a Holder that is one of an applicable -------- group of Holders the equivalent of a fraction, the numerator of which is the number of Shares then held by such Holder plus the number of Shares then issuable upon conversion of any other security convertible into Shares then held by such Holder, and the denominator of which is the total number of Shares then outstanding among all relevant Holders of such group plus the number of Shares then issuable upon conversion of any other security convertible into Shares then outstanding among all relevant Holders of such group. "Redemption Event" has the meaning given to such term in the Charter. ---------------- "Redemption Price" has the meaning given to such term in the Charter. ---------------- "Rights" means any options, warrants, convertible or exchangeable ------ securities or other rights, however denominated, to subscribe for, purchase or otherwise acquire any Common Stock, with or without payment of additional consideration in cash or property, either immediately or upon the occurrence of a specified date or a specified event or the satisfaction or happening of any other condition or contingency. "Securities Act" means the Securities Act of 1933, as amended, or any -------------- successor federal statute, and (unless the context otherwise indicates) the rules and regulations of the Commission promulgated thereunder, as they each may, from time to time, be in effect. "Senior Holder" means any Holder of Series A Shares, Series C Shares, ------------- Warrants or Warrant Shares. "Series A Preferred Shares" means shares of the Series A Convertible ------------------------- Preferred Stock of the Company, par value $0.001 per share. "Series A Purchase Agreement" means the Senior Subordinated Note and --------------------------- Securities Purchase Agreement, dated November 24, 1997, between the Company and CRL III, as amended. "Series A Shares" means shares of Series A Preferred Stock and shares of --------------- Common Stock issued upon conversion of shares of Series A Preferred Stock in accordance with the terms thereof. "Series C Holders" means Holders of Series C Shares. ---------------- "Series C Preferred Shares" means shares of the Series C Convertible ------------------------- Preferred Stock of the Company, par value $0.001 per share. "Series C Shares" means shares of Series C Preferred Stock and shares of --------------- Common Stock issued upon conversion of shares of Series C Preferred Stock in accordance with the terms thereof. "Shares" means shares of Common Stock and any Rights which are convertible ------ into or exchangeable or exercisable for Common Stock, including the Preferred Shares and Warrants. "Subordinate Holder" means any Holder that is not a Senior Holder. ------------------ "Subsidiary" of any Person as of any relevant date means a corporation, ---------- company or other entity (i) more than fifty percent (50%) of whose outstanding shares or equity securities are, as of such date, owned or controlled, directly or indirectly through one or more Subsidiaries, by such Person, and the shares or securities so owned entitle such Person and/or its Subsidiaries to elect at least a majority of the members of the board of directors or other managing authority of such corporation, company or other entity notwithstanding the vote of the holders of the remaining shares or equity securities so entitled to vote or (ii) which does not have outstanding shares or securities, as may be the case in a partnership, joint venture or unincorporated association, but more than fifty percent (50%) of whose ownership interest is, as of such date, owned or controlled, directly or indirectly through one or more Subsidiaries, by such Person, and in which the ownership interest so owned entitles such Person and/or Subsidiaries to make the decisions for such corporation, company or other entity. "Transfer" means, when used with respect to any Shares or any interest in -------- the Parker Trust, to sell, assign, make a gift of, distribute (including distributions upon dissolution or liquidation and distributions to partners of any Holder), pledge, hypothecate, grant an option with respect to, or otherwise transfer, encumber or subject to any claim or lien of any nature such Share or interest, including, without limitation, pursuant to a Permitted Transfer. For all purposes under this Agreement a Transfer of any interest in the Parker Trust shall be deemed to be a Transfer of a proportionate number of Shares then held by the Parker Trust. "Transferor", "Transferee" and "Transfer" when used as a noun shall have correlative meanings. "Warrants" has the meanings given to such term in the Series A Purchase -------- Agreement. "Warrant Holder" means a Holder that holds Warrant Shares. -------------- "Warrant Shares" means the 1,056,616 shares of Common Stock that were -------------- issued upon exercise of the Warrants held by CRL III immediately prior to the execution and delivery of this Agreement and any shares of Common Stock that may hereafter be issued or issuable upon exercise of the outstanding Warrants in accordance with the terms thereof. Section 1.2. Terms Generally; Certain Rules of Construction. The ---------------------------------------------- definitions in Section 1.1 and elsewhere in this Agreement shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The words "herein", "hereof" and "hereunder" and words of similar import refer to this Agreement in its entirety and not to any part hereof unless the context shall otherwise require. All references herein to Sections shall be deemed references to Sections of this Agreement unless the context requires otherwise. Unless otherwise expressly provided herein or unless the context requires otherwise, any references as of any time to the "Certificate of Incorporation", "Articles of Incorporation", "charter", "Charter", "organizational or constituent documents" or "By-laws" of any entity, to any agreement (including this Agreement) or other contract, instrument or document or to any statute or regulation or any specific section or other provision thereof are to it as amended and supplemented through such time (and, in the case of a statute or regulation or specific section or other provision thereof, to any successor of such statute, regulation, section or other provision). Any reference in this Agreement to a "day" or number of "days" (without the explicit qualification of "Business") shall be interpreted as a reference to a calendar day or number of calendar days. If any action or notice is to be taken or given on or by a particular calendar day, and such calendar day is not a Business Day, then such action or notice shall be deferred until, or may be taken or given on, the next Business Day. Unless otherwise expressly provided herein or unless the context requires otherwise, any provision of this Agreement using a defined term (by way of example and without limitation, such as "Stockholders" or "Majority Stockholders") which is based on a specified characteristic, qualification, feature or status shall, as of any time, refer only to such Persons who have the specified characteristic, qualification, feature or status as of that particular time. The word "property" includes property and assets of any kind, whether real or personal, tangible or intangible. Section 1.3. Outstanding Shares. Capital stock or other securities of ------------------ any class held in treasury by the Company or held by any Subsidiary shall not be considered to be outstanding for any purpose of this Agreement. Section 1.4 Capital Stock Includes Preferred Stock. As used in this -------------------------------------- Agreement, the term "capital stock" includes any class or series of preferred stock, however denominated and regardless of the characterization thereof for accounting purposes under generally accepted accounting principles or the rules, regulations, interpretations or releases of the Securities and Exchange Commission. Section 1.5 Calculation of Shares. Unless specifically provided --------------------- otherwise herein, for all purposes of this Agreement, when calculating the number of Shares held or proposed to be Transferred by a Holder or group of Holders or the number of Shares outstanding, (A) Warrants held by any Holder will be deemed to have been exercised (whether or not actually exercised) in accordance with the terms of the applicable Warrants immediately prior to consummation of the proposed Transfer or the applicable date of determination, (B) Preferred Shares held by any Holder will be deemed to have been converted to Common Stock (whether or not actually converted) in accordance with the terms of the Charter immediately prior to consummation of the proposed Transfer or the applicable date of determination, and (C) all other outstanding Rights shall be deemed to have been converted, exchanged or exercised, as applicable, (whether or not actually converted, exchanged or exercised) in accordance with the terms thereof immediately prior to the consummation of the proposed Transfer or the applicable date of determination. The price per Share to be paid to any Holder in any proposed Transfer of any Shares shall be computed on a Common Stock equivalent basis as if such Shares had been converted into or exchanged for Common Stock in accordance with the terms thereof immediately prior to the consummation of such Transfer. 2. BOARD OF DIRECTORS ------------------ Section 2.1. Election of Directors. From and after the date hereof, each --------------------- Holder agrees to vote (including by execution of a written consent or in any other manner permitted by law, the Charter and the Company's By-laws) all of his or its Shares and any other voting securities of the Company over which he or it has control, and will take all other necessary or desirable actions within his or its control (including, without limitation, attendance in person or by proxy, at all meetings of stockholders called for the purpose of electing directors), and the Company agrees to take all necessary or desirable actions within its control (including, without limitation, nominations of specified persons), in order to cause the Board of Directors of the Company (the "Board") ----- to have the following constituency: At all times prior to the IPO Date, the Board shall consist of not more than seven (7) members designated as follows: (i) The Capital Resource Parties shall be entitled to designate two (2) representatives as long as they hold at least twenty percent (20%), and one (1) representative as long as they hold at least ten percent (10%), of the Number of Common Shares Outstanding (each such designee being referred to as a "CR Representative"). ----------------- (ii) The Sandler Parties shall be entitled to designate one (1) representative as long as they hold at least ten percent (10%), of the Number of Common Shares Outstanding (each such designee being referred to as a "Sandler Representative"). ---------------------- (iii) Parker shall be entitled to designate four (4) representatives (the "Management Representatives") as long as the Parker Holders hold at -------------------------- least thirty-five percent (35%), three (3) representatives as long as the Parker Holders hold at least twenty-five (25%), and two (2) Representatives as long as the Parker Holders hold at least ten (10%) of the Number of Common Shares Outstanding; provided that one such designee shall be the Chief Executive Officer of the Company and two such designees (if there are three or more) shall be Disinterested Outside Directors designated by Parker and approved by the CR Representatives and the Sandler Representative. (iv) Any vacancies in the Board that result from the Capital Resource Parties, the Sandler Parties or Parker not being entitled to designate one or more representatives pursuant to clauses (i), (ii) and (iii) above shall be filled by the Company in accordance with applicable law, the Charter and the Bylaws; provided that in any event (A) the Board shall at all times have at least two Disinterested Outside Directors and (B) the Chief Executive Officer shall be a member of the Board. After the IPO Date the Board shall consist of at least seven (7) members designated as follows: (i) the Capital Resource Parties shall be entitled to designate one representative (the "CR Representative") as long as they hold at least ten ----------------- percent (10%) of the Number of Common Shares Outstanding, (ii) The Sandler Parties shall be entitled to designate one (1) representative as long as they hold at least ten percent (10%), of the Number of Common Shares Outstanding (each such designee being referred to as a "Sandler ------- Representative"). -------------- (iii) the remaining directors, and any vacancies resulting from the Capital Resource Parties or the Sandler Parties not being entitled to designated a representative pursuant to clauses (i) and (ii) above, shall be designated by the Company in accordance with applicable law, the Charter and the Bylaws; provided that in any event (A) the Board shall at all times have at least two Disinterested Outside Directors and (B) the Chief Executive Officer shall be a member of the Board. In the absence of any designation from the persons or groups so designating directors as specified above, the director previously designated by them and then serving shall be re-elected if still eligible to serve as provided herein. However, if any person or groups so designate, a director previously designated by them and then serving shall be subject to re-nomination in accordance with the provisions of this Section 2 at any meeting of stockholders called for the purpose of electing directors hereunder. No party hereto shall vote to remove any member of the Board designated in accordance with the aforesaid procedure unless the persons or groups so designating directors as specified above so vote, and, if such persons or groups so vote then the non-designating party or parties shall likewise so vote. Nothing contained herein shall prevent any party from removing any member of the Board who was designated by such party. Any vacancy on the Board created by the resignation, removal, incapacity or death of any person designated under this Section 2.1 shall be filled by another person designated in a manner so as to preserve the constituency of the Board as provided above. Section 2.2. Attendance at Board Meetings. ---------------------------- (a) At any time at which no CR Representative is a member of the Board or any committee thereof, and so long as (A) any of the Notes remain outstanding or (B) the Capital Resource Parties hold at least twenty five percent (25%) of the Series A Shares and Warrant Shares outstanding at such time, the Capital Resource Parties shall be entitled to have one observer attend each meeting of the Board and any committee thereof. (b) At any time at which no Sandler Representative is a member of the Board or any committee thereof, and so long as the Sandler Parties hold at least twenty five percent (25%) of the Series C Shares outstanding at such time, the Sandler Parties shall be entitled to have one observer attend each meeting of the Board and any Committee thereof. (c) The Company will send to any Holder entitled to designate an observer pursuant to subsection (a) or (b) of this Section 2.2 and its designee the notice of the time and place of any such meeting in the same manner and at the same time as notice is sent to the directors or committee members, as the case may be; provided, however, that such Holder and its designee shall each always receive at least ten (10) days prior notice of any meeting which is not an emergency meeting or of any written consent requested of directors and at least three (3) Business Days' notice of any emergency meeting or emergency written consent requested of directors. The Company shall also provide to each such party copies of all notices, reports, minutes, consents and other documents at the time and in the manner as they are provided to the Board or its committees. The Company shall reimburse each such Holder for all reasonable costs incurred by such Holder's designee in connection with traveling to and from and attending meetings of the Board and committees. (d) Any observer who attends any meetings of the Board of Directors or any committee thereof, as a condition to his or her right to attend such meetings, shall execute and comply with an agreement with the Company containing such restrictions on the use or disclosure of confidential information and similar matters as the Company may reasonably request. Section 2.3. Board of Directors and Committees. The Board shall meet at --------------------------------- least four (4) times per calendar year. The Company shall at all times maintain a Compensation Committee and an Audit Committee of the Board and each such committee shall be fixed at three (3) members consisting of one CR Representative, one Sandler Representative and one Management Representative. Each other committee of the Board shall at all times have a CR Representative and a Sandler Representative unless and only for so long as the Capital Resource Parties or the Sandler Parties, as applicable, waive such right with respect to a specific committee. The Company shall reimburse members of the Board for all reasonable costs incurred by them in connection with traveling to and from and attending meetings of the Board and committees of the Board, in addition to any directors fees regularly paid to all members of the Board. 3. TRANSFER RESTRICTIONS, CO-SALE AND TAKE-ALONG RIGHTS ---------------------------------------------------- Section 3.1. Restrictions on Transfer. No Holder may Transfer any Shares ------------------------ except as follows: (a) Senior Holders. Prior to the earlier of (1) the IPO and (2) the -------------- second anniversary of the date hereof, Senior Holders may Transfer Shares only (i) pursuant to Permitted Transfers, (ii) pursuant to Section 3.4, or (iii) pursuant to a bona fide written offer in accordance with the provisions of Sections 3.2 and 3.3. After such date Senior Holders may Transfer any or all of their Shares subject only to Section 3.7; provided that, a Senior Holder must comply with the provisions of Section 3.3 if it proposes to Transfer any Shares pursuant to a Control Block Sale or a Private Sale to a Designated Competitor. (b) Parker Holders. Prior to the earlier of (1) the IPO and (2) the -------------- fourth anniversary of the date hereof, Parker Holders may Transfer Shares only (A) pursuant to Permitted Transfers, or (B) pursuant to Section 3.4. If the IPO occurs after the fourth anniversary of the date hereof, then during the period beginning on such fourth anniversary and ending on the IPO Date, Parker Holders may Transfer Shares only (i) pursuant to Permitted Transfers, (ii) pursuant to Section 3.4, or (iii) pursuant to a bona fide written offer in accordance with the provisions of Sections 3.2 and 3.3. After the IPO (whether or not the preceding sentence is applicable) Parker Holders may Transfer any or all of their Shares, subject only to Section 3.7; provided that, a Parker Holder must comply with the provisions of Section 3.3 if it proposes to Transfer any Shares pursuant to a Control Block Sale or a Private Sale to a Designated Competitor. (c) Subordinate Holders. Prior to the IPO Subordinate Holders (other ------------------- than Parker Holders, whose Transfer rights are set forth in Section 3.1(b)) may Transfer Shares only (i) pursuant to Permitted Transfers, (ii) pursuant to Section 3.4, or (iii) pursuant to a bona fide written offer in accordance with the provisions of Section 3.2 and 3.3. After such date such Holders may Transfer any or all of their Shares, subject only to Section 3.7; provided that, each such Holder must comply with the provisions of Section 3.3 if it proposes to Transfer any Shares pursuant to a Control Block Sale or a Private Sale to a Designated Competitor. (d) If any Holder ( an "Offering Holder") proposes to Transfer any --------------- Shares beneficially owned by such Offering Holder pursuant to a bona fide written offer in accordance with the provisions of Section 3.2 and 3.3, or pursuant to a Control Block Sale or a Private Sale to a Designated Competitor in accordance with Section 3.3 (any such Transfer a "Proposed Sale"), then such ------------- Offering Holder shall deliver to the Company and each other Holder (each, an "Other Holder") a notice ("Proposed Sale Notice") setting forth (i) the identity ------------ -------------------- of the proposed purchaser ("Proposed Purchaser"), (ii) the total number of ------------------ shares the Offering Holder proposes to sell ("Offered Shares"), (iii) the -------------- proposed amount and form of consideration, (iv) the terms and conditions of the Proposed Sale, and (v) that such Proposed Sale is being made in accordance with the provisions of Section 3.2, Section 3.3, or both, whichever is the case. Section 3.2. Rights of First Refusal ----------------------- (a) Subject to Section 8 of Part A and to Section 8 of Part C, the Company may elect to purchase all (but not less than all) of the Offered Shares in any Proposed Sale that is being made in accordance with the provisions of this Section 3.2 by giving notice of such election (which notice shall be irrevocable) to the Offering Holder and all Other Holders at any time during the thirty (30) day period following its receipt of the applicable Proposed Sale Notice from the Offering Holder. Upon delivery of such notice by the Company, the Company shall be obligated to purchase from the Offering Holder, and the Offering Holder shall be obligated to sell to the Company, the Offered Shares at the same price and on the terms and conditions set forth in the Proposed Sale Notice. If the Company fails to deliver such notice to the Offering Holder within such thirty (30) day period, it shall be deemed to have declined to exercise its right to purchase the Offered Shares. (b) Unless the Offering Holder and the Company otherwise agree, the closing of the purchase of the Offered Shares by the Company shall take place at the principal offices of the Company at 10:00 a.m. on the twentieth day (or if such day is not a Business Day on the next Business Day) after the expiration of the thirty (30) day period referred to above in Section 3.2(a). At such closing, the Offering Holder shall tender the Offered Shares to be sold to the Company, together with appropriate instruments of transfer endorsed to the Company, and the Company shall tender a certified check, cashier's check or a wire transfer of immediately available funds in the amount of the purchase price therefor. Subject to Section 3.5, if the Company and the Offering Holder do not consummate the purchase and sale of the Offered Shares within the time period specified in the first sentence of this Section 3.2(b) for any reason other than the failure of the Offering Holder to tender the Offered Shares to the Company on the terms and conditions provided for in the Proposed Sale Notice, then the Company shall be deemed to have declined to exercise its right to purchase the Offered Shares. The Company shall promptly give notice to all Holders if a Proposed Sale is consummated, or if the Company has declined (or is deemed to have declined) to exercise its right to purchase the Offered Shares, in accordance with subsection (a) and this subsection (b) of this Section 3.2. (c) If the Company declines (or is deemed to have declined) to purchase the Offered Shares pursuant to subsections (a) and (b) of this Section 3.2, then each Other Holder may elect to purchase up to all of the Offered Shares by giving written notice (an "Exercise Notice") to such effect to the Offering --------------- Holder, the Company and the Other Holders no later than the tenth (10th) day following the date the Company delivers the notice required by the last sentence of Section 3.2(b). Each Other Holder's Exercise Notice shall state the maximum number of the Offered Shares that such Other Holder is willing the purchase. If Other Holders electing to purchase the Offered Shares ("Electing Holders") elect ---------------- to purchase, in the aggregate, a number of shares greater than or equal to the total number of Offered Shares, then each Electing Holder shall purchase from the Offering Holder, and the Offering Holder shall sell to such Electing Holder, the number of the Offered Shares set forth in such Electing Holder's Exercise Notice on the terms and conditions set forth in the Proposed Sale Notice; provided that if the Electing Holders elect to purchase, in the aggregate, a number of Shares greater than the number of Offered Shares, then each Electing Holder shall purchase its Pro Rata portion of the Offered Shares, or such other --- ---- portion as the Electing Holders may agree. The closing of the purchase of the Offered Shares by the Other Holders shall take place in the same time period and in the same manner contemplated by Section 3.2(b). If Other Holders do not elect to purchase, in the aggregate, all of the Offered Shares within the ten-day period specified in the first sentence of this Section 3.2(c), or, subject to Section 3.5, the closing of the purchase and sale of the Offered Shares does not occur within the time period specified in the preceding sentence for any reason other than the failure of the Offering Holder to tender the Offered Shares to the Electing Holders on the terms and conditions provided for in the Proposed Sale Notice, then all Other Holders shall be deemed to have declined to exercise their rights to purchase any of the Offered Shares pursuant to this Section 3.2(c), and the Offering Holder shall be free to sell the Offered Shares to the Proposed Purchaser on the terms set forth in the Proposed Sale Notice, subject to the provisions of Section 3.3. The Offering Holder and Electing Holders shall promptly notify the Company of the consummation of a sale by the Offering Holder to the Electing Holders, and the Company shall promptly give notice to all Senior Holders and Parker Holders if such a sale is consummated, or if the Other Holders decline, or are deemed to have declined, to exercise their right to purchase the Offered Shares pursuant to this Section 3.2(c). (d) After tender to an Offering Holder of the full purchase price of all of the Offered Shares by the Company or the Electing Holders in accordance with the provisions of this Section 3.2, the Company shall not pay any dividends to the Offering Holder or permit the Offering Holder to exercise any privileges of a Holder of the Company with respect to such Offered Shares, and the Company or such Electing Holders, as applicable, shall be treated as the owner of the Offered Shares to the extent permitted by law. Section 3.3. Co-Sale. ------- (a) Co-Sale Right. If (i) any Holder proposes to Transfer any Shares ------------- pursuant to a bona fide written offer in accordance with the provisions of Section 3.2 and this Section 3.3, and neither the Company nor the Other Holders have elected to purchase the Offered Shares pursuant to Section 3.2, or (ii) any Holder proposes to Transfer any Shares pursuant to a Control Block Sale or a Private Sale to a Designated Competitor, then each Other Holder that is a Senior Holder or a Parker Holder shall have the right ("Co-Sale Right") to require the ------------- Proposed Purchaser to purchase from such Other Holder at the same price per share and, except as otherwise provided in the second sentence of this subsection 3.3(a), upon the same terms and conditions as such Proposed Sale, up to a number of Shares equal to the product of the number of Offered Shares proposed to be Transferred by such Offering Holder multiplied by a fraction, the numerator of which is the total number of Shares owned by such Other Holder and the denominator of which is the total number of Shares owned by the Offering Holder and by all Other Holders (the "Co-Sale Holders") who elect to participate --------------- in such Proposed Sale; provided, however, that if such Proposed Sale, by itself or together with any one or more other past Transfers or Proposed Sales (regardless of whether such Transfers were Permitted Transfers), would constitute a Change of Control, then each Co-Sale Holder may elect to require the Offeror to purchase from such Co-Sale Holder any or all Shares held by such Co-Sale Holder without regard to the foregoing formula limitation. The other terms and conditions on which the Co-Sale Holders shall be entitled to Transfer their shares pursuant to this Section 3.3 shall be, as nearly as reasonably practicable, the same as those applicable to the proposed Transfer by the Offering Stockholder; provided, however, that no Co-Sale Holder shall be required to make (i) any representations or warranties to, or enter into any indemnification or contribution arrangements with, the Proposed Purchaser relating to the proposed Transfer other than a representation and warranty with respect to the Shares being Transferred by such Co-Sale Holder that the Transferee of such Shares is receiving good and marketable title to such Shares, free and clear of all pledges, security interests, charges, voting arrangements, restrictions on or conditions to Transfer, voting or exercise or enjoyment of any right or beneficial interest, options, rights of first refusal and other Liens, other than any created by this Agreement or (ii) comply with terms or conditions which can reasonably be met only by the Offering Holder. (b) Election to Exercise Co-Sale Rights. Any Senior Holder or Parker ----------------------------------- Holder may exercise its Co-Sale Right by delivering written notice (the "Co-Sale ------- Notice") to the Offering Holder and the Company within (i) 10 days after - ------ delivery by the Company of the notice required by the last sentence of Section 3.2(c), or (ii) in the case of a Proposed Sale that is subject only to this Section 3.3, 15 days after the delivery of the Proposed Sale Notice with respect to such Proposed Sale. If the Proposed Sale would result in a Change of Control, the Co-Sale Notice shall state the number of Shares that such Co-Sale Holder proposes to include in such Proposed Sale. Upon the expiration of the 10-day or 15-day period specified in the preceding sentence, as applicable, the Company shall deliver a written notice to the Offering Holder, the Senior Holders and the Parker Holders informing them of the number of shares each Co-Sale Holder, if any, is entitled to sell in such Proposed Sale. (c) Closing of Proposed Sale. Subject to Section 3.5, the closing date ------------------------ ("Offer Closing Date") for any sale of shares by an Offering Holder and/or Co- ------------------- Sale Holders to a Proposed Purchaser shall be a date no later than the 30th day after delivery of the notice the Company is required to deliver pursuant to the last sentence of Section 3.3(b). If the Proposed Purchaser does not tender on the Offer Closing Date (or does not tender on the same terms and conditions, except as otherwise provided in Section 3.3(a)) to the Offering Holder and the Co-Sale Holders, if applicable, the full purchase price for all of the Shares which the Offering Holder and the Co-Sale Holders are entitled to Transfer of pursuant to this Section 3.3, then the Offering Holder shall not be entitled to Transfer any Shares in such Proposed Sale and shall not Transfer any Shares (including, without limitation, any of the Offered Shares), whether pursuant to the Proposed Sale in question, any other proposed Transfer or otherwise, without again complying with this Section 3.3 (subject in any event to Section 3.1). Section 3.4. Take-Along Right. If at any time prior to the IPO Date the ---------------- Senior Holders and Parker all desire to cause the sale of all Shares held by Holders, then all Holders agree to sell all of their Shares in the same transaction, on the same terms and conditions, and for the same consideration per Share, as the Senior Holders and Parker propose to sell their Shares and the Shares of the Parker Trust. This Section 3.4 shall terminate on the IPO Date. Section 3.5 Regulatory Delays. If a purchase and sale of Shares subject ----------------- to Sections 3.2 and/or 3.3 is subject to the receipt of any regulatory approval or the expiration of any waiting period, the time periods specified in Sections 3.2(b), 3.2(c) and/or 3.3(c), as applicable, during which such purchase and sale may be consummated shall be extended until the expiration of 5 Business Days after all such approvals have been received or such waiting periods have expired, but in no event shall such extended period exceed 180 days following the expiration of the specified time period. Section 3.6 Effect of Prohibited Transfers. If any Transfer of Shares is ------------------------------ made or attempted by a Holder other than in accordance with the terms of this Agreement, such Transfer or attempted Transfer shall be void and the Company shall have the right to purchase such Shares from the Transferee at any time before or after the Transfer, at the price and on the terms established herein and, in such event, the Transferee shall be bound by all the terms and provisions of this Section 3. In addition to any other legal or equitable rights that it may have, the Company or any of the remaining Holders may enforce its rights by specific performance to the extent permitted by law. The Company may refuse for any purpose to recognize any Transferee who receives Shares other than pursuant to the provisions of this Agreement and any such Transferee shall have no right to claim or retain any dividends on such Shares which were paid or payable subsequent to the date on which the prohibited Transfer was made or attempted, or to claim any right or privilege available to Holders under this Agreement. Section 3.7. Securities Act Compliance. None of the Shares shall be sold ------------------------- or Transferred unless either (i) such Shares first shall have been registered under the Securities Act or (ii) the Company, if it so requests, first shall have been furnished with an opinion of legal counsel, reasonably satisfactory to the Company, to the effect that such sale or Transfer is exempt from the registration requirements of the Securities Act. Section 3.8. Stock Certificate Legend. Each certificate for the Shares ------------------------ shall be imprinted with a legend in substantially the following form: The securities represented by this certificate have not been registered under the Securities Act of 1933 (the "Act"). The transfer of the securities represented by this certificate (including, without limitation, through the exercise of a pledge) is subject to the conditions and restrictions specified in the Amended and Restated Stockholders Agreement, dated as of _____________________, 1999, among the issuer (the "Company") and certain investors, and the Company reserves the right to refuse the transfer of such securities until such conditions have been fulfilled with respect to such transfer. A copy of such conditions will be furnished by the Company to the holder hereof upon written request and without charge. In addition such securities may not be sold or transferred except in compliance with the Act. Each certificate for the Shares may also contain such additional legends as shall be deemed necessary or advisable by counsel to the Company in order to comply with applicable law. The foregoing legend shall be removed from the certificates representing any Shares, at the request of the holder thereof, at such time as they become eligible for Transfer or resale without restriction pursuant to the provisions of this Agreement and the Securities Act. Section 3.9. Permitted Transfers. A "Permitted Transfer" means a Transfer ------------------- of Shares by a Holder without consideration to (i) such Holder's heirs, executors, administrators or other personal representative upon the death of such Holder, (ii) such Holder's spouse, children or grandchildren, or a trust for their or such Holder's benefit, (iii) if such Holder is a partnership, the partners (including former partners) of such partnership or a liquidity trust for their benefit, (iv) if such Holder is a corporation, the stockholders of such corporation, or (v) if such Holder is the Parker Trust, the Persons who are beneficiaries of the Parker Trust as of the date hereof and who have executed and delivered a counterpart of this Agreement, and, with respect to up to 339,500 Shares of Common Stock held in the Parker Trust for their benefit, certain employees of the Company pursuant to their employment agreements with the Company (any Person described in clauses (i) through (v) being referred to herein as a "Permitted Transferee" of such Holder); provided that the -------------------- restrictions on Transfer in this Agreement and the other provisions of this Agreement shall continue to apply to any Shares received by any such Permitted Transferee and such Permitted Transferee shall join in and become a party to this Agreement by executing and delivering to the Company an Instrument of Accession in the form of Exhibit I hereto. ------- 4. PREEMPTIVE RIGHT ---------------- Section 4.1. Issuance of New Securities. Subject to Section 4.4, the -------------------------- Company shall deliver a Preissuance Notice to all Senior Holders no later than ten Business Days prior to the date the Company plans to issue any New Securities and each Senior Holder shall have the right, but not the obligation, to purchase its Pro Rata share of the New Securities that are issued. Within ten Business Days after the receipt of such Preissuance Notice, each Senior Holder may exercise its rights under this Section 4.1 by giving written notice to that effect to the Company. Failure to give such notice within that ten Business Day period or failure to pay at the required time the purchase price for any New Securities as to which a right to purchase has been exercised shall constitute a waiver of the rights granted by this Section 4.1 as to the particular issuance of New Securities specified in the Company's Preissuance Notice. The preemptive rights of the Senior Holders set forth in this Section 4 shall not apply with respect to the IPO and shall terminate upon the IPO; provided, that the -------- preemptive rights, if any, of all other Persons also terminate upon the IPO. Section 4.2. Per Share Price; Valuations. The per share purchase price --------------------------- to be paid upon exercise of the rights granted under this Section 4 will be equal to the lowest per share consideration at which the New Securities are offered or proposed to be offered by the Company to any New Securities Purchaser. The consideration for which New Securities are offered or proposed to be offered will be determined as follows: (i) in case of the proposed issuance of New Securities for cash, the consideration to be received by the Company will be the amount of cash for which the New Securities are proposed to be issued and (ii) in case of the proposed issuance of New Securities in whole or in part for consideration other than cash, the value of the consideration to be received by the Company other than cash will be the Fair Market Value of that consideration as reasonably determined by the Board in good faith. If any Senior Holder within five days of receipt of any Preissuance Notice notifies the Company in writing that it objects to any statement of the Fair Market Value of any security or other property contained therein, the Company and the Senior Holder shall attempt in good faith to agree on the Fair Market Value of such security or other property. If they are unable to so agree within five Business Days after such notice of objection was given, then within five Business Days thereafter, the Company and the Majority Senior Holders shall select one appraiser and the Company and the Majority Senior Holders shall submit to such appraiser (and each other) a brief written statement of their position regarding the matter in dispute and supporting arguments, and each shall be given a period of five Business Days thereafter to submit to the other and to the appraiser a written response to such written statement of the other. Such appraiser shall within fifteen Business Days of the date of its selection, resolve such dispute by choosing either the position of the Company set forth in such written statement so submitted by the Company or the position of the Majority Senior Holders set forth in such written statement so submitted by the Majority Senior Holders, whichever in the opinion of the appraiser, in its sole discretion, is more consistent with the purposes and intent of this Agreement. Decisions with respect to such determination made pursuant to this Section 4.2 by the Majority Senior Holders shall be binding on all Senior Holders. Any determination of Fair Market Value for purposes of this Section 4 by agreement of the Company and the Majority Senior Holders or by an appraiser appointed as provided in this Section 4.2 shall be final and binding on the Company and each Senior Holder for all purposes of this Section 4. Promptly after any final determination of Fair Market Value pursuant to this Section 4.2, the Company shall give each Senior Holder a written notice stating such Fair Market Value. Each appraiser shall be a nationally recognized appraiser or investment banking firm which has substantial experience in making appraisals similar to that being made, which is not directly or indirectly affiliated with the Company or any other Person who is a party to or otherwise interested in the event resulting in the need for such appraisal and which has no interest (other than the receipt of customary fees) in such event. In the event the appraiser agrees with the written statement submitted by the Senior Holders, the fees and expenses of any appraiser appointed in connection with an appraisal pursuant to this Section 4 shall be paid by the Company. In the event the appraiser agrees with the written statement submitted by the Company, the fees and expenses of any appraiser appointed in connection with an appraisal pursuant to this Section 4 shall be paid by the Senior Holders. Section 4.3. Representations, Warranties and Certain Covenants. In ------------------------------------------------- connection with each issuance of New Securities to any Senior Holder pursuant to this Section 4, the Company shall, in the event the Company is making representations, warranties and/or covenants to the New Securities Purchaser, make to each Senior Holder such representations, warranties, and covenants as are customarily made by issuers in similar instances (but which in no event shall be less favorable to the Senior Holders than those contemplated by the Preissuance Notice or otherwise made to or for the benefit of any New Securities Purchaser) and each Senior Holder shall be separately and independently entitled to rely on such representations and warranties, to the benefit of such covenants and to exercise all available rights and remedies in the event of any breach or violation of any such representations, warranties and covenants. Any representations and warranties made by a Senior Holder shall consist solely of such representations and warranties relating to (i) such Senior Holder's authority to consummate the purchase of the New Securities from the Company and (ii) other similar representations and warranties as are customarily given by similarly situated purchasers of securities similar to those being purchased by a Senior Holder in a similar transaction, but no Senior Holder shall be required to give any such representation or warranty which the New Securities Purchaser does not give. The representations, warranties, covenants and agreements of each Senior Holder shall be several and not joint and shall (unless, in the case of the Company, otherwise required by the New Securities Purchasers) terminate upon the earlier of (i) the termination of the corresponding representations and warranties made by the New Securities Purchaser or by the Company and (ii) one year after closing. The right of each Senior Holder to purchase the full number of New Securities which such Senior Holder is entitled to purchase under this Section 4 shall not be subject to any conditions whatsoever, other than the payment of the purchase price therefor determined as provided herein, and the consummation of the transaction between the Company and the New Securities Purchaser. If any Senior Holder shall fail for any reason to purchase any New Securities which it has elected to purchase, the sole right, remedy and recourse of the Company, the New Securities Purchaser, and the complying Senior Holders, as the case may be, shall be the right of the Company to issue to the New Securities Purchaser and the other Senior Holders, pro rata based on their respective participations in the transaction as determined pursuant to Section 4.1, additional New Securities equal in kind and number or other relevant amount to the New Securities which such Senior Holder failed to purchase at the closing, in which event the Majority Senior Holders may elect to postpone the closing for five Business Days. Unless the Company and any Senior Holder otherwise agree, the closing of any issuance of New Securities to any Senior Holder pursuant to this Section 4 shall take place at the principal executive offices of the Company at 11:00 A.M., local time, on the later of (i) the tenth Business Day following the expiration of the period of fifteen Business Days after the later of (A) the date the relevant Preissuance Notice was given and (B) the date all disputes as to the valuations have been resolved and (ii) the fifteenth Business Day following the expiration of all applicable waiting periods, if any, under the HSR Act and the receipt of all consents, approvals and authorizations from governmental authorities or other Persons that are necessary in connection with the acquisition of the New Securities to be issued to the Senior Holder. The Company shall execute such documents and instruments as may be necessary or reasonably requested to effectuate the issuance of New Securities to any Senior Holder. Section 4.4. Limitations. The provisions of this Section 4 will not ----------- apply to (i) shares of Common Stock issued as a stock dividend to all holders of shares of Common Stock or upon any subdivision or combination of shares of Common Stock, (ii) securities issued for the acquisition by the Company of another entity or business by merger or such other transaction as would result in the ownership by the Company of not less than a majority of the voting power of the other entity or for the purchase of all or substantially all of the assets of an entity or business, (iii) shares of Common Stock that are sold pursuant to the IPO, (iv) shares of Common Stock or Rights issued pursuant to the Company's stock option plans in existence at the date of this Agreement or other such stock option plans as approved by the Compensation Committee, (v) any shares of Common Stock issued upon conversion or exercise of the Preferred Shares, or (vi) shares of Common Stock issued upon exercise of any Rights as to which the Holders shall have been afforded the opportunity to exercise their preemptive rights pursuant to this Section 4. Section 4.5. Terms of Payment of Purchase Price. Subject to Section 4.3 ---------------------------------- and the rest of this Section 4, each issuance of New Securities to each Senior Holder must be on terms not less favorable to such Senior Holder than the most favorable terms on which the Company issues or proposes to issue in the transaction in connection with which the preemptive right is being exercised New Securities to any New Securities Purchaser, any other Senior Holder or any other Person (without discrimination based on differences in the number or amount of New Securities to be acquired). Without limiting the generality of the immediately preceding sentence, (i) each Senior Holder must be given the same options and rights of election, if any, as to the kind(s) or amount(s) of consideration to be paid or delivered for New Securities as any other purchaser is given or was proposed to be given in the Preissuance Notice and (ii) the purchase price to be paid by each Senior Holder upon exercise of its rights under this Section 4 will be paid upon terms which are not less favorable than those on which the New Securities are sold to any other purchaser, unless those terms provide for payment in a manner which could not reasonably be duplicated by any Senior Holder, such as the transfer of specific property to the Company, in which event such payment will be in cash in an amount equal to the Fair Market Value of such specific property as reasonably determined by the Board of Directors in good faith. The giving of a Preissuance Notice shall constitute the representation and warranty by the Company to each Senior Holder that (i) the proposed issuance is not subject to conditions, contingencies or material terms not disclosed in the Preissuance Notice or in the accompanying documents delivered therewith; and (ii) neither the amount or kind of consideration offered by the New Securities Purchaser for the New Securities nor any other terms of the proposed issuance or of any other transaction or proposed transaction with the New Securities Purchaser or any of its Affiliates have been established for the purpose of circumventing, increasing the cost of exercising or otherwise impairing any Senior Holder's preemptive right pursuant to this Section 4. Section 4.6. Issuance to Others Not Permitted Absent Compliance. If the -------------------------------------------------- Company does not issue and deliver, to each Senior Holder, on or before the 120th day after the date the applicable Preissuance Notice with respect to any proposed issuance of New Securities is given (or, if later, the date specified for the closing in the second to last sentence of Section 4.3), all New Securities which such Senior Holder is entitled to be issued in accordance with the provisions of this Section 4 for any reason other than the failure of such Senior Holder to tender the purchase price therefor if and when required by this Section 4, then the Company shall not be entitled to issue any New Securities pursuant to the related Preissuance Notice. If, after compliance with Section 4.2, there remains any portion of the New Securities specified in a Preissuance Notice which have not been elected to be acquired by one or more Senior Holders, the Company shall be entitled to issue such remaining portion to the New Securities Purchasers, in the manner and on terms and conditions not materially more favorable to the purchaser than those specified in such Preissuance Notice, but only if such issuance is consummated not later than the 120th day after the date such Preissuance Notice was given (or, if later, the date specified for closing in the second to last sentence of Section 4.3). If such issuance is not so consummated within such period, then the Company shall not be entitled to issue any such New Securities without again complying with the provisions of this Section 4. Notwithstanding the foregoing provisions of this Section 4, unless a binding purchase agreement entered into pursuant to this Section 4 by the Company and such Senior Holder otherwise provides, the Company may, without liability to any Senior Holder, abandon the proposed issuance of New Securities. Section 4.7. Rights Apply to Each Issuance of New Securities. Subject to ----------------------------------------------- the last sentence of Section 4.1, the provisions of this Section 4 shall apply successively to each and every issuance or proposed issuance of any New Securities. 5. WARRANT PUT RIGHT ----------------- (a) Upon the occurrence of a Redemption Event (as defined in Part A) the Majority Warrant Holders shall have the right ("Put Right") to require the --------- Company to purchase, at the Repurchase Price specified in Section 5(d), all of the outstanding Warrants and Warrant Shares. In order to exercise the Put Right, the Majority Warrant Holders must give written notice to such effect (a "Put --- Notice") to the Company (which notice shall be irrevocable) within 30 days after - ------ the Company's delivery of notice of the Redemption Event to the Warrant Holders. The Company shall promptly notify the Warrant Holders of the occurrence of a Redemption Event. The Put Right shall terminate immediately prior to the closing of the IPO. (b) The closing of any purchase of the Warrants and Warrant Shares shall take place on a date specified by the Majority Warrant Holders in the Put Notice that is not less than 90 days nor more than 120 days after the Company delivers notice of the Redemption Event to the Warrant Holders; provided however, that if the outstanding Series A Preferred Shares or Series C Preferred Shares are being redeemed in connection with such Redemption Event, then the closing of the purchase of the Warrants and Warrant Shares shall take place on the Redemption Date (as defined in Part A or Part C, as applicable) set for the redemption of such Series A Preferred Shares and/or Series C Preferred Shares in accordance with Section 5 of Part A and/or Section 5 of Part C, as applicable. Subject to Section 5(c), at or prior to such time the Company shall deliver a certified or bank cashier's check to each Warrant Holder, at his or its address as the same appears in the transfer records of the Company, in an amount equal to the aggregate Repurchase Price for the Warrants and Warrant Shares being repurchased from such Warrant Holder, determined in accordance with Section 5(d), or shall transfer such amount by wire transfer of immediately available funds to any account specified in writing by such Warrant Holder to the Company. (c) If the Company has insufficient cash to (A) purchase all Warrants and Warrant Shares that it is required to purchase pursuant to this Section 5 and (B) redeem all shares of Series A Convertible Preferred Stock and Series C Convertible Preferred Stock that it is required to redeem pursuant to the Charter on the Redemption Date (as defined in Section 5.1 of Part A), then the Company shall (i) promptly give written notice to such effect to the Warrant Holders and (ii) take all reasonable lawful actions to obtain sufficient cash to enable the Company to make such redemption and purchase in accordance with, and subject to, the provisions of Section 5.5 of Part A and Section 5.5 of Part C. (d) The repurchase price (the "Repurchase Price") for each Warrant ---------------- (determined on the basis of the number of Warrant Shares into which it is then exercisable) and each Warrant Share which is to be purchased by the Company pursuant to this Section 5 shall be an amount equal to the price per share that a holder of Common Stock would be entitled to receive if the Company were sold for its Fair Market Value (determined as provided in Section 5.1 of Part A and or Section 5.1 of Part C, as applicable) and the proceeds of such sale were distributed in accordance with the liquidation, dissolution and winding up provisions of the Charter. All selections, consents, determinations or other actions required or permitted of the Warrant Holders pursuant to this Section 5(d) shall be made by the Majority Warrant Holders. (e) Upon the timely receipt of the Repurchase Price (plus interest, if applicable) for Warrants or Warrant Shares sold to the Company pursuant to this Section 5, each Warrant Holder shall forward the Warrants and Warrant Shares, as the case may be, so sold to the Company. Upon timely payment of the Repurchase Price therefor (plus interest, if applicable) Warrants so purchased shall no longer be exercisable or convertible, as the case may be, nor have any validity whatsoever. 6. NOTICES ------- All notices and other communications hereunder shall be in writing and shall be deemed to have been given when delivered or mailed by commercial courier or first class, registered or certified mail (air mail if to or from outside the United States), postage prepaid, or facsimile transmission that is acknowledged as received by the recipient, at his or its respective address set forth on the signature page hereto, or if to the Company, at its address set forth on the signature page hereto, or to such other address as the addressee shall have furnished to the other parties hereto in the manner prescribed by this Section 6. 7. SPECIFIC PERFORMANCE -------------------- The rights of the parties under this Agreement are unique and, accordingly, the parties shall have the right, in addition to such other remedies as may be available to any of them at law or in equity, to enforce their rights hereunder by actions for specific performance in addition to any other legal or equitable remedies they might have to the extent permitted by law. 8. ENTIRE AGREEMENT ---------------- This Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings between them or any of them as to such subject matter. This Agreement shall supersede the Existing Stockholders Agreement, and upon execution and delivery of this Agreement by all parties hereto, the Existing Stockholders Agreement shall terminate and be of no further force or effect. 9. WAIVERS AND FURTHER AGREEMENTS ------------------------------ Any of the provisions of this Agreement may be waived by an instrument in writing with the consent of the party or parties whose rights are being waived. Any waiver of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach of that provision or of any other provision hereof. Each of the parties hereto agrees to execute all such further instruments and documents and to take all such further action as any other party may reasonably require in order to effectuate the terms and purposes of this Agreement. 10. AMENDMENTS ---------- This Agreement may be amended by and such amendment shall be effective upon the receipt of the written consent of all of the following: (i) the holders of at least fifty-one percent (51%) of the Shares then held by the Holders, (ii) the holders of at least fifty-one percent (51%) of the Series A Shares and Warrant Shares then outstanding and (iii) the holders of at least fifty-one percent (51%) of the Series C Shares then outstanding. 11. ASSIGNMENT; SUCCESSORS AND ASSIGNS ---------------------------------- This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, legal representatives, successors and permitted assigns, except as may be expressly provided otherwise herein. 12. COMPANY COVENANT ---------------- The Company hereby covenants and agrees to cause each officer and employee of the Company and any other Person who, on or after the date hereof, acquires or has the right to acquire from the Company a number of Shares that, when taken together with all other Shares or rights to acquire Shares held by such officers, employee or other Person, is greater than or equal to 1% of the total number of Shares outstanding to become a party to this Agreement, effective as of the date of the acquisition of such Shares or such right to acquire such Shares, by executing and delivering to the Company an Instrument of Accession in the form of Exhibit I hereto. --------- 13. SEVERABILITY ------------ In case any one or more of the provisions contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement and such invalid, illegal and unenforceable provision shall be reformed and construed so that it will be valid, legal, and enforceable to the maximum extent permitted by law. 14. COUNTERPARTS ------------ This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 15. SECTION HEADINGS ---------------- The headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 16. GOVERNING LAW ------------- This Agreement shall be construed and enforced in accordance with and governed by the Business Corporation Act of the State of Arkansas as to matters within the scope thereof and as to all other matters shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts. 17. REPORTS ------- The Company shall deliver to each Series C Holder the same reports and information that it delivers to the Capital Resource Parties pursuant to Section 7.03 of the Series A Purchase Agreement, and each Series C Holder shall have the same inspection rights as the Capital Resource Parties have under Section 7.01(f) of the Series A Purchase Agreement, as long as (a) at least 50% of the Series C Preferred Shares are outstanding, and (b) such Series C Holder holds at least 50% of the Series C Preferred Shares acquired by it on the date of initial issuance of the Series C Preferred Shares. [Rest of Page Intentionally Left Blank] IN WITNESS WHEREOF, the undersigned have executed this Amended and Restated Stockholders' Agreement as of the day and year first above set forth. COMPANY: LAW OFFICE INFORMATION SYSTEMS, INC. 105 North 28th Street Van Buren, Arkansas 72956 Attention: Kyle D. Parker, President Telecopy No.: (501) 471-9224 By: /s/ Kyle Parker ------------------------------ Name: Kyle Parker Title: Chief Executive Officer HOLDERS: CAPITAL RESOURCE LENDERS III, L.P. c/o Capital Resource Partners 85 Merrimac Street, Suite 200 Boston, Massachusetts 02114 Attention: Robert C. Ammerman Telecopy No.: (617) 723-9819 By: Capital Resource Partners III, L.L.C., Its General Partner By: /s/ Robert C. Ammerman Name: Title: CRP INVESTMENT PARTNERS III, L.L.C. c/o Capital Resource Partners 85 Merrimac Street, Suite 200 Boston, Massachusetts 02114 Attention: Robert C. Ammerman Telecopy No.: (617) 723-9819 By: /s/ Robert C. Ammerman Name: Title: /s/ Rowland Moriarty ------------------------------ Rowland Moriarty Address: Cubex Corporation 200 Clarendon Street, Boston /s/ Charles J. Lindsay ______________________________________ Charles J. Lindsay Address: 37 Skyridge Rd., Greenwich, CT ________________________________ /s/ Charles J. Lindsay ______________________________________ Charles J. Lindsay, as Custodian of Michael D. Lindsay under the Connecticut Uniform Transfers to Minors Act Address: 37 Skyridge Rd., Greenwich, CT _______________________________ _______________________________ [Signature Page to Stockholders' Agreement] /s/ Charles J. Lindsay ______________________________________ Charles J. Lindsay, as Custodian of Maxwell C. Lindsay under the Connecticut Uniform Transfers to Minors Act Address: 37 Skyridge Rd., Greenwich, CT _______________________________ /s/ Charles J. Lindsay ______________________________________ Charles J. Lindsay, as Custodian of Susan M. Lindsay under the Connecticut Uniform Transfers to Minors Act Address: 37 Skyridge Rd., Greenwich, CT _______________________________ /s/ Charles J. Lindsay ______________________________________ Charles J. Lindsay, as Custodian of Sally M. Lindsay under the Connecticut Uniform Transfers to Minors Act Address: 37 Skyridge Rd., Greenwich, CT _______________________________ /s/ George P. Lindsay ______________________________________ George P. Lindsay Address: _______________________________ /s/ Charles M. Dubroff ______________________________________ Charles M. Dubroff Address:______________________________ /s/ Nestor J. Olivier ______________________________________ Nestor J. Olivier Address:______________________________ [Signature Page to Stockholders' Agreement] /s/ Nestor J. Olivier ______________________________________ Nestor J. Oliver, as Custodian for Maximilian A. Olivier under the Connecticut Uniform Transfers to Minors Act Address:______________________________ [Signature Page to Stockholders' Agreement] SANDLER CAPITAL PARTNERS IV, L.P. By: SANDLER INVESTMENT PARTNERS, General Partner By: SANDLER CAPITAL MANAGEMENT, General Partner By: MJDM MEDIA CORP., a General Partner 767 Fifth Avenue, 45th Floor New York, NY 10153 Attention: Telecopy No.: By: /s/ Edward Grinacoff __________________________________ Name: Edward Grinacoff Title: President SANDLER CAPITAL PARTNERS IV, FTE, L.P. By: SANDLER INVESTMENT PARTNERS, General Partner By: SANDLER CAPITAL MANAGEMENT, General Partner By: MJDM MEDIA CORP., a General Partner 767 Fifth Avenue, 45th Floor New York, NY 10153 Attention: Telecopy No.: By: /s/ Edward Grinacoff ___________________________________ Name: Edward Grinacoff Title: President [Signature Page to Stockholders' Agreement] PARKER TRUST, created by instrument dated March 15, 1989, and amended and restated by two Trust Agreements dated November 25, 1997. By: /s/ Kyle D. Parker, Trustee ___________________________ Kyle D. Parker, Trustee Address: 1530 South 37th Fort Smith, AR 72903 /s/ Kyle D. Parker _____________________________ Kyle D. Parker Address: 1530 South 37th Fort Smith, AR 72903 /s/ Douglas W. Parker, Sr. ______________________________ Douglas W. Parker, Sr. Address: 2720 So. Waldron ________________ Ft. Smith, AR 72903 ___________________ /s/ Melissa Ann Parker _____________________________ Melissa Ann Parker Address: 3611 Free Ferry Road Fort Smith, AR 72903 [Signature Page to Stockholders' Agreement] /s/ David Jamell _____________________________________________ David Jamell Address: 2607 Riviera Circle Fort Smith, AR 72903 JOSEPH MULLEN REVOCABLE TRUST created by instrument dated September 24, 1998. By: /s/ Janet M. Den Uyl, Trustee ___________________________________ Janet M. Den Uyl, Trustee /s/ Johnnie L. Hernreich ______________________________________ Johnnie L. Hernreich Address: #8 Riverlyn Terr. _________________ Ft. Smith, AR 72903 ___________________ /s/ Larry Murray ______________________________________ Larry Murray Address: 4023 Kinkead ______________________________ Ft. Smith, AR 72903 ______________________________ /s/ W. Clark Wigley ______________________________________ W. Clark Wigley Address: 151 Crescent Avenue ___________________ Portola Valley, CA 94028 ________________________ [Signature Page to Stockholders' Agreement] /s/ Reves W. Dillon ___________________________________ Reves W. Dillon Address: 6304 Silver Shade Crossing __________________________ Van Buren, AR _____________ /s/ J. Scott Thompson ___________________________________ J. Scott Thompson Address: 4422 Urbana ___________ Fort Smith, AR 72904 ____________________ /s/ Paul E. Dickson ___________________________________ Paul E. Dickson Address: 1701 Lover Lane _______________ Van Buren, AR 72956 ___________________ /s/ Charles Griggs ___________________________________ Charles Griggs Address: 1002 E. 66th Pl. S. #411 ________________________ Tulsa, OK 74136 _______________ /s/ Gary Hood ___________________________________ Gary Hood Address: 55 Mercker Road _____________________________ Sothington, CT 06489 _____________________________ [Signature Page to Stockholders' Agreement] /s/ David Hoover ______________________________________ David Hoover 3705 SW Skyview Circle Address:______________________________ Ankeny, IA 50021 _____________________________ /s/ Pamela G. Rogers ______________________________________ Pamela G. Rogers 6810 Free Ferry Road Address:______________________________ Ft. Smith, AR 72903 _____________________________ /s/ Kelly J. Ketchum ______________________________________ Kelly J. Ketchum 915 Cross Lanes Road Address:______________________________ Alma, AR 72921 ______________________________ /s/ Robert J. Gould ______________________________________ Robert J. Gould 3015 Key Harbor Drive Address:______________________________ Safety Harbor, Fl 34695 /s/ Larry Murray _______________________________________ Larry Murray Address:______________________________ _____________________________ [Signature Page to Stockholders' Agreement] /s/ Mark Beyland ______________________________________ Mark Beyland Address: 105 North 28th Street _____________________________ Van Buren, AR 72956 _____________________________ EXETER CAPITAL PARTNERS IV, L.P. By: Exeter IV Advisors, L.P., Its general partner By: Exeter IV Advisors, Inc., Its general partner By: /s/ Keith Fox _____________________________ Title _____________________________ Address: 10 East 53rd Street New York, New York 10022 Attn: Keith R. Fox Tel: (212) 872-1172 Fax: (212) 872-1198 DUBLIND PARTNERS INC. By: /s/ Nestor J. Oliner _____________________________ Name: Nestor J. Oliner Title: Director [Signature Page to Stockholders' Agreement] EXHIBIT I --------- INSTRUMENT OF ACCESSION ----------------------- The undersigned, _________________________, as a condition precedent to becoming the owner or holder of record of ________________ (______________) shares of the Common Stock, $0.001 par value per share, of Law Office Information Systems, Inc., an Arkansas corporation (the "Company"), hereby agrees to become a Holder, party to and bound by that certain Amended and Restated Holders' Agreement, dated as of ___________, 1999, by and among the Company and certain Holders of the Company. This Instrument of Accession shall take effect and shall become an integral part of the said Amended and Restated Holders' Agreement immediately upon execution and delivery to the Company of this Instrument. IN WITNESS WHEREOF, this INSTRUMENT OF ACCESSION has been duly executed by or on behalf of the undersigned, as a sealed instrument under the laws of The Commonwealth of Massachusetts, as of the date below written. Signature: Address: Date: Accepted: By: Name: Date: EX-4.3 7 AMENDED AND RESTATED REGISTRATION RIGHTS AGRMNT. EXHIBIT 4.3 Execution Copy AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this "Agreement") --------- is entered into as of May 25, 1999 by and among (i) Law Office Information Systems, Inc., an Arkansas corporation (the "Company"), (ii) Capital Resource ------- Lenders III, L.P., a Delaware limited partnership ("CRL III"), (iii) CRP ------- Investment Partners III, L.L.C., a Delaware limited liability company ("CRP"), --- (iv) Rowland Moriarty ("Moriarty," and together with CRL III and CRP, the -------- "Capital Resource Parties"), (v) Sandler Capital Partners IV, L.P., a Delaware - ------------------------- limited partnership ("Sandler IV"), (vi) Sandler Capital Partners IV FTE, L.P., ---------- a Delaware limited partnership ("Sandler IV FTE", and together with Sandler IV, -------------- the "Sandler Parties"), (vii) the individual holders of the Dublind Warrant --------------- Shares, whose names are set forth on the signature pages of this Agreement, (viii) Mark Beyland, an individual ("Beyland"), (ix) Exeter Capital Partners IV, L.P., a Delaware limited partnership ("Exeter"), and (x) Dublind Partners Inc., a New York corporation ("Dublind Inc."). Each of the Persons described in ------------ clauses (ii) through (x) of the preceding sentence is referred to herein as a "Holder". ------ RECITALS WHEREAS, the Company, CRL III and Dublind Investments LLC, a Delaware limited liability company ("Dublind LLC") are parties to the Registration Rights ----------- Agreement ("Existing Registration Rights Agreement"), dated November 24, 1997, -------------------------------------- among the Company, CRL III and Dublind LLC; WHEREAS, CRL III has transferred some of its Series A Preferred Shares and Warrants to CRP and Moriarty pursuant to that certain Assignment, Assumption and Consent dated as of January 1, 1998; WHEREAS, CRL III exercised all of the Warrants held by it in full immediately prior to the execution and delivery of this Agreement; WHEREAS, Dublind LLC has exercised the Dublind Warrants in full and has transferred the 365,346 Dublind Warrant Shares purchased thereby to certain individuals, each of whom is a party hereto as described in clause (vii) in the preamble of this Agreement; WHEREAS, the Company proposes to sell (i) an aggregate of 2,495,697 shares of the Company's Series C Convertible Preferred Stock, $0.001 par value per share ("Series C Preferred Shares"), to the Sandler Parties, CRL III, Beyland ------------------------- and Exeter, and (ii) 86,059 shares of the Company's Common Stock to Dublind Inc., pursuant to the Stock Purchase Agreement entered into on or about the date hereof ("Series C Purchase Agreement") by and among the Company --------------------------- and the other parties thereto; and WHEREAS, as a condition to the execution and delivery of the Series C Purchase Agreement and the consummation of the transactions contemplated thereby the parties have agreed to amend and restate the Existing Registration Rights Agreement so as to include the parties to the Series C Purchase Agreement and the persons described by clause (vii) of the preamble as parties to the agreement and to revise the terms of the agreement in the manner provided herein; NOW, THEREFORE, in consideration of the premises, the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby amend and restate in its entirety the Existing Registration Rights Agreement as follows: 1. Certain Definitions. As used in this Agreement, the following terms ------------------- shall have the following respective meanings: "Commission" shall mean the United States Securities and Exchange ---------- Commission, or any other federal agency at the time administering the Securities Act. "Common Stock" shall mean (i) the Company's Common Stock, par value ------------ $0.001 per share, as authorized on the date of this Agreement, (ii) any other capital stock of any class or classes (however designated) of the Company, authorized on or after the date hereof, the holders of which shall have the right, without limitation as to amount per share, either to all or to a share of the balance of current dividends and liquidating distributions after the payment of dividends and distributions on any shares entitled to preference in the payment thereof, and the holders of which shall ordinarily, in the absence of contingencies, be entitled to vote for the election of a majority of directors of the Company (even though the right so to vote has been suspended by the happening of such a contingency), and (iii) any other securities into which or for which any of the securities described in (i) or (ii) above may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. "Dublind Warrants" shall mean the Company's Common Stock Purchase ---------------- Warrants to purchase up to 365,346 shares of Common Stock issued to Dublind LLC on November 24, 1997 for financial advisory services rendered to the Company in connection with the consummation of the transactions contemplated by the Series A Purchase Agreement and which have been exercised in full prior to the date hereof. "Dublind Warrant Shares" shall mean the 365,346 shares of Common Stock ---------------------- that were issued upon exercise of the Dublind Warrants. "Exchange Act" shall mean the Securities Exchange Act of 1934, as ------------ amended, or any similar successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Holder" shall mean at any time any Person that holds Registrable ------ Securities which (i) is one of the Holders identified in the preamble to this Agreement or (ii) has been assigned those rights and obligations pursuant to Section 11. For purposes of this Agreement, a Person shall be deemed to hold, as of any time, (A) all issued and outstanding shares of Common Stock, Registrable Securities or other securities then held or deemed to be held by such Person, (B) all additional shares of Common Stock, Registrable Securities or other securities which would then be held by such Person if it were assumed that all Preferred Shares and Warrants then held or deemed to be held by such Person had been duly and effectively exercised in full at and effective as of such time, (C) all additional shares of Common Stock, Registrable Securities or other securities which would then be held by such Person if it were assumed that all Rights, if any, then held or deemed to be held by such Person had been duly and effectively exercised in full at and effective as of such time and (D) all additional shares of Common Stock, Registrable Securities or other securities, if any, which such Person then has a right to purchase pursuant to the preemptive rights granted under Section 4 of the Stockholders Agreement or by virtue of any prior exercise of such preemptive rights, assuming, in the case of each of clauses (B) and (C), that all adjustments to the kind, number and amount of shares of capital stock or other securities issuable upon exercise, exchange or conversion of any of the Preferred Shares, Warrants or other Rights referred to in such clause required by reason of any event or transaction occurring at or prior to such time had been duly and effectively made as and when required by the terms thereof. "Majority Series A Holders" shall mean Holders that own at least ------------------------- fifty-one percent (51%) of the aggregate of (A) the Warrant Shares and shares of any other securities issued and issuable upon exercise of the Warrants and (B) the Series A Preferred Conversion Shares and shares of any other securities issued or issuable upon conversion of the Series A Preferred Shares. "Majority Series C Holders" shall mean Holders that own at least two- ------------------------- thirds of the aggregate of the Series C Preferred Conversion Shares and shares of any other securities issued or issuable upon conversion of the Series C Preferred Shares. "Person" shall mean an individual, a corporation, a partnership, a ------ joint venture, a trust, an unincorporated organization, a limited liability company or partnership, a government and any agency or political subdivision thereof. "Preferred Conversion Shares" shall mean the Series A Preferred --------------------------- Conversion Shares and the Series C Preferred Conversion Shares. "Preferred Shares" shall mean the Series A Preferred Shares and the ---------------- Series C Preferred Shares. "Registrable Securities" shall mean (i) any and all shares of Common ---------------------- Stock issued or issuable upon conversion or exercise of any Series A Preferred Shares, Series C Preferred Shares or Warrants, (ii) any and all shares of Common Stock, and any shares of Common Stock issued or issuable upon the exercise of any Rights or other securities, acquired by or issuable to the Holders pursuant to Section 4 of the Stockholders' Agreement, (iii) any and all other shares of Common Stock, and any shares of Common Stock issued or issuable upon the exercise of any Rights or other securities, acquired by any Holder from the Company and (iv) any other shares of Common Stock issued in respect of such shares (because of stock splits, stock dividends, reclassifications, recapitalizations, or similar events); provided, however, that shares of Common -------- ------- Stock which are Registrable Securities shall cease to be Registrable Securities upon any sale pursuant to an effective registration statement or Rule 144 under the Securities Act. "Registration Expenses" shall mean the expenses so described in --------------------- Section 5. "Rights" means any options, warrants or other rights, however ------ denominated, to subscribe for, purchase or otherwise acquire any Common Stock or Rights to Common Stock, with or without payment of additional consideration in cash or property, either immediately or upon the occurrence of a specified date or a specified event or the satisfaction or happening of any other condition or contingency. "Securities Act" shall mean the Securities Act of 1933, as amended, or -------------- any similar successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Series A Holders" shall mean Holders that hold Series A Preferred ---------------- Shares and/or Series A Preferred Conversion Shares. "Series A Preferred Conversion Shares" shall mean the shares of Common ------------------------------------ Stock issued and issuable upon conversion of the Series A Preferred Shares. "Series A Preferred Shares" shall mean the 931,044 shares of Series A ------------------------- Convertible Preferred Stock, $0.001 par value per share, of the Company issued to CRL III pursuant to the Series A Purchase Agreement. "Series A Purchase Agreement" shall mean the Senior Subordinated Note --------------------------- and Securities Purchase Agreement, dated November 24, 1997, among the Company and the Capital Resource Parties, as amended. "Series C Holders" shall mean Holders that hold Series C Preferred ---------------- Shares and/or Series C Preferred Conversion Shares. "Series C Preferred Conversion Shares" shall mean the shares of Common ------------------------------------ Stock issued and issuable upon conversion of the Series C Preferred Shares. "Series C Preferred Shares" shall mean the 2,495,697 shares of the ------------------------- Series C Convertible Preferred Stock, par value $0.001 per share, of the Company issued to the Sandler Parties, CRL III, Beyland and Exeter pursuant to the Series C Purchase Agreement. "Stockholder Agreement" means the Amended and Restated Stockholders --------------------- Agreement, dated as of the date hereof, by and among the Company, the Capital Resource Parties, the Sandler Parties, Beyland, Exeter and certain other Persons. "Subordinate Holders" shall mean all Holders other than Series A ------------------- Holders and Series C Holders. "Warrant Shares" shall mean the 1,056,616 shares of Common Stock that -------------- were issued upon exercise of the Warrants held by CRL III immediately prior to the execution and delivery of this Agreement and any shares of Common Stock that may hereafter be issued or issuable upon exercise of the outstanding Warrants in accordance with the terms thereof. "Warrants" shall mean the Company's Common Stock Purchase Warrants -------- issued to CRL III pursuant to the Series A Purchase Agreement. 2. Demand Registration. ------------------- (a) At any time after the earlier of November 24, 2002 or the date on which the Company becomes subject to Section 13 or Section 15(d) of the Exchange Act, (A) the Majority Series A Holders and (B) Series C Holders holding at least thirty percent (30%) of the Registrable Securities held by Series C Holders as of such time may each request the Company to register under the Securities Act all or any portion of the Registrable Securities held by such requesting Holders in the manner specified in such request, and upon receipt of such request the Company shall promptly deliver notice of such request to all Series A Holders and Series C Holders, who shall then have twenty (20) days to notify the Company in writing of their desire to be included in such registration. The Company will use its best efforts to expeditiously effect the registration of all Registrable Securities that Series A Holders and Series C Holders request to be included in such registration under the Securities Act, but only to the extent provided for in the following provisions of this Agreement; provided, however, that the Company shall not be required to effect registration pursuant to a request under this Section 2(a) more than one (1) time for the Series A Holders and one (1) time for the Series C Holders; and provided further, however, that the Company shall not be required to effect registration pursuant to a request under this Section 2 unless the reasonably anticipated aggregate price to the public of such public offering would exceed $5,000,000. Notwithstanding anything to the contrary contained herein, no request may be made under this Section 2 within 180 days after the effective date of a registration statement filed by the Company covering a firm commitment underwritten public offering in which the holders of Registrable Securities shall have been entitled to join pursuant to Section 3 or 10 and in which there shall have been effectively registered all Registrable Securities as to which registration shall have been requested. Neither the Company nor any Person that is not a Series A Holder or Series C Holder shall participate in any registration requested pursuant to this Section 2 unless the Majority Series A Holders (if Series A Holders are participating in such registration) and the Majority Series C Holders (if Series C Holders are participating in such registration) otherwise agree. (b) Whenever a requested registration pursuant to Section 2(a) is for an underwritten offering, only Registrable Securities which are to be included in the underwriting may be included in the registration. If the managing underwriter of such offering determines in good faith that the number of Registrable Securities so included which are to be sold by the holders of the Registrable Securities should be limited due to market conditions, then the Series A Holders and Series C Holders participating in such underwriting and registration shall share pro rata in the number of such Registrable Securities --- ---- being underwritten and registered for their account, such sharing to be based on the number of all Registrable Securities held by such holders, respectively. Whenever a requested registration pursuant to Section 2(a) is for an underwritten public offering, the Company, subject to the approval of (A) the Majority Series A Holders, if such registration was requested by the Majority Series A Holders, or (B) the Majority Series C Holders, if such registration was requested by the Majority Series C Holders (which approval, in either case, will not be unreasonably withheld or delayed), may designate the managing underwriter(s) of such offering. The Company may not cause any other registration of securities for sale for its own account (other than a registration effected solely to implement an employee benefit plan or a transaction to which Rule 145 of the Commission is applicable) to become effective less than 90 days after the effective date of any registration required pursuant to this Section 2. (c) If at the time of any request to register Registrable Securities pursuant to Section 2(a) the Company is preparing or within thirty (30) days thereafter commences to prepare a registration statement for a public offering (other than a registration effected solely to implement an employee benefit plan or a transaction to which Rule 145 of the Commission is applicable) which in fact is filed and becomes effective within ninety (90) days after the request, or is engaged in any activity which, in the good faith determination of the Company's board of directors, would be adversely affected by the requested registration to the material detriment of the Company, then the Company may at its option direct that such request be delayed for a period not in excess of four months from the effective date of such offering or the date of commencement of such other activity, as the case may be, such right to delay a request to be exercised by the Company not more than once in any two year period. Nothing in this Section 2(c) shall preclude a holder of Registrable Securities from enjoying registration rights which it might otherwise possess under Section 3 hereof. 3. Piggyback Registration. If the Company at any time proposes to ---------------------- register any of its securities under the Securities Act (including pursuant to a demand of any stockholder of the Company exercising registration rights) for sale to the public (except with respect to registration statements on Forms S-4, S-8 or another form not available for registering the Registrable Securities for sale to the public), each such time it will give written notice to all Holders owning Registrable Securities of its intention to do so. Upon the written request of any of such Holders of the Registrable Securities given within twenty (20) days after receipt by such Holder of such notice, the Company will, subject to the limits contained in this Section 3, use its best efforts to cause all such Registrable Securities of said requesting Holders to be registered under the Securities Act and qualified for sale under any state blue sky law, all to the extent requisite to permit such sale or other disposition by such Holder of the Registrable Securities so registered; provided, however, that if the Company is advised in writing in good faith by - -------- ------- any managing underwriter of the Company's securities being offered in a public offering pursuant to such registration statement that the amount to be sold by persons other than the Company (collectively, "Selling Stockholders") is greater -------------------- than the amount which can be offered without adversely affecting the offering, the Company may reduce the amount offered for the accounts of Selling Stockholders (including such Holders of shares of Registrable Securities) to a number deemed satisfactory by such managing underwriter provided that no reduction shall be made in the amount of Registrable Securities offered for the accounts of the Holders of Registrable Securities unless such reduction is imposed pro rata with respect to all securities whose holders have a contractual, incidental "piggy back" right to include such securities in the registration statement as to which inclusion has been requested pursuant to such right; provided, however, that there is first excluded from such registration -------- ------- statement all shares of Common Stock sought to be included therein by (i) any officer or employee of the Company or any subsidiary of the Company, (ii) any holder thereof not having any such contractual, incidental registration rights, (iii) any Subordinate Holders, and (iv) any holder thereof having contractual, incidental registration rights subordinated and junior to the rights of the Holders of Registrable Securities. 4. Registration Procedures. If and whenever the Company is required by ----------------------- the provisions of this Agreement to use its best efforts to effect the registration of any of its securities under the Securities Act, the Company will, as expeditiously as possible: (i) prepare and file with the Commission a registration statement with respect to such securities and use its best efforts to cause such registration statement to become and remain effective; provided, however, that -------- ------- notwithstanding any other provision of this Agreement, the Company shall not in any event be required to use its best efforts to maintain the effectiveness of any such registration statement for a period in excess of nine (9) months; (ii) promptly notify each Holder of Registrable Securities of the effectiveness of the Registration Statement; (iii) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all securities covered by such registration statement whenever the seller or sellers of such securities shall desire to sell or otherwise dispose of the same, but only to the extent provided in this Agreement; (iv) furnish to each seller such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as such seller may reasonably request in order to facilitate the public sale or other disposition of the securities owned by such seller; (v) use reasonable efforts to register or qualify the securities covered by such registration statement under such other securities or state blue sky laws of such jurisdictions as each seller shall reasonably request, and do any and all other acts and things which may be necessary under such securities or blue sky laws to enable such seller to consummate the public sale or other disposition in such jurisdictions of the securities owned by such seller, except that the Company shall not for any such purpose be required to qualify to do business as a foreign corporation in any jurisdiction wherein it is not so qualified; (vi) before filing the registration statement or prospectus or amendments or supplements thereto, furnish to one counsel selected by the holders of Registrable Securities copies of such documents proposed to be filed which shall be subject to the reasonable approval of such counsel; (vii) Obtain (A) an opinion of counsel for the Company, dated the effective date of the registration statement, and (B) a "comfort" letter signed by the independent public accountants who have certified the Company's financial statements included in the registration statement, covering substantially the same matters with respect to the registration statement (and the prospectus included therein) and (in the case of the accountants' letter) with respect to events subsequent to the date of the financial statements, as are customarily covered (at the time of such registration) in opinions of the Company's counsel and in accountants' letters delivered to the underwriters in underwritten public offerings of securities; and (viii) use its best efforts to list the Registrable Securities covered by such registration statement with any securities exchange on which the Common Stock of the Company is then listed. 5. Expenses. All expenses incurred in effecting the registrations -------- provided for in Sections 2, 3 and 10, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company and fees not to exceed $10,000 of one counsel for all of the selling holders of Registrable Securities, underwriting expenses (other than fees, commissions or discounts), expenses of any audits incident to or required by any such registration and expenses of complying with the securities or blue sky laws of any jurisdictions pursuant to Section 4(v) hereof (all of such expenses referred to as "Registration Expenses"), shall be paid by the Company; --------------------- provided, that if an offering pursuant to any registration commenced pursuant to - -------- Section 2 is abandoned by the Selling Stockholders (other than by reason of material adverse information pertaining to the Company's business affairs or financial position, as opposed to stock market conditions, in which event the Company shall bear all Registration Expenses), such selling shareholders shall bear pro rata any costs incurred by the Company in conjunction with such --- ---- registration. The number of registrations to which the holders of Registrable Securities are entitled pursuant to Section 2 shall not be reduced on account of any abandoned registration statement. 6. Indemnification. (a) The Company shall indemnify and hold harmless --------------- the seller of such securities, each underwriter (as defined in the Securities Act), and each other Person who participates in the offering of such securities and each other Person, if any, who controls (within the meaning of the Securities Act) such seller, underwriter or participating Person (individually and collectively the "Indemnified Person") against any losses, claims, damages ------------------ or liabilities (collectively the "Liability"), joint or several, to which such --------- Indemnified Person may become subject under the Securities Act or any other statute or at common law, insofar as such Liability (or action in respect thereof) arises out of or is based upon (i) any untrue statement or alleged untrue statement of any material fact contained, on the effective date thereof, in any registration statement under which such securities were registered under the Securities Act, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, or (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading. Except as otherwise provided in Section 6(d), the Company shall reimburse each such Indemnified Person in connection with investigating or defending any such Liability; provided, however, that the Company shall not be liable to any Indemnified - -------- ------- Person in any such case to the extent that any such Liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, preliminary or final prospectus, or amendment or supplement thereto in reliance upon and in conformity with information furnished in writing to the Company by such Person specifically for use therein, or upon such statement or omission therein based on the authority of an expert within the meaning of that term as defined in the Securities Act (but only if the Company had no reasonable ground to believe, and did not believe, that the statements made on the authority of an expert were untrue or that there was an omission to state a material fact); and provided -------- further, that the Company shall not be required to indemnify any Person against - ------- any liability arising from any untrue or misleading statement or omission contained in any preliminary prospectus if such deficiency is corrected in the final prospectus or for any Liability which arises out of the failure of any Person to deliver a prospectus as required by the Securities Act. The Company shall indemnify and hold harmless the Indemnified Person regardless of any investigation made by or on behalf of such Indemnified Person and such obligation shall survive transfer of such securities by such seller. (b) Each holder of any Registrable Securities shall, by acceptance thereof, indemnify and hold harmless each other holder of any Registrable Securities, the Company, its directors and officers, each underwriter and each other Person, if any, who controls such other holder, the Company, or such underwriter (individually and collectively also the "Indemnified Person"), ------------------ against any Liability, joint or several, to which any such Indemnified Person may become subject under the Securities Act or any other statute or at common law, insofar as such Liability (or actions in respect thereof) arises out of or is based upon (i) any untrue statement or alleged untrue statement of any material fact contained, on the effective date thereof, in any registration statement under which securities were registered under the Securities Act at the request of such holder, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, or (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in the case of (i) and (ii) to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in such registration statement, preliminary or final prospectus, amendment or supplement thereto in reliance upon and in conformity with information furnished in writing to the Company by such holder specifically for use therein, and then only to the extent that such untrue statement or alleged untrue statement or omission or alleged omission by the holder was not based on the authority of an expert as to which the holder had no reasonable ground to believe, and did not believe, that the statement made on the authority of such expert was untrue or that there was an omission to state a material fact. Subject to Section 6(f), such holder shall reimburse any Indemnified Person for any legal fees incurred in investigating or defending any such liability; provided, however, that no -------- ------- holder of Registrable Securities shall be required to indemnify any Person against any Liability arising from any untrue or misleading statement or omission contained in any preliminary prospectus if such deficiency is corrected in the final prospectus or for any Liability which arises out of the failure of any Person to deliver a prospectus as required by the Securities Act. (c) Indemnification similar to that specified in Sections 6(a) and (b) shall be given by the Company and each holder of any Registrable Securities (with such modifications as may be appropriate) with respect to any required registration or other qualification of the Registrable Securities under any federal or state law or regulation of governmental authority other than the Securities Act. (d) In the event the Company, any holder or other Person receives a complaint, claim or other notice of any liability or action, giving rise to a claim for indemnification under Sections 6(a), (b) or (c), the Person claiming indemnification under such paragraphs shall promptly notify the Person against whom indemnification is sought of such complaint, notice, claim or action, and such indemnifying Person shall have the right to investigate and defend any such loss, claim, damage, liability or action. The Person claiming indemnification shall have the right to employ separate counsel in any such action and to participate in the defense thereof but the fees and expenses of such counsel shall not be at the expense of the Person against whom indemnification is sought (unless the indemnifying party fails to promptly defend, in which case the fees and expenses of such separate counsel shall be borne by the Person against whom indemnification is sought). In no event shall a Person against whom indemnification is sought be obligated to indemnify any Person for any settlement of any claim or action effected without the indemnifying Person's prior written consent. (e) In order to provide for just and equitable contribution if a claim for indemnification pursuant to the indemnification provisions of this Section 6 is made but it is found in a final judgment by a court of competent jurisdiction (not subject to further appeal) that such indemnification may not been enforced in such case, even though the express provisions hereof provide for indemnification in such case or the indemnification provided for under this Section 6, even though so provided for, otherwise is unavailable to or insufficient to hold any Indemnified Party harmless to the full extent provided therein with respect to any Liability (or any fees, costs or expenses) for which such indemnification is provided for, then the Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party as a result of such Liability (i) in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party, on the one hand, and such Indemnified Party, on the other, in connection with the statements or omissions which resulted in such Liability or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative fault referred to in clause (i) above but also the relative benefits received by the Indemnifying Party, on the one hand, and such Indemnified Party, on the other, from the subject offering or distribution, as well as any other relevant equitable considerations. Relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by (or omitted to be supplied by) the Indemnifying Party or the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The relative benefits received by the Indemnifying Party, on the one hand, and the Indemnified Party, on the other, shall be deemed to be in the same proportion as the net proceeds of the offering or other distribution received by the Indemnifying Party bears to the net proceeds of the offering or other distribution received by the Indemnified Party. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Company and the Holders agree that it would not be just and equitable if contributions pursuant to this Section 6(e) were to be determined by pro rata allocation (even if all Holders were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 6(e). (f) The parties agree, to the maximum extent permitted by law, that the obligations and liability of each Holder with respect to any registration in which such Holder participates pursuant to Section 2 or 3, whether for indemnification pursuant to Section 6(b), contribution pursuant to Section 6(e) or otherwise, shall not in any event exceed in the aggregate the amount of net proceeds received by such Holder from the sale of the Registrable Shares sold by such holder in such registration. 7. Compliance with Rule 144. In the event that the Company (i) registers ------------------------ a class of securities under Section 12 of the Exchange Act or (ii) shall commence to file reports under Section 13 or 15(d) of the Exchange Act, thereafter, at the request of any holder of the Warrants, the Preferred Shares or other Registrable Securities who proposes to sell the Registrable Securities in compliance with Rule 144 of the Commission, the Company shall forthwith furnish to such holder or holders a written statement of compliance with the filing requirements of the Commission as set forth in such Rule, as such Rule may be amended from time to time, and make available to the public and such holders such information as will enable the holders to make sales of Registrable Securities pursuant to Rule 144. 8. Consent to be Bound. Each subsequent holder of Warrants, Warrant ------------------- Shares, Preferred Shares, or Registrable Securities must consent in writing to be bound by the terms and conditions of this Agreement in order to acquire the rights granted pursuant to this Agreement. 9. Amendments. The provisions of this Agreement may be amended, and the ---------- Company may take any action herein prohibited or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of all of the following: (i) Holders of at least fifty-one percent (51%) of the Registrable Securities, (ii) the Majority Series A Holders, and (iii) the Majority Series C Holders. 10. Form S-3. -------- (a) After the first public offering of its securities registered under the Securities Act, the Company shall use its best efforts to qualify and remain qualified to register securities on Form S-3 under the Securities Act. All Series A Holders and Series C Holders shall have the right to request any number of registrations on Form S-3 (such requests shall be in writing and shall state the number of shares of Registrable Securities to be disposed of and the intended method of disposition of such shares by such holder or holders). The Company shall not be required to effect a registration pursuant to this Section 10 if the holder or holders requesting registration propose to dispose of shares of the Registrable Securities having an aggregate disposition price (before deduction of underwriting discounts and expenses of sale) of less than $500,000. This Section shall not be interpreted to restrict the Company from acquiring its own shares or to require the Company to sell its own shares. The Company shall give notice to all holders of the Registrable Securities of the receipt of a request for registration pursuant to this Section 10 and shall provide a reasonable opportunity for other Holders to participate in the registration. Subject to the foregoing, the Company will use its best efforts, in each case, to effect promptly the registration of all shares of the Registrable Securities on Form S-3 to the extent requested by the Holder or Holders thereof for purposes of disposition. (b) If at the time of any request to register Registrable Securities pursuant to Section 10(a) the Company is preparing or within thirty (30) days thereafter commences to prepare a registration statement for a public offering (other than a registration effected solely to implement an employee benefit plan or a transaction to which Rule 145 of the Commission is applicable) which in fact is filed and becomes effective within ninety (90) days after the request, or is engaged in any activity which, in the good faith determination of the Company's board of directors, would be adversely affected by the requested registration to the material detriment of the Company, then the Company may at its option direct that such request be delayed for a period not in excess of four months from the effective date of such offering or the date of commencement of such other activity, as the case may be, such right to delay a request to be exercised by the Company not more than once in any one year period. Nothing in this Section 10 shall preclude a holder of Registrable Securities from enjoying registration rights which it might otherwise possess under Section 3 hereof. 11. Assignability of Registration Rights. The registration rights set ------------------------------------ forth in this Agreement are assignable to each assignee as to each Warrant, each Preferred Share, or each share of Registrable Securities conveyed in accordance herewith who agrees in writing to be bound by the terms and conditions of this Agreement. The registration rights under this Agreement may be assigned to any Person only if and to the extent that shares of Registrable Securities are transferred to such Person. The term "seller" as used in this Agreement refers to a Holder of the Registrable Securities selling such shares. 12. Rights Which May Be Granted to Subsequent Investors. The Company shall --------------------------------------------------- not grant subsequent registration rights to any third party which would result in such party being entitled to participate in any registration requested pursuant to Section 2, or which would result in any reduction in the number of shares of Registrable Securities that any Holder would be entitled to include absent the participation of such party in any registration in which such Holder is entitled to participate pursuant to Section 3 or 10, or which are otherwise superior or equal to the registration rights granted pursuant to this Agreement so long as any of the registration rights under this Agreement remain in effect. 13. Damages. The Company recognizes and agrees that each holder of ------- Registrable Securities will not have an adequate remedy if the Company fails to comply with the terms and provisions of this Agreement and that damages will not be readily ascertainable, and the Company expressly agrees that, in the event of such failure, it shall not oppose an application by any holder of Registrable Securities or any other Person entitled to the benefits of this Agreement requiring specific performance of any and all provisions hereof or enjoining the Company from continuing to commit any such breach of this Agreement. 14. Representations and Warranties of the Company. The Company represents --------------------------------------------- and warrants to the Purchaser as follows: (a) The execution, delivery and performance of this Agreement by the Company have been duly authorized by all requisite corporate action and will not violate any provision of law, any order of any court or other agency of government, the Articles of Incorporation or By-laws of the Company or any provision of any indenture, agreement or other instrument to which it or any of its properties or assets is bound, conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Company. (b) This Agreement has been duly and validly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms. 15. Miscellaneous. ------------- (a) All notices, requests, demands and other communications provided for hereunder shall be in writing and mailed (by first class registered or certified mail, postage prepaid), telegraphed, sent by express overnight courier service or electronic facsimile transmission (with a copy by mail), or delivered to the applicable party at the addresses indicated below: If to the Company: Law Office Information Systems, Inc. 105 North 28th Street Van Buren, Arkansas 72956 Attn: Kyle D. Parker, President Telecopy No.: (501) 471-9224 With a copy to: Thompson & Knight 1700 Pacific Avenue, Suite 3300 Dallas, Texas 75201 Attention: Kenn W. Webb, Esq. Telecopy No.: (214) 969-1751 If to the Capital Resource Parties: Capital Resource Lenders III, L.P. or CRP Investment Partners III, LLC c/o Capital Resource Partners 85 Merrimac Street Suite 200 Boston, Massachusetts 02114 Attention: Robert C. Ammerman Telecopy No.: (617) 723-9819 With a copy to: Testa, Hurwitz & Thibeault, LLP High Street Tower 125 High Street Boston, Massachusetts 02110 Attention: Andrew E. Taylor, Jr., Esq. Telecopy No.: (617) 248-7100 If to Dublind Inc.: Dublind Partners, Inc. 80 Field Point Road Second Floor Greenwich, Connecticut 06830 Attention: Nestor Olivier Telecopy No.: (203) 869-6345 If to Sandler IV or Sandler IV FTE: Sandler Capital Partners IV, L.P. Sandler Capital Partners IV FTE, L.P. 767 Fifth Avenue, 45th Floor New York, New York 10153 Attention: Hannah C. Stone Telecopy No.: (212) 826-0280 With a copy to: Baker & Botts, LLP 599 Lexington Avenue New York, New York 10022 Attention: Lee D. Charles, Esq. Telecopy No.: (212) 705-5125 If to Exeter: Exeter Capital Partners IV, L.P. 10 East 53rd Street New York, New York 10022 Attn: Keith R. Fox Fax: (212) 872-1198 If to Beyland: Law Office Information Systems, Inc. 105 North 28th Street Van Buren, Arkansas 72956 Attention: Mark Beyland Telecopy No.: (501) 471-9224 If to any other holder of Warrants, Warrant Shares, Preferred Shares, or Registrable Securities: at such holder's address for notice as set forth in the books and records of the Company, or, as to each of the foregoing, at such other address as shall be designated by such Person in a written notice to the other parties complying as to delivery with the terms of this subsection (a). All such notices, requests, demands and other communications shall, when mailed, telegraphed or sent, respectively, be effective (i) two days after being deposited in the mails or (ii) one day after being delivered to the telegraph Company, deposited with the express overnight courier service or sent by electronic facsimile transmission, respectively, addressed as aforesaid. (b) This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. (c) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (d) If any provision of this Agreement shall be held to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render illegal, invalid or unenforceable any other provision of this Agreement, and this Agreement shall be carried out as if any such illegal, invalid or unenforceable provision were not contained herein. (e) This Agreement shall supersede the Existing Registration Rights Agreement, and upon the execution and delivery of this Agreement by all parties hereto, the Existing Registration Rights Agreement shall terminate and be of no further force or effect. [Remainder of Page Intentionally Left Blank] IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights Agreement to be duly executed as of the date first set forth above. LAW OFFICE INFORMATION SYSTEMS, INC. By: /s/ Kyle Parker -------------------------------------------- Name: Kyle Parker Title: Chief Executive Officer CAPITAL RESOURCE LENDERS III, L.P. By: Capital Resource Partners III, L.L.C. Its General Partner By: /s/ Robert C. Ammerman -------------------------------------------- CRP Investment Partners III, LLC By:/s/ Robert C. Ammerman -------------------------------------------- Name: -------------------------------------------- Title: -------------------------------------------- /s/ Rowland T. Moriarty ---------------------------------------------- Rowland T. Moriarty /s/ Charles J. Lindsay ------------------------------------------------- Charles J. Lindsay /s/ Charles J. Lindsay ------------------------------------------------- Charles J. Lindsay, a Custodian for Michael D. Lindsay under the Connecticut Uniform Transfers to Minors Act /s/ Charles J. Lindsay -------------------------------------------------- Charles J. Lindsay, as Custodian of Maxwell C. Lindsay under the Connecticut Uniform Transfers to Minors Act /s/ Charles J. Lindsay -------------------------------------------------- Charles J. Lindsay, as Custodian of Susan M. Lindsay under the Connecticut Uniform Transfers to Minors Act /s/ Charles J. Lindsay -------------------------------------------------- Charles J. Lindsay, as Custodian of Sally M. Lindsay under the Connecticut Uniform Transfers to Minors Act /s/ George P. Lindsay -------------------------------------------------- George P. Lindsay /s/ Charles M. Dubroff -------------------------------------------------- Charles M. Dubroff /s/ Nester J. Olivier -------------------------------------------------- Nester J. Olivier /s/ Nestor J. Olivier -------------------------------------------------- Nestor J. Olivier, as Custodian for Maximilian A. Olivier under the Connecticut Uniform Transfers to Minor Act SANDLER CAPITAL PARTNERS IV, L.P. By: SANDLER INVESTMENT PARTNERS, General Partner By: SANDLER CAPITAL MANAGEMENT, General Partner By: MJDM MEDIA CORP., a General Partner By: /s/ Edward Grinacoff ------------------------------------- Edward Grinacoff President SANDLER CAPITAL PARTNERS IV, FTE, L.P. By: SANDLER INVESTMENT PARTNERS, General Partner By: SANDLER CAPITAL MANAGEMENT, General Partner By: MJDM MEDIA CORP., a General Partner By: /s/ Edward Grinacoff ----------------------------------- Edward Grinacoff President /s/ Mark Beyland ___________________________________ Mark Beyland EXETER CAPITAL PARTNERS IV, L.P. By: EXETER IV ADVISORS, L.P., General Partner By: EXETER IV ADVISORS, INC., General Partner /s/ Keith Fox By:____________________________________ Title:_________________________________ DUBLIND PARTNERS INC. By: /s/ Charles Lindsay ---------------------------------------- Name: Charles Lindsay Title: President [Signature Page to Registration Rights Agreement] EX-10.1 8 1996 STOCK OPTION PLAN EXHIBIT 10.1 LAW OFFICE INFORMATION SYSTEMS, INC. 1996 STOCK OPTION PLAN 1. Purpose of the Plan. The purposes of this Stock Option Plan are to ------------------- attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees and Consultants of the Company and any Parent or Subsidiary and to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant of an option and subject to the applicable provisions of Section 422 of the Code and the regulations promulgated thereunder. 2. Definitions. As used herein, the following definitions shall apply: ----------- (a) "Administrator" means the Board or any of its Committees appointed ------------- pursuant to Section 4 of the Plan. (b) "Board" means the Board of Directors of the Company. ----- (c) "Code" means the Internal Revenue Code of 1986, as amended. ---- (d) "Committee" means a Committee appointed by the Board of Directors --------- in accordance with Section 4 of the Plan. (e) "Common Stock" means the Common Stock of the Company. ------------ (f) "Company" means Law Office Information Systems, Inc. ------- (g) "Consultant" means any person who is engaged by the Company or any ---------- Parent or Subsidiary to render consulting or advisory services and is compensated for such services and any director of the Company whether compensated for such services or not. If and in the event the Company registers any class of any equity security pursuant to the Exchange Act, the term Consultant shall thereafter not include directors who are not compensated for their services or are paid only a director's fee by the Company. (h) "Continuous Status as an Employee or Consultant" means that the ----------------------------------------------- employment or consulting relationship with the Company, any Parent or Subsidiary is not interrupted or terminated. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. A leave of absence approved by the Company shall include sick leave, military leave, or any other personal leave. For purposes of Incentive Stock Options, no such leave may exceed 90 days, unless reemployment upon expiration of such leave is guaranteed by statute or contract, including Company policies. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 181st day of such leave any Incentive Stock Option held by the Optionee shall 1 cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. (i) "Disability" means total and permanent disability, as defined in ---------- Section 22(e)(3) of the Code. (j) "Employee" means any person, including officers and directors, -------- employed by the Company or any Parent or Subsidiary of the Company. The payment of a director's fee by the Company shall not be sufficient to constitute "employment" by the Company. (k) "Exchange Act" means the Securities Exchange Act of 1934, as ------------ amended. (l) "Fair Market Value" means, as of any date, the value of Common ----------------- Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq Small Cap Market of the Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Administrator. (m) "Incentive Stock Option" means an Option intended to qualify as ---------------------- an incentive stock option within the meaning of Section 422 of the Code. (n) "Nonstatutory Stock Option" means an Option not intended to ------------------------- qualify as an Incentive Stock Option. (o) "Option" means a stock option granted pursuant to the Plan. ------ (p) "Optioned Stock" means the Common Stock subject to an Option. -------------- (q) "Optionee" means an Employee or Consultant who receives an -------- Option. (r) "Parent" means a "parent corporation," whether now or hereafter ------ existing, as defined in Section 424(e) of the Code. (s) "Plan" means this 1996 Stock Option Plan. ---- 2 (t) "Section 16(b)" means Section 16(b) of the Securities Exchange ------------ Act of 1934, as amended. (u) "Share" means a share of the Common Stock, as adjusted in ----- accordance with Section 11 below. (v) "Subsidiary" means a "subsidiary corporation," whether now or ---------- hereafter existing, as defined in Section 424(f) of the Code. 3. Stock Subject to the Plan. Subject to the provisions of Section 11 of ------------------------- the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 500,000 Shares. The Shares may be authorized, but unused, or reacquired Common Stock. If an Option expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an option exchange program authorized by the Administrator, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided, however, that Shares that have actually been issued under the Plan shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if unvested Shares are repurchased by the Company at their original purchase price, and the original purchaser of such Shares did not receive any benefits of ownership of such Shares, such Shares shall become available for future grant under the Plan. For purposes of the preceding sentence, voting rights shall not be considered a benefit of Share ownership. 4. Administration of the Plan. -------------------------- (a) Initial Plan Procedure. Prior to the date, if any, upon which ---------------------- the Company becomes subject to the Exchange Act, the Plan shall be administered by the Board or a committee appointed by the Board. (b) Plan Procedure after the Date, if any, upon Which the Company ------------------------------------------------------------- becomes Subject to the Exchange Act. - ----------------------------------- (i) Administration With Respect to Directors and Officers Subject to ---------------------------------------------------------------- Section 16(B). With respect to Option grants made to Employees who are also - ------------- Officers or Directors subject to Section 16(b) of the Exchange Act, the Plan shall be administered by (A) the Board, if the Board may administer the Plan in a manner complying with the rules under Rule 16b-3 relating to the disinterested administration of employee benefit plans under which Section 16(b) exempt discretionary grants and awards of equity securities are to be made, or (B) a committee designated by the Board to administer the Plan, which committee shall be constituted to comply with the rules under Rule 16b-3 relating to the disinterested administration of employee benefit plans under which Section 16(b) exempt discretionary grants and awards of equity securities are to be made. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members, remove members (with or without cause) and substitute new members, fill 3 vacancies (however caused), and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by the rules under Rule 16b-3 relating to the disinterested administration of employee benefit plans under which Section 16(b) exempt discretionary grants and awards of equity securities are to be made. (ii) Administration With Respect to Other Persons. With respect to -------------------------------------------- Option grants made to Employees or Consultants who are neither Directors nor Officers of the Company, the Plan shall be administered by (A) the Board or (B) a committee designated by the Board, which committee shall be constituted to satisfy the legal requirements, if any, relating to the administration of incentive stock option plans of state corporate and securities laws, of the Code, and of any stock exchange or national market system upon which the Common Stock is then listed or traded (the "Applicable Laws"). Once appointed, such Committee shall serve in its designated capacity until otherwise directed by the Board. The Board may increase the size of the Committee and appoint additional members, remove members (with or without cause) and substitute new members, fill vacancies (however caused), and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by Applicable Laws. (c) Powers of the Administrator. Subject to the provisions of the --------------------------- Plan and, in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, including the approval, if required, of any stock exchange or national market system upon which the Common Stock is then listed, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value of the Common Stock, in accordance with Section 2(l) of the Plan; (ii) to select the Consultants and Employees to whom Options may from time to time be granted hereunder; (iii) to determine whether and to what extent Options are granted hereunder; (iv) to determine the number of shares of Common Stock to be covered by each such award granted hereunder. (v) to approve forms of agreement for use under the Plan; (vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder. Such terms and conditions may include., but are not limited to, the exercise price, the time or times when Options may be exercised, any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or the Shares relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vii) to determine whether and under what circumstances an Option may be settled in cash under Section 9(e) instead of Common Stock. 4 (viii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option has declined since the date the Option was granted; (ix) to provide for the early exercise of Options for the purchase of unvested Shares, subject to such terms and conditions as the Administrator may determine; and (x) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan. (d) Effect of Administrator's Decision. All decisions, ---------------------------------- determinations and interpretations of the Administrator shall be final and binding on all Optionees and any other holders of any Options. 5. Eligibility. ----------- (a) Nonstatutory Stock Options may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees. An Employee or Consultant who has been granted an Option may, if otherwise eligible, be granted additional Options. (b) Each Option shall be designated in the written option agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were, granted, and the Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (c) The Plan shall not confer upon any Optionee any right with respect to the continuation of the Optionee's employment or consulting relationship with the Company, nor shall it interfere in any way with, the Optionee's right or the Company's right to terminate the Optionee's employment, or consulting relationship at any time, with or without cause. (d) Upon the Company or a successor corporation issuing any class of common equity securities required to be registered under Section 12 of the Exchange Act or upon the Plan being assumed by a corporation having a class of common equity securities required to be registered under Section 12 of the Exchange Act, the following limitations shall apply to grants of Options to Employees: (i) No Employee shall be granted, in any fiscal year of the Company, Options to purchase more than 100,000 Shares. (ii) In connection with his or her initial employment, and Employee may be: granted Options to purchase up to an additional 100,000 Shares which shall not count against the limit set forth in subsection (i) above. 5 (iii) The foregoing limitations shall be adjusted proportionately in connection with any change in the Company's capitalization as described in Section 11. (iv) If an Option is cancelled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 11), the cancelled Option will be counted against the limit set forth in subsection (i) above. For this purpose, if the exercise price of an Option is reduced, the transaction will be treated as a cancellation of the Option and the grant of a new Option. 6. Term of Plan. The Plan shall become effective upon the earlier to ------------ occur of its adoption by the Board of Directors of its approval by the shareholders of the Company, as described in Section 17 of the Plan. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 13 of the Plan. 7. Term of Option. The term of each Option shall be the term stated in -------------- the Option Agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof. However, in the case of an Incentive Stock Option granted to an Optionee who, at the time of the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement. 8. Option Exercise Price and Consideration. --------------------------------------- (a) The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be such price as is determined by the Board, but shall be subject to the following: (i) In the case of an Incentive Stock Option (A) granted to an Employee who, at the time of the grant of such Incentive Stock Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) granted to any Employee other than an Employee described in the preceding paragraph, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option, the per share exercise price shall be determined by the Administrator. (b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant) and may consist entirely of (1) cash, (2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares acquired 6 upon exercise of an Option have been owned by the Optionee for more than six months on the date of surrender and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which such Option shall be exercised, (5) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price, or (6) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company. 9. Exercise of Option. ------------------ (a) Procedure for Exercise, Rights as a Shareholder. Any Option ----------------------------------------------- granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator, including performance criteria with respect to the Company and/or the Optionee, and as shall be permissible under the terms of the Plan. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Administrator, consist of any consideration and method of payment allowable under Section 8(b) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other fights as a shareholder shall exist with respect the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 11 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Employment or Consulting Relationship. Upon ---------------------------------------------------- termination of an Optionee's Continuous Status as an Employee or Consultant, other than upon the Optionee's death or Disability, the Optionee may exercise his or her Option, but only within such period of time as is specified in the Notice of Grant, and only to the extent that the Optionee was entitled to exercise it at the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant). In the absence of a specified time in the Notice of Grant, the Option shall remain exercisable for three (3) months following the Optionee's termination. In the case of any Incentive Stock Option, such period of time for exercise shall not exceed three (3) months from the date of termination. If, on the date of termination, the Optionee is not entitled to exercise the Optionee's entire Option, the Shares covered by the unexercisable portion of the Option shall revert 7 to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. Notwithstanding the above, in the event of an Optionees change in status from Consultant to Employee or Employee to Consultant, an Optionee's Continuous Status as an Employee or Consultant shall not automatically terminate solely as a result of such change in status. However, in such event, an Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option three months and one day following such change of status. (c) Disability of Optionee. In the event of termination of an ---------------------- Optionee's Continuous Status as an Employee or Consultant as a result of his or her Disability, the Optionee may, but only within twelve (12) months from the date of such termination (and in no event later than the expiration date of the term of his or her Option as set forth in the Option Agreement), exercise the Option to the extent the Optionee was otherwise entitled to exercise it on the date of such termination. To the extent that the Optionee is not entitled to exercise the Option on the date of termination, or if the Optionee does not exercise the Option to the extent so entitled within the time specified herein, the Option shall terminate, and the Shares covered by the Option shall revert to the Plan. (d) Death of Optionee. In the event of the death of an Optionee, the ----------------- Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than, the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who has acquired the right to exercise the Option by bequest or inheritance, but only to the extent that the Optionee was entitled to exercise the Option at the date of death. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the Shares covered by the unexercisable portion of the Option shall immediately revert to the Plan. If, after death, the Optionee's estate or a person who acquires the right to exercise the Option by bequest or inheritance does not exercise the Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (e) Buyout Provisions. Administrator may at any time offer to buy out ----------------- for a payment in cash or Shares, an Option previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. (f) Rule 16b-3. Options granted to persons subject to Section 16(b) ---------- of the Exchange Act must comply with Rule 16b-3 and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions. 10. Non-Transferability of Options. Options may not be sold, pledged, ------------------------------ assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 8 11. Adjustments Upon Changes in Capitalization or Merge. --------------------------------------------------- (a) Changes in Capitalization. Subject to any required action by the ------------------------- shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as, the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option. (b) Dissolution or Liquidation. In the event of the proposed -------------------------- dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option until ten (10) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option will terminate immediately prior to the consummation of such proposed action. (c) Merger or Asset Sale. In the event of a merger of the Company -------------------- with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option shall be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option, the Optionee shall have the right to exercise the Option as to all of the Optioned Stock, including Shares as to which it would not otherwise be exercisable. If an Option is exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee that the Option shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and the Option shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option shall be considered assumed if, following the merger or sale of assets, the option confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or properly) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of 9 a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets was not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option, for each Share of Optioned Stock subject to the Option, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 12. Time of Granting Options. The date of grant of an Option shall, for ------------------------ all purposes, be the date on which the Administrator makes the determination granting such Option, or such other date as is determined by the Administrator. Notice of the determination shall be given to each Employee or Consultant to whom an Option is so granted within a reasonable time after the date of such grant. 13. Amendment and Termination of the Plan. ------------------------------------- (a) Amendment and Termination. The Board may at any time amend, ------------------------- alter, suspend or discontinue the Plan, but no amendment, alteration, suspension or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with Rule 16b-3 under the Exchange Act or with Section 422 of the Code (or any other applicable law or regulation, including the requirements of any stock exchange or national market system upon which the Common Stock is then listed), the Company shall obtain shareholder approval of any Plan amendment in such a manner and to such a degree as required. (b) Effect of Amendment or Termination. Any such amendment or ---------------------------------- termination of the Plan shall not affect Options already granted, and such Options shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Board, which agreement must be in writing and signed by the Optionee and the Company. 14. Conditions Upon Issuance of Shares. Shares shall not be issued ---------------------------------- pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange or national market system upon which the Common Stock is then listed or traded, and, shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. 10 15. Reservation of Shares. The Company, during the term of this Plan, --------------------- shall at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 16. Agreements. Options shall be evidenced by written agreements in such ---------- form as the Administrator shall approve from time to time. 17. Shareholder Approval. Continuance of the Plan shall be subject to -------------------- approval by the shareholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such shareholder approval shall be obtained in the degree and manner required under applicable state and federal law and the rules of any stock exchange or national market system upon which the Common Stock is then listed or traded. 11 LAW OFFICE INFORMATION SYSTEMS, INC. 1996 STOCK OPTION PLAN NOTICE OF GRANT Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Notice of Grant. [Optionee's Name: and Address] __________________________ You have been granted an option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Stock Option Agreement, as follows: Grant Number _______________________ Date of Grant _______________________ Vesting Commencement Date _______________________ Exercise Price per Share $______________________ Total Number of Shares Granted _______________________ Total Exercise Price $______________________ Type of Option: ________ Incentive Stock Option ________ Nonstatutory Stock Option Term/Expiration Date: _______________________ Vesting Schedule: - ---------------- This Option may be exercised, in whole or in part, in accordance with the following schedule: Twenty-five percent (25%) of the Shares subject to this Option shall vest twelve (12) months after the Vesting Commencement Date, and one forty-eighth (1/48th) of the Shares subject to the Option shall vest each month thereafter. Termination Period: ------------------ This Option may be exercised for three (3) months after termination of employment or consulting relationship, or such longer period as may be applicable upon death or Disability of 12 Optionee as provided in the Plan, but in no event later than the Term/Expiration Date as provided above. 13 LAW OFFICE INFORMATION SYSTEMS, INC. 1996 STOCK OPTION PLAN OPTION AGREEMENT 1. Grant of Option. Law Office Information Systems, Inc. (the --------------- "Company"), hereby grants to the Optionee (the "Optionee") named in the Notice of Grant, an option (the "Option") to purchase the total number of shares of Common Stock (the "Shares") set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the "Exercise Price") subject to the terms, definitions and provisions of the 1996 Stock Option Plan (the "Plan") adopted by the Company, which is incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option Agreement. If designated in the Notice of Grant as an Incentive Stock Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code. However, if this Option is intended to be Incentive Stock Option, to the extent that it exceeds the $100,000 rule of Code Section 422(d) it shall be treated as a Nonstatutory Stock Option ("NSO"). 2. Exercise of Option. This Option shall be exercisable during its term ------------------ in accordance with the Vesting Schedule set out in the Notice of Grant and with the provisions of Section 9 of the Plan as follows: (a) Right to Exercise. ----------------- (i) This Option may not be exercised for a fraction of a Share. (ii) In the event of Optionee's death, disability or other termination of the Optionee's Continuous Status as an Employee or Consultant, the exercisability of the Option is governed by Sections 6, 7 and 8 below, subject to the limitation contained in subsection 2(i)(c). (iii) In no event may this Option be exercised after the date of expiration of the term of this Option as set forth in the Notice of Grant. (b) Method of Exercise. This Option shall be exercisable by written ------------------ notice (in the form attached as Exhibit A) which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised, and such other representations and agreements as to the holder's investment intent with respect to such shares of Common Stock as may be required by the Company pursuant to the provisions of the Plan. Such written notice shall be signed by the Optionee and shall be delivered in person or by certified mail to the Secretary of the Company. The written notice shall be accomplished by payment of the Exercise Price. This Option shall be deemed to be exercised upon receipt by the Company of such written notice accompanied by the Exercise Price. No Shares will be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of law and the requirements of any stock exchange or national market systems upon which the Common Stock is then listed. Assuming such 14 compliance, for income tax purposes the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such Shares. 3. Optionee's Representations. In the event the Shares purchasable -------------------------- pursuant to the exercise of this Option have not been registered under the Securities Act of 1933, as amended, at the time this Option is exercised, Optionee shall, if required by the Company, concurrently with the exercise of all or any portion of this Option, deliver to the Company his or her Investment Representation Statement in the form attached hereto as Exhibit B. 4. Lock-Up Period. Optionee hereby agrees that if so requested by the -------------- Company or any representative of the underwriters, (the "Managing Underwriter") in connection with any registration of the offering of any securities of the Company under the Securities Act, Optionee shall not sell or otherwise transfer any Shares or other securities of the Company during the 180-day period (or such longer period as may be requested in writing by the Managing Underwriter and agreed to in writing by the Company) (the "Market Standoff Period") following the effective date of a registration statement of the Company filed under the Securities Act; provided, however, that such restriction shall apply only to the first registration statement of the Company to become effective under the Securities Act that includes securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such Market Standoff Period. 5. Method of Payment. Payment of the Exercise Price shall be by any of ----------------- the following, or a combination thereof, at the election of the Optionee: (i) cash; or (ii) check; or (iii) surrender of other shares of Common Stock of the Company which (A) in the case of Shares acquired pursuant to the exercise of a Company option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the Exercise Price of the Shares as to which the Option is being exercised; or (iv) to the extent authorized by the Company, delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the Exercise Price. 6. Restrictions on Exercise. This Option may not be exercised if the ------------------------ issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulation, including any rule under Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the Federal Reserve Board. As a condition to the exercise of the Option, the Company may require Optionee 15 to make any representation and warranty to the Company as may be required by any applicable law or regulation 7. Termination of Relationship. In the event an Optionee's Continuous --------------------------- Status as an Employee or Consultant terminates, Optionee may, to the extent otherwise so entitled at the date of such termination (the "Termination Date"), exercise this Option during the Termination Period set out in the Notice of Grant. To the extent that Optionee was not entitled to exercise this Option at the date of such termination, or if Optionee does not exercise this Option within the time specified herein, the Option shall terminate. 8. Disability of Optionee. Notwithstanding the provisions of Section 6 ---------------------- above, in the event of termination of an Optionee's Continuous Status as an Employee or Consultant as a result of his or her Disability, Optionee may, but only within twelve (12) months from the date of such termination (and in no event later than the expiration date of the term of such Option as set forth in the Notice of Grant) exercise the Option to the extent otherwise entitled to exercise it at the date of such termination. To the extent that Optionee is not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. 9. Death of Optionee. In the event of termination of Optionee's ----------------- Continuous Status as an Employee or Consultant as a result of the death of Optionee, the Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the date of expiration of the term of this Option as set forth in Section 10 below), by Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent the Optionee could exercise the Option at the date of death. 10. Non-Transferability of Option. This Option may not be transferred in ----------------------------- any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by Optionee. The terms of this Option shall be binding upon the executors, administrators, heirs successors and assigns of the Optionee. 11. Term of Option. This Option may be exercised only within the term set -------------- out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option. The limitations set out in Section 7 of the Plan regarding Options designated as Incentive Stock Options and Options granted to more than ten percent (10%) shareholders shall apply to this Option. 12. Tax Consequences. Set forth below is a brief summary as of the date ---------------- of this Option of some of the federal tax consequences of exercise of this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISOR BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. (a) Exercise of an I SO. If this Option qualifies as an ISO, there ------------------- will be no regular federal income tax liability upon the exercise of the Option, although the excess, if any, of the Fair 16 Market Value of the Shares on the date of exercise over the Exercise Price will be treated as an adjustment to the alternative minimum tax for federal tax purposes and may subject the Optionee to the alternative minimum tax in the year of exercise. (b) Exercise of an NSO. There may be a regular federal income tax ------------------ liability upon the exercise of an NSO. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If Optionee is an Employee, the Company will be required to withhold from Optionee's compensation or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise. (c) Disposition of Shares. In the case of an NSO, if Shares are held --------------------- for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes. In the case of an ISO, if Shares transferred pursuant to the Option are held for at least one year after exercise and are disposed of at least two years after the Date of Grant, any gain realized on disposition of the Shares will also be treated as long-term capital gain for federal income tax purposes. If Shares purchased under an ISO are disposed of within such one-year period or within two years after the Date of Grant, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the difference between the Exercise Price and the lesser of (1) the Fair Market Value of the Shares on the date of exercise, or (2) the sale price of the Shares. (d) Notice of Disqualifying Disposition of ISO Shares. If the Option ------------------------------------------------- granted to Optionee herein is an ISO, and if Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (1) the date two years after the Date of Grant, or (2) the date one year after the date of exercise, the Optionee shall immediately notify the Company in writing of such disposition. Optionee agrees that Optionee may be subject to income tax withholding by the Company on the compensation income recognized by the Optionee. Law Office Information Systems, Inc. By: ________________________________________ OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S 1996 STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR 17 THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE. Optionee acknowledges receipt of a copy of the Plan and represents that he is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Option. Optionee further agrees to notify the Company upon any change in the residence address indicated below. Dated:________________ _____________________________________________ Optionee Residence Address: _____________________________________________ _____________________________________________ CONSENT OF SPOUSE ----------------- The undersigned spouse of Optionee has read and hereby approves the terms and conditions of the Plan and this Option Agreement. In consideration of the Company's granting his or her spouse the right to purchase Shares as set forth in the Plan and this Option Agreement, the undersigned hereby agrees to be irrevocably bound by the terms and conditions of the Plan and this Option Agreement and further agrees that any community property interest shall be similarly bound. The undersigned hereby appoints the undersigned's spouse as attorney-in-fact for the undersigned with respect to any amendment or exercise of rights under the Plan or this Option Agreement. _____________________________________________ Spouse of Optionee 18 Exhibits to Stock Option Plan Exhibit A 1996 Stock Option Plan Exercise Notice Exhibit B Investment Representation Statement EX-10.2 9 KYLE D. PARKER EMPLOYMENT AGREEMENT EXHIBIT 10.2 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (this "Agreement"), dated as of June ___, 1999, between Loislaw.com, Inc., a Delaware corporation (the "Company"), and Kyle D. Parker, an individual residing in Van Buren, Arkansas (the "Executive"). WHEREAS, the Executive is presently employed by the Company, and is willing to commit himself to continue to serve the Company on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, the Company and the Executive hereby agree as follows: 1. Employment. The Company agrees to continue to employ the Executive, ---------- and the Executive agrees to remain in the employ of the Company, for the period set forth in Paragraph 2, in the position and with the duties and responsibilities set forth in Paragraph 3, and upon the other terms and conditions herein provided. 2. Term. The employment of the Executive by the Company as provided in ---- Paragraph 1 shall be for a period commencing on the date of this Agreement through and ending on June __, 2002, unless sooner terminated as herein provided (the "Employment Term"). 3. Position and Duties. ------------------- (a) During the Employment Term, the Executive shall serve as Chairman of the Board and Chief Executive Officer of the Company. In such capacities, the Executive, subject to the ultimate control and direction of the Board of Directors of the Company, shall have and exercise (i) direct charge of and general supervision over the business and affairs of the Company and (ii) the duties and functions normally incident to the offices of chairman of the board and chief executive officer of a company similar to the Company. In addition, the Executive shall have such other duties, functions, responsibilities, and authority as are from time to time delegated to the Executive by the Board of Directors of the Company, provided that such duties, functions, responsibilities, and authority are reasonable and customary for a person serving in the aforesaid functions of an enterprise comparable to the Company. The Executive shall report and be accountable to the Board of Directors of the Company. 1 (b) During the Employment Term, the Executive shall devote his full time, skill, and attention and his best efforts to the business and affairs of the Company to the extent necessary to discharge fully, faithfully and efficiently the duties and responsibilities delegated and assigned to the Executive herein or pursuant hereto, except for usual, ordinary, and customary periods of vacation and absence due to illness or other disability. (c) In connection with the Executive's employment by the Company under this Agreement, the Executive shall be based at the principal executive offices of the Company in Van Buren, Arkansas, except for such reasonable travel as the performance of the Executive's duties in the business of the Company may require. (d) All services that the Executive may render to the Company or any of its subsidiaries or affiliates in any capacity during the Employment Term shall be deemed to be services required by this Agreement and consideration for the compensation provided for herein. 4. Compensation and Related Matters. -------------------------------- (a) Base Salary. During the Employment Term, the Company shall pay to ----------- the Executive for his services hereunder a base salary ("Base Salary") at the rate of Two Hundred Twenty-Five Thousand Dollars ($225,000.00) per year, payable in installments in accordance with the general payroll practices of the Company, or as otherwise mutually agreed upon. The Executive's Base Salary shall be subject to such adjustments as may be determined from time to time by the compensation committee of the Board of Directors of the Company in its sole discretion, but in no event shall the Company pay the Executive a Base Salary at a rate less than that set forth in the immediately preceding sentence. (b) Executive Bonus and Benefits. During the Employment Term, the ---------------------------- Executive may be entitled, in the sole discretion of the compensation committee of the Board of Directors, to annual cash bonuses in amounts not to exceed 50% of his then-current Base Salary for any calendar year. Further, Executive shall be entitled to participate in all additional employee benefit plans (including, stock option plans and long-term incentive plans), programs and arrangements that are generally made available by the Company to its senior executives. (c) Medical and Dental Coverage . During the Employment Term, the Company --------------------------- shall provide, at its cost, full medical and 2 dental coverage to Employee under the Company's group insurance plans as in effect from time to time. (d) Expenses. During the Employment Term, the Executive shall be -------- entitled to receive prompt reimbursement on a timely basis (according to the then-current practices of the Company) for all reasonable expenses incurred by the Executive in performing his duties and responsibilities hereunder upon the presentation by the Executive of an itemized monthly accounting of such expenditures, including receipts where required by Company policy or federal income tax regulations. (e) Vacations. During the Employment Term, the Executive shall be --------- entitled to four (4) weeks of paid vacation each year. The Executive shall also be entitled to all paid holidays given by the Company to its senior executives. The Executive agrees to utilize his vacation at such time or times as are (i) consistent with the proper performance of his duties and responsibilities hereunder and (ii) mutually convenient for the Company and the Executive. 5. Termination of Employment. ------------------------- (a) Death. The Executive's employment hereunder shall terminate ----- automatically upon his death. (b) Disability. If the Disability (as defined below) of the Executive ---------- occurs during the Employment Term, the Company may notify the Executive of the Company's intention to terminate the Executive's employment hereunder for Disability. In such event, the Executive's employment hereunder shall terminate effective on the 15th day following the date such notice of termination is received by the Executive (the "Disability Effective Date"). For purposes of this Agreement, the "Disability" of the Executive shall be deemed to have occurred at such time as the Board of Directors of the Company determines, in its sole and absolute discretion, (i) that despite any reasonable accommodation required by law, the Executive is unable to perform the essential functions of his position hereunder as a result of his physical or mental incapacity and (ii)that such inability has existed or is likely to exist for a period of three months or more. (c) Termination by Company. ---------------------- (i) For Cause. The Company may terminate the Executive's employment --------- hereunder for Cause (as defined below) (a "For Cause Termination"). For purposes of this Agreement, "Cause" shall mean any of the following: (A) any misrepresentation of a material fact to, or concealment of a material fact from, a member of the Board of Directors of 3 the Company; (B) the Executive's failure to follow a lawful written directive of the Board of Directors; (C) the Executive's willful violation of any material rule, regulation or policy that may be established from time to time in the Company's business; (D) the Executive's unlawful possession, use or sale of narcotics or other controlled substances, or performing job duties while such controlled substances are present in the Executive's body; (E) the Executive operating a vehicle in the course of his employment under the influence of alcohol (meaning a blood alcohol level which would establish a felony or misdemeanor under the applicable state law, or a conviction of or plea of guilty or no contest to such a felony or misdemeanor); (F) any act or omission of the Executive in the scope of his employment (i) that results in the assessment of a criminal penalty against the Executive or the Company, or (ii) that in the reasonable judgment of the Board of Directors would result in a material violation of any federal, state, local or foreign law or regulation; or (G) the Executive's conviction of or a plea of guilty or no contest to any crime involving an act of moral turpitude. Whether any termination of Executive's employment hereunder constitutes a For Cause Termination in accordance with the foregoing shall be determined in the reasonable judgment of the Board of Directors. (ii) Without Cause. The Company may terminate the Executive's ------------- employment hereunder without Cause for any or no reason. For purposes of this Agreement, a "Without Cause Termination" shall mean a termination by the Company of the Executive's employment hereunder other than pursuant to (x) a For Cause Termination, or (y) Disability. (d) Constructive Termination. The Executive may terminate his employment ------------------------ hereunder if a Constructive Termination occurs. A "Constructive Termination" of Executive's employment with the Company shall be deemed to have occurred if the Company: (i) demotes Executive to a lesser position, either in title or responsibility, than the highest position held by him with the Company at any time during his employment with the Company; or (ii) decreases Executive's compensation below the highest level in effect at any time during his employment with the Company or reduces Executive's benefits and perquisites below the highest levels in effect at any time during his employment with the Company (other than as a result of any amendment or termination of any employee or group or other executive benefit plan, which amendment or 4 termination is applicable to all executives of the Company). (e) Notice of Termination. Any termination of the Executive's --------------------- employment hereunder by the Company or by the Executive (other than a termination pursuant to Paragraph 5(a)) shall be communicated by a Notice of Termination (as defined below) to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) in the case of a termination for Disability or a For Cause Termination or a Constructive Termination, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (iii) specifies the Employment Termination Date (as defined in Paragraph 5(f) below). The failure by the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Disability or Cause shall not waive any right of the Company hereunder or preclude the Company from asserting such fact or circumstance in enforcing the Company's rights hereunder. (f) Employment Termination Date. For purposes of this Agreement, --------------------------- "Employment Termination Date" shall mean the effective date of termination of the Executive's employment hereunder, which date shall be (i) if the Executive's employment is terminated by his death, the date of his death, (ii) if the Executive's employment is terminated because of his Disability, the Disability Effective Date, (iii) if the Executive's employment is terminated by the Company pursuant to a For Cause Termination or a Without Cause Termination, the date specified in the Notice of Termination, which date shall in no event be earlier than the date such notice is given, and (iv) if the Executive's employment is terminated by the Executive pursuant to a Constructive Termination, the date on which the Notice of Termination is given. (g) Resignation. In the event of termination of the Executive's ----------- employment hereunder (for any reason other than the death of the Executive), the Executive agrees that if at such time he is a member of the Board of Directors or officer of the Company or a director or officer of any of its subsidiaries, he will promptly deliver to the Company his written resignation from all such positions, such resignation to be effective as of the Employment Termination Date. 5 6. Company Obligations Upon Termination of Employment. -------------------------------------------------- (a) Death. If the Executive's employment hereunder is terminated by ----- reason of the Executive's death, the Company shall pay to the Executive's estate a sum equal to 12 month's Base Salary at the Executive's last current rate. Any such amounts payable under this Paragraph 6(a) shall be paid in equal monthly installments for a period of one year, such payments to begin as of the Employment Termination Date. In addition, if the Executive's employment hereunder is terminated by reason of the Executive's death, the Company shall continue to provide medical insurance at the level provided at the Employment Termination Date for the Executive's spouse for a period of five years after the Employment Termination Date and for each of his children for a period beginning on the Employment Termination Date and ending on the earlier of (i) five years after the Employment Termination Date and (ii) the date on which such child ceases to be a "dependent" of Executive's spouse within the meaning of Section 152 of the Internal Revenue Code of 1986, as amended (the "Code"); provided, that the Company shall be required to provide medical insurance to the Executive's spouse and his children only for so long as, and to the extent that, the Company provides medical insurance for its full-time employees; and, provided, further, that this Paragraph 6(a) shall not prohibit the Company from modifying or canceling its existing health insurance program. (b) Disability. If the Executive's employment hereunder is terminated ---------- by reason of the Executive's Disability, the Company shall pay to the Executive a sum equal to 12 month's Base Salary at the Executive's last current rate. Any such amounts payable under this Paragraph 6(b) shall be paid in equal monthly installments for a period of one year, such payments to begin as of the Employment Termination Date. In addition, if the Executive's employment hereunder is terminated by reason of the Executive's Disability that, in the sole discretion of the Board of Directors, is a "permanent and total disability" as defined in the Company's long-term disability insurance plan, or if the Company does not maintain such a plan containing a definition of that term, as defined in Section 22(e)(3) of the Code, then the Company shall continue to provide medical insurance at the level provided at the Employment Termination Date for the Executive and his spouse for a period of five years after the Employment Termination Date and for each of his children for a period beginning on the Employment Termination Date and ending on the earlier of (i) five years after the Employment Termination Date and (ii) the date on which such child ceases to be a dependent of Executive or Executive's spouse within the meaning of Section 152 of the Code; provided, that the Company shall be required to 6 provide medical insurance to the Executive, his spouse and his children only for so long as, and to the extent that, the Company provides medical insurance for its full-time employees; and provided further, that this Paragraph 6(b) shall not prohibit the Company from modifying or canceling its existing health insurance program. (c) For Cause Termination. If the Executive's employment hereunder is --------------------- terminated pursuant to a For Cause Termination, the Company shall pay to the Executive, in a lump sum in cash within 15 days after the Employment Termination Date, the Executive's Base Salary through the Employment Termination Date, to the extent not theretofore paid, and, thereafter, the Company shall have no further obligations to the Executive under this Agreement. (d) Without Cause Termination. If the Executive's employment hereunder ------------------------- is terminated by the Company by reason of a Without Cause Termination, the Company shall pay to the Executive a sum equal to 12 month's Base Salary at the Executive's last current rate. Any such amounts payable under this Paragraph 6(d) shall be paid in equal monthly installments for a period of one year, such payments to begin as of the Employment Termination Date. (e) Constructive Termination. If the Executive's employment hereunder is ------------------------ terminated by the Executive by reason of a Constructive Termination, the Company shall pay to the Executive a sum equal to 12 month's Base Salary at the Executive's last current rate. Any such amounts payable under this Paragraph 6(e) shall be paid in equal monthly installments for a period of one year, such payments to begin as of the Employment Termination Date. (f) Sole Remedy. The right to receive the payments and insurance, as ----------- applicable, provided for under this Paragraph 6 shall be the Executive's sole and exclusive remedy for the termination of his employment hereunder and shall be in lieu of any claim that he might otherwise have against the Company arising from such termination. (g) Coordination of Payments. The payments required by subparagraphs (d) ------------------------ and (e) of this Paragraph 6 are subject to the provisions of Paragraph 7(b) dealing with the coordination of payments in the event of a Change of Control. 7 7. Termination in Connection with Change of Control. ------------------------------------------------ (a) Upon the occurrence of a Termination Event (as defined in Paragraph 8(a)), the Company shall: (i) pay Executive an amount equal to Executive's Base Annual Compensation (as defined in Paragraph 8(c)) multiplied by a factor of two, payable as a lump sum cash payment within ten days following the date of the termination constituting such Termination Event (the "Termination Date"); (ii) provide Executive with life, disability and medical insurance at the level provided at either the date of the occurrence of a Change of Control (as defined in Paragraph 8(b)) or the Termination Date, as Executive shall in his sole discretion elect by providing written notice to the Company, for 12 months following the Termination Date or such shorter period until Executive shall obtain substantially equivalent insurance coverage from a subsequent employer, if any, in the same manner as if Executive's employment had not been terminated until the end of such period. Executive shall immediately notify the Company upon obtaining any insurance from a subsequent employer and shall provide all information required by the Company regarding such insurance to enable the Company to make a determination of whether such insurance is substantially equivalent; and (iii) pay all reasonable legal fees and expenses incurred by Executive in seeking to obtain or enforce any right or benefit provided by this Agreement including without limitation all such costs incurred in contesting or disputing any determination made by the Company under this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment hereunder. Reimbursements of such costs shall be made by the Company within 15 days after Executive's presentation to the Company of any statements of such costs and thereafter shall bear interest at the rate of 18% per annum or, if different, the maximum rate allowed by law until paid by the Company, and all accrued and unpaid interest shall bear interest at the same rate, all of which interest shall be compounded daily. (b) Coordination With Paragraph 6. If, in connection with the ----------------------------- termination of Executive's employment hereunder, Executive is entitled to receive payments pursuant to this Paragraph 7 and Executive would also be entitled to receive 8 termination payments under Paragraph 6 in accordance with the terms thereof, Paragraph 7 shall take precedence and Executive shall not be entitled to receive any payments under Paragraph 6. 8. Definitions. ----------- (a) A "Termination Event" shall be deemed to have occurred if: (i) at any time within six months after a Change of Control, Executive or the Company terminates Executive's employment for any reason, or for no reason; or (ii) at any time within 12 months after a Change of Control, the Company or any successor thereto terminates Executive's employment for any reason other than for (A) Cause, (B) Disability or (C) death. For purposes of this Paragraph 8(a), Executive's employment shall be deemed to have been terminated upon the actual termination of his employment or upon the occurrence of a Constructive Termination. (b) A "Change of Control" shall be deemed to have occurred if: (i) individuals who, as of the date hereof, constitute the Board of Directors (the "Incumbent Board") of the Company cease for any reason to constitute at least 51% of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; (ii) the Company shall consummate a reorganization, merger or consolidation, in each case, with respect to which persons who were the stockholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own outstanding voting securities representing more than 50% of the combined voting power entitled to vote generally in the election of directors ("Voting Securities") of the reorganized, merged or consolidated company; 9 (iii) the stockholders of the Company shall approve a sale of all or substantially all of the stock or assets of the Company; or (iv) any "person," as that term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the Company, any of its subsidiaries, any employee benefit plan of the Company or any of its subsidiaries, or any entity organized, appointed or established by the Company for or pursuant to the terms of such a plan), together with all "affiliates" and "associates" (as such terms are defined in Rule 12b-2 under the Exchange Act) of such person (as well as any "Person" or "group" as those terms are used in Sections 13(d) and 14(d) of the Exchange Act), shall become the "beneficial owner" or "beneficial owners" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of securities of the Company representing in the aggregate 40% or more of either the then outstanding shares of common stock, par value $.001 per share, of the Company ("Common Stock") or the Voting Securities of the Company, in either such case other than solely as a result of acquisitions of such securities directly from the Company. Notwithstanding the foregoing, a "Change in Control" of the Company shall not be deemed to have occurred for purposes of subparagraph (iv) of this Paragraph 8(b) solely as the result of an acquisition of securities by the Company which, by reducing the number of shares of Common Stock or other Voting Securities of the Company outstanding, increases (i) the proportionate number of shares of Common Stock beneficially owned by any person to 40% or more of the shares of Common Stock then outstanding or (ii) the proportionate voting power represented by the Voting Securities of the Company beneficially owned by any person to 40% or more of the combined voting power of all then outstanding Voting Securities; provided, however, that if any person referred to in clause (i) or (ii) of this sentence shall thereafter become the beneficial owner of any additional shares of Common Stock or other Voting Securities of the Company (other than a result of a stock split, stock dividend or similar transaction), then a Change in Control of the Company shall be deemed to have occurred for purposes of subparagraph (iv) of this Paragraph 8(b). (c) "Base Annual Compensation" shall, as determined on the Termination Date, be equal to the greater of (i) Executive's Base Salary on the date of the earliest Change of Control to occur during the 18-month period prior to the Termination Date 10 plus any bonuses or special incentive payments received in the 12 months prior to such Change of Control or (ii) Executive's Base Salary on the Termination Date plus any bonuses or special incentive payments received in the 12 months prior to the Termination Date. 9. Adjustments. Any provision of this Agreement to the contrary ----------- notwithstanding, if, in the Company's determination, the total sum of (i) the payments and benefits to be paid or provided to (or with respect to) Executive under this Agreement which are considered to be "parachute payments" within the meaning of Section 280G of the Code, and (ii) any other payments and benefits which are considered to be "parachute payments," as so defined, to be paid or provided to (or with respect to) Executive by the Company or a member of the Company's affiliated group (within the meaning of Section 280G(d)(5) of the Code) (the "Total Amount") exceeds the amount Executive can receive without having to pay excise tax with respect to all or any portion of such payments or benefits under Section 4999 of the Code (the "Reduced Amount"), then the amount payable to Executive pursuant to Paragraphs 7(a)(i) and (ii) of this Agreement shall be reduced to the greater of zero or the highest amount which will not result in Executive having to pay excise tax with respect to any payments and benefits under Section 4999 of the Code; provided, however, that in the event that the Reduced Amount minus any and all applicable federal, state and local taxes (including but not limited to income and employment taxes imposed by the Code) is less than the Total Amount minus any and all applicable federal, state and local taxes (including but not limited to income and employment taxes imposed by the Code and excise taxes applicable to such payments under Section 4999 of the Code), then the reduction of the amount payable to Executive under Paragraphs 7(a)(i) and (ii) of this Agreement provided for in the preceding provisions of this Paragraph 9 shall not be made. 10. Compliance With Other Agreements. The Executive represents and -------------------------------- warrants to the Company that the execution, delivery and performance by the Executive of this Agreement do not and will not conflict with or result in a violation of any provision of, or constitute a default under, any contract, agreement, instrument or obligation to which the Executive is a party or by which he is bound. 11. Noncompetition and Related Matters. Without the prior written ---------------------------------- consent of the Company, Executive will not, directly or indirectly: (a) persuade or attempt to persuade any customer, client, business partner, licensor, licensee, sales representative, 11 supplier or distributor of the Company or any of its subsidiaries to cease doing business with the Company or any of its subsidiaries, or to reduce the amount of business it does with the Company or any of its subsidiaries; (b) persuade or attempt to persuade any potential customer, client, supplier, business partner, licensor, licensee, sales representative, supplier or distributor to which the Company or any of its subsidiaries has made a presentation, or with which the Company or any of its subsidiaries has been having discussions, not to do business with the Company or any of its subsidiaries, or to undertake with any other person or business any business or activity of a type and character similar to or competitive with that conducted by the Company or any of its subsidiaries (a "Competitive Activity"); (c) solicit for himself or any person other than the Company or any of its subsidiaries the business of any person which is a customer, client, business partners, licensor, licensee, sales representative, supplier or distributor of the Company or any of its subsidiaries, or was a customer, client, business partner, licensor, licensee, sales representative, supplier or distributor of the Company or any of its subsidiaries within two years prior to the Termination Date or the Employment Termination Date, as applicable; (d) persuade or attempt to persuade any employee of the Company or any of its subsidiaries, or any individual who was its employee during the six months prior to the Termination Date, to leave the employ of the Company or any of its subsidiaries, or to become employed by any person engaged in a Competitive Activity; (e) anywhere in the world where the Company or any of its subsidiaries is conducting any business, directly or indirectly, own, manage, operate, control, be employed by or participate in the ownership, management, operation or control of, or be connected in any manner with any person or business engaged in a Competitive Activity; provided, however, that ownership of securities of a company whose securities are registered under the United States Securities Exchange Act of 1934, as amended, not in excess of 1% of any class of such securities shall by itself not be considered a violation of this Paragraph 11. The provisions of this Paragraph 11 shall be in effect during the Employment Term and shall continue in effect for a period of 12 months following the Employment Termination Date. Notwithstanding the foregoing, if Executive's employment with the Company is terminated by the Company for Disability or by reason of a Without Cause Termination or is terminated by the Executive 12 by reason of a Constructive Termination, Executive shall be bound by the restrictions set forth in this Paragraph 11 after the Employment Termination Date (i) if and only for so long (but not to exceed 12 months) as the Company complies with its obligations under Paragraphs 6(b), (d) or (e), as applicable, or (ii) if and only if the Company has made the payments to Executive required under Paragraph 7(a)(i), if applicable, provided that Executive shall cease being bound by such restrictions if the Company fails to satisfy its obligations under Paragraph 7(a)(ii) or (iii). 12. Confidentiality. The Executive recognizes and acknowledges that the --------------- Company's trade secrets and other confidential or proprietary information, as they may exist from time to time, are valuable, special, and unique assets of the Company's business, access to and knowledge of which are essential to the performance of the Executive's duties hereunder. The Executive confirms that all such trade secrets and other information constitute the exclusive property of the Company. During the Employment Term and thereafter without limitation of time, the Executive shall hold in strict confidence and shall not, directly or indirectly, disclose or reveal to any person, or use for his own benefit or for the benefit of anyone else, any trade secrets, confidential dealings, or other confidential or proprietary information of any kind, nature or description (whether or not acquired, learned, obtained or developed by the Executive alone or in conjunction with others during the Employment Term) belonging to or concerning the Company or any of its subsidiaries or any of their customers or clients or others with whom they now or hereafter have a business relationship, except (i) with the prior written consent of the Company duly authorized by its Board of Directors, (ii) in the course of the proper performance of the Executive's duties hereunder, (iii) for information (x) that becomes generally available to the public other than as a result of unauthorized disclosure by the Executive or his affiliates or (y) that becomes available to the Executive subsequent to the termination of his employment hereunder and on a nonconfidential basis from a source other than the Company or its subsidiaries who is not bound by a duty of confidentiality, or other contractual, legal or fiduciary obligation, to the Company or such customers, clients or others having a business relationship, or (iv) as required by applicable law or legal process. The provisions of this Paragraph 12 shall continue in effect notwithstanding termination of the Executive's employment hereunder for any reason. 13. Business Records. Given the competitive environment in which the ---------------- Company does business and the fiduciary relationship that the Executive will have with the Company hereunder, the Executive agrees to promptly deliver to the Company, upon 13 termination of his employment hereunder, or at any other time when the Company so requests, all memoranda, notes, records, drawings, manuals and other documents (and all copies thereof and therefrom) in any way relating to the business or affairs of the Company or any of its subsidiaries or any of their clients, whether made or compiled by the Executive or furnished to him by the Company or any of its employees, customers, clients, consultants or agents, which the Executive may then possess or have under his control. The Executive confirms that all such memoranda, notes, records, drawings, manuals and other documents (and all copies thereof and therefrom) constitute the exclusive property of the Company. The obligation of confidentiality set forth in Paragraph 12 shall continue notwithstanding the Executive's delivery of any such documents to the Company. The provisions of this Paragraph 13 shall continue in effect notwithstanding termination of the Executive's employment hereunder for any reason. 14. Intellectual Property. --------------------- (a) Disclosure. The Executive shall promptly disclose to the Company ---------- all ideas, inventions, discoveries, processes, designs, methods, substances, articles, computer programs and improvements, whether or not patentable or copyrightable (all of the foregoing being hereinafter collectively called "Intellectual Property"), which the Executive conceives, invents, discovers, creates or develops, alone or with others, during the Employment Term, if such conception, invention, discovery, creation or development (i) occurs in the course of the Executive's employment with the Company, or (ii) occurs with the use of the Company's or any of its subsidiaries' time, materials or facilities, or (iii) in the opinion of the Board of Directors of the Company, relates or pertains in any way to the Company's or any of its subsidiaries' purposes, activities or affairs. (b) Assignment. The Executive hereby assigns and agrees to assign to ---------- the Company, its successors, assigns or designees, any and all of the Executive's right, title and interest in and to all Intellectual Property that the Executive is obligated to disclose to the Company pursuant to Paragraph 14(a). (c) Assistance. The Executive shall assist the Company in the ---------- preparation of and shall execute and deliver all disclosures, applications for patents or reissue of patents, rights of priority, assignments and other documents, give all testimony, and in general do all lawful things reasonably requested by the Company to obtain, maintain and enforce United States and foreign patents and to obtain, maintain and enforce on behalf of the Company or its designee legal title and all rights 14 in and to all Intellectual Property referred to in the preceding provisions of this Paragraph 14. (d) Records. The Executive shall prepare and maintain adequate and ------- current written records of all Intellectual Property within the scope of Paragraphs 14(a) through 14(c) in the form of notes, sketches, drawings, memoranda or reports, all of which shall be promptly submitted by the Executive to the Company and shall be owned exclusively by the Company. (e) Consideration and Expenses. The Executive shall perform his -------------------------- obligations under this Paragraph 14 at the Company's expense, but without any additional compensation other than that which the Executive receives by reason of his employment with the Company or pursuant to any separate agreement between the Company and the Executive or any separate policy of the Company that may be in effect from time to time during the Employment Term. (f) Power of Attorney. If the Company or its designee is unable for any ----------------- reason whatsoever to obtain the Executive's signature to any documents that the Company is entitled to require him to sign pursuant to this Paragraph 14, the Executive hereby irrevocably designates and appoints the Company as his agent and attorney-in-fact to act for and on behalf of him and in his stead to execute, deliver and file all such documents (including, without limitation, all applications for United States and foreign patents or for the reissue of such patents) and to do all other lawful acts that the Company is entitled to require the Executive to do pursuant to this Paragraph 14. (g) Survival. The provisions of this Paragraph 14 shall continue in -------- effect notwithstanding termination of the Executive's employment hereunder for any reason. 15. Assistance in Litigation. During the Employment Term and for a ------------------------ period of three years thereafter, the Executive shall, upon reasonable notice, furnish such information and proper assistance to the Company as may reasonably be required by the Company in connection with any litigation in which the Company or any of its subsidiaries or affiliates is, or may become, a party. The Company shall reimburse the Executive for all reasonable out-of-pocket expenses incurred by the Executive in rendering such assistance. The provisions of this Paragraph 16 shall continue in effect notwithstanding termination of the Executive's employment hereunder for any reason. 16. Withholding Taxes. The Company may withhold from any payments to be ----------------- made to the Executive hereunder such amounts (including social security contributions and federal income 15 taxes) as shall be required by federal, state and local withholding tax laws. 17. No Effect on Other Contractual Rights. The provisions of this ------------------------------------- Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable to the Executive, or in any way diminish the Executive's rights as an employee of the Company, whether existing now or hereafter, under any employee benefit plan, program or arrangement or other contract or agreement of the Company providing benefits to the Executive. 18. Arbitration. The Company and the Executive agree to submit to final ----------- and binding arbitration any and all disputes, claims (whether in tort, in contract, statutory or otherwise) and/or disagreements concerning the interpretation or application of this Agreement; provided, however, that notwithstanding the foregoing, in no event shall any dispute, claim or disagreement arising under Paragraphs 11, 12, 13 and 14 be submitted to arbitration pursuant to this Paragraph 18 or otherwise. Any dispute, claim and/or disagreement subject to arbitration pursuant to the terms of this Paragraph 18 shall be resolved by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association or any successor organization (the "Association") then in effect. Arbitration under this provision must be initiated within 30 days of the action, inaction or occurrence about which the party initiating the arbitration is complaining. Within ten days of the initiation of an arbitration hereunder, each party will designate an arbitrator pursuant to Rule 14 of the Association's Rules, and within 10 days thereafter the appointed arbitrators will appoint a neutral arbitrator from the panel in the manner prescribed in Rule 13 of the Association's Rules; provided, however, that if the Company and the Executive mutually agree, the arbitration may be conducted by a single arbitrator selected by agreement of the Company and the Executive. The Executive and the Company agree that the decision of the arbitrators selected hereunder will be final and binding on both parties. This arbitration provision is expressly made pursuant to and shall be governed by the Federal Arbitration Act, 9 U.S.C. Sections 1-14. The parties hereto agree that pursuant to Section 9 of such Act a judgment of any state court located in Crawford County, Arkansas, shall be entered upon the award made pursuant to the arbitration. 19. Injunctive Relief. In recognition of the fact that a breach by the ----------------- Executive of any of the provisions of Paragraphs 11, 12, 13 and 14 will cause irreparable damage to the Company for which monetary damages alone will not constitute an adequate remedy, the Company shall be entitled as a matter of right 16 (without being required to prove damages or furnish any bond or other security) to obtain a restraining order, an injunction, an order of specific performance or other equitable or extraordinary relief from any court of competent jurisdiction restraining any further violation of such provisions by the Executive or requiring him to perform his obligations hereunder. Such right to equitable or extraordinary relief shall not be exclusive but shall be in addition to all other rights and remedies to which the Company may be entitled at law or in equity, including without limitation the right to recover monetary damages for the breach by the Executive of any of the provisions of this Agreement. 20. Survival. Neither the expiration of the term of the Executive's -------- employment hereunder nor any other termination of this Agreement shall impair the rights or obligations of either party hereto which shall have accrued hereunder prior to such expiration or termination. The provisions of Paragraphs 11, 12, 13, 14, 15, 18 and 19 and the rights and obligations of the parties thereunder, shall survive the expiration or termination of the term of the Executive's employment hereunder. 21. Notices. All notices, requests, demands and other communications ------- required or permitted to be given or made hereunder by either party hereto shall be in writing and shall be deemed to have been duly given or made (i) when delivered personally, or (ii) when deposited in the United States mail, first class registered or certified mail, postage prepaid, return receipt requested, to the party for which intended at the following addresses (or at such other addresses as shall be specified by the parties by like notice, except that notices of change of address shall be effective only upon receipt): If to the Company, at: Loislaw.com, Inc. 105 North 28th Street Van Buren, AR 72956 Attn: Chief Executive Officer with a copy to: Kenn W. Webb, Esq. Thompson & Knight, P.C. 1700 Pacific Avenue, Suite 3300 Dallas, Texas 75201 17 If to the Executive: Kyle D. Parker 1530 S. 37th Street Fort Smith, AR 72903 22. Entire Agreement. This Agreement constitutes the entire agreement ---------------- between the parties hereto concerning the subject matter hereof and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to such subject matter. 23. Binding Effect; Assignment; No Third Party Benefit. This Agreement -------------------------------------------------- shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns; provided, however, that the Executive shall not assign or otherwise transfer this Agreement or any of his rights or obligations hereunder without the prior written consent of the Company (except that any rights that the Executive may have hereunder at the time of his death may be transferred by will or pursuant to the laws of descent and distribution). Nothing in this Agreement, express or implied, is intended to or shall confer upon any person other than the parties hereto, and their respective heirs, legal representatives, successors and permitted assigns, any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement. The Company may: (i) as long as it remains obligated with respect to this Agreement, cause its obligations hereunder to be performed by a subsidiary or subsidiaries for which Executive performs services, in whole or in part; (ii) assign this Agreement and its rights hereunder in whole, but not in part, to any corporation with or into which it may hereafter merge or consolidate or to which it may transfer all or substantially all of its assets, if said corporation shall by operation of law or expressly in writing assume to the reasonable satisfaction of Executive all liabilities of the Company hereunder as fully as if it had been originally named the Company herein; but may not otherwise assign this Agreement or its rights hereunder. Subject to the foregoing, this Agreement shall inure to the benefit of and be enforceable by the Company's successors and assigns. 24. Nonalienation of Benefits. The Executive shall not have any right to ------------------------- pledge, hypothecate, anticipate or in any way create a lien upon any payments or other benefits provided under this Agreement; and no benefits payable hereunder shall be assignable in anticipation of payment either by voluntary or involuntary acts, or by operation of law, except by will or pursuant to the laws of descent and distribution. 18 25. Amendment. This Agreement may not be modified or amended in any --------- respect except by an instrument in writing signed by both of the parties hereto. 26. Waiver. Any term or condition of this Agreement may be waived at any ------ time by the party hereto that is entitled to have the benefit thereof, but such waiver shall only be effective if evidenced by a writing signed by such party, and a waiver on one occasion shall not be deemed to be a waiver of the same or any other type of breach on a future occasion. No failure or delay by a party hereto in exercising any right or power hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right or power. 27. Authority. No person, other than pursuant to a resolution duly --------- adopted by the members of the Board of Directors of the Company, shall have authority on behalf of the Company to agree to modify, amend or waive any provision of this Agreement or take any action in reference hereto. 28. Severability. If any provision of this Agreement is held to be ------------ unenforceable, (a) this Agreement shall be considered divisible, (b) such provision shall be deemed inoperative to the extent it is deemed unenforceable, and (c) in all other respects this Agreement shall remain in full force and effect; provided, however, that if any such provision may be made enforceable by limitation thereof, then such provision shall be deemed to be so limited and shall be enforceable to the maximum extent permitted by applicable law. 29. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ------------- ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ARKANSAS WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF. 30. Counterparts. This Agreement may be executed by the parties hereto ------------ in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement. 31. Interest on Late Payments. The Company's obligation to pay Executive ------------------------- any amounts under this Agreement, if not paid by the time specified for payment herein, shall bear interest at the rate of 18% per annum or, if different, the maximum rate allowed by law until paid by the Company, and all accrued and unpaid interest shall bear interest at the same rate, all of which interest shall be compounded daily. 19 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf by its duly authorized officer, and the Executive has executed this Agreement, as of the date first set forth above. LOISLAW.COM, INC. By:_____________________________________ Mark O. Beyland President and Chief Financial Officer ________________________________________ Kyle D. Parker 20 EX-10.3 10 MARK O. BEYLAND EMPLOYMENT AGREEMENT EXHIBIT 10.3 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (this "Agreement"), dated as of June ___, 1999, between Loislaw.com, Inc., a Delaware corporation (the "Company"), and Mark Beyland, an individual residing in Van Buren, Arkansas (the "Executive"). WHEREAS, the Executive is presently employed by the Company, and is willing to commit himself to continue to serve the Company on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, the Company and the Executive hereby agree as follows: 1. Employment. The Company agrees to continue to employ the Executive, ---------- and the Executive agrees to remain in the employ of the Company, for the period set forth in Paragraph 2, in the position and with the duties and responsibilities set forth in Paragraph 3, and upon the other terms and conditions herein provided. 2. Term. The employment of the Executive by the Company as provided in ---- Paragraph 1 shall be for a period commencing on the date of this Agreement through and ending on June 13, 2002, unless sooner terminated as herein provided (the "Employment Term"). 3. Position and Duties. ------------------- (a) During the Employment Term, the Executive shall serve as President and Chief Financial Officer of the Company. In such capacities, the Executive, subject to the ultimate control and direction of the Board of Directors of the Company, shall have and exercise (i) direct charge of and general supervision over the business and affairs of the Company and (ii) the duties and functions normally incident to the office of chief financial officer of a company similar to the Company. In addition, the Executive shall have such other duties, functions, responsibilities, and authority as are from time to time delegated to the Executive by the Board of Directors of the Company, provided that such duties, functions, responsibilities, and authority are reasonable and customary for a person serving in the aforesaid functions of an enterprise comparable to the Company. The Executive shall report and be accountable to the Board of Directors and the Chairman of the Board and Chief Executive Officer of the Company. 1 (b) During the Employment Term, the Executive shall devote his full time, skill, and attention and his best efforts to the business and affairs of the Company to the extent necessary to discharge fully, faithfully and efficiently the duties and responsibilities delegated and assigned to the Executive herein or pursuant hereto, except for usual, ordinary, and customary periods of vacation and absence due to illness or other disability. (c) In connection with the Executive's employment by the Company under this Agreement, the Executive shall be based at the principal executive offices of the Company in Van Buren, Arkansas, except for such reasonable travel as the performance of the Executive's duties in the business of the Company may require. (d) All services that the Executive may render to the Company or any of its subsidiaries or affiliates in any capacity during the Employment Term shall be deemed to be services required by this Agreement and consideration for the compensation provided for herein. 4. Compensation and Related Matters. -------------------------------- (a) Base Salary . During the Employment Term, the Company shall pay to ----------- the Executive for his services hereunder a base salary ("Base Salary") at the rate of One Hundred Seventy-Five Thousand Dollars ($175,000.00) per year, payable in installments in accordance with the general payroll practices of the Company, or as otherwise mutually agreed upon. The Executive's Base Salary shall be subject to such adjustments as may be determined from time to time by the compensation committee of the Board of Directors of the Company in its sole discretion, but in no event shall the Company pay the Executive a Base Salary at a rate less than that set forth in the immediately preceding sentence. (b) Executive Bonus and Benefits . During the Employment Term, the ---------------------------- Executive may be entitled, in the sole discretion of the compensation committee of the Board of Directors, to annual cash bonuses in amounts not to exceed 50% of his then-current Base Salary for any calendar year; provided, however, that Executive's bonus for the year ended December 31, 1999 shall not be less than $37,500. Further, Executive shall be entitled to participate in all additional employee benefit plans (including, stock option plans and long-term incentive plans), programs and arrangements that are generally made available by the Company to its senior executives. 2 (c) Medical and Dental Coverage . During the Employment Term, the --------------------------- Company shall provide, at its cost, full medical and dental coverage to Employee under the Company's group insurance plans as in effect from time to time. (d) Expenses . During the Employment Term, the Executive shall be -------- entitled to receive prompt reimbursement on a timely basis (according to the then-current practices of the Company) for all reasonable expenses incurred by the Executive in performing his duties and responsibilities hereunder upon the presentation by the Executive of an itemized monthly accounting of such expenditures, including receipts where required by Company policy or federal income tax regulations. (e) Vacations . During the Employment Term, the Executive shall be --------- entitled to four (4) weeks of paid vacation each year. The Executive shall also be entitled to all paid holidays given by the Company to its senior executives. The Executive agrees to utilize his vacation at such time or times as are (i) consistent with the proper performance of his duties and responsibilities hereunder and (ii) mutually convenient for the Company and the Executive. 5. Termination of Employment. ------------------------- (a) Death . The Executive's employment hereunder shall terminate ----- automatically upon his death. (b) Disability . If the Disability (as defined below) of the Executive ---------- occurs during the Employment Term, the Company may notify the Executive of the Company's intention to terminate the Executive's employment hereunder for Disability. In such event, the Executive's employment hereunder shall terminate effective on the 15th day following the date such notice of termination is received by the Executive (the "Disability Effective Date"). For purposes of this Agreement, the "Disability" of the Executive shall be deemed to have occurred at such time as the Board of Directors of the Company determines, in its sole and absolute discretion, (i) that despite any reasonable accommodation required by law, the Executive is unable to perform the essential functions of his position hereunder as a result of his physical or mental incapacity and (ii) that such inability has existed or is likely to exist for a period of three months or more. (c) Termination by Company . ---------------------- (i) For Cause. The Company may terminate the Executive's employment --------- hereunder for Cause (as defined below) (a "For Cause Termination"). For purposes of this Agreement, "Cause" shall mean any of the following: (A) any 3 misrepresentation of a material fact to, or concealment of a material fact from, a member of the Board of Directors of the Company; (B) the Executive's failure to follow a lawful written directive of the Board of Directors; (C) the Executive's willful violation of any material rule, regulation or policy that may be established from time to time in the Company's business; (D) the Executive's unlawful possession, use or sale of narcotics or other controlled substances, or performing job duties while such controlled substances are present in the Executive's body; (E) the Executive operating a vehicle in the course of his employment under the influence of alcohol (meaning a blood alcohol level which would establish a felony or misdemeanor under the applicable state law, or a conviction of or plea of guilty or no contest to such a felony or misdemeanor); (F) any act or omission of the Executive in the scope of his employment (i) that results in the assessment of a criminal penalty against the Executive or the Company, or (ii) that in the reasonable judgment of the Board of Directors would result in a material violation of any federal, state, local or foreign law or regulation; or (G) the Executive's conviction of or a plea of guilty or no contest to any crime involving an act of moral turpitude. Whether any termination of Executive's employment hereunder constitutes a For Cause Termination in accordance with the foregoing shall be determined in the reasonable judgment of the Board of Directors. (ii) Without Cause. The Company may terminate the Executive's ------------- employment hereunder without Cause for any or no reason. For purposes of this Agreement, a "Without Cause Termination" shall mean a termination by the Company of the Executive's employment hereunder other than pursuant to (x) a For Cause Termination, or (y) Disability. (d) Constructive Termination . The Executive may terminate his ------------------------ employment hereunder if a Constructive Termination occurs. A "Constructive Termination" of Executive's employment with the Company shall be deemed to have occurred if the Company: (i) demotes Executive to a lesser position, either in title or responsibility, than the highest position held by him with the Company at any time during his employment with the Company; or (ii) decreases Executive's compensation below the highest level in effect at any time during his employment with the Company or reduces Executive's benefits and perquisites below the highest levels in effect at any time during his employment with the Company (other than as a 4 result of any amendment or termination of any employee or group or other executive benefit plan, which amendment or termination is applicable to all executives of the Company). Any termination of Executive's duties and responsibilities as Chief Financial Officer of the Company shall not constitute a Constructive Termination under subparagraph (i) of this paragraph 5(d). (e) Notice of Termination . Any termination of the Executive's --------------------- employment hereunder by the Company or by the Executive (other than a termination pursuant to Paragraph 5(a)) shall be communicated by a Notice of Termination (as defined below) to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) in the case of a termination for Disability or a For Cause Termination or a Constructive Termination, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (iii) specifies the Employment Termination Date (as defined in Paragraph 5(f) below). The failure by the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Disability or Cause shall not waive any right of the Company hereunder or preclude the Company from asserting such fact or circumstance in enforcing the Company's rights hereunder. (f) Employment Termination Date . For purposes of this Agreement, --------------------------- "Employment Termination Date" shall mean the effective date of termination of the Executive's employment hereunder, which date shall be (i) if the Executive's employment is terminated by his death, the date of his death, (ii) if the Executive's employment is terminated because of his Disability, the Disability Effective Date, (iii) if the Executive's employment is terminated by the Company pursuant to a For Cause Termination or a Without Cause Termination, the date specified in the Notice of Termination, which date shall in no event be earlier than the date such notice is given, and (iv) if the Executive's employment is terminated by the Executive pursuant to a Constructive Termination, the date on which the Notice of Termination is given. 5 (g) Resignation . In the event of termination of the Executive's ----------- employment hereunder (for any reason other than the death of the Executive), the Executive agrees that if at such time he is a member of the Board of Directors or officer of the Company or a director or officer of any of its subsidiaries, he will promptly deliver to the Company his written resignation from all such positions, such resignation to be effective as of the Employment Termination Date. 6. Company Obligations Upon Termination of Employment. -------------------------------------------------- (a) Death . If the Executive's employment hereunder is terminated by ----- reason of the Executive's death, the Company shall pay to the Executive's estate a sum equal to 12 month's Base Salary at the Executive's last current rate. Any such amounts payable under this Paragraph 6(a) shall be paid in equal monthly installments for a period of one year, such payments to begin as of the Employment Termination Date. In addition, if the Executive's employment hereunder is terminated by reason of the Executive's death, the Company shall continue to provide medical insurance at the level provided at the Employment Termination Date for the Executive's spouse for a period of five years after the Employment Termination Date and for each of his children for a period beginning on the Employment Termination Date and ending on the earlier of (i) five years after the Employment Termination Date and (ii) the date on which such child ceases to be a "dependent" of Executive's spouse within the meaning of Section ___ of the Internal Revenue Code of 1986, as amended (the "Code"); provided, that the Company shall be required to provide medical insurance to the Executive's spouse and his children only for so long as, and to the extent that, the Company provides medical insurance for its full-time employees; and, provided, further, that this Paragraph 6(a) shall not prohibit the Company from modifying or canceling its existing health insurance program. (b) Disability . If the Executive's employment hereunder is terminated ---------- by reason of the Executive's Disability, the Company shall pay to the Executive a sum equal to 12 month's Base Salary at the Executive's last current rate. Any such amounts payable under this Paragraph 6(b) shall be paid in equal monthly installments for a period of one year, such payments to begin as of the Employment Termination Date. In addition, if the Executive's employment hereunder is terminated by reason of the Executive's Disability that, in the sole discretion of the Board of Directors, is a "permanent and total disability" as defined in the Company's long-term disability insurance plan, or if the Company does not maintain such a plan containing a definition of that term, as defined in Section 22(e)(3) of the Code, then the Company shall continue to provide medical insurance at the level provided at the Employment Termination Date for the Executive and 6 his spouse for a period of five years after the Employment Termination Date and for each of his children for a period beginning on the Employment Termination Date and ending on the earlier of (i) five years after the Employment Termination Date and (ii) the date on which such child ceases to be a dependent of Executive or Executive's spouse within the meaning of Section _____ of the Code; provided, that the Company shall be required to provide medical insurance to the Executive, his spouse and his children only for so long as, and to the extent that, the Company provides medical insurance for its full-time employees; and provided further, that this Paragraph 6(b) shall not prohibit the Company from modifying or canceling its existing health insurance program. (c) For Cause Termination . If the Executive's employment hereunder is --------------------- terminated pursuant to a For Cause Termination, the Company shall pay to the Executive, in a lump sum in cash within 15 days after the Employment Termination Date, the Executive's Base Salary through the Employment Termination Date, to the extent not theretofore paid, and, thereafter, the Company shall have no further obligations to the Executive under this Agreement. (d) Without Cause Termination . If the Executive's employment hereunder ------------------------- is terminated by the Company by reason of a Without Cause Termination, the Company shall pay to the Executive a sum equal to 12 month's Base Salary at the Executive's last current rate. Any such amounts payable under this Paragraph 6(d) shall be paid in equal monthly installments for a period of one year, such payments to begin as of the Employment Termination Date. (e) Constructive Termination . If the Executive's employment hereunder ------------------------ is terminated by the Executive by reason of a Constructive Termination, the Company shall pay to the Executive a sum equal to 12 month's Base Salary at the Executive's last current rate. Any such amounts payable under this Paragraph 6(e) shall be paid in equal monthly installments for a period of one year, such payments to begin as of the Employment Termination Date. (f) Sole Remedy . The right to receive the payments and insurance, as ----------- applicable, provided for under this Paragraph 6 shall be the Executive's sole and exclusive remedy for the termination of his employment hereunder and shall be in lieu of any claim that he might otherwise have against the Company arising from such termination. 7 (g) Coordination of Payments . The payments required by subparagraphs ------------------------ (d) and (e) of this Paragraph 6 are subject to the provisions of Paragraph 7(b) dealing with the coordination of payments in the event of a Change of Control. 7. Termination in Connection with Change of Control. ------------------------------------------------ (a) Upon the occurrence of a Termination Event (as defined in Paragraph 8(a)), the Company shall: (i) pay Executive an amount equal to Executive's Base Annual Compensation (as defined in Paragraph 8(c)) multiplied by a factor of two, payable as a lump sum cash payment within ten days following the date of the termination constituting such Termination Event (the "Termination Date"); (ii) provide Executive with life, disability and medical insurance at the level provided at either the date of the occurrence of a Change of Control (as defined in Paragraph 8(b)) or the Termination Date, as Executive shall in his sole discretion elect by providing written notice to the Company, for 12 months following the Termination Date or such shorter period until Executive shall obtain substantially equivalent insurance coverage from a subsequent employer, if any, in the same manner as if Executive's employment had not been terminated until the end of such period. Executive shall immediately notify the Company upon obtaining any insurance from a subsequent employer and shall provide all information required by the Company regarding such insurance to enable the Company to make a determination of whether such insurance is substantially equivalent; and (iii) pay all reasonable legal fees and expenses incurred by Executive in seeking to obtain or enforce any right or benefit provided by this Agreement including without limitation all such costs incurred in contesting or disputing any determination made by the Company under this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment hereunder. Reimbursements of such costs shall be made by the Company within 15 days after Executive's presentation to the Company of any statements of such costs and thereafter shall bear interest at the rate of 18% per annum or, if different, the maximum rate allowed by law until paid by the Company, and all accrued and unpaid interest shall bear interest at the same rate, all of which interest shall be compounded daily. 8 (b) Coordination With Paragraph 6. If, in connection with the ----------------------------- termination of Executive's employment hereunder, Executive is entitled to receive payments pursuant to this Paragraph 7 and Executive would also be entitled to receive termination payments under Paragraph 6 in accordance with the terms thereof, Paragraph 7 shall take precedence and Executive shall not be entitled to receive any payments under Paragraph 6. 8. Definitions. ----------- (a) A "Termination Event" shall be deemed to have occurred if: (i) at any time within six months after a Change of Control, Executive or the Company terminates Executive's employment for any reason, or for no reason; or (ii) at any time within 12 months after a Change of Control, the Company or any successor thereto terminates Executive's employment for any reason other than for (A) Cause, (B) Disability or (C) death. For purposes of this Paragraph 8(a), Executive's employment shall be deemed to have been terminated upon the actual termination of his employment or upon the occurrence of a Constructive Termination. (b) A "Change of Control" shall be deemed to have occurred if: (i) individuals who, as of the date hereof, constitute the Board of Directors (the "Incumbent Board") of the Company cease for any reason to constitute at least 51% of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; (ii) the Company shall consummate a reorganization, merger or consolidation, in each case, with respect to which persons who were the stockholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own outstanding voting securities representing more than 50% of the combined voting power entitled to vote generally in the election of 9 directors ("Voting Securities") of the reorganized, merged or consolidated company; (iii) the stockholders of the Company shall approve a sale of all or substantially all of the stock or assets of the Company; or (iv) any "person," as that term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the Company, any of its subsidiaries, any employee benefit plan of the Company or any of its subsidiaries, or any entity organized, appointed or established by the Company for or pursuant to the terms of such a plan), together with all "affiliates" and "associates" (as such terms are defined in Rule 12b-2 under the Exchange Act) of such person (as well as any "Person" or "group" as those terms are used in Sections 13(d) and 14(d) of the Exchange Act), shall become the "beneficial owner" or "beneficial owners" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of securities of the Company representing in the aggregate 40% or more of either the then outstanding shares of common stock, par value $.001 per share, of the Company ("Common Stock") or the Voting Securities of the Company, in either such case other than solely as a result of acquisitions of such securities directly from the Company. Notwithstanding the foregoing, a "Change in Control" of the Company shall not be deemed to have occurred for purposes of subparagraph (iv) of this Paragraph 8(b) solely as the result of an acquisition of securities by the Company which, by reducing the number of shares of Common Stock or other Voting Securities of the Company outstanding, increases (i) the proportionate number of shares of Common Stock beneficially owned by any person to 40% or more of the shares of Common Stock then outstanding or (ii) the proportionate voting power represented by the Voting Securities of the Company beneficially owned by any person to 40% or more of the combined voting power of all then outstanding Voting Securities; provided, however, that if any person referred to in clause (i) or (ii) of this sentence shall thereafter become the beneficial owner of any additional shares of Common Stock or other Voting Securities of the Company (other than a result of a stock split, stock dividend or similar transaction), then a Change in Control of the Company shall be deemed to have occurred for purposes of subparagraph (iv) of this Paragraph 8(b). 10 (c) "Base Annual Compensation" shall, as determined on the Termination Date, be equal to the greater of (i) Executive's Base Salary on the date of the earliest Change of Control to occur during the 18-month period prior to the Termination Date plus any bonuses or special incentive payments received in the 12 months prior to such Change of Control or (ii) Executive's Base Salary on the Termination Date plus any bonuses or special incentive payments received in the 12 months prior to the Termination Date. 9. Adjustments. Any provision of this Agreement to the contrary ----------- notwithstanding, if, in the Company's determination, the total sum of (i) the payments and benefits to be paid or provided to (or with respect to) Executive under this Agreement which are considered to be "parachute payments" within the meaning of Section 280G of the Code, and (ii) any other payments and benefits which are considered to be "parachute payments," as so defined, to be paid or provided to (or with respect to) Executive by the Company or a member of the Company's affiliated group (within the meaning of Section 280G(d)(5) of the Code) (the "Total Amount") exceeds the amount Executive can receive without having to pay excise tax with respect to all or any portion of such payments or benefits under Section 4999 of the Code (the "Reduced Amount"), then the amount payable to Executive pursuant to Paragraphs 7(a)(i) and (ii) of this Agreement shall be reduced to the greater of zero or the highest amount which will not result in Executive having to pay excise tax with respect to any payments and benefits under Section 4999 of the Code; provided, however, that in the event that the Reduced Amount minus any and all applicable federal, state and local taxes (including but not limited to income and employment taxes imposed by the Code) is less than the Total Amount minus any and all applicable federal, state and local taxes (including but not limited to income and employment taxes imposed by the Code and excise taxes applicable to such payments under Section 4999 of the Code), then the reduction of the amount payable to Executive under Paragraphs 7(a)(i) and (ii) of this Agreement provided for in the preceding provisions of this Paragraph 9 shall not be made. 10. Compliance With Other Agreements. The Executive represents and -------------------------------- warrants to the Company that the execution, delivery and performance by the Executive of this Agreement do not and will not conflict with or result in a violation of any provision of, or constitute a default under, any contract, agreement, instrument or obligation to which the Executive is a party or by which he is bound. 11. Noncompetition and Related Matters. Without the prior written ---------------------------------- consent of the Company, Executive will not, directly or indirectly: 11 (a) persuade or attempt to persuade any customer, client, business partner, licensor, licensee, sales representative, supplier or distributor of the Company or any of its subsidiaries to cease doing business with the Company or any of its subsidiaries, or to reduce the amount of business it does with the Company or any of its subsidiaries; (b) persuade or attempt to persuade any potential customer, client, supplier, business partner, licensor, licensee, sales representative, supplier or distributor to which the Company or any of its subsidiaries has made a presentation, or with which the Company or any of its subsidiaries has been having discussions, not to do business with the Company or any of its subsidiaries, or to undertake with any other person or business any business or activity of a type and character similar to or competitive with that conducted by the Company or any of its subsidiaries (a "Competitive Activity"); (c) solicit for himself or any person other than the Company or any of its subsidiaries the business of any person which is a customer, client, business partners, licensor, licensee, sales representative, supplier or distributor of the Company or any of its subsidiaries, or was a customer, client, business partner, licensor, licensee, sales representative, supplier or distributor of the Company or any of its subsidiaries within two years prior to the Termination Date or the Employment Termination Date, as applicable; (d) persuade or attempt to persuade any employee of the Company any of its subsidiaries, or any individual who was its employee during the six months prior to the Termination Date, to leave the employ of the Company or any of its subsidiaries, or to become employed by any person engaged in a Competitive Activity; (e) anywhere in the world where the Company or any of its subsidiaries is conducting any business, directly or indirectly, own, manage, operate, control, be employed by or participate in the ownership, management, operation or control of, or be connected in any manner with any person or business engaged in a Competitive Activity; provided, however, that ownership of securities of a company whose securities are registered under the United States Securities Exchange Act of 1934, as amended, not in excess of 1% of any class of such securities shall by itself not be considered a violation of this Paragraph 11. The provisions of this Paragraph 11 shall be in effect during the Employment Term and shall continue in effect for a period of 12 months following the Employment Termination Date. 12 Notwithstanding the foregoing, if Executive's employment with the Company is terminated by the Company for Disability or by reason of a Without Cause Termination or is terminated by the Executive by reason of a Constructive Termination, Executive shall be bound by the restrictions set forth in this Paragraph 11 after the Employment Termination Date (i) if and only for so long (but not to exceed 12 months) as the Company complies with its obligations under Paragraphs 6(b), (d) or (e), as applicable, or (ii) if and only if the Company has made the payments to Executive required under Paragraph 7(a)(i), if applicable, provided that Executive shall cease being bound by such restrictions if the Company fails to satisfy its obligations under Paragraph 7(a)(ii) or (iii). 12. Confidentiality. The Executive recognizes and acknowledges that the --------------- Company's trade secrets and other confidential or proprietary information, as they may exist from time to time, are valuable, special, and unique assets of the Company's business, access to and knowledge of which are essential to the performance of the Executive's duties hereunder. The Executive confirms that all such trade secrets and other information constitute the exclusive property of the Company. During the Employment Term and thereafter without limitation of time, the Executive shall hold in strict confidence and shall not, directly or indirectly, disclose or reveal to any person, or use for his own benefit or for the benefit of anyone else, any trade secrets, confidential dealings, or other confidential or proprietary information of any kind, nature or description (whether or not acquired, learned, obtained or developed by the Executive alone or in conjunction with others during the Employment Term) belonging to or concerning the Company or any of its subsidiaries or any of their customers or clients or others with whom they now or hereafter have a business relationship, except (i) with the prior written consent of the Company duly authorized by its Board of Directors, (ii) in the course of the proper performance of the Executive's duties hereunder, (iii) for information (x) that becomes generally available to the public other than as a result of unauthorized disclosure by the Executive or his affiliates or (y) that becomes available to the Executive subsequent to the termination of his employment hereunder and on a nonconfidential basis from a source other than the Company or its subsidiaries who is not bound by a duty of confidentiality, or other contractual, legal or fiduciary obligation, to the Company or such customers, clients or others having a business relationship, or (iv) as required by applicable law or legal process. The provisions of this Paragraph 12 shall continue in effect notwithstanding termination of the Executive's employment hereunder for any reason. 13 13. Business Records. Given the competitive environment in which the ---------------- Company does business and the fiduciary relationship that the Executive will have with the Company hereunder, the Executive agrees to promptly deliver to the Company, upon termination of his employment hereunder, or at any other time when the Company so requests, all memoranda, notes, records, drawings, manuals and other documents (and all copies thereof and therefrom) in any way relating to the business or affairs of the Company or any of its subsidiaries or any of their clients, whether made or compiled by the Executive or furnished to him by the Company or any of its employees, customers, clients, consultants or agents, which the Executive may then possess or have under his control. The Executive confirms that all such memoranda, notes, records, drawings, manuals and other documents (and all copies thereof and therefrom) constitute the exclusive property of the Company. The obligation of confidentiality set forth in Paragraph 12 shall continue notwithstanding the Executive's delivery of any such documents to the Company. The provisions of this Paragraph 13 shall continue in effect notwithstanding termination of the Executive's employment hereunder for any reason. 14. Intellectual Property. --------------------- (a) Disclosure . The Executive shall promptly disclose to the Company ---------- all inventions, discoveries, processes, designs, methods, substances, articles, computer programs and improvements, whether or not patentable or copyrightable (all of the foregoing being hereinafter collectively called "Intellectual Property"), which the Executive conceives, invents, discovers, creates or develops, alone or with others, during the Employment Term, if such conception, invention, discovery, creation or development (i) occurs in the course of the Executive's employment with the Company, or (ii) occurs with the use of the Company's or any of its subsidiaries' time, materials or facilities, or (iii) in the opinion of the Board of Directors of the Company, relates or pertains in any way to the Company's or any of its subsidiaries' purposes, activities or affairs. (b) Assignment . The Executive hereby assigns and agrees to assign to ---------- the Company, its successors, assigns or designees, any and all of the Executive's right, title and interest in and to all Intellectual Property that the Executive is obligated to disclose to the Company pursuant to Paragraph 14(a). (c) Assistance . The Executive shall assist the Company in the ---------- preparation of and shall execute and deliver all disclosures, applications for patents or reissue of patents, rights of priority, assignments and other documents, give all 14 testimony, and in general do all lawful things reasonably requested by the Company to obtain, maintain and enforce United States and foreign patents and to obtain, maintain and enforce on behalf of the Company or its designee legal title and all rights in and to all Intellectual Property referred to in the preceding provisions of this Paragraph 14. (d) Records . The Executive shall prepare and maintain adequate and ------- current written records of all Intellectual Property within the scope of Paragraphs 14(a) through 14(c) in the form of notes, sketches, drawings, memoranda or reports, all of which shall be promptly submitted by the Executive to the Company and shall be owned exclusively by the Company. (e) Consideration and Expenses . The Executive shall perform his -------------------------- obligations under this Paragraph 14 at the Company's expense, but without any additional compensation other than that which the Executive receives by reason of his employment with the Company or pursuant to any separate agreement between the Company and the Executive or any separate policy of the Company that may be in effect from time to time during the Employment Term. (f) Power of Attorney . If the Company or its designee is unable for any ----------------- reason whatsoever to obtain the Executive's signature to any documents that the Company is entitled to require him to sign pursuant to this Paragraph 14, the Executive hereby irrevocably designates and appoints the Company as his agent and attorney-in-fact to act for and on behalf of him and in his stead to execute, deliver and file all such documents (including, without limitation, all applications for United States and foreign patents or for the reissue of such patents) and to do all other lawful acts that the Company is entitled to require the Executive to do pursuant to this Paragraph 14. (g) Survival . The provisions of this Paragraph 14 shall continue in -------- effect notwithstanding termination of the Executive's employment hereunder for any reason. 15. Assistance in Litigation. During the Employment Term and for a ------------------------ period of three years thereafter, the Executive shall, upon reasonable notice, furnish such information and proper assistance to the Company as may reasonably be required by the Company in connection with any litigation in which the Company or any of its subsidiaries or affiliates is, or may become, a party. The Company shall reimburse the Executive for all reasonable out-of-pocket expenses incurred by the Executive in rendering such assistance. The provisions of this Paragraph 16 shall continue in effect notwithstanding termination of the Executive's employment hereunder for any reason. 15 16. Withholding Taxes. The Company may withhold from any payments to be ----------------- made to the Executive hereunder such amounts (including social security contributions and federal income taxes) as shall be required by federal, state and local withholding tax laws. 17. No Effect on Other Contractual Rights. The provisions of this ------------------------------------- Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable to the Executive, or in any way diminish the Executive's rights as an employee of the Company, whether existing now or hereafter, under any employee benefit plan, program or arrangement or other contract or agreement of the Company providing benefits to the Executive. 18. Arbitration. The Company and the Executive agree to submit to final ----------- and binding arbitration any and all disputes, claims (whether in tort, in contract, statutory or otherwise) and/or disagreements concerning the interpretation or application of this Agreement; provided, however, that notwithstanding the foregoing, in no event shall any dispute, claim or disagreement arising under Paragraphs 11, 12, 13 and 14 be submitted to arbitration pursuant to this Paragraph 18 or otherwise. Any dispute, claim and/or disagreement subject to arbitration pursuant to the terms of this Paragraph 18 shall be resolved by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association or any successor organization (the "Association") then in effect. Arbitration under this provision must be initiated within 30 days of the action, inaction or occurrence about which the party initiating the arbitration is complaining. Within ten days of the initiation of an arbitration hereunder, each party will designate an arbitrator pursuant to Rule 14 of the Association's Rules, and within 10 days thereafter the appointed arbitrators will appoint a neutral arbitrator from the panel in the manner prescribed in Rule 13 of the Association's Rules; provided, however, that if the Company and the Executive mutually agree, the arbitration may be conducted by a single arbitrator selected by agreement of the Company and the Executive. The Executive and the Company agree that the decision of the arbitrators selected hereunder will be final and binding on both parties. This arbitration provision is expressly made pursuant to and shall be governed by the Federal Arbitration Act, 9 U.S.C. Sections 1-14. The parties hereto agree that pursuant to Section 9 of such Act a judgment of any state court located in Crawford County, Arkansas, shall be entered upon the award made pursuant to the arbitration. 16 19. Injunctive Relief. In recognition of the fact that a breach by the ----------------- Executive of any of the provisions of Paragraphs 11, 12, 13 and 14 will cause irreparable damage to the Company for which monetary damages alone will not constitute an adequate remedy, the Company shall be entitled as a matter of right (without being required to prove damages or furnish any bond or other security) to obtain a restraining order, an injunction, an order of specific performance or other equitable or extraordinary relief from any court of competent jurisdiction restraining any further violation of such provisions by the Executive or requiring him to perform his obligations hereunder. Such right to equitable or extraordinary relief shall not be exclusive but shall be in addition to all other rights and remedies to which the Company may be entitled at law or in equity, including without limitation the right to recover monetary damages for the breach by the Executive of any of the provisions of this Agreement. 20. Survival. Neither the expiration of the term of the Executive's -------- employment hereunder nor any other termination of this Agreement shall impair the rights or obligations of either party hereto which shall have accrued hereunder prior to such expiration or termination. The provisions of Paragraphs 11, 12, 13, 14, 15, 18 and 19 and the rights and obligations of the parties thereunder, shall survive the expiration or termination of the term of the Executive's employment hereunder. 21. Notices. All notices, requests, demands and other communications ------- required or permitted to be given or made hereunder by either party hereto shall be in writing and shall be deemed to have been duly given or made (i) when delivered personally, or (ii) when deposited in the United States mail, first class registered or certified mail, postage prepaid, return receipt requested, to the party for which intended at the following addresses (or at such other addresses as shall be specified by the parties by like notice, except that notices of change of address shall be effective only upon receipt): If to the Company, at: Loislaw.com, Inc. 105 North 28th Street Van Buren, AR 72956 Attn: Chief Executive Officer 17 with a copy to: Kenn W. Webb, Esq. Thompson & Knight, P.C. 1700 Pacific Avenue, Suite 3300 Dallas, Texas 75201 If to the Executive: Mark Beyland 105 North 28th Street Van Buren, AR 72956 22. Entire Agreement. This Agreement constitutes the entire agreement ---------------- between the parties hereto concerning the subject matter hereof and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to such subject matter. 23. Binding Effect; Assignment; No Third Party Benefit. This Agreement -------------------------------------------------- shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns; provided, however, that the Executive shall not assign or otherwise transfer this Agreement or any of his rights or obligations hereunder without the prior written consent of the Company (except that any rights that the Executive may have hereunder at the time of his death may be transferred by will or pursuant to the laws of descent and distribution). Nothing in this Agreement, express or implied, is intended to or shall confer upon any person other than the parties hereto, and their respective heirs, legal representatives, successors and permitted assigns, any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement. The Company may: (i) as long as it remains obligated with respect to this Agreement, cause its obligations hereunder to be performed by a subsidiary or subsidiaries for which Executive performs services, in whole or in part; (ii) assign this Agreement and its rights hereunder in whole, but not in part, to any corporation with or into which it may hereafter merge or consolidate or to which it may transfer all or substantially all of its assets, if said corporation shall by operation of law or expressly in writing assume to the reasonable satisfaction of Executive all liabilities of the Company hereunder as fully as if it had been originally named the Company herein; but may not otherwise assign this Agreement or its rights hereunder. Subject to the foregoing, this Agreement shall inure to the benefit of and be enforceable by the Company's successors and assigns. 18 24. Nonalienation of Benefits. The Executive shall not have any right to ------------------------- pledge, hypothecate, anticipate or in any way create a lien upon any payments or other benefits provided under this Agreement; and no benefits payable hereunder shall be assignable in anticipation of payment either by voluntary or involuntary acts, or by operation of law, except by will or pursuant to the laws of descent and distribution. 25. Amendment. This Agreement may not be modified or amended in any --------- respect except by an instrument in writing signed by both of the parties hereto. 26. Waiver. Any term or condition of this Agreement may be waived at any ------ time by the party hereto that is entitled to have the benefit thereof, but such waiver shall only be effective if evidenced by a writing signed by such party, and a waiver on one occasion shall not be deemed to be a waiver of the same or any other type of breach on a future occasion. No failure or delay by a party hereto in exercising any right or power hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right or power. 27. Authority. No person, other than pursuant to a resolution duly --------- adopted by the members of the Board of Directors of the Company, shall have authority on behalf of the Company to agree to modify, amend or waive any provision of this Agreement or take any action in reference hereto. 28. Severability. If any provision of this Agreement is held to be ------------ unenforceable, (a) this Agreement shall be considered divisible, (b) such provision shall be deemed inoperative to the extent it is deemed unenforceable, and (c) in all other respects this Agreement shall remain in full force and effect; provided, however, that if any such provision may be made enforceable by limitation thereof, then such provision shall be deemed to be so limited and shall be enforceable to the maximum extent permitted by applicable law. 29. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ------------- ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ARKANSAS WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF. 30. Counterparts. This Agreement may be executed by the parties hereto ------------ in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement. 19 31. Interest on Late Payments. The Company's obligation to pay Executive ------------------------- any amounts under this Agreement, if not paid by the time specified for payment herein, shall bear interest at the rate of 18% per annum or, if different, the maximum rate allowed by law until paid by the Company, and all accrued and unpaid interest shall bear interest at the same rate, all of which interest shall be compounded daily. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf by its duly authorized officer, and the Executive has executed this Agreement, as of the date first set forth above. LOISLAW.COM, INC. By: --------------------------------- Name: Kyle D. Parker Title: Chairman of the Board and Chief Executive Officer ------------------------------------ Mark O. Beyland 20 EX-10.4 11 REIMBURSEMENT AGREEMENT Exhibit 10.4 REIMBURSEMENT AGREEMENT ----------------------- This Agreement (this "Agreement") is executed and entered into as of January 29, 1999 by and among Law Office Information Systems, Inc., an Arkansas corporation (the "Company"), Kyle D. Parker, as Trustee for The Parker Trust dated March 15, 1989 (the "Parker Trust"), Melissa Ann Parker and Capital Resource Lenders III, L.P., a Delaware limited partnership ("CRL III"). Reference is hereby made to that certain Senior Subordinated Note and Securities Purchase Agreement dated as of November 24, 1997 by and between the Company and CRL III, as amended by that certain Amendment dated as of June 29, 1998 by and among the Company, CRL III, CRP Investment Partners III, L.L.C. ("CRP Investment") and Rowland Moriarty ("Moriarty" and together with CRL III and CRP Investment, the "Purchasers"), that certain Amendment No. 2 dated as of August 20, 1998 by and among the Company and the Purchasers, that certain Amendment No. 3 dated as of November 30, 1998 by and among the Company and the Purchasers, and that certain Amendment No. 4 dated as of the date hereof by and among the Company and the Purchasers (as so amended, the "Purchase Agreement"). Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Purchase Agreement. W I T N E S S E T H: ------------------- WHEREAS, the Company and Fleet National Bank, a national banking association (the "Bank"), have entered into that certain Credit Agreement dated as of August 20, 1998, as amended by that certain First Amendment to Credit Agreement dated as of December 31, 1998 (as the same may from time to time be amended, modified or supplemented, hereinafter referred to as the "Loan Agreement"), pursuant to which the Bank has agreed, subject to the terms and conditions set forth therein, to establish a credit facility in the original aggregate principal amount of $10,000,000 in favor of the Company; and WHEREAS, in connection with the Loan Agreement, CRL III executed that certain Limited Guaranty dated August 20, 1998 (the "Guaranty") in favor of the Bank, pursuant to which CRL III has agreed to guarantee certain obligations of the Company under the Loan Agreement. NOW THEREFORE, in consideration of the premises and the agreements herein contained, and intending to be bound hereby, the parties hereby agree as follows: 1. Reimbursement. The Company agrees, subject to Section 2 hereof, that ------------- it will repay to CRL III, immediately upon demand given by CRL III, any amounts which may have been paid by CRL III (the "Reimbursement Amount") to the Bank, or any of its successor and assigns, under the Guaranty, together with interest from the date of payment to the Bank to the date of reimbursement hereunder at a rate of 15.5% per annum. At the request of CRL III, the Company shall issue to CRL III, or its assigns, a promissory note or notes (the "Reimbursement Note") in the aggregate principal amount of such Reimbursement Amount. Such Reimbursement Note shall (i) be due and payable on September 30, 2004, (ii) bear interest (based on a 360-day year counting actual days elapsed) on the principal amount thereof until due and payable at the rate of 15.5% per annum, which interest shall be payable quarterly in arrears on the last Business Day of March, June, September and December in each year, and at maturity or prior prepayment of the Reimbursement Note in full, and (iii) be, in all other respects, on the same terms, and in the same form as, the Notes issued to the Purchasers under the Purchase Agreement. 2. Optional Conversion. CRL III shall have the right and option (the ------------------- "Conversion Option"), at any time after payment of the Reimbursement Amount is made to the Bank, to convert any portion of the then outstanding principal balance of the Reimbursement Amount (whether evidenced by the Reimbursement Note issued in accordance with Section 1 hereof or otherwise) together with all accrued and unpaid interest due thereon (collectively, the "Conversion Amount"), into shares of the Company's Series A Convertible Preferred Stock, $0.001 par value per share (the "Series A Preferred Stock"), on the same terms and conditions set forth in the Purchase Agreement and the Company's Articles of Incorporation, as amended and in effect on the date hereof, such that: as soon as practicable after CRL III exercises the Conversion Option, the Company shall issue to CRL III or its assigns that number of shares of Series A Preferred Stock equal to the quotient obtained by dividing (x) the Conversion Amount, by (y) 3.2222. 3. Further Assurances. From and after the date of this Agreement, upon ------------------ the request of CR III, the Company, Kyle D. Parker as Trustee for the Parker Trust and Melissa Ann Parker shall execute and deliver such instruments, documents, agreements and other writings as may be reasonably necessary or desirable to confirm and carry out and to effectuate fully the intent and purposes of this Agreement. Without limiting the generality of the foregoing, the parties hereto agree: (i) to execute all necessary amendments to the Operative Documents (including, without limitation, the Stockholders' Agreement, the Registration Rights Agreement and the Preferred Stock Subordination Agreement, each as amended and in effect) and the Company's Articles of Incorporation, as amended and in effect; and (ii) to take such other action including the voting of (or acting by written consent with respect to) any and all shares of capital stock of the Company that such party is entitled to vote, as may be necessary, from time to time, to ensure that the Company's Articles of Incorporation and By-laws, as amended and in effect, do not conflict with the intent and purposes of this Agreement. 4. Representations and Warranties of the Company. The Company hereby --------------------------------------------- represents and warrants to CRL III that: (i) the Company is a duty organized and validly existing corporation under the laws of the State of Arkansas, (ii) the Company has taken all corporate action required to make all the provisions of this Agreement the valid and enforceable obligations they purport to be, and (iii) neither the execution and delivery of this Agreement nor the consummation of any transaction contemplated hereby has constituted or resulted in or will constitute or result in a default or violation of any law or regulation applicable to the Company or any term or provision of the Company's Articles of Incorporation or By-laws or any agreement or instrument by which it is bound or to which its properties or assets are subject. 5. Survival of Representations. The representations and warranties made --------------------------- in this Agreement shall survive the execution and delivery hereof. 2 6. Miscellaneous. ------------- (a) Descriptive Headings. The descriptive headings in this Agreement -------------------- are inserted for convenience only and do not constitute a part of this Agreement. (b) Governing Law. The construction, validity and interpretation of ------------- this Agreement will be governed by and construed in accordance with the domestic laws of the Commonwealth of Massachusetts without giving effect to any choice of law or conflict of law provision or rule (whether of the Commonwealth of Massachusetts or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the Commonwealth of Massachusetts. (c) Counterparts. This Agreement may be executed in any number of ------------ counterparts, all of which taken together shall constitute one and the same instrument, and each of the parties hereto may execute this Agreement by signing any such counterpart. (d) Costs, Expenses, Taxes. The Company agrees to pay on demand all ---------------------- costs and expenses of CRL III in connection with the preparation, execution and performance of this Agreement and the transactions contemplated hereby, including the reasonable fees and out-of-pocket expenses of Messrs. Testa, Hurwitz & Thibeault, LLP counsel for CRL III, with respect thereto. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 3 IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of the day and year first above set forth. LAW OFFICE INFORMATION SYSTEMS, INC. By: /s/ Kyle Parker -------------------------------------- Name: Kyle Parker Title: CEO THE PARKER TRUST DATED MARCH 15, 1989 By: /s/ Kyle Parker -------------------------------------- Name: Kyle Parker Title: CEO /s/ Melissa A. Parker ------------------------------------------ Melissa Ann Parker CAPITAL RESOURCE LENDERS III, L.P. By: Capital Resource Partners III, L.L.C. Its General Partner By: /s/ Robert C. Ammerman -------------------------------------- Managing Member 4 AMENDMENT NO. 1 TO REIMBURSEMENT AGREEMENT This Amendment No. 1 dated as of June 16, 1999 (the "Amendment") by and among Law Office Information Systems, Inc., an Arkansas corporation (the "Company"), Kyle D. Parker, as Trustee for The Parker Trust dated March 15, 1989, as amended (the "Parker Trust"), Melissa Ann Parker, an individual (Ms. Parker") and Capital Resource Lenders III, L.P., a Delaware limited partnership ("CRL III") amends that certain Reimbursement Agreement dated as of January 29, 1999 by and among the Company, the Parker Trust, Ms. Parker and CRL III (the "Reimbursement Agreement"). Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Purchase Agreement. In consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereby agree as follows: 1. Paragraph 2 of the Reimbursement Agreement is hereby amended and restated in its entirety to read as follows: 2. Optional Conversion. Until such time as the Company consummates ------------------- an underwritten initial public offering of the Company's common stock registered under the Securities Act of 1933, as amended, CRL III shall have the right and option (the "Conversion Option"), at any time after payment of the Reimbursement Amount is made to the Bank, to convert any portion of the then outstanding principal balance of the Reimbursement Amount (whether evidenced by the Reimbursement Note issued in accordance with Section 1 hereof or otherwise) together with all accrued and unpaid interest due thereon (collectively, the "Conversion Amount"), into shares of the Company's Series A Convertible Preferred Stock, $0.001 par value per share (the "Series A Preferred Stock"), on the same terms and conditions set forth in the Purchase Agreement and the Company's Articles of Incorporation, as amended and in effect on the date hereof, such that: as soon as practicable after CRL III exercises the Conversion Option, the Company shall issue to CRL III or its assigns that number of shares of Series A Preferred Stock equal to the quotient obtained by dividing (x) the Conversion Amount, by (y) 3.2222. 2. This Amendment may be executed in counterparts, each of which is deemed to be an original and all of which together shall be deemed to constitute one and the same agreement. In addition to any other lawful means of execution or delivery, this Amendment may be executed by facsimile signatures and may be delivered by the exchange of counterparts of signature pages by means of telecopier transmission. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of the day and year first above set forth. LAW OFFICE INFORMATION SYSTEMS, INC. By: /s/ Kyle Parker ------------------------------- Name: Kyle Parker Title: Chief Executive Officer KYLE D. PARKER, TRUSTEE OF THE PARKER TRUST DATED MARCH 15, 1989 By: /s/ Kyle Parker ------------------------------- Kyle D. Parker, Trustee /s/ Melissa Ann Parker ---------------------------------- Melissa Ann Parker CAPITAL RESOURCE LENDERS III, L.P. By: Capital Resource Partners III, L.L.C. Its General Partner By: /s/ Robert C. Ammerman ------------------------------- Managing Member 2 EX-10.5 12 N. CLARK WIGLEY EMPLOYMENT AGREEMENT Exhibit 10.5 EMPLOYMENT AGREEMENT This Agreement sets for the terms and conditions of your employment with Law Office Information Systems, Inc. (LOIS). The attached confidentiality and equipment loan Agreement are an integral part of this Agreement. This Agreement constitutes the entire understanding between the parties hereto and any prior written or oral promises or modifications hereto are hereby merged into and become a part of this Agreement. Position: You are an employee of Law Office Information Systems, Inc. Your - -------- principal job will be to market LOIS to prospective customers, high priests, Court systems, Bar Associations, CLE Organizations, and the like. You are expected to work to develop new states, new products and establish the relationships set forth above, as well as working on ventures with other publishers. The nature of your responsibilities and your job position may change from time to time. You will also work in presenting the company to the financial community, as needed. The nature of your responsibilities will require extensive travel both within and outside the U.S. Salary and Benefits: Your compensation will be $10,000 per month, and may be - -------------------- increased from time to time upon the approval of the Board of Directors. You and your family will also be covered by the Company's health and dental plan. LOIS will also reimburse you for ordinary and necessary travel and other business expenses relating to your business activities with LOIS. The Company's philosophy is to operate with minimum operating expense, therefore, it is important that you work in a manner that minimizes these expenses. Duration Requirement. You agree to remain employed by LOIS for a minimum of two - --------------------- (2) years after the date of an offering requiring registration under the Securities Act of 1934 ("Public Offering") by LOIS, or until August 1, 1999, whichever comes first. In the event of a merger of LOIS with or into another corporation, or the sale of substantially all of the assets of the Company, then and in that event, this Duration Requirement is hereby removed, if agreed to by the other party to such transaction. Equity: Upon the execution of this Agreement, you will be granted options by - ------- the Parker Trust to purchase 140,000 shares of LOIS stock at an exercise price of $2.50 per share. You will be able to exercise these options according to the ----- conditions outlined below. 1. If LOIS makes a Public Offering: Subject to the requirements of the -------------------------------- Securities and Exchange Commission, after August 1, 1999 or two years after the date of the Public Offering, whichever occurs sooner, you will be able to exercise options to purchase 105,000 shares. The remaining options to purchase 35,000 shares shall be exercisable without restriction, immediately upon the date the Company files a registration statement for the Public Offering. 2. If LOIS is acquired or merged: In the event of the merger of LOIS with or ----------------------------- into another corporation, or the sale of substantially all of the assets of the Company, you may exercise options to purchases all 140,000 shares immediately prior to or concurrent with the completion of that sale or merger, with the understanding that you agree to sell or exchange your entire interest in LOIS stock to the acquiring party in a transaction recommended by the Board of Directors. The proceeds from the exercise of 105,000 of your options shall remain 1 in the Parker Trust until August 1, 1999, unless the acquiring party agrees to remove the Duration Requirement detailed above. If the Duration Requirement is removed, the proceeds from your 105,000 shares shall be paid directly to you. In all instances, the proceeds from the sale of the remaining 35,000 shares shall be paid directly to you. 3. If the event that items 1 or 2 (above) do not occur: You will be able to ---------------------------------------------------- exercise all 140,000 options on August 1, 1999 or at any time thereafter until August 1, 2009, and accrue all proceeds directly to you. Further, it is agreed that while the Duration Requirement is in effect you may instruct the Parker Trust to sell shares for which you hold options in any Public Offering or in the public marketplace, subject to approval of the Company's underwriters and compliance with applicable securities laws. In such event, the proceeds from these sales, less the exercise price, shall be held in your account in the Parker Trust and invested in an financial institution selected by the Parker Trust. The amount of this account together with any interest earned on these funds shall be distributed to you after your satisfying all conditions of exercise. You may also sell your stock if the Company does not elect to make a Public Offering or is not acquired or merged. In that event, LOIS or the Parker Trust has the first right of refusal to match any bona fide offer of purchase. LOIS or the Parker Trust shall be notified in writing of said intent to sell; the party making said purchase; and the amount of said purchase. Within 15 days thereafter and neither LOIS or the Parker Trust has matched the offer, you can sell to the party with the bona fide offer. Additional Equity and Dilution: During your employment you may be able to gain - ------------------------------ additional equity interest in the Company through participation in the Company's Stock Option Plan. The amount of options, if any, that you may receive will be determined by the Board of Directors. It is also understood that from time to time, the Company may issue additional shares of stock, which will dilute your ownership in the Company. Termination and Severance: If you elect to terminate your employment with LOIS - -------------------------- within 2 years after completion of a Public Offering, or August 1, 1999, whichever comes first, all options under this Agreement shall lapse. You also agree that you will not be entitled to any severance from LOIS or any governmental institution or agency if you terminate this agreement. If LOIS terminates your employment without "legal cause," then and in that event, you shall receive a severance package equal to the amount of your monthly salary plus health benefits, payable for a period of 6 months. Thereafter, you agree that you will not file for any unemployment benefits with any governmental agency or institution. Furthermore, options held by you at the time of such termination which would be exercisable but for the requirement for continued employment described in the previous paragraphs, shall be exercisable for 30 days following termination. In the event that you had instructed the Parker Trust to sell stock subject to an option covered in this agreement, you shall receive those moneys within 30 days. If LOIS terminates your employment for "legal cause" during said time period mentioned in the preceding sentence, all unexercised options shall be terminated and your entitlement to any funds 2 held in the Parker Trust shall be forfeited. Termination for legal cause shall mean termination for any of the following reasons: Willful breach or habitual neglect of duty, or; conviction of any crime, or; conduct lacking moral turpitude, or; dishonesty, or; violation of any statutory or common law duty, or; violation of a fiduciary duty to LOIS, or; accepting any item of value in the aggregate in excess of $1,000.00 from any direct or indirect competitor of LOIS for any reason, unless approved by the Board of Directors. The Agreement is deemed to have been signed and executed on July 2, 1996. Accepted as to form and content: Accepted as to form and content: /s/ Kyle D. Parker /s/ W. Clark Wigley Kyle D. Parker, W. Clark Wigley President and C.E.O., Law Office Information Systems, Inc. 3 EX-10.6 13 CORPORATION LICENSE AND SERVICES AGREEMENT EXHIBIT 10.6 CORPORATE LICENSE AND SERVICES AGREEMENT [VERITY LOGO] This Agreement is made between Verity, Inc., a Delaware Corporation, located at 894 Ross Drive, Sunnyvale, CA 94089 ("Verity") and Law Office Information Systems, Inc., an Arkansas corporation, located at 105 North 28/th/, Van Buren, AR 72956 ("Customer"). The Agreement shall be effective as of February 18, 1998 ("Effective Date") and shall replace the Software License and Services Agreement and Amendment to Software License and Service Agreement dated April 30, 1996 in its entirety. Verity is the owner of proprietary information indexing and retrieval software. Verity and Customer agree that the following terms and conditions will apply to each license granted and all services provided under this Agreement. 1. PRODUCT LICENSE "Products" are the computer software owned or distributed by Verity and specified in an order form ("Order Form") for which Customer is granted a license pursuant to this Agreement; and any related documentation, user guides, installation instructions and release notes ("Documentation"), and updates provided by Verity to Customer. "Application" means the resulting product package including the Product coupled with the Customer's value added applications software and/or database with which the Product is to be coupled. "Run-Time Software" means Verity's programs, in object code form, which are required for the execution of the Application. "Subscriber" means a third party who is granted access to the Application by Customer on an interactive basis. "On-Line Service" means any dial-up, remote access, interactive, Internet-based or other on-line service or World Wide Web site supported by one or more servers. 1.1 Rights Granted -------------- (a) Grant. Verity hereby grants to Customer the non-exclusive, non- ----- transferable, non-assignable right to: (i) use the Products solely for Customer's own internal data processing operations either on the number of CPUs or by the number of concurrent users as defined on an Order Form or amendment hereto, or if not specified, by a single user on a single computer; (ii copy the Products for archival or backup purposes only; (ii reproduce the Documentation up to the total number of Product licenses acquired by Customer, and (iv use the Run-Time Software as part of the Application for the purposes of making such Application accessible to and usable by end users of such Application as Subscribers for up to the number of Subscribers permitted pursuant to Exhibit A. --------- Customer has no right to distribute to third parties any Products or Application via an On-Line Service. (b) Restrictions. Customer shall not: (i) use the Products outside of the ------------ country to which Verity initially delivers such Products to Customer; (ii reproduce or modify the Products except as allowed herein; (ii cause or allow discovery of source code in any way; (iv rent or lease the Products or their direct derivatives; or (v) make or pass on any warranty on behalf of Verity to such Subscribers and shall ensure that neither it nor any of its agents or employees shall make or pass on any warranty on behalf of Verify for such Subscribers. (c) Title. Title to and ownership of all proprietary rights in the Products, ----- and in any Product development made by Verity, will at all times remain the property of Verity or its licensors. Title and ownership of all proprietary rights in the Application, apart from the Run-Time Software, including any copyright, patent, trade secrets, trademark or other intellectual property rights will at all times remain the property of Customer. (d) Proprietary Notices. Customer agrees to reproduce the copyright, trademark ------------------- and other proprietary notices contained on or in the Products as delivered to Customer on all copies of such Products and not to remove such notices. (e) Branding. Customer shall: (i) include a copyright notice on an applicable -------- web page of the Application indicating that portions of the Application including technology used under license from Verity, Inc.; (ii) cooperate with and support Verity in its press release materials and provide client testimonial; and (iii) include the Verity logo on any HTML document that includes the search function or in the alternate on the results list provided by the search. Further, Customer agrees to issue a joint and mutually agreed upon press release announcing the project involving the licensed Product ("Project") and Verity's participation and value not more than thirty (30) days from the Effective Date. 1.2 Delivery and Acceptance. Verity will use its best efforts to delivery ----------------------- those Products ordered by Customer within fifteen (15) days after Verity accepts the Order Form for such Products. All shipments will be made F.O.B. Verity's shipping location. The Products shall be deemed accepted on delivery. 1.3 Record and Report. Customer shall keep complete and accurate records ----------------- relating to its use of the Products and Application in accordance with standard business practices. Within thirty (30) days after each calendar quarter, Customer shall provide Verity with a written sales report detailing, at a minimum, information regarding the number of aggregate Subscribers and the number of new Subscribers added during such quarter, including (i) the number of such Subscribers broken down by State of location; (ii) an accounting of the sublicense fees associated such Subscribers; and (iii) maintenance and support fees due to Verity associated with such Subscribers. To assure compliance with the payment and reporting requirements of this Agreement, Verity or its independent auditors may inspect Customer's applicable records from time to time, but no more frequently than once per year. In the event any inspection of Customer's records indicates an underpayment of an amount equal to or greater than five percent (5%) of any amounts due hereunder, Customer shall promptly reimburse Verity for all reasonable expenses associated with such inspection along with the deficient amounts. 2. PRODUCT MAINTENANCE AND PROFESSIONAL SERVICES Maintenance Services shall be provided in accordance with Verity's Maintenance Services Program as provided in Exhibit C. Verity will provide Maintenance --------- Services for a Product during each period for which Customer has paid Verity's fee for such Maintenance Services ("Maintenance Fee"). Initial Maintenance Services, if purchased, begin either on the date the Products are shipped to Customer, or the effective date set forth on the Order Form ("Commencement Date"). Verity will make available to Customer professional consulting and training services for the Product under the terms and conditions of Verity's then-standard applicable services agreement in consideration for payment of Verity's fee for such services and reasonable out of pocket expenses. Customer will be responsible for providing all support services required by its Subscribers. Customer shall be responsible for creating and distributing documentation relating to the Products or Application for Subscribers. Customer shall have the right to incorporate portions of Verity's Documentation into Customer's documentation, provided the copyright and trademark provisions (Proprietary Notices) are complied with. Customer agrees that no confidential information shall be made available to Subscriber. 3. TERM AND TERMINATION The pricing stated on Exhibit A shall remain in effect for a period of three (3) years. The term of this Agreement will begin on the Effective Date and will continue unless terminated pursuant to this Section 3. Either party may terminate this Agreement upon thirty (30) days written notice to the other of a material breach of this Agreement by the other party if the defaulting party has not cured such breach within such thirty (30) day period; provided, however, that Verity may terminate this Agreement immediately upon delivery of notice in connection with any breach by Customer of Section 1.1(a), (b), (c) or (d). Upon termination of this Agreement for any reason, the license granted to Customer in Section 1.1 and all other rights granted to Customer under this Agreement shall immediately cease, and Customer shall immediately return to Verity, or certify the destruction of, all copies of Products in Customer's possession. However, if the Agreement terminates or expires for any other reason other than Verity's termination of Customer in accordance with this Section, then the Customer shall have the right to continue to use internally at no additional charge both the Products and the Application actually deployed prior to the date of expiration or termination. Notwithstanding the above, after the termination of this Agreement, the number of Subscribers who are actively using an Application through a personal computer or server upon which such an Application, respectively, is installed as of the date of termination, and no new Subscribers may be added. The rights and obligations contained in Sections 1.1(b), 1.1(c), 1.1(d), 1.3, 5.4, 6 and 8 and any payments due hereunder shall survive any termination of this Agreement. 4. INFRINGEMENT INDEMNITY Verity agrees to defend, indemnity and hold Customer harmless from all settlements agreed to by Verity and all costs and damages awarded to a third party to the extent they arise out of a claim that the Products as delivered to Customer infringe a U.S. copyright, U.S. Patent. Such obligation is subject to the following conditions: (i) Customer shall notify Verity in writing within thirty (30) days of the date Customer first becomes aware of a claim; (ii) Verity has sole control of the settlement, compromise, negotiation and defense of any such action; and (iii) Customer gives Verity all reasonably available information, assistance and authority, at Verity's reasonable expense, to enable Verity to do so. Verity may, at its option, obtain the right to continued use of the Products, substitute other equivalent software, or modify the Products so they are no longer infringing, or, if none of the foregoing remedies are commercially feasible, terminate Customer's right to the allegedly infringing Products and refund to Customer the amount which Customer has paid for such Products. The foregoing indemnity shall not apply to any infringement claim arising from Products which have been modified by parties other than Verity or use of the Products in conjunction with other software or hardware where use with such other software or hardware gives rise to an infringement claim. THE FOREGOING STATES CUSTOMER'S SOLE AND EXCLUSIVE REMEDY WITH RESPECT TO CLAIMS OF INFRINGEMENT OF THIRD PARTY PROPRIETARY RIGHTS OF ANY KIND, AND VERITY EXPRESSLY DISCLAIMS ANY IMPLIED WARRANTY OF NONINFRINGEMENT. Customer agrees to defend, indemnify and hold Verity harmless from all settlements agreed to by Customer and all costs and damages awarded to a third party to the extent they arise out of: (i) Customer's or its Subscribers use of any product not provided by Verity but used in conjunction with the Product if such claim would have been avoided by exclusive use of the Product, or (ii) negligence, misrepresentation, or error or omission on the part of Customer or representatives of Customer, (iii) Customer's or Subscribers' infringement of any content providers intellectual property, or (iv) any claims, or express or implied warranties or representations made by Customer or Customer's employees or agents not authorized by this Agreement. 5. WARRANTIES AND DISCLAIMERS 5.1 Warranty for Products. Verity warrants to Customer that Products will --------------------- perform substantially in accordance with the Documentation for a period of ninety (90) days after the Commencement Date for such Product ("Warranty Period"). If during the Warranty Period, Customer reports a Product error which prevents the Product from meeting this warranty, Verity will correct the error, in accordance with its Maintenance Services Program. If Verity is unable to correct or provide a reasonable work-around for the error, Verity will accept the return of the defective Products and Verity will refund the license fees paid by Customer for such Products. This limited warranty shall not apply if the Product has been modified without Verity's express authorization. The foregoing is Customer's sole and exclusive remedy for breach of warranty by Verity for the Products. 5.2 Warranty for Product Media. Verity warrants to Customer that during the -------------------------- Warranty Period the media on which a Product is furnished by Verity under this Agreement is free of defects in materials and workmanship under normal use. If Customer reports a defect in the media during the Warranty Period Verity will replace it at no charge. The foregoing is Customer's sole and exclusive remedy for breach of warranty by Verity for the Product media. 5.3 Warranty for Professional Services. Verity warrants that any professional ---------------------------------- services provided to Customer pursuant to Section 2 will be of a professional quality, conforming to generally accepted industry standards and practices for similar services and products. If Verity fails to perform such services as warranted hereunder and Customer reports such failure to Verity during the ninety (90) day period after the completion of such services, Verity will, at its expense, reperform the services. The foregoing is Customer's sole and exclusive remedy for breach of warranty by Verity for professional services. 5.4 Disclaimer of Warranties. Except for the warranties provided above, all ------------------------ Products are provided on an "AS IS" basis. Verity does not warrant that the Products will meet Customer's requirements, that the operation of the Products will be uninterrupted and error-free, or that the Products will operate in combination with hardware and/or software products not supplied by Verity. EXCEPT FOR THE EXPRESS WARRANTIES STATED ABOVE, VERITY MAKES NO ADDITIONAL WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO ANY OTHER MATTER WHATSOEVER. IN PARTICULAR, ANY AND ALL WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT ARE HEREBY EXPRESSLY DISCLAIMED. 6. LIMITATIONS OF LIABILITY 6.1 Limitations on Damages: VERITY SHALL NOT BE LIABLE OR OBLIGATED IN ANY ---------------------- MANNER FOR ANY LOSS OF USE, INTERRUPTION OR BUSINESS, OR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND (INCLUDING LOST PROFITS) REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT, NEGLIGENCE, STRICT PRODUCT LIABILITY, OR OTHERWISE, EVEN IF VERITY HAS BEEN INFORMED OF THE POSSIBILITY THEREOF IN ADVANCE. NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, VERITY'S LIABILITY TO CUSTOMER OR SUBSCRIBERS UNDER THIS AGREEMENT SHALL NOT EXCEED, IN THE AGGREGATE, THE LICENSE FEES DUE TO VERITY UNDER THIS AGREEMENT FOR THE PRODUCT WHICH IS THE BASIS OF THE CLAIM.. 6.2 Limitations on Time. No action may be brought under this agreement at any ------------------- time more than twelve (12) months after the cause of action arose. 2 7. FEES AND PAYMENTS Customer agrees to pay Verity the fees set forth in the relevant Order Form for the Products and services provided to Customer under this Agreement. Invoices for payment of Product license fees and initial Maintenance Fees shall be rendered to Customer upon Verity's shipment of the Products. Maintenance renewal fees will be invoiced in accordance with the then-current Maintenance Services Program. Invoices for payment of professional services and/or Product training will be rendered monthly. Payment is due when thirty (30) days from the date of invoice. In addition to any payments due to Verity under this Agreement, Customer will pay all applicable taxes based upon Verity's net income. 8. GENERAL 8.1 Controlling Law and Forum. This Agreement shall be governed by the laws of ------------------------- the U.S. and the State of California without application of the principles of conflicts of laws. The jurisdiction for any legal action shall be a state or federal court in Santa Clara County, California. 8.2 Notices. All notices required under this Agreement shall be in writing and ------- shall be deemed given upon receipt. All notices must be delivered, if to Customer, to the address and recipient of Customer set forth on the order form, and if to Verity, to the Controller at the address set forth above. 8.3 Waiver and Severability. The waiver by either party of any default or ----------------------- breach of this Agreement shall not constitute a waiver of any other default or breach. Unenforceability or invalidity of any provision of this Agreement shall not render this Agreement unenforceable as a whole. 8.4 Force Majeure. Except for the payment of money, neither party will be ------------- liable for any failure or delay in performance under the Agreement which might be due to strikes, shortages, riots, insurrection, fires, flood, storm, explosion, acts of God, war, government action, inability to obtain delivery of parts, supplies, or labor, labor conditions, earthquakes or any other cause which is beyond the reasonable control of such party. 8.5 Injunctive Relief. It is expressly agreed that a material breach of this ----------------- Agreement will cause irreparable harm to Verity and that a remedy at law would be inadequate. Therefore, in addition to any and all remedies available at law, Verity will be entitled to an injunction or other equitable remedies in all legal proceedings in the event of any such threatened or actual breach of this Agreement. 8.6 Export Control. Customer agrees that it would not export or reexport the -------------- Products, or a direct derivative of the Products without the appropriate U.S. government licenses. 8.7 Government End Users. RESTRICTED RIGHTS: If the Software is acquired under -------------------- the terms of a proposal or agreement with the United States Government or any contractor therefor, the Software is subject to the following: (a) For acquisition by or on behalf of civilian agencies, as necessary to obtain protection as "commercial computer software" and related documentation in accordance with the terms of this Commercial Software Agreement as specified in 48 C.F.R. 12.212 of the Federal Acquisition Regulations and its successors; (b) For acquisition by or on behalf of units of the Department of Defense ("DoD") as necessary to obtain protection as "commercial computer software" and related documentation in accordance with the terms of this commercial computer software license as specified in 48 C.F.R. 227-7202-2 of the DoD F.A.R. Supplement and its successors. 8.8 Entire Agreement. This Agreement, including the order forms and ---------------- attachments, constitutes the entire agreement between the parties regarding its subject matter. This Agreement supersedes all prior proposals, agreements or other communications between the parties, oral or written, regarding such subject matter. This Agreement shall not be modified unless in writing and signed by authorized representatives of Verity and Customer. Neither party may assign any rights or obligations under this Agreement without the prior written consent of the other party. It is expressly understood and agreed that the terms and conditions of this Agreement shall apply to all orders and shall, to the extent that there may be conflicts, supersede any terms on any purchase orders issued by Customer. Customer: LOIS, Inc. Verity, Inc. By:/s/Kyle D. Parker By:/s/J.E. Ticehurst ----------------- ------------------ Name: Kyle D. Parker Name: J.E.Ticehurst ---------------- ---------------- Title:President & CEO Title:VP & Controller --------------- --------------- 3 EXHIBIT A LICENSED PRODUCTS AND FEES 1. LICENSED PRODUCTS: ------------------ SEARCH '97 INFORMATION SERVER on NT Platform - on a single Server for support of up to 50,000 Subscribers SEARCH '97 AGENT SERVER on NT Platform - on a single Server for support of up to 50,000 Subscribers "Server" means a computing device acting as a server for a network of interconnected computing devices, whether within an enterprise or other Web, intranet or Internet environment, upon which the Products or an Application may be installed or accessed. 2. LICENSE FEE: In consideration for the licenses granted hereunder, Upon the ----------- Effective Date, Customer shall pay to Verity a one-time, nonrefundable, nonrecoupable license fee in the amount of Two Hundred Ninety Thousand Eight Hundred and Seventy Five Dollars (US$290,875). Within thirty (30) days following the end of each calendar quarter, Customer shall pay to Verity Five Dollars (US$5.00) per Subscriber with respect to each new Subscriber added during such quarter beyond the first 50,000 Subscribers. Beyond the first 50,000 subscribers, the number of Subscribers may only be supplemented in blocks of 10,000 Subscribers. Within the first sixty (60) days from the Effective Date, customer may obtain one (1) copy of the Search '97 Developer's Kit on the NT Platform for the amount of Nineteen Thousand Dollars (US$19,000) and the applicable twenty percent (20%) maintenance fee. 3. MAINTENANCE AND SUPPORT: In consideration for maintenance and support ----------------------- services provided, Customer shall pay to Verity: (i) the annual maintenance fee in the amount of US$57,475 (the "Base Rate"), due and payable upon the Effective Date, (ii) on or before each anniversary of the Effective Date, the amount equal to the sum of (A) the Base Rate, (B) the number calculated by multiplying the total number of subscribers as of such anniversary (beyond the first 50,000 Subscribers) multiplied by One Dollar (US$1.00) and (iii) within thirty (30) days following the end of each quarter, Customer shall pay to Verity the amount as stated above under Section 3(ii) for each new Subscriber added by Customer during such quarter, with such amounts being prorated to reflect the number of months of usage by each such Subscriber for the year ending February 28 during which the subscriber is added. Within the first sixty (60) days from the Effective Date, Customer may elect to obtain Dedicated Support in addition to the maintenance and support services provided pursuant to the Verity Maintenance Services Program from Verity for an annual fee in the amount of $85,000 ("Dedicated Support Rate") by providing Verity with written notice of such election. If Customer obtains Dedicated Support, Customer shall within thirty (30) days from receipt of such notice of election and each anniversary thereof, pay to Verity the amount equal to the sum of the Dedicated Support Rate. "Dedicated Support" means having designated employee(s) or agent(s) of Verity as primary contact for technical support matters relating to the deployment of the Application(s). Such individual(s) shall be available seven (7) days a week, twenty-four (24) hours a day. CONSULTING SERVICES: Verity shall provide Customer with consulting, as outlined - ------------------- in Exhibit B, for an amount equal to $63,000 plus travel and living expenses. --------- Such consulting fee shall be due and payable within thirty (30) days from the Effective Date. EXHIBIT B First Week . Install Search '97 Information Server on the staging system. . Change the document preparation program to discontinue the addition of HTML tags. . Modify and test the collection building scripts. . Build a collection with the S97IS advanced features (Summary, Cluster, QBE) on the staging system. Second Week . Build search page templates for all of the LOIS products to include S97IS features. . Build result page templates for all of the LOIS products. Present sample result pages with advanced features. (Summary, Cluster, QBE) for evaluation . Build the document viewing templates. Include previous and next document links. Third Week . Build and test security, by verifying web server authentication challenge points. Test performance, by loading the server with search and document viewing requests. . Switch server to production. Monitor performance. Fourth Week . Build confidence in S971S implementation. During this period, both the new and old search servers should be maintained to provide a fallback capability, if necessary. Verity consultant available for phone and email support. Fifth Week . Prepare for the S97As installation by upgrading the old search server to NT 4. Verity consultant available for phone and email support. Sixth Week . Install Search '97 Agent Server and Information Server on the old search server. Copy production S971S templates and collection. . Build S97As user registration screen and CGI to crate an S97AS user. Seventh Week . Modify HTML pages with links to and from S97AS. . Modify search script to fit the look of S97AS pages with the LOIS site. . Build agent delivery email message. Eighth Week . Evaluate option of automatically creating two agents, one for email delivery and the other for homepage delivery. . Integrate billing CGIs at authentication challenge points. Ninth Week . Test security, by verifying web server and agent server authentication challenge points. Test performance, by loading the server with agents that will generate email and homepage hits. . Activate links to S97aS for production use. Monitor Performance. Summary of user navigation through LOIS after Agent Server is added. The LOIS online service has a member and a visitor entry. When clicking on the member door icon, an authentication dialog is presented. Once the userid and password are entered, then a page is generated with links to the member's purchased products. An additional link, to the Agent Server homepage for that member should be added to this page. Clicking on the Agent Server homepage link will present an authentication dialog. Either the member enters their userid and password or chooses to register as a user of Agent Server. A registration form captures the user's information and invokes a CGI to crate an Agent Server user. The new user is then presented with a registration confirmation page that has a link to their new Agent Server homepage. Once they view their homepage, a member can review their hits and follow the links to the documents unimpeded. After a click on the visitor's door icon, the visitor's path to Agent Server is the same as a member's. The important difference is the authentication dialog presented to a visitor before access to a document is granted. At this challenge point, billing information should be collected and verified. Once the billing transaction is complete, the document is presented. EXHIBIT C SOFTWARE SUPPORT TERMS AND CONDITIONS For all Licensees who purchase Maintenance services, Verity provides support in the form of Error Corrections, Software Updates, and Telephone Hotline Support. For Software which is supported, Maintenance Services are provided only for (i) the current release of the Software, (ii) the most recent previous release of the Software, and (iii) any other release of the Software for one year after its general availability; after which time Verity shall have no obligation to support such release, unless otherwise agreed to in a separate written agreement between the parties. The initial effective date of Maintenance Services is the date Software is shipped from Verity's facility. DESCRIPTION OF SERVICES PROVIDED DURING A MAINTENANCE PERIOD A) Error Corrections. Verity shall exercise commercially reasonable ----------------- efforts to correct any error reported by the Licensee in the current unmodified release of the Software in accordance with the priority level reasonably assigned to such error by Verity. If a reported error has caused the Software to be inoperable, or the Licensee's notice to Verity states that the reported error is substantial and material with respect to the Licensee's use of the product, Verity shall use its reasonable commercial efforts to correct expeditiously such error or to provide a software patch or bypass around such error. The Licensee acknowledges that all reported errors may not be corrected. B) Software Updates. Verity provides, at no additional cost, one (1) copy ---------------- of all published revisions to the printed documentation and one (1) copy of, or authorization to copy, new releases of the products, which are not designated by Verity as new products for which it charges a separate fee. Verity, may in its sole discretion, modify the Software and deliver Software Updates to Licensee which may add new and/or eliminate existing features, functions, operating environment and/or hardware platforms to the Software. Licensee may continue to reproduce and distribute the previous version of the Software until the date on which such Licensee products are revised, at which time Licensee will incorporate the Software Update(s) into such products. C) Telephone Hotline Support. Verity provides telephone assistance to all ------------------------- Licensees who have purchased Maintenance services. Telephone Hotline Support hours of operation and telephone numbers for the relevant geographic region may be found on Verity's web site at www.verity.com. Verity Support personnel are available to answer questions related to Verity's supported products and how they perform with compatible hardware systems. Assistance in the development of custom applications for Verity's products is not included in standard hotline support. If Licensees wish to acquire such support, it is available through Verity's Consulting group at the then-current consulting rates. PRIORITY LEVELS OF ERRORS In the performance of Maintenance Services, Verity applies priority ratings to problems reported by Licensees. A) Priority I Errors ----------------- Description: Program errors that prevent some function or process from ----------- substantially meeting the functional specification and which seriously affect the overall performance of the function or process and no work- around is known. Verity Response: Verity shall promptly initiate the following procedures: --------------- (1) assign senior Verity engineers to correct the error; (2) notify senior Verity Management that such errors have been reported and that steps are being taken to correct the error; (3) provide Licensee with periodic reports on the status of corrections; (4) commence work to provide Licensee with a work-around until final solution is available; (5) provide final solution to Licensee as soon as it is available. B) Priority II Errors. ------------------ Description: Program errors that prevent some function or process from ----------- substantially meeting functional specification, but has a reasonable work- around. Verity Response: Verity shall provide a work-around to the Licensee and shall --------------- exercise commercially reasonable efforts to include the fix for the error in the next software maintenance release. C) Priority III Errors. ------------------- Description: Program errors that prevent some portion of a function from ----------- substantially meeting functional specification but do not seriously affect the overall performance of the function. Verity Response: Verity may include the fix for the error the next major --------------- release of the Software. Amendment No. 1 to the Corporate License and Services Agreement between Law Office Information Systems, Inc. ("Customer") and Verity, Inc. ("Verity") This Amendment No. 1 to Corporate License and Services Agreement ("Amendment No. 1") amends and supplements that certain corporate License and Services Agreement by and between VERITY, INC. and LAW OFFICE INFORMATION SYSTEMS, INC made effective February 18, 1998 (the "Agreement"). Verity and Customer agree that this Amendment No. 1 is attached and made a part of the Agreement and unless otherwise defined capitalized terms in the Amendment No. 1 shall have the same meaning as in the Agreement. The parties hereby agree as follows: 1. Exhibit A, Section 1 of the Agreement labeled "Licensed Products" is amended to include the following: "Licensed Products: ----------------- Verity K-2 Toolkit on NT Platform - on a single Server for support of up to 50,000 Subscribers. Verity Profiler on NT Platform - maximum of 50,000 Subscribers." 2. Exhibit A, Section 2 of the Agreement labeled "License Fee" is amended to include the following: "License Fee In consideration for the licenses granted in this Amendment No. 1, ----------- upon the Effective Date of the Amendment, Customer shall pay to Verity a one- time, non-refundable, non-recoupable license fee in the amount of Three Hundred Thousand Dollars (US$300,000). Such license fee shall be due and payable upon execution of this Amendment. The parties agree to enter into good faith negotiations regarding license fees for any Subscribers beyond the first 50,000 Subscribers." 3. Exhibit A, Section 3 of the Agreement labeled "Maintenance and Support" is amended to include the following: "Maintenance and Support. In consideration for maintenance and support services ----------------------- provided regarding the licenses granted in this Amendment No. 1, Customer shall pay to Verity the annual maintenance fee in the amount of Sixty Thousand Dollars (US$60,000) due and payable upon execution of this Amendment. The parties agree to enter into good faith negotiations regarding maintenance and support fees for any Subscribers beyond the first 50,000 Subscribers." 4. Exhibit A, Section of the Agreement labeled "Consulting Services" is amended to include the following: "Consulting Services. Verity shall provide Customer with consulting, at the ------------------- rate of One Thousand Eight Hundred Dollars (US$1,800) per day per consultant for an amount up to One Hundred and Twenty Two Thousand Four Hundred Dollars (US$122,400), plus travel and living expenses. Such consulting fee shall be due and payable within thirty (30) days from the date of an applicable Verity invoice." 5. Entire Agreement. The Agreement together with the Exhibits, and this Amendment No. 1 replaces and supersedes all other agreements, written or oral with respect to its subject matter. Except as expressly amended and supplemented hereby, the Agreement remains in full force and effect. In the event of any conflict between the terms of this Amendment No 1 and the terms of the Agreement, the terms of this Amendment No. 1 shall prevail. 6. Counterparts. This Amendment No. 1 may be executed in counterparts. 7. Effective Date/Term. The foregoing is agreed to be effective as of the last execution date below ("Amendment Effective Date"). This Amendment No. 1 shall continue in full force and effect thereafter until the expiration and termination of the Agreement. Verity: Customer By:/s/ J.F. Ticehurst By: /s/ J. Scott Thompson ----------------------- -------------------------------- Name: J.F. TICEHURST Name: J. Scott Thompson --------------------- ----------------------------- Vice President Administration & Title: Controller Title: Chief Information Officer ------------------- ---------------------------- Date: February 8, 1999 Date: February 3, 1999 -------------------- ---------------------------- Amendment No. 2 to the Corporate License and Services Agreement between Law Office Information Systems, Inc. ("Customer") and Verity, Inc. ("Verity") This Amendment No. 2 to Corporate License and Services Agreement ("Amendment No. 2") amends and supplements that certain Corporate License and Services Agreement by and between VERITY, INC. and LAW OFFICE INFORMATION SYSTEMS, INC. made effective February 18, 1998, and Amendment No. 1 dated February 8, 1999 (collectively the "Agreement") Verity and Customer agree that this Amendment No. 1 is attached and made a part of the Agreement and unless otherwise defined capitalized terms in the Amendment No. 2 shall have the same meaning as in the Agreement. The parties hereby agree as follows: 1. Exhibit A, Section 1 of the Agreement labeled "Licensed Products" is amended to include the following. "Licensed Products: ----------------- Two (2) copies of the intranet Solutions Intra.doc (R) Developers System on the NT Platform (part# IMS-IDK-NT) solely for purposes of development of Application. Deployment rights are provided for below. Two (2) copies of the IntraNet Solutions Intra.doc(R) on the NT Platform (part# IMS-FULL-NT) for support of an unlimited number of Contributors and Consumers. Four (4) copies of the IntraNet Solutions Intra.doc(R) Archive Replicator on the NT Platform (part# IMS-ARREP-NT); and One Thousand (1,000) copies of the IntraNet Solutions Intra.doc(R) ODMA (Word, WordPerfect) (part# IMS-ODMA-WIN) for support of a maximum number of 1,000 desk tops. "Contributor" means a designated number of persons who have the ability to submit and edit managed content as well as the ability to perform standard end- user functions including the search, view, and print of managed content. "Consumers" means a designated number of persons who have the ability to perform standard end-user functions including the search, view, edit, and print of managed content. 2. Exhibit A, Section 2 of the Agreement labeled "License Fee" is amended to include the following: "License Fee: In consideration for the licenses granted in this Amendment No. 2 ----------- upon the Effective Date of this Amendment, Customer shall pay to Verity a one- time, non-refundable, non-recoupable license fee in the amount of Two Hundred and Twenty Two Thousand Five Hundred Dollars (US$222,500). Such license fee shall be due and payable within sixty (60) days of this Amendment Effective Date." 3. Exhibit A, Section 3 of the Agreement labeled "Maintenance and Support" is amended to include the following: "Maintenance and Support. In consideration for maintenance and support services ----------------------- provided by IntraNet Solutions regarding the licenses granted in this Amendment No. 2, Customer shall pay to Verity an additional annual maintenance fee in the amount of Forty Four Thousand Five Hundred Dollars (US$44,500) due and payable within sixty (60) days of this Amendment Effective Date. Maintenance and support with respect to the IntraNet Solutions' products shall be provided directly by IntraNet Solutions and in accordance with IntraNet Solutions' standard maintenance and support terms and conditions, a copy of which will be provided to Customer upon Customer's written request." 4. Exhibit A of the Agreement labeled "Consulting Services" is amended to include the following: "Consulting Services: Verity through IntraNet Solutions' personnel and ------------------- consultants shall provide Customer with consulting, at the rate of One Thousand Eight Hundred Dollars (US$1,800) per day per consultant for an amount up to Twenty One Thousand Six Hundred Dollars (US$21,600), plus travel and living expenses. Such consulting fee shall be due and payable within thirty (30) days from the date of an applicable Verity invoice." 5. Entire Agreement. The Agreement together with the exhibits, and this Amendment No. 2 replaces and supersedes all other agreements, written or oral with respect to its subject matter. Except as expressly amended and supplemented hereby, the Agreement remains in full force and effect. In the event of any conflict between the terms of this Amendment No. 2 and the terms of the Agreement, the terms of this Amendment No. 2 shall prevail. 6. Counterparts. This Amendment No. 2 may be executed in counterparts. 7. Effective Date/Term. The foregoing is agreed to be effective as of the last execution date below ("Amendment Effective Date:). This Amendment No. 2 shall continue in full force and effect thereafter until the expiration or termination of the Agreement. Verity: Customer: /s/ J.E. Tiehurst /s/ Kyle D. Parker By____________________________ By:__________________________________ J.E. Tiehurst Kyle D. Parker Name:_________________________ Name:________________________________ VP & Controller President & CEO Title:________________________ Title:_______________________________ 4-19-99 Date:_________________________ Date:________________________________ EX-10.7 14 CREDIT AGREEMENT EXHIBIT 10.7 CREDIT AGREEMENT Credit Agreement made as of this 20th day of August, 1998, by and between LAW OFFICE INFORMATION SYSTEMS, INC., an Arkansas corporation (hereinafter referred to as the "Borrower") and FLEET NATIONAL BANK, a national banking association (hereinafter referred to as the "Bank"). WHEREAS, the Borrower wishes to establish a credit facility with the Bank under which the Borrower may borrow funds from the Bank to finance the purchase of equipment and the development of its databases and for general working capital purposes; and WHEREAS, the Bank has agreed to establish a credit facility for the Borrower under the terms and conditions hereinafter set forth; NOW, THEREFORE, the parties hereby agree as follows: ARTICLE I. DEFINITIONS - --------- ----------- Section 1.01 Definitions. ------------ ----------- As used herein and in the other Credit Documents, the following terms shall have the following meanings: "Banking Day" shall mean any day which the Bank is open to conduct commercial banking business in Boston, Massachusetts. "Credit Documents" shall mean this Agreement, the Notes, the Guaranty, the Security Agreement, the Intellectual Property Security Agreements, the CRL Subordination Agreement and all other documents, instruments and agreements now or hereafter executed in connection with any of them. "CRL" shall mean Capital Resource Lenders III, L.P. "CRL Subordinated Creditors" shall mean CRL, CRP and Moriarty. "CRP" shall mean CRP Investment Partners III, L.L.C. "Default" shall mean an event which, under Article VI with the giving of notice or the lapse of time, or both, would constitute an Event of Default. "Guarantor" shall mean CRL and each Subsidiary of the Borrower. "Moriarty" shall mean Rowland T. Moriarty "Notes" shall mean collectively, the Equipment Line of Credit Note and each Equipment Line of Credit Term Note, the SBLC Line of Credit Note, the SBLC Line of Credit Term Note and the Revolving Credit Note, all substitutions and replacements of any of the foregoing, and any other notes issued by the Borrower to the Bank pursuant to this Agreement. "Prime Rate" shall mean the annual rate of interest announced by the Bank from time to time, at the principal office of the Bank, One Federal Street, Boston, Massachusetts 02110, as its prime rate. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate being charged to any customer. "Subsidiary" shall mean any corporation, business trust or other business entity in which the Borrower or a Subsidiary owns or has options to acquire 50% or more of the voting control. The following terms are defined in the following sections: Additional CRL Subordinated Notes Section 4.01(p) Adjusted EBITDA Section 5.31 Affiliate Section 5.15 Bank Preamble Base Financial Statements Section 3.04(a) Borrower Preamble Borrowing Base Section 2.02(a) Borrower Rights Section 3.18(a) Capital Expenditures Section 5.24 Closing Section 7.06 Closing Date Section 2.08(a) Closing Fee Section 2.08(a) Code Section 3.10 Commitment Fee Section 2.09(b) Compensation Section 5.19 Compliance Certificate Section 5.05(d) Credit Section 2.01 CRL August Note Section 2.11 CRL Guaranty Section 4.01(f) CRL Purchase Agreement Section 4.01(1) CRL Subordination Agreement Section 4.01(1) CRL Subordinated Debt Agreements Section 5.34 CRL Subordinated Notes Section 4.01(1) Debt Service Section 5.24 Deferred Facility Fee Section 2.09(c) EBITDA Section 5.31 Equipment Line of Credit Section 2.01 Equipment Line of Credit Advance(s) Section 2.03(a) Equipment Line of Credit Conversion Date Section 2.03(d) Equipment Line of Credit Note Section 2.03(b) Equipment Line of Credit Termination Date Section 2.03(a) Equipment Line of Credit Termination Note A Section 2.03(d) Equipment Line of Credit Termination Note B Section 2.03(d) 2 Equipment Line of Credit Termination Note(s) Section 2.03(d) ERISA Section 3.10 Event(s) of Default Article VI Fleet Preamble GAAP Section 3.04(a) Intellectual Property Rights Section 3.18(d) Intellectual Property Security Agreements Section 4.01(e) L/C Section 2.05(a) L/C Obligations Section 2.04(a) Maximum Equipment Line of Credit Section 2.03(a) Maximum Revolving Credit Section 2.02(a) Maximum SBLC Line of Credit Section 2.04(a) Qualified Accounts Section 2.02(a) Qualified Equipment Section 2.03(f) Restricted Payment(s) Section 5.18 Revolving Credit Section 2.01 Revolving Credit Advance(s) Section 2.02(a) Revolving Credit Maturity Date Section 2.02(a) Revolving Credit Note Section 2.02(b) SBLC Line of Credit Section 2.01 SBLC Line of Credit Note Section 2.04(b) SBLC Line of Credit Advance Section 2.04(a) SBLC Line of Credit Conversion Date Section 2.04 SBLC Line of Credit Term Note Section 2.04(d) Security Agreement Section 4.01(d) Security Documents Section 4.01(e) Special Counsel Section 4.01(b) Stock Section 5.18 Taxes Section 3.08 Section 1.02. Accounting Terms. ------------ ---------------- Unless otherwise specified herein, all accounting terms used herein shall be construed in accordance with generally accepted accounting principles consistently applied. ARTICLE II. AMOUNT AND TERMS OF THE CREDIT. - ---------- ------------------------------ Section 2.01. The Credit. ------------ ---------- Subject to the terms and conditions hereof, and in reliance on the representations and warranties contained herein, the Bank hereby establishes a credit facility in favor of the Borrower in the maximum aggregate principal amount of $10,000,000 as set forth below (the "Credit"). The Credit shall consist of (i) a secured working capital revolving line of credit in the maximum principal amount of $1,500,000 (the "Revolving Credit"), (ii) a secured converting equipment line of credit in the maximum principal amount of $1,500,000 (the "Equipment Line of Credit") and (iii) a secured 3 converting SBLC line of credit in the maximum principal amount of $7,000,000 (the "SBLC Line of Credit"). Section 2.02. The Revolving Credit. ------------ -------------------- (a) General Terms. Subject to the terms and conditions hereof and ------------- provided that no Default or Event of Default has occurred or is continuing, the Borrower may, from time to time from the date hereof up to June 30, 1999 (the "Revolving Credit Maturity Date") borrow and reborrow from the Bank, and the Bank shall advance funds to the Borrower as requested pursuant to Section 2.02(e) (a "Revolving Credit Advance" and collectively, the "Revolving Credit Advances"); provided, however, that the aggregate of all Revolving Credit -------- ------- Advances outstanding at any time shall not exceed the lesser of (i) $1,500,000 or (ii) the "Borrowing Base" (the "Maximum Revolving Credit"). The Borrowing Base shall equal the sum of (i) 80% of Qualified Accounts (as hereinafter defined), plus (ii) 80% of the Net Present Value of Electronic Funds Transfer Receivables (as hereinafter defined). Qualified Accounts" (without any duplication of any accounts falling within the definition of Net Present Value of Electronic Funds Transfer Receivables) shall mean all accounts of the Borrower arising in the ordinary course of business (i) in which the Bank has a perfected security interest; (ii) which are not with respect to sales or services to a supplier, employee, shareholder, Subsidiary or Affiliate of the Borrower, or to the United States of America or any agency thereof, or to an account debtor located outside of the United States of America; (iii) which are not on account of consigned goods; (iv) which are not with respect to accounts of account debtors of the Borrower who have any accounts or portions thereof evidenced by a promissory note; (v) which are accounts billed in a manner consistent with past business practices of the Borrower and not more than 90 days due from the date of issuance of the invoice; (vi) which are not subject to any dispute, setoff, finance charge, credit, allowance or adjustment by the account debtor; and (vii) which the Bank has not otherwise determined to be unsatisfactory. "Net Present Value of Electronic Funds Transfer Receivables" shall mean all accounts receivable of the Borrower relating to electronic funds monthly transfer arrangements between the Borrower and its customers and subscribers that are due within one year of the date of determination of the relevant Borrowing Base, discounted to net present value using a discount rate equal to the Revolving Credit interest rate (as provided in Section 2.02(d)) as of the date of determination of the relevant Borrowing Base. The Borrower shall furnish to the Bank not later than fifteen (15) days following the end of each monthly accounting period a Borrowing Base Certificate in the form of Exhibit 2.02(a) attached hereto, completed and signed by the --------------- Borrower's chief financial officer. The Borrowing Base shown on such certificate shall be as of the last day of said monthly accounting period. If a Borrowing Base Certificate is not delivered within the specified period the Bank shall not be obligated to make further Revolving Credit Advances until a Borrowing Base Certificate as of the most recent month ended is delivered. 4 (b) The Revolving Credit Note. All amounts owed by the Borrower with ------------------------- respect to Revolving Credit Advances shall be evidenced by a revolving credit note in the principal amount of $1,500,000, dated the date hereof in the form attached hereto as Exhibit 2.02(b) (the "Revolving Credit Note"). --------------- (c) Revolving Credit Payment. Revolving Credit Advances may be repaid ------------------------ at any time. The aggregate of all Revolving Credit Advances shall not at any time exceed the Maximum Revolving Credit. If at any time the aggregates outstanding Revolving Credit Advances exceeds the Maximum Revolving, Credit, then the Borrower shall immediately pay such excess to the Bank, and the Bank may, without prior notice to the Borrower, charge any of Borrower's accounts with the Bank in order to effect such payment. (d) Interest. Revolving Credit Advances made by the Bank shall bear -------- interest prior to the occurrence of an Event of Default or maturity (computed on the basis of actual number of days elapsed over a 360-day year) on the unpaid principal balance outstanding from time to time at a fluctuating rate per annum equal to the aggregate of (i) the Prime Rate, plus (ii) one-half of one percent (.5%). From and after the occurrence and during the continuation of an Event of Default or maturity (whether by demand, acceleration or otherwise), the unpaid principal balance of the Revolving Credit shall bear interest at a fluctuating rate per annum equal to four percent (4%) above the rate of interest otherwise payable with respect to the Revolving Credit. Interest shall be payable monthly in arrears on the first day of the next succeeding month commencing September 1, 1998. The effective rate of interest shall change on each date on which the Prime Rate shall change. (e) Requests for Advances. Each Revolving Credit Advance shall be --------------------- made on the day on which the Bank receives notice from the Borrower or, if such day is not a Banking Day, on the next succeeding Banking Day, provided the Bank receives notice from the Borrower prior to 11:00 a.m. Boston time on such Banking Day. Each request for a Revolving Credit Advance shall be made to the Bank in writing (including by facsimile) or by telephone by a duly authorized representative of the Borrower, and the Bank may rely upon any telephone request which it reasonably believes is made by such a representative. The Borrower agrees to indemnify and hold the Bank harmless for any action, including the making of Revolving Credit Advances hereunder, or loss or expense, taken or incurred by the Bank in good faith reliance upon such telephone request. At the time of the initial request for a Revolving Credit Advance made under this Section 2.02(e), the Borrower shall have provided the Bank with a Compliance Certificate in the form required by Section 5.09 hereof. The Borrower hereby agrees (i) that the Bank shall be entitled to rely upon the most recent Compliance Certificate in its possession until it is superseded by another Compliance Certificate, and (ii) that each request for a Revolving Credit Advance, whether by telephone or in writing or otherwise, shall constitute a confirmation of the representations and warranties contained in the most recent Compliance Certificate then in the Bank's possession. (f) Payment Upon Revolving Credit Maturity Date. The Revolving Credit ------------------------------------------- shall expire on the Revolving Credit Maturity Date and all Revolving Credit Advances then outstanding shall be due and payable on the Revolving Credit Maturity Date together with all accrued and unpaid interest thereon and any other amounts then due. 5 Section 2.03. The Equipment Line of Credit. ------------ ---------------------------- (a) General Terms. Subject to the terms and conditions hereof ------------- and provided that no Default or Event of Default has occurred or is continuing, the Borrower may, from time to time from the date hereof up to June 30, 1999 (the "Equipment Line of Credit Termination Date") borrow from the Bank, and the Bank shall advance funds to the Borrower as requested pursuant to Section 2.03(f) (each, an "Equipment Line of Credit Advance" and collectively, the "Equipment Line of Credit Advances"); provided, however, that the aggregate of -------- ------- all outstanding Equipment Line of Credit Advances (including Equipment Line of Credit Advances evidenced by Equipment Line of Credit Term Notes (as defined below)) shall at no time exceed $1,500,000 (the "Maximum Equipment Line of Credit"). The Borrower may not reborrow Equipment Line of Credit Advances once repaid and, to the extent that some portion of the Equipment Line of Credit is not borrowed prior to the Equipment Line of Credit Termination Date, the Borrower shall have no further right to borrow under this Section 2.03. Each Equipment Line of Credit Advance shall be an amount up to 80% of the Borrower's net invoice cost (purchase price less taxes, trade-ins, discounts freight charges, insurance, software, installation or similar items) of "Qualified Equipment" (as defined in Section 2.03(f)), to be purchased with proceeds of such Equipment Line of Credit Advance. Equipment Line of Credit Advances made by the Bank shall automatically be converted into Equipment Line of Credit Term Notes pursuant to Section 2.03(d). (b) The Equipment Line of Credit Note. All amounts owed by the --------------------------------- Borrower with respect to Equipment Line of Credit Advances shall be evidenced by a converting equipment line of credit note in the original principal amount of $1,500,000, dated the date hereof in the form attached hereto as Exhibit 2.03(b) --------------- (the "Equipment Line of Credit Note"). (c) Equipment Line of Credit Payment. If at any time the aggregate -------------------------------- outstanding Equipment Line of Credit Advances (including Equipment Line of Credit Advances evidenced by, Equipment Line of Credit Term Notes) exceeds the Maximum Equipment Line of Credit, then the Borrower shall immediately pay such excess to the Bank, and the Bank may, without prior notice to the Borrower, charge any of Borrower's accounts with the Bank in order to effect such payment. (d) The Equipment Line Credit Term Notes. On each of December 31, ------------------------------------ 1998 and June 30, 1999 (each an "Equipment Line of Credit Conversion Date"), the aggregate outstanding Equipment Line of Credit Advances as of each such date shall automatically be converted to a term note (hereinafter referred to respectively as "Equipment Line of Credit Term Note A" and "Equipment Line of Credit Term Note B"; and collectively, as the "Equipment Line of Credit Term Note(s)") dated as of each such date, in the form attached hereto as Exhibit ------- 2.03(d). Each Equipment Line of Credit Term Note shall be in the original - ------- principal amount of the outstanding Equipment Line of Credit Advances as of the applicable Equipment Line of Credit Conversion Date. The conversion of Equipment Line of Credit Advances into an Equipment Line of Credit Term Note shall not constitute a prepayment of such Equipment Line of Credit Advances. Unless sooner prepaid pursuant to Section 2.09 or accelerated pursuant to Article VI hereof, the Borrower shall (i) repay the principal of Equipment Line of Credit Term Note A in thirty-five (35) equal monthly installments of an amount equal to 2.778% of the original principal amount of Equipment Line of Credit Term Note A, payable on the first day of each month commencing on February 1, 1999, with a final installment in the 6 amount of the entire unpaid balance of Equipment Line of Credit Term Note A (including principal, all accrued but unpaid interest and any other amounts then due) due and payable on February 1, 2002, and (ii) repay the principal of Equipment Line of Credit Term Note B in thirty-five (35) equal monthly installments of an amount equal to 2.778% of the original principal amount of Equipment Line of Credit Term Note B, payable on the first day of each month commencing on August 1, 1999, with a final installment in the amount of the entire unpaid balance of Equipment-Line of Credit Term Note B (including principal, all accrued but unpaid interest and any other amounts then due) due and payable on August 1, 2002. Interest shall be payable on each Equipment Line of Credit Term Note as provided in Section 2.03(e). (e) Interest. Equipment Line of Credit Advances made by the-Bank and -------- amounts outstanding under the Equipment Line of Credit Term Notes shall bear interest prior to the occurrence of an Event of Default or maturity (computed on the basis of actual number of days elapsed over a 360-day year) on the unpaid principal balance outstanding from time to time at a fluctuating rate per annum equal to the aggregate of (i) the Prime Rate, plus (ii) one and one-half percent (1.5%). From and after the occurrence and during the continuation of an Event of Default or maturity (whether by demand, acceleration or otherwise), the unpaid principal balance of the Equipment Line of Credit (including amounts outstanding under Equipment Line of Credit Term Notes) shall bear interest at a fluctuating rate per annum equal to four percent (4%) above the rate of interest otherwise payable with respect to the Equipment Line of Credit. Interest shall be payable monthly in arrears on the first day of the next succeeding month commencing September 1, 1998. The effective rate of interest shall change on each date on which the Prime Rate shall change. (f) Requests for Advances. Subject to the conditions of Section --------------------- 2.03(a), each Equipment Line of Credit Advance shall be made on a Banking Day on notice given by the Borrower to the Bank prior to 11:00 a.m. Boston time on the date three (3) days prior to the date of the proposed borrowing. Each request for an Equipment Line of Credit Advance shall be made to the Bank in writing (including by facsimile) or by telephone by a duly authorized representative of the Borrower, and the Bank may rely upon any telephone request which it reasonably believes is made by such a representative, and shall specify (i) the requested date of such Equipment Line of Credit Advance, and (ii) the amount of such Equipment Line of Credit Advance (which must be a minimum of $100,000). The Borrower agrees to indemnify and hold the Bank harmless for any action, including the making of Equipment Line of Credit Advances hereunder, or loss or expense, taken or incurred by the Bank in good faith reliance upon such telephone request. At the time of the initial request for a Equipment Line of Credit Advance made under this Section 2.03(f), the Borrower shall have provided the Bank with a Compliance Certificate in the form required by Section 5.09(c) hereof. The Borrower hereby agrees (i) that the Bank shall be entitled to rely upon the most recent Compliance Certificate in its possession until it is superseded by another Compliance Certificate, and (ii) that each request for a Equipment Line of Credit Advance, whether by telephone or in writing or otherwise, shall constitute a confirmation of the representations and warranties contained in the most recent Compliance Certificate then in the Bank's possession. Notwithstanding the foregoing, each Equipment Line of Credit Advance shall be subject to the prior satisfactory review by the Bank, in its sole discretion, of the equipment to be purchased by such Equipment Line of Credit Advance. Each notice of Equipment Line of Credit Advance shall be accompanied by all invoices for the purchase of such equipment (which invoices shall be dated not more than ninety (90) days prior to the date of delivery of such invoices to the Bank) and a certificate signed by the Borrower in the form 7 of Exhibit 2.03(f) attached hereto, certifying that (a) the equipment has been --------------- delivered to the Borrower, (b) the Borrower has paid, or will pay with the requested Equipment Line of Credit Advance, the full purchase price, and (c) the equipment meets the definition of "Qualified Equipment." Notwithstanding the foregoing, the initial notice for an Equipment Line of Credit Advance (made on the Closing Date) may include invoices totalling up to $300,000 which are dated more than ninety (90) days prior to the Closing Date, but dated no earlier than January 1, 1998. "Qualified Equipment" means equipment utilized in the conduct of the Borrower's business which is: (i) in good working order and condition; (ii) located at place of business of the Borrower which has been identified to the Bank; (iii) subject to first priority security interest in favor of the Bank; (iv) upon payment in full thereof, owned by the Borrower free and clear of any lien, security interest, claim or other encumbrance except those in favor of the Bank; and (v) has not otherwise been designated by the Bank in its discretion as unacceptable for any reason. (g) Expiration of Equipment Line Of Credit. The Equipment Line of -------------------------------------- Credit shall expire on the Equipment Line of Credit Termination Date whereupon (i) all Equipment Advances then outstanding shall be converted into an Equipment Line of Credit Term Note as provided in Section 2.03(d) above, and (ii) no further advances may be made thereunder. Section 2.04. SBLC Line of Credit. ------------ ------------------- (a) General Terms. Subject to the terms and conditions hereof and ------------- provided that no Default or Event of Default has occurred or is continuing, the Borrower may, from time to time from the date hereof (i) up to December 31, 1998 directly borrow up to a maximum amount of $2,500,000 of the SBLC Line of Credit from the Bank, and the Bank shall advance funds to the Borrower as requested pursuant to Section 2.04(f) (each, an "SBLC Line of Credit Advance" and collectively, the "SBLC Line of Credit Advances") to finance the development of the Borrower's law library databases, and (ii) up to June 30, 1999, request and the Bank shall arrange to issue for the account of the Borrower, standby letters of credit pursuant to Section 2.05; provided, however, that the aggregate of (A) -------- ------- all outstanding SBLC Line of Credit Advances (including SBLC Line of Credit Advances evidenced by the SBLC Line of Credit Term Note (as defined below)), and (B) the maximum aggregate liability of the Bank under all outstanding letters of credit issued by the Bank under Section 2.05 and under all outstanding letters of credit listed on Schedule 2.04 attached hereto ("L/C Obligations") shall at ------------- no time exceed $7,000,000 (the "Maximum SBLC Line of Credit"). The Borrower may not reborrow SBLC Line of Credit Advances once repaid and to the extent that some portion of the SBLC Line of Credit is not borrowed prior to June 30, 1999, the Borrower shall have no further right to borrow under this Section 2.04 or request L/C's under Section 2.05. SBLC Line of Credit Advances made by the Bank shall automatically be converted into SBLC Line of Credit Term Notes pursuant to Section 2.04(d). (b) The SBLC Line of Credit Note. All amounts owed by the Borrower ---------------------------- with respect to SBLC Line of Credit Advances shall be evidenced by a converting SBLC line of credit note in the original principal amount of $2,500,000, dated the date hereof in the form attached hereto as Exhibit 2.04(b) (the "SBLC Line --------------- of Credit Note"). 8 (c) SBLC Line of Credit Payment. If at any time the aggregate amount --------------------------- of outstanding SBLC Line of Credit Advances (including SBLC Line of Credit Advances evidenced by the SBLC Line of Credit Term Note) and L/C Obligations exceeds the Maximum SBLC Line of Credit, then the Borrower shall immediately pay such excess to the Bank, and the Bank may, without prior notice to the Borrower, charge any of Borrower's accounts with the Bank in order to effect such payment. (d) The SBLC Line Credit Term Note. On December 31, 1998 (the "SBLC ------------------------------ Line of Credit Conversion Date"), the aggregate outstanding SBLC Line of Credit Advances as of such date shall automatically be converted to a term note (hereinafter referred to as "SBLC Line of Credit Term Note") dated as of such date, in the form attached hereto as Exhibit 2.04(d). The SBLC Line of Credit --------------- Term Note shall be in the original principal amount of the outstanding SBLC Line of Credit Advances as of the SBLC Line of Credit Conversion Date. The conversion of SBLC Line of Credit Advances into an SBLC Line of Credit Term Note shall not constitute a prepayment of such SBLC Line of Credit Advances. Unless sooner prepaid pursuant to Section 2.09 or accelerated pursuant to Article VI hereof, the Borrower shall repay the principal of the SBLC Line of Credit Term Note in thirty-five (35) equal monthly installments of an amount equal to 2.778% of the original principal amount of the SBLC Line of Credit Term Note, payable on the first day of each month commencing on February 1, 1999, with a final installment in the amount of the entire unpaid balance of the SBLC Line of Credit Term Note (including principal, all accrued but unpaid interest and any other amounts then due) due and payable on February 1, 2002. Interest shall be payable on the SBLC Line of Credit Term Note as provided in Section 2.04(e). (e) Interest. SBLC Line of Credit Advances made by the Bank and -------- amounts outstanding under the SBLC Line of Credit Term Note shall bear interest prior to the occurrence of an Event of Default or maturity (computed on the basis of actual number of days elapsed over a 360-day year) on the unpaid principal balance outstanding from time to time at a fluctuating rate per annum equal to the aggregate of (i) the Prime Rate, plus (ii) one and one-half percent (1.5%). From and after the occurrence and during the continuation of an Event of Default or maturity (whether by demand, acceleration or otherwise), the unpaid principal balance of the SBLC Line of Credit (including amounts outstanding under SBLC Line of Credit Term Note) shall bear interest at a fluctuating rate per annum equal to four percent (4%) above the rate of interest otherwise payable with respect to the SBLC Line of Credit. Interest shall be payable monthly in arrears on the first day of the next succeeding month commencing September 1, 1998. The effective rate of interest shall change on each date on which the Prime Rate shall change. (f) Requests for Advances. Subject to the conditions of Section --------------------- 2.04(a), each SBLC Line of Credit Advance to the Borrower shall be made on a Banking Day on notice given by the Borrower to the Bank prior to 11:00 a.m. Boston time on the date of the proposed borrowing. Each request for an SBLC Line of Credit Advance shall be made to the Bank in writing (including by facsimile) or by telephone by a-duly authorized representative of the Borrower, and the Bank may rely upon any telephone request which it reasonably believes is made by such a representative, and shall specify the amount of such SBLC Line-of Credit Advance (which must be a minimum of $100,000). The Borrower agrees to indemnify and hold the Bank harmless for any action, including the making of SBLC Line of Credit Advances hereunder, or loss or expense, taken or incurred by the Bank in good faith reliance upon such telephone request. At the time of the initial request for a 9 SBLC Line of Credit Advance made under this Section 2.04(f), the Borrower shall have provided the Bank with a Compliance Certificate in the form required by Section 5.09(c) hereof. The Borrower hereby agrees (i) that the Bank shall be entitled to rely upon the most recent Compliance Certificate in its possession until it is superseded by another Compliance Certificate, and (ii) that each request for a SBLC Line of Credit Advance, whether by telephone or in writing or otherwise, shall constitute a confirmation of the representations and warranties contained in the most recent Compliance Certificate then in the Bank's possession. (g) Expiration of SBLC Line of Credit. The SBLC Line of Credit --------------------------------- shall expire (i) with respect to direct borrowings of SBLC Line of Credit Advances on December 31, 1998, and (ii) with respect to letters of credit under Section 2.05, on June 30, 1999, whereupon no further advances may be made thereunder. Section 2.05 Letters of Credit. ----------------- (a) Issuance procedures. The Borrower may request, and the Bank ------------------- will arrange to issue standby letters of credit (individually, an "L/C", and collectively, with all outstanding letters of credit listed on Schedule 2.04 ------------- attached hereto which shall be deemed to have been requested under this Section 2.05, the "L/C's") for the account of the Borrower; provided that after giving effect to all such L/C's the L/C Obligations at such time shall not exceed $7,000,000 less (i) the aggregate principal amount of all SBLC Line of Credit Advances outstanding at such time, and (ii) the aggregate principal amount of the SBLC Line of Credit Term Note. All L/C's shall have an expiration date not later than June 30, 2001. The Company shall deliver to the Bank an L/C application and L/C agreement together with the proposed form of such L/C (which, together with all schedules and exhibits thereto, shall be in form and substance satisfactory to the Bank and its counsel) and such other certificates, documents and other papers and information as the Bank may reasonably request. Any foreign beneficiary must be satisfactory to the Bank. Within five Banking Days following receipt of the above-described documents in satisfactory form, the Bank shall issue such L/C, provided that immediately prior to the issuance of such L/C and after giving effect thereto no Default or Event of Default shall have occurred and be continuing. (b) Reimbursement. The Borrower agrees to pay directly to the ------------- Bank on each date that any amount is drawn under an L/C, a sum equal to the amount so drawn and the Bank may, without prior notice to the Borrower, charge any of the Borrower's accounts with the Bank in order to effect such payment. The Borrower agrees to pay on demand any and all reasonable expenses incurred by the Bank in enforcing any rights under this Section 2.05. In the event any L/C is payable in foreign currency, the Borrowers shall reimburse the Bank at the Bank's selling rate of exchange on the date such reimbursement is made. (c) Commission. The Borrower shall pay to the Bank a commission ---------- equal in amount to three percent (3%) per annum of the face amount of each outstanding L/C, such commission to be calculated quarterly and to be due and payable in advance on the date of issuance of each L/C, and thereafter on each quarterly anniversary of the date of issuance of each L/C. The Borrower shall also pay to the Bank all transactional fees at the Bank's customary rates. 10 Section 2.06. Method of Payment. ------------ ----------------- All payments and prepayments of principal and interest due under the Notes and of fees due hereunder shall be made by the Borrower to the Bank in lawful money of the United States in immediately available funds. Payments received by the Bank after 11:00 a.m. Boston time shall be deemed received on the next succeeding Banking Day. All payments of principal, interest or fees to be made to the Bank may be effected by the Bank debiting accounts of the Borrower with the Bank. If a Default or Event of Default has occurred or is continuing, all payments and prepayments made by the Borrower to the Bank hereunder shall apply first to pay all principal and interest due under the SBLC Line of Credit Note, the SBLC Line of Credit Term Note, and toward any obligation to reimburse the Bank under the L/C's. Section 2.07. Expenses. ------------ -------- The Borrower shall pay the Bank on demand all reasonable out-of-pocket fees and expenses incurred by the Bank in connection with examinations of the books and records of the Borrower, appraisals of the assets of the Borrower and visits to the Borrower by officers, employees and agents of the Bank. The Borrower shall cooperate fully with the Bank's officers, employees and agents in connection with each audit or appraisal performed. Section 2.08. Fees. ------------ ---- (a) Closing Fee. On the date of execution of this Agreement (the ----------- "Closing Date"), the Borrower shall pay the Bank a non-refundable closing fee of $85,000 (the "Closing Fee"). (b) The Revolving Credit Commitment Fee. The Borrower shall pay ----------------------------------- the Bank a commitment fee with respect to the Revolving Credit quarterly in advance on the first day of each fiscal quarter, commencing October 1, 1998 in the amount of $3,750. (c) The SBLC Commitment Fee. The Borrower shall pay the Bank a ----------------------- commitment fee with respect to the SBLC Line of Credit computed at a rate of one-half of one percent (.5%) per annum on the average daily amount of the unborrowed portion of the SBLC Line of Credit during each quarter or portion thereof, payable quarterly in arrears on the first day of the next succeeding fiscal quarter, commencing October 1, 1998. Section 2.09. Prepayment. ------------ ---------- The Revolving Credit may be prepaid in whole or in part at any time without premium or penalty. Section 2.10. Late Fee. ------------ -------- In addition to all other interest which accrues and is payable with respect to the Credit (including interest after an Event of Default or maturity), if the entire amount of any required interest or principal payment is not paid in full within ten (10) days after the same is due, the Borrower shall pay to the Bank a late fee equal to 5% of the required payment. 11 Section 2.11. Use of Credit Proceeds. ------------ ---------------------- The proceeds of the Revolving Credit shall be used by the Borrower solely for general working capital purposes, and to repay indebtedness owed to CRL by the Borrower in the principal amount of $423,077.36, as evidenced by that certain promissory note dated August 14, 1998 made by the Borrower in favor of CRL (the "CRL August Note"). The proceeds of the Equipment Line of Credit and the SBLC Line of Credit shall be used by the Borrower to purchase equipment and finance the development of the Borrower's law library databases. Section 2.12. Pledge to Federal Reserve Bank. ------------ ------------------------------ The Bank may at any time pledge all or any portion of its rights under the Credit Documents, including the Notes, to any Federal Reserve Bank organized under Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341. ARTICLE III REPRESENTATIONS AND WARRANTIES. - ----------- ------------------------------ Borrower hereby represents and warrants that: Section 3.01. Corporate Existence and Power; Organizational Structure. ------------ ------------------------------------------------------- (a) The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of Arkansas, and has full corporate and other power and authority to conduct its business and own its assets as now conducted and owned and as proposed to be conducted and owned. The Borrower and each of its Subsidiaries are licensed or qualified as a, foreign corporation in each jurisdiction where the conduct of its business or the ownership of its assets require such licensing or qualification, except where the failure to be so licensed or qualified would not have a material adverse effect upon the business, assets, operations, prospects or financial condition of the Borrower or applicable Subsidiary. (b) There are presently issued by the Borrower and its Subsidiaries the shares of capital stock indicated on Schedule 3.01, which ------------- shares are owned beneficially and of record as set forth on such Schedule 3.01. ------------- The Borrower and its Subsidiaries have received the consideration for which such stock was authorized to be issued and have otherwise complied with all legal requirements relating to the authorization and issuance of shares of stock and all such shares are validly issued, fully paid and non-assessable. The Borrower and its Subsidiaries have no other capital stock of any class outstanding. Except as disclosed on Schedule 3.01, there are no (i) outstanding options, ------------- warrants or to acquire any shares of the capital stock or other securities of the Borrower, (ii) outstanding securities or obligations which are convertible into or exchangeable for any shares of the capital stock or other securities of the Borrower, or (iii) preemptive or subscription rights, contracts or arrangements under which the Borrower is or may become bound to sell or otherwise issue any shares of capital stock or other securities, other than as granted by law. 12 Section 3.02. Subsidiaries. ------------ ------------ Except as set forth in Schedule 3.02, the Borrower currently has no ------------- Subsidiaries or any other equity investments in any other entity. Section 3.03. Power and Authority Relative to Borrowing; Legal and Binding ------------ ------------------------------------------------------------ Nature; Compliance with Other Instruments. - ----------------------------------------- (a) The Borrower has full power and authority and has taken all required corporate and other action necessary to permit it to execute and deliver and perform all of its obligations contained in the Credit Documents to which it is a party, and to borrow hereunder, and none of such actions will violate any provision of law applicable to, or of the charter or by-laws of, the Borrower, or result in the breach of or constitute a default under any agreement or instrument to which the Borrower is a party or by which it is bound. Each of the Credit Documents has been (or will be) duly authorized and validly executed and are (or will be) the valid and binding obligations of the Borrower enforceable in accordance with its respective terms. Neither the execution or delivery by the Borrower of any of the Credit Documents to which it is a party or the performance by the Borrower of its respective obligations thereunder, require the consent, approval or authorization of any person or governmental authority. (b) The provisions of the Security Documents executed and delivered by the Borrower in accordance with Section 4.01(d) hereof have created in favor of the Bank legal, valid and enforceable security interests in the collateral, described therein, and all financing statements and other filings have been (or will be) filed or made as required by applicable law so as to cause such security interests to constitute fully perfected first priority liens on all right, title and interest of the Borrower in such collateral. (c) Neither the Borrower nor any of its Subsidiaries is in violation of any term of its charter or by-laws, or any agreement, instrument, mortgage, indenture, contract, judgment, decree, order, statute, rule or governmental regulation applicable to the Borrower or such Subsidiary. The execution, delivery and performance of the Credit Documents will not result in the creation of any security interest, lien, charge or encumbrance upon any of the properties or assets of the Borrower or its Subsidiaries except in favor of the Bank. Section 3.04. Financial Condition. ------------ ------------------- (a) The audited consolidated financial statements of the Borrower and its Subsidiaries dated as of December 31, 1997 and the unaudited consolidated financial statements of the Borrower and its Subsidiaries dated as of June 30, 1998 (the "Base Financial Statements") have been delivered to the Bank. The Base Financial Statements are complete and correct and present fairly and accurately the financial position of the Borrower and its Subsidiaries as of the date of the Base Financial Statements and the results of operations of the Borrower and its Subsidiaries in conformity with generally accepted accounting principles consistently applied ("GAAP"). The Borrower has no material contingent liability or material liability for taxes, or any unusual or burdensome agreement or commitment which would have a materially adverse effect on its business 13 assets, operations or financial condition, except as disclosed in the Base Financial Statements and in this Agreement. (b) Presently, and as of the date of the Base Financial Statements, neither the Borrower nor any Subsidiary has or had any liabilities or obligations of any nature, whether accrued, absolute, contingent or otherwise, asserted or unasserted, known or unknown and regardless of whether or not of type or nature required by GAAP to be set forth therein (including without limitation, liabilities as guarantor or otherwise with respect to obligations of others, liabilities for taxes due or then accrued or to become due, or contingent or potential liabilities relating to activities of the Borrower or any subsidiary or the conduct of their business prior to the date of the Base Financial Statements regardless of whether claims in respect thereof had been asserted as of such date), except (i) liabilities stated or adequately reserved against on the Base Financial Statements, or (ii) incurred after the date of the Base Financial Statements in the ordinary course, of business of the Borrower or its Subsidiaries consistent with the terms of this Agreement, and which are not, individually or in the aggregate, material. (c) After giving effect to the financing provided for in this Agreement, the Borrower will not: (i) have liabilities (contingent or otherwise) which exceed the fair and salable value of its assets; (ii) be left with unreasonably small capital with which to engage in its business; (iii) have incurred, or anticipate or reasonably should anticipate incurring, debts beyond its ability to pay such debts as they mature. Section 3.05. No Material Adverse Change. ------------ -------------------------- Except as set forth in Schedule 3.05 hereto, since the date of the Base ------------- Financial Statements there has been no material adverse change in the business, assets, operation, prospects or condition (financial or otherwise) of the Borrower, and the Borrower has not paid any dividends or made any distributions on or purchased or otherwise acquired any shares of its capital stock, or purchased or redeemed or made any payment or prepayment of principal on the CRL Subordinated Notes. Section 3.06. Litigation. ------------ ---------- Except as set forth in Schedule 3.06 hereto, there are no suits or ------------- proceedings pending or, to the best knowledge of the Borrower, threatened against or affecting the Borrower or any of its Subsidiaries which would have a material adverse effect on the business, assets, prospects, operations or financial condition of the Borrower or any Subsidiary or the transactions contemplated by this Agreement. No judgment, decree or order of any federal, state, provincial or municipal court, board or other governmental or administrative agency has been issued against either Borrower or any Subsidiary which has or could have any material adverse effect upon the business, properties, assets, prospects, operations or condition, financial or otherwise, of either the Borrower or any Subsidiary. Section 3.07. Title. ------------ ----- Except as set forth in Schedule 3.07, the Borrower has good and marketable ------------- title to, or valid leasehold interests in, all of the properties and assets and leasehold interests reflected in the Base Financial Statements, or acquired since such date (except for materials used, inventory sold, accounts 14 receivable collected and other items disposed of, all in the ordinary course of business since the date of the Base Financial Statements), free and clear of all liens and encumbrances except liens permitted by Section 5.15, and easements, restrictions and minor defects in title which do not, either individually or in the aggregate materially detract from the value or materially limit the use of any real property. Section 3.08. Tax Returns and Payments; IRS Settlement. ------------ ---------------------------------------- The Borrower and its Subsidiaries have filed all federal, state, local and foreign income, excise and franchise tax returns, real estate and personal property tax returns, sales and use tax returns and other tax returns required to be filed by them and have paid all Taxes (as defined below) owing by them, except Taxes which have not yet accrued or otherwise become due, for which adequate provision has been made in the pertinent financial statements referred to in Section 3.04 above. The provision for Taxes on the Base Financial Statements is sufficient as of its date for the payment of all accrued and unpaid federal, state, county and local taxes of any nature of the Borrower or any of its Subsidiaries, and any applicable taxes owing to any foreign jurisdiction, whether or not assessed or disputed (collectively, "Taxes"). All taxes and other assessments and levies which the Borrower or any of its Subsidiaries is required to withhold or collect have been withheld and collected and have been paid over to the proper governmental authorities. With regard to the federal income tax returns of the Borrower and its Subsidiaries, except as described on Schedule 3.08, neither the Borrower nor any Subsidiary has ever ------------- received notice of any audit or of any proposed deficiencies from the Internal Revenue Service. There are in effect no waivers of applicable statutes of limitations with respect to any Taxes owed by the Borrower or any Subsidiary for any year. Except as described in Schedule 3.08, neither the Internal Revenue ------------- Service nor any other taxing authority is now asserting or threatening to assert against the Borrower or any subsidiary any deficiency or claim for additional Taxes or interest thereon or penalties in connection therewith and no extension of time with respect to any date on which a tax return was or is to be filed by the Borrower or any Subsidiary is in force, and no waiver or agreement by the Borrower or any Subsidiary is in force for the extension of time for the assessment or payment of any Taxes. Section 3.09. Compliance with Law, etc. ------------ ------------------------ The Borrower and its Subsidiaries have all necessary franchises, permits, licenses and other rights to allow them to conduct their business as presently conducted and as proposed to be conducted, and neither the Borrower nor any Subsidiaries are in default with respect to any order or decree of any court, or under any law, order or regulation of any governmental authority, or under the provisions of any contract or agreement to which any of them is a party or by which they may be bound, which default would have a material adverse effect on the business, assets, prospects, operations or financial condition of any of them. The Borrower and its Subsidiaries are currently and have heretofore been in compliance in all material respects with all applicable statutes, ordinances, orders, judgments, decrees, rules and regulations promulgated by any federal, state, municipal or foreign entity, agency, court or other governmental authority which apply to the Borrower or any of its Subsidiaries or to the conduct of its business, and neither the Borrower nor any of its Subsidiaries has received notice of any violation or alleged violation of any such statute, ordinance, order, rule or regulation. 15 Section 3.10. Pension Matters. ------------ --------------- Neither the Borrower nor any Subsidiary has incurred (a) any accumulated funding deficiency within the meaning of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or (b) any liability to the Pension Benefit Guaranty Corporation established under ERISA (or any successor thereto under ERISA) in connection with any employee benefit plan established or maintained by it; nor has Borrower had any tax assessed against it by the Internal Revenue Service for any alleged violation under Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"). Neither the Borrower or any Subsidiary has any unfunded liability under a pension plan or a contingent liability for withdrawal from a multi-employer pension plan except as disclosed in the financial statements referred to in the Base Financial Statements. Section 3.11. Compliance with Regulation U. ------------ ---------------------------- None of the proceeds of the Credit will be used to purchase, carry or refinance any borrowing the proceeds of which were used to purchase or carry any "margin securities" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System. Section 3.12. Credit Agreements. ------------ ----------------- Set forth on Schedule 3.12 is a complete and correct list of all existing ------------- loan agreements, indentures, note purchase agreements, guarantees or other instruments relating to extensions of credit or money borrowed for an amount in excess of $10,000 under which the Borrower or any Subsidiary is or may become directly or indirectly obligated. Section 3.13. Leases and Options to Purchase. ------------ ------------------------------ Set forth on Schedule 3.13 is a complete and correct list of all existing ------------- leases with respect to, or options to purchase any, real estate or any equipment involving a commitment, potential commitment, or series of commitments in any twelve month period, in excess of $10,000 under which the Borrower is or may become directly or indirectly obligated as lessee or purchaser. Section 3.14. Insolvency. ------------ ---------- Neither the Borrower nor any Subsidiary has (a) made a general assignment for the benefit of creditors, (b) filed any voluntary petition in bankruptcy or suffered the filing of an involuntary petition by its creditors, (c) suffered the appointment of a receiver to take possession of all or substantially all of its assets, (c) suffered the attachment or other judicial seizure of all, or substantially all of its assets, (d) admitted in writing its inability to pay its debts as they come due, or (e) made an offer of settlement, extension or composition to its creditors generally. Section 3.15. Real Estate Owned. ------------ ----------------- Except as set forth on Schedule 3.15, neither the Borrower nor any ------------- Subsidiary owns any real property. 16 Section 3.16. Hazardous Waste. ------------ --------------- Except as set forth in Schedule 3.16, neither of the Borrower nor any ------------- Subsidiary has generated, stored or disposed of any oil, hazardous substance or hazardous material as defined in the Comprehensive Environmental Response Compensation and Liability Act, as amended, 42 U.S.C. (S)9601, et seq., applicable state or federal laws, or regulations adopted pursuant thereto, in violation of applicable law; and, except as set forth on Schedule 3.16, there ------------- has been no generation, storage, or disposal of any such materials by anyone else on the property owned or leased by the Borrower or the Subsidiaries, nor have any such materials been present on such property. The Borrower and its Subsidiaries are in compliance in all material respects with all applicable state, local and federal environmental laws. Section 3.17. Permits. ------------ ------- All necessary licenses and permits for the use and occupancy of the real property owned or leased by the Borrower have been issued and are in full force and effect except as set forth on Schedule 3.17 hereto and except for any such ------------- licenses or permits the absence of which would not have a material adverse effect upon the business, assets, prospects, operations or financial condition of the Borrower or applicable Subsidiary. Section 3.18. Intellectual Property Rights. Except as set forth in ------------ ---------------------------- Schedule 3.18(a): (a) The Borrower and its Subsidiaries have exclusive ownership of, with the exclusive right to use, sell, license, dispose of, and bring actions for infringement of, all Intellectual Property Rights (as hereinafter- defined) material to the conduct of its business as presently conducted (the "Borrower Rights"), provided that no representation is made with respect to "off the shelf" software used by the Borrower and its Subsidiaries that is generally commercially available. (b) The business of the Borrower and its Subsidiaries as presently conducted does not violate any agreements which the Borrower or any Subsidiary has with any third party or infringe any patent, trademark, copyright or trade secret or any other Intellectual Property Rights of any third party. (c) No claim is pending or, to the best knowledge of the Borrower, threatened against the Borrower or any of its Subsidiaries nor has the Borrower or any of its subsidiaries received any notice or claim from any person asserting that any of its present or contemplated activities infringe or may infringe any Intellectual Property Rights of such person. (d) The Borrower and its Subsidiaries have taken all commercially reasonable steps required to establish and preserve its ownership of all of the Borrower Rights; each current and former employee of the Borrower or any Subsidiary, and each of the consultants and independent contractors of the Borrower and its Subsidiaries involved in development of any of the Borrower Rights, has executed an agreement regarding confidentiality, proprietary information and assignment of inventions and copyrights to the Borrower, and none of such employees, consultants or independent contractors is in violation of any agreement or in breach of any agreement or 17 arrangement with former or present employers relating to proprietary information or assignment of inventions. As used herein, the term "Intellectual Property Rights" shall mean all intellectual property rights, including, without limitation, all of the registered rights set forth on Schedule 3.18(b) and all patents, patent ---------------- applications, patent rights, trademarks, trademark applications, trade names, service marks, service mark applications, copyrights, copyright applications, computer programs and other computer software, inventions, designs, samples, specifications, schematics, know-how, trade secrets, proprietary processes and formulae, including production technology and processes, all source and object code, algorithms, promotional materials, customer lists, supplier and dealer lists and marketing research, and all documentation and media constituting, describing or relating to the foregoing, including without limitation, manuals, memoranda and records. Section 3.19. No Omissions. ------------ ------------ None of the representations or warranties in this Agreement nor any document, agreement, statement, certificate, exhibit, schedule or other information furnished or to be furnished by or on behalf of the Borrower to the Bank pursuant to this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements of facts contained therein not misleading. ARTICLE IV. CONDITIONS. - ---------- ---------- Section 4.01. Conditions to the Credit and the First Advances. ------------ ----------------------------------------------- The obligation of the Bank to extend the Credit and make the initial advances under the Revolving Credit, the Equipment Line of Credit and the SBLC Line of Credit is subject to the fulfillment of the following conditions: (a) Legal Opinions from Counsel for the Borrower and CRL. The Bank ---------------------------------------------------- shall have received the written opinion of Messrs. Nolan, Caddell & Reynolds, P.A., counsel to the Borrower, and the written opinion of Messrs. Testa, Hurwitz & Thibeault LLP, counsel to CRL, each in form satisfactory to Messrs. Goodwin, Procter & Hoar LLP, special counsel to the Bank (said special counsel and any successor counsel shall be hereinafter referred to as "Special Counsel") covering such matters as the Bank or its Special Counsel may request. (b) The Credit Agreement. The Borrower shall have executed this -------------------- Agreement. (c) The Notes. The Borrower shall have executed and delivered to the --------- Bank the Revolving Credit Note, the Equipment Line of Credit Note and the SBLC Line of Credit Note. (d) The Security Agreement. The Bank shall have received a general ---------------------- security agreement executed by the Borrower in form satisfactory to the Bank and its Special Counsel (the "Security Agreement"), grazing to the Bank a first priority security interest in and assignment of substantially all of the assets of the Borrower whether now owned or hereafter acquired, including without limitation, all accounts receivable, chattel paper, contracts, contract rights, leases, lease 18 receivables, patents, trademarks, copyrights and licenses of the Borrower. All Uniform Commercial Code Financing Statements and other filings required in order to perfect the liens granted under the Security Agreement shall have been executed by the Borrower and shall have been duly filed or recorded. (e) The Intellectual Property Security Agreements. The Bank shall --------------------------------------------- have received (i) a Trademark Collateral Assignment and Security Agreement, and (ii) a Copyright Assignment and Security Agreement each executed by the Borrower in form satisfactory to the Bank and its Special Counsel (collectively, the "Intellectual Property Security Agreements", together with the Security Agreement, the "Security Documents"). All filings with the United States Patent and Trademark Office, the United States Copyright Office and the other filings required in order to perfect the liens granted under the Intellectual Property Security Agreements shall have been executed by the Borrower and shall have been duly filed or recorded. (f) Guaranty Agreement. CRL shall have executed and delivered to the ------------------ Bank a limited guaranty agreement (the "CRL Guaranty") in substantially the form attached hereto as Exhibit 4.01(f). The Bank shall have received the financial statement of CRL. (g) No Default. No Default or Event of Default specified in Article ---------- VI shall have occurred and be continuing. (h) Insurance. The Borrower shall have delivered to the Bank a list --------- in the form of Exhibit 4.01(h) hereto, certified by the president or chief --------------- financial officer of the Borrower, of all insurance required by Section 5.08 showing the insurer, the face amount and the nature of the coverage and the Bank as an additional insured and loss payee (or beneficiary, as the case may be) under each policy then in force. (i) Officer's Certificate re: Authorization, Representations and ------------------------------------------------------------ Warranties and Absence of Defaults. The Borrower shall have delivered to the - ---------------------------------- Bank a certificate in substantially the form of Exhibit 4.01(i) hereto and dated --------------- the date of the Closing. (j) Perfection Certificate. The Borrower shall have delivered to the ---------------------- Bank a perfection certificate in substantially the form of Exhibit 4.01(j) --------------- hereto and dated the date of the Closing. (k) Termination of Prior Security Interests. The Borrower shall have --------------------------------------- obtained and delivered to the Bank (i) an agreement executed by Merchants National Bank of Fort Smith providing for release and termination of its security interest in the Borrower's copyright interests, and (ii) UCC-3 termination statements executed by International Software Finance Corp. providing for the release and termination of all liens filed by International Software Finance Corp. against the Borrower., (l) CRL Subordination Agreement. CRL, CRP and Moriarty shall have --------------------------- executed and delivered to the Bank a subordination and intercreditor agreement (as amended from time to time, the "CRL Subordination Agreement") in form and substance satisfactory to the Bank and its Special Counsel, pursuant to which (i) promissory notes in the aggregate original principal amount of $7,000,000 made by the Borrower in favor of CRL, CRP and Moriarty, respectively, as more fully 19 described on Schedule 3.12 attached hereto, plus, when and if issued, the ------------- additional promissory notes which the Borrower has the right to sell to the CRL Subordinated Creditors pursuant to the Second Amendment to the CRL Purchase Agreement (the "CRL Subordinated Notes"'), and (ii) all other obligations of the Borrower to CRL, CRP and Moriarty under the CRL Subordinated Notes and that certain Senior Subordinated Note and Securities Purchase Agreement dated as of November 24, 1997, as amended by the First Amendment dated as of June 29, 1998 and that Second Amendment dated of even date herewith, as amended, by and between the CRL Subordinated Creditors and the Company (the "CRL Purchase Agreement") and the securities issued and sold thereunder, shall be subordinated to the obligations of the Borrower to the Bank. (m) Miscellaneous Requirements. The Borrower shall have delivered to -------------------------- the Bank such other documents as the Bank or its Special Counsel shall reasonably require. (n) Payment of Closing Fees. The Borrower shall have paid the ----------------------- Closing Fees payable under Section 2.08. (o) Payment of Other Fees. The Borrower shall have paid all legal --------------------- fees, disbursements and all other related expenses incurred by the Bank in connection with the Credit, including, without limitation, the issuance of Standby Letters of Credit listed on Schedule 2.04 attached hereto (the "Outstanding Standby Letters of Credit"). (p) CRL. The CRL Subordinated Creditors shall have (i) loaned, in --- the aggregate, $7,000,000 to the Borrower, as evidenced by the CRL Subordinated Notes, (ii) purchased, in the aggregate, $3,000,000 of Convertible Preferred Stock of the Borrower, (iii) entered into a binding commitment to purchase additional Subordinated Notes on December 31, 1998 (the "December CRL Subordinated Notes") in an aggregate amount up to $3,000,0000 less the Maximum Cumulative Liability (as such term is defined in the CRL Guaranty), as provided in the Second Amendment to the CRL Purchase Agreement, and (iv) entered into a binding commitment to purchase additional Subordinated Notes on May 3 1, 1999 (together with the December CRL Subordinated Notes, the "Additional Subordinated Notes") such that the aggregate amount of Additional CRL Subordinated Notes is equal to a minimum of $3,000,0000 less the Maximum Cumulative Liability (as such term is defined in the CRL Guaranty), as provided in the Second Amendment to the CRL Purchase Agreement. (q) Amendments to CRL Documents. The CRL Subordinated Debt --------------------------- Agreements shall be amended to the extent that they are more restrictive than the Credit Documents as determined by the Bank and its Special Counsel in their sole discretion. (r) Copyright Assignment. Kyle Parker and David Jamell shall have -------------------- assigned to Borrower all of their rights in the copyright identified as Law Office Information System: Master Menu System, Registration No. TX2097531. Section 4.02. Conditions to Subsequent Advances. ------------ --------------------------------- Each request for a subsequent Revolving Credit Advance, Equipment Line of Credit Advance or SBLC/Line of Credit Advance shall be deemed to be a representation by the Borrower to the Bank 20 (a) that all representations and warranties contained in Article III hereof or in any Exhibit, Schedule or Certificate attached hereto or delivered to the Bank in connection herewith were true and correct when made and continue to be true and correct as of the date of such advance, and (b) that no Default or Event of Default specified in Article VI hereof exists. In addition, the Borrower shall promptly pay as incurred from time to time all fees and expenses incurred by the Bank (including, without limitation, all legal fees in connection with this Agreement, the Credit Documents, the monitoring of the transactions contemplated hereby and thereby, and in connection with any amendment, consent or waiver in connection therewith. ARTICLE V. COVENANTS OF THE BORROWER. - --------- ------------------------- The Borrower hereby covenants as follows: Section 5.01. Payment of Amounts Due, Etc. ------------ --------------------------- The Borrower will make all payments of principal, interest and other amounts in connection with the Notes and this Agreement in accordance with the terms hereof and thereof, and will observe, perform and comply with each and every one of the covenants, terms and conditions contained herein, in the Notes or in any other Credit Document to be observed, performed or complied with by it. Section 5.02. Certain Contingencies. ------------ --------------------- If, after the date of this Agreement, there shall be any increase in the cost to the Bank due to either (a) the introduction of or any change in any law or regulation (or the interpretation thereof by regulatory authorities) including, without limitation, any changes regarding capital requirements for banks or bank holding companies or (b) compliance with any written guideline, request, interpretation or administrative position from any central bank or other governmental authority having jurisdiction over the Bank (whether or not such guideline or request has the force of law), of agreeing to make or making, funding or maintaining the advances hereunder, then the Borrower shall, from time to time, upon such notice by the Bank, pay to the Bank additional amounts sufficient to reimburse the Bank for such increased cost. Upon the Bank incurring such increased cost, the Bank shall certify the same to the Borrower, and such certification shall be conclusive and binding in the absence of manifest error. Section 5.04. Corporate Existence. ------------ ------------------- The Borrower and each of its Subsidiaries will maintain and preserve in full force and effect their respective corporate existence and will maintain and preserve in full force and effect all material rights, licenses, patents, permits, licenses, approvals and franchises, and comply with all applicable regulations in all jurisdictions necessary for the conduct of their business. Section 5.05. Maintenance of Properties and Leases. ------------ ------------------------------------ The Borrower and each of its Subsidiaries will maintain, preserve, protect and keep all properties used or useful in the conduct of their respective businesses in good repair, working order and condition, ordinary wear and tear excepted, and from time to time shall make such repairs, 21 renewals, replacements, betterments and improvements thereto as in the judgment of the Borrower's management are necessary to permit such business to be property and advantageously conducted at all times. The Borrower and each Subsidiary shall comply in all material respects with all leases naming it as lessee. Section 5.05. Payment of Taxes, Compliance with Laws and ERISA, Etc. ------------ ----------------------------------------------------- (a) The Borrower and each of its Subsidiaries will pay and discharge all taxes, assessments and governmental charges or levies imposed upon them or upon their income or profits, or upon any property belonging to them before the same shall become in default, as well as all lawful claims for labor, materials and supplies, which, if not paid when due, might become a lien or charge upon such property or any part thereof; provided, however, that neither the Borrower nor any Subsidiary shall be required to pay and discharge any such tax, assessment, charge, levy or claim so long as the validity thereof shall be contested in good faith by appropriate proceedings, an adequate reserve for the payment thereof is established on the books of the Borrower or applicable Subsidiary in accordance with generally accepted accounting principles, and the Borrower or applicable Subsidiary shall pay such tax, assessment, charge, levy or claim before any taxing authority files any lien with respect thereto. (b) The Borrower and each of its Subsidiaries will at all times and in all material respects comply with all applicable provisions of laws, rules, regulations, licenses, permits, approvals and orders and observe all requirements of federal, state, local and other governmental authorities (including, without limitation, all environmental and ERISA laws and requirements). (c) The Borrower and each of its Subsidiaries will satisfy, or cause to be satisfied, the minimum annual funding standard, within the meaning of ERISA, for any employee benefit plan established or maintained by them which is subject to ERISA and neither of the Borrower nor any Subsidiary will permit any tax or penalty to be incurred by it as a result of any failure to satisfy any such minimum funding requirement or as a result of any violation of the provisions of Section 4975 of the Code or any regulation issued thereunder. Section 5.06. Records, Accounts and Places of Business. ------------ ---------------------------------------- The Borrower and each Subsidiary shall maintain comprehensive and accurate records and accounts in accordance with generally accepted accounting principles consistently applied. The Borrower and each Subsidiary shall maintain adequate and proper reserves. The Borrower ,and each Subsidiary will promptly notify the Bank of (a) any changes in the places of business of the Borrower and its Subsidiaries and (b) any additional places of business which may arise hereafter. Section 5.07. Subsidiary Guarantees. The Borrower shall cause each ------------ --------------------- Subsidiary of the Borrower (whether existing now or in the future) to enter into a Guaranty Agreement in form and substance satisfactory to Bank guaranteeing all obligations (whether existing now or in the future) of the Borrower to the Bank. 22 Section 5.08. Insurance. ------------ --------- The Borrower and each of its Subsidiaries will keep all of their insurable properties insured with fire and broad form extended coverage insurance policies written by financially sound and reputable insurers satisfactory to the Bank for an amount not less than the full replacement value of all tangible property owned by the Borrower from time to time. All insurance policies will name the Bank as an additional insured and a loss payee or insured mortgagee, as applicable. Each such insurance policy shall contain a provision requiring at least 30 days' written notice to the Bank prior to the cancellation or modification of each such policy. The Bank shall have the additional right, exercisable at any point in time, in its reasonable judgment, to require additional insurance coverage including but not limited to demolition, flood, earthquake and contingent liability from the operation of any building laws as they may pertain to non-conforming property. Certificates relating to such insurance shall be furnished by the Borrower to the Bank at the Closing and thereafter upon demand by the Bank. Section 5.09. Accounts and Reports. ------------ -------------------- The Borrower will furnish or cause to be furnished to the Bank, the following reports: (a) Annual Reports. As soon as available and in any event within -------------- ninety (90) days after the end of each fiscal year, (i) consolidated audited financial statements of the Borrower and its Subsidiaries, together with all notes thereto, prepared in reasonable detail and in accordance with generally accepted accounting principles consistently applied, such statements to be duly certified by a certified, independent public accounting firm selected by the Borrower and acceptable to the Bank, which statements shall be accompanied by an (A) unqualified opinion thereon by such accountants, and (B) a statement executed by the Borrower's president or treasurer that to the best of his or her knowledge, following diligent inquiry, he or she does not know of any condition or event which constitutes a Default or an Event of Default under this Agreement or a statement specifying the nature and period of existence of any such condition or event. (b) Monthly Reports. As soon as available, and in any event within --------------- thirty (30) days after the end of each monthly accounting period in each fiscal year during the term of this Agreement, consolidated unaudited financial statements of the Borrower and its Subsidiaries prepared in reasonable detail and in accordance with generally accepted accounting principles consistently applied, certified by the President or Treasurer of the Borrower, which statements shall contain balance sheets as of the end of such accounting period, statements of profit and loss and cash flow for the period from the beginning of such fiscal year to the end of such accounting period. Each such monthly report shall be accompanied by a summary of all Revolving Credit Advances, Equipment Line of Credit Advances, and SBLC Line of Credit Advances and unexpired L/C's outstanding at the end of such period. (c) Compliance Certificates. With the annual and monthly financial ----------------------- statements furnished pursuant to subsections (a) and (b) hereof, an officers certificate substantially in the form of Exhibit 5.09(c) hereto (the "Compliance --------------- Certificate"), and (ii) such other reports as the Bank may reasonably request. 23 (d) Auditor's Management Letter. Promptly after receipt by the --------------------------- Borrower, copies of the management letter, if any, provided by its independent certified public accountants who audit the annual financial statements. (e) Information. Promptly, copies of all reports and financial ----------- statements which the Borrower sends to either CRL, or the Borrower's stockholders in their capacity as stockholders, as a class or which the Borrower files with the Securities and Exchange Commission or any other public body. (f) Accounting Principles. Reports furnished to the Bank under this --------------------- Agreement shall be prepared in accordance with generally accepted accounting principles consistently applied, except that unaudited statements need not contain notes thereto and shall be subject to normal year end adjustments. Compliance with the covenants set forth in this Agreement will be determined in accordance with generally accepted accounting principles consistently applied. (g) Financial Statements of Guarantor. Within ninety (90) days after --------------------------------- the end of each calendar year, updated financial statements for the Guarantor. (h) Borrowing Base Certificate. The Borrowing Base Certificate -------------------------- pursuant to Section 2.02(a). (i) Annual Projections. As soon as available, but in any event within thirty (30) days prior o the end of each fiscal year, projections for the following fiscal year together with a business plan. Section 5.10. Information and Inspection. ------------ -------------------------- The Borrower will furnish to the Bank from time to time promptly upon the Bank's request, full information pertinent to any covenant, provision or condition hereof or to any matter in connection with its business and, at all reasonable times during normal business hours and as often as the Bank shall reasonably request, permit any authorized representative designated by the Bank to visit and inspect any of their properties, including their books and records (and to make extracts therefrom), and to discuss their affairs, finances and accounts with its officers. The Borrower will, in addition, furnish to the Bank with reasonable promptness such financial information as the Bank shall reasonably request. Without limiting the generality of the foregoing, the Bank shall be entitled to conduct as many examinations of the books and records of the Borrower as the Bank in its sole discretion deems necessary and, the Borrower shall pay on demand the Bank's out-of-pocket expenses and field audits and appraisal fees. Section 5.11. Additional Advice. ------------ ----------------- The Borrower will promptly advise the Bank of any change which constitutes a Default or an Event of Default as defined in Article VI of this Agreement, or a default in the performance by the Borrower under any covenant or agreement contained in any other agreement to which it is a party or by which it is bound which has not been cured within the applicable grace period, if any. The 24 Borrower will also promptly give notice to the Bank of each waiver, consent or amendment granted or made with respect to borrowed money in excess of $10,000. Section 5.12. Payment of Expenses. ------------ ------------------- The Borrower will bear all reasonable out-of-pocket fees and expenses of the Bank in connection with the negotiation, preparation, execution, amendment, administration or enforcement of this Agreement, the other Credit Documents and the transactions contemplated hereby (whether or not the Credit hereunder is consummated) and the making and collection of the Credit hereunder, including without limitation, the fees and disbursements of Special Counsel for the Bank, costs of appraisals, recording fees, and filing fees. Section 5.13. Limitation on Indebtedness. ------------ -------------------------- Neither the Borrower nor any Subsidiary will create, incur, assume, or become, be or remain liable in any manner in respect of, or allow to exist, any Indebtedness (which term shall include: all indebtedness, obligations and liabilities which in accordance with generally accepted accounting principles would be reflected on the balance sheet of the Borrower as liability; all indebtedness, obligations and liabilities, whether or not assumed by Borrower or any Subsidiary, secured by any mortgage, pledge or lien existing on property owned by the Borrower or any Subsidiary; all indebtedness in respect of operating leases; and all amounts representing rental payments which, in accordance with generally accepted accounting principles, would be classified as a liability on its balance sheet), except for: (a) the Notes and any other obligations owed to the Bank under this Agreement or otherwise; (b) the CRL Subordinated Notes and the CRL August Note; (c) Indebtedness of the Borrower existing as of the date of this Agreement which is specifically disclosed in Schedule 5.13(c) attached hereto; ---------------- (d) Indebtedness representing trade debt, wages, employee benefits, advance payments on sales contracts and other indebtedness incurred in the ordinary course of business; (e) Indebtedness existing as of the date of this Agreement secured by liens permitted by subsection (a) of Section 5.15; (f) liabilities for taxes, assessments, governmental charges, liens or claims described in Section 5.05 hereof to the extent that payment thereof is not required by such Section 5.05; (g) Indebtedness in respect of final judgments for the payment of money not in excess of $10,000 in the aggregate at any time outstanding (excluding sums covered by insurance) remaining unsatisfied and in effect for any period of less than sixty (60) days or in respect of which a stay of execution shall have been obtained pending an appeal or proceeding for review; and 25 (h) Indebtedness of the Borrower which is subordinated in right of payment to the obligations owed to the Bank under this Agreement on terms and conditions satisfactory to the Bank in its sole discretion, and which does not mature or require payment of principal or interest prior to the Maturity Date. Section 5.14. Limitation on Liability for Obligations of Others. ------------ ------------------------------------------------- Neither the Borrower nor any Subsidiary will assume, guarantee, endorse or otherwise be or become liable, contingently or otherwise (including without limitation as a general partner), for the obligations of any other corporation, firm or entity or other person, except for: (a) the endorsement of negotiable instruments for deposit or collection in the normal course of its business; and (b) guarantees existing as of the date of this Agreement which are specifically disclosed on Schedule 5.14 attached hereto. ------------- Section 5.15. Limitation on Liens, Negative Pledges. ------------ ------------------------------------- Neither the Borrower nor any Subsidiary will (i) create, incur, assume or allow to be created, incurred or assumed, or to exist, any pledge of, or any lien, charge or encumbrance of any kind on, any of their property or assets, (ii) subject any of such assets to prior payments of any other indebtedness whether by subordination agreement, transfer of assets or otherwise, (iii) own or acquire or agree to acquire any property of any character subject to or upon any option, mortgage, conditional sale agreement or other title retention agreement or (iv) or grant any person (other than the Bank) a negative pledge or other similar restriction with respect to any of its property or assets, provided, however, that the foregoing restrictions shall not prohibit the - -------- ------- Borrower: (a) from creating or allowing to exist any liens or encumbrances which existed on the date hereof and which are specifically permitted by Section 3.07 hereof or set forth in Schedule 5.14 hereto; ------------- (b) from creating or allowing to exist any liens in favor of the Bank; (c) from allowing to exist liens for taxes, assessments, governmental charges and levies for claims described in Section 5.06 hereof to the extent that payment thereof is not then required by such Section; (d) from allowing to exist liens in respect of judgments or awards which have been in force for less than the applicable appeal period or less than sixty (60) days, whichever is sooner, so long as execution is not levied thereunder, or in respect of which the Borrower at the time shall in good faith be prosecuting an appeal, or proceedings for review are pending and in respect of which a stay of execution shall have been obtained pending such appeal or review; and (e) from creating or allowing to exist deposits or pledges made in connection with, or to secure payment of, workmen's compensation, unemployment insurance or similar programs; 26 liens, charges or encumbrances imposed by law, such as carriers', warehousemen's and mechanics' liens and other liens arising in the ordinary course of business which do not, individually or in the aggregate, materially detract from the value or limit the use of any property subject thereto; landlords' liens in respect of rent not in default or liens securing the performance of bids, tenders, contracts (other than for the repayment of borrowed money), statutory obligations and surety bonds. Section 5.16. Sale of Assets. ------------ -------------- Neither the Borrower nor any Subsidiary will sell or transfer to each other or to any third party any of their respective assets, including, without limitation, accounts receivable or data bases, whether with or without recourse, other than as permitted by Section 5.19 hereof. This Section 5.16 is not intended to prohibit liens on the Borrower's accounts receivable in favor of the Bank. Neither the Borrower nor any Subsidiary will sell or transfer any of its properties with the intention of taking back a lease of the same property or leasing other property for substantially the same use as the property being sold or transferred. Section 5.17. Loans and Investments. ------------ --------------------- (a) Except as set forth in Schedule 3.02, the Borrower shall not ------------- organize or permit to exist any new Subsidiaries without the prior written consent of the Bank. (b) Neither the Borrower nor any Subsidiary will, without the prior written consent of the Bank, purchase or otherwise acquire or retain any stock, assets or obligations of, or make any loans or advances to, or investments in, or engage in joint ventures with, any corporation, partnership or other entity or person, other than: (i) obligations of the United States of America, or any agency thereof, maturing not more than one (1) year from the date of issue thereof, provided that the Bank shall acquire a perfected first security interest in any such obligation simultaneously with its purchase or acquisition; and (ii) certificates of deposit or other obligations maturing not more than one (1) year from the date of issue thereof issued by the Bank, provided that the Bank shall acquire a perfected first security interest in such obligation simultaneously with its purchase or acquisition. Section 5.18. Transactions With Affiliated Persons. ------------ ------------------------------------ Neither the Borrower nor any Subsidiary will enter into any transaction with any Affiliate (including CRL, CRP and Moriarty), except on terms no less favorable to Borrower than would be available in a bona fide arm's length transaction with a non-affiliated person or entity, and provided that Borrower shall have obtained the Bank's prior written consent to any such transaction or series of related transactions involving an amount of $10,000 or more. "Affiliate" means: any officer, director or shareholder who owns five percent (5%) or more of any class of securities of the Borrower or any subsidiary; any entity where the Borrower owns directly or indirectly five percent (5%) or more of any class of securities or interest issued by such entity; or any entity that controls, is controlled by or under common control with, the Borrower. 27 Section 5.19. Consolidation, Merger or Disposition of Assets. ------------ ---------------------------------------------- Neither the Borrower nor any Subsidiary will, without the prior written consent of the Bank, consolidate with or merge into or with another firm, person or corporation, directly or indirectly, issue, sell, assign, pledge or otherwise encumber or dispose of any shares of the capital stock or sell, lease or otherwise dispose of (other than in the ordinary course of its business) all or any material portion of their properties or assets to any firm, person or corporation, or acquire any material portion of the properties or assets of any other firm, person or corporation, whether in one or a series of related transactions, except that: (a) any Subsidiary may merge into or consolidate with the Borrower (provided that the Borrower shall be the surviving corporation); and (b) the Borrower or any of its Subsidiaries may sell or otherwise dispose of any property which has become uneconomic, obsolete or worn out if disposed of in the ordinary course of business. Section 5.20. Changes in Corporate Business. ------------ ----------------------------- The Borrower will not materially alter the nature of its business, and will engage only in the business which it is conducting on the date of this Agreement and substantively related lines of business. Section 5.21. Restricted Payment. ------------ ------------------ The Borrower shall not, directly or indirectly, declare, order, pay or make any of the following restricted payments (hereinafter "Restricted Payments"): (a) any payment or declaration of any dividend on any class of Stock of the Borrower or any other distribution on account of any class of Stock; (b) any payment in respect of director's fees, manager's fees or any other distribution to any shareholder except to the extent permitted under Section 5.18; (c) any redemption, purchase or other acquisition by the Borrower, directly or indirectly, of any shares of its Stock; or (d) any payment in respect of the CRL Subordinated Notes, except that so long as no Default or Event of Default under Article VI of this Agreement shall have occurred and be continuing, the Borrower shall be authorized to make regularly scheduled payments in respect of the CRL Subordinated Notes solely as and to the extent permitted under the provisions of the CRL Subordination Agreement, provided, however, that the Borrower shall be permitted, within five (5) business days of the Closing Date, to pay off all principal and interest due on the CRL August Note with the proceeds distributed hereunder. "Stock" shall mean capital stock and warrants or options to purchase stock. 28 Section 5.22. Compensation to Certain Officers. The aggregate ------------ -------------------------------- Compensation paid by the Borrower to Kyle D. Parker during any fiscal year shall not exceed $200,000. "Compensation" shall mean all sums paid by the Borrower to such individual as salary, bonus, benefits, fees, draw, reimbursements, dividends, deferred compensation or other remuneration. Section 5.23. Restriction on Use of Proceeds. ------------ ------------------------------ None of the proceeds of the Credit shall be used by the Borrower to purchase commodities except for use in the ordinary course of the Borrower's business, or for the purpose of purchasing or carrying, or refinancing any borrowing the proceeds of which were used to purchase or carry, any "margin securities" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System. Section 5.24. Bank Accounts. ------------ ------------- The Borrower and its Subsidiaries shall maintain at all times all of its operating, concentration, collection and disbursement accounts with the Bank. Section 5.25. Further Security. ------------ ---------------- The Borrower agrees to provide the Bank with such security interest or liens as the Bank may hereafter reasonably request with respect to the assets of the Borrower, and to such actions as the Bank may hereafter request in order to maintain the Bank's first priority security interest in all of the Borrower's assets, as the same shall exist from time to time. Section 5.26. Material Agreements. ------------ ------------------- The Borrower will observe and perform all of its obligations under each material agreement to which it is a party, except where the failure so to observe would not have a material adverse affect upon the business, assets, operations, financial or other condition, or prospects of the Borrower. Section 5.27. Capital Expenditures. ------------ -------------------- The Borrower and its Subsidiaries shall not make or incur Capital Expenditures in an aggregate amount in excess of $1,500,000 in fiscal year 1998, and $1,000,000 in any fiscal year thereafter. "Capital Expenditures" shall mean expenditures which are properly chargeable to capital account under generally accepted accounting principals (including leases which are capitalized). Section 5.28. Minimum Annual Revenue. ------------ ---------------------- The consolidated revenues of the Borrower and its Subsidiaries shall not be less than the amounts set forth below as of the end of each fiscal period set forth below: 29
Period Minimum Annual Revenue ------ ---------------------- January 1, 1998 to December 31, 1998 $ 6,500,000 January 1, 1999 to December 31, 1999 $15,000,000 January 1, 2000 to December 31, 2000 $30,000,000
Section 5.29. Minimum Quick Ratio. ------------ ------------------- The Ratio of (a) consolidated Adjusted Current Assets to (b) consolidated Adjusted Current Liabilities shall not be less than 1.75 to 1.0 as at the end of each three (3) month period ending on each fiscal quarter commencing with the fiscal quarter ending June 30, 1998. "Adjusted Current Assets" shall mean, as of any date of determination, the sum of (i) cash and cash equivalents, (ii) the Maximum Cumulative Liability (as defined under the CRL Guaranty) plus the amount of the CRL Subordinated Creditors' aggregate unfunded commitment obligations under Section 2.02(c) of the CRL Purchase Agreement and (iii) Net Accounts Receivable. "Adjusted Current Liabilities" shall mean, as of any date of determination, (i) current liabilities (as determined in accordance with generally accepted accounting principles consistently applied) less (ii) Deferred Revenue. "Net Accounts Receivable" shall mean, as of any date of determination, the consolidated accounts receivable of the Borrower less all applicable reserves (in each case, as determined in accordance with generally accepted accounting principles consistently applied). "Deferred Revenue" shall mean all liabilities of the Borrower under subscription contracts, which under generally accepted accounting principles consistently applied are recorded as deferred revenues. Section 5.30. Minimum Tangible Capital Base. ------------ ----------------------------- The Tangible Capital Base shall not be less than the amounts set forth below at the end of each three (3) month fiscal period set forth below:
Period Minimum Tangible Capital Base ------ ----------------------------- July 1, 1998 to September 30, 1998 $5,300,000 October 1, 1998 to December 31, 1998 $4,600,000 January 1, 1999 to March 31, 1999 $2,800,000 April 1, 1999 to June 30, 1999 $1,500,000 July 1, 1999 to September 30, 1999 $ 650,000
In addition, for the three (3) month quarterly fiscal period ending after December 31, 1999, and for each three (3) month quarterly fiscal period ending thereafter, the Borrower and its Subsidiaries shall have a Tangible Capital Base of not less than $550,000. 30 "Tangible Capital Base" shall mean, as of any date of determination, the sum of (i) Stockholders' Equity (as determined in accordance with generally accepted accounting principles consistently applied), (ii) Subordinated Debt and (iii) the Maximum Cumulative Liability (as defined under the CRL Guaranty) plus the amount of the CRL Subordinated Creditors' aggregate unfunded commitment obligations under Section 2.02(c) of the CRL Purchase Agreement less Net Intangible assets, provided, however, that the database assets, to the extent under generally accepted accounting principles they are included as net intangible assets, shall not be included as Net Intangible Assets. "Subordinated Debt" shall mean all debt of the Borrower and its Subsidiaries owed to any entity other than the Bank which is expressly subordinated and made junior to the payment and performance of the obligations of the Borrower and its Subsidiaries to the Bank, on terms and conditions satisfactory to the Bank. "Net Intangible Assets" shall mean the total book value of all assets of the Borrower and its Subsidiaries which would be treated as intangible assets under generally, accepted accounting principles, including without limitation, such items as goodwill, trademarks, trade names, service marks, brand names, copyrights, patents and licenses, and right with respect to the foregoing. Section 5.31. Debt Service Coverage. ------------ --------------------- The ratio of (a) consolidated Adjusted EBITDA to (b) consolidated Debt Service of the Borrower and its Subsidiaries shall not be less than 1.25 to 1.0 at the end of each twelve (12) month period ending on each fiscal quarter commencing with the fiscal quarter ending December 31, 1999, provided, however, that Adjusted EBITDA for the twelve (12) month period ending December 31, 1999 shall be based upon the annualized nine (9) month period commencing April 1, 1999 and ending December 31, 1999. "Adjusted EBITDA" shall mean, as of any date of determination, EBITDA for the twelve (12) month period ending on such date minus the sum of (i) those ----- amounts attributable to Capital Expenditures during such twelve (12) month period, and (ii) all taxes due or payable with respect to such twelve (12) month period. "Debt Service" shall mean, as at any date of determination, the sum of (i) consolidated interest expense of the Borrower and its Subsidiaries for the twelve month period ending on such date, plus (ii) scheduled principal payments ---- on long term debt (including, without limitation, all indebtedness of the Borrower to the Bank) for the twelve month period commencing on the date following such date of determination, plus (iii) any amounts paid by the ---- Borrower in respect of the Deferred Facility Fee during the twelve month period ending on such date, all as determined in accordance with generally accepted accounting principles consistently applied. "EBITDA" shall mean, as of any date of determination, the sum of the consolidated pre-tax earnings of Borrower and its Subsidiaries, plus to the ---- extent deducted in calculating pre-tax earnings, consolidated depreciation, amortization and interest expense of the Borrower and its Subsidiaries. Section 5.32. Maximum Quarterly Net Losses; Minimum Income. The Borrower ------------ -------------------------------------------- and its Subsidiaries shall not, during each three (3) month quarterly fiscal period set forth below, have a 31 consolidated net loss (denoted in parentheses) (as determined in accordance with generally accepted accounting principles consistently applied) in excess of the amount set forth opposite such three (3) month fiscal period: Period Maximum Consolidated Net Loss July 1, 1998 to September 30, 1998 ($1,500,000) October 1, 1998 to December 31, 1998 ($1,000,000) January 1, 1999 to March 31, 1999 ($2,000,000) April 1, 1999 to June 30, 1999 ($1,750,000) July 1, 1999 to September 30, 1999 ($1,250,000) October 1, 1999 to December 31, 1999 ($500,000) In addition, for each three (3) month quarterly fiscal period ending after December 31, 1999, the Borrower and its Subsidiaries shall have positive consolidated net income (as determined in accordance with generally accepted accounting principles consistently applied) of not less than $1.00. Section 5.33. Renewal Rate. ------------ ------------ The consolidated Borrower's Renewal Rate shall not be less than eighty percent (80%) as of the end of each twelve (12) month period ending on each fiscal year of the Borrower, commencing with the fiscal year ending December 31, 1998. "Renewal Rate" shall mean as of any date of determination, the percentage of the Borrower's and its Subsidiaries' customers whose subscriptions come up for renewal during the relevant fiscal year that renew their subscriptions with the Borrower and/or its Subsidiaries, on terms no less favorable than those terms generally being offered by the Borrower and its Subsidiaries at the time of each such renewal. Section 5.34. Subordinated Debt. ------------ ----------------- The Borrower will not, and will not permit any of its Subsidiaries to, amend, supplement or otherwise modify any of the terms of any of the documents, instruments or agreements relating to the Borrower's (and/or its Subsidiaries') obligations to CRL, CRP or Moriarty including without limitation the CRL Subordinated Notes and the CRL Purchase Agreement (collectively, the "CRL Subordinated Debt Agreements"). Section 5.35. Fiscal Year and Accounting. ------------ -------------------------- The Borrower will not, and will not permit its Subsidiaries to, change the date of the end of its fiscal year from December 31 or change its accounting policies or reporting practices from those in effect prior to and as of the date of this Agreement. 32 Section 5.36. Additional Capital. ------------ ------------------ The Borrower shall exercise its rights under Section 2.02(c)(i) of the Purchase Agreement to issue, and cause the CRL Subordinated Creditors to purchase, the December CRL Subordinated Notes such that on December 31, 1998 the aggregate amount of the December CRL Subordinated Notes issued on December 31, 1998 is equal to a minimum of $3,000,000 less the Maximum Cumulative Liability (as defined in the CRL Guaranty) as of such date. The Borrower shall exercise its rights under Section 2.02(c)(ii) of the Purchase Agreement to issue, and cause the CRL Subordinated Creditors to purchase, Additional CRL Subordinated Notes such that on May 31, 1999 the aggregate amount of Additional CRL Subordinated Notes issued on December 31, 1998 and May 31, 1999 is equal to a minimum of $3,000,000 less the Maximum Cumulative Liability (as defined in the CRL Guaranty) as of such date. Section 5.37. Bank Accounts. ------------ ------------- The Borrower may maintain checking and related savings accounts with institutions other than the Bank, provided, however, that the aggregate amounts in such accounts shall not be material and in any event shall not at any point in time exceed those amounts necessary to satisfy projected cash needs of the Borrower for the immediately succeeding two week period after such point in time. ARTICLE VI. EVENTS OF DEFAULT. - ---------- ----------------- If, while any part of the principal of or interest on the Notes remains unpaid or while any part of the Credit shall be in effect, any one of the following "Events of Default" shall occur: (a) non-payment of principal of the Equipment Line of Credit Term Notes or the SBLC Line of Credit Term Note where due or failure to reimburse amounts drawn under any L/C when due pursuant to Section 2.05(b); (b) non-payment of interest on the Credit or any other amounts due to the Bank under any of the Credit Documents within five (5) days after the date due; (c) the Borrower or any Subsidiary shall (i) apply for or consent to the appointment of a receiver, trustee or liquidator of it or of all or a substantial part of its assets; (ii) admit in writing of its inability to pay its debts as they mature; (iii) make a general assignment for the benefit of creditors; (iv) be adjudicated a bankrupt or insolvent; (v) file a voluntary petition in bankruptcy or a petition or an answer seeking reorganization or an arrangement with creditors to take advantage of any insolvency law; (vi) file any answer admitting the material allegations of a petition filed against it in any bankruptcy, reorganization or insolvency proceeding or fail to dismiss such petition within sixty (60) days after the filing thereof; or (vii) take any corporate action for the purpose of effecting any of the foregoing; (d) an order, judgment or decree shall be entered, without the application, approval or consent of the Borrower by any court of competent jurisdiction, approving a petition 33 seeking reorganization or liquidation of the Borrower or appointing a receiver, trustee or liquidator of the Borrower or of all or a substantial part of its assets; (e) any material representation or Warranty made by the Borrower herein or hereunder or in any other Credit Document or in any certificate, document or instrument furnished pursuant hereto or thereto shall prove to have been false or incorrect in any material respect when made; (f) default by any Borrower or any Subsidiary in the performance of any covenant or agreement contained in Article II hereof (except as set forth in paragraphs (a) or (b) of this Article VI), or Article V hereof; (g) except as otherwise set forth in this Article VI, default by the Borrower in the performance of any other covenant or agreement contained herein or in any document or instrument required hereby or incidental or collateral hereto which shall not have been remedied within thirty (30) days after the earlier to occur of (i) written notice thereof shall have been given to the Borrower by the Bank, or (ii) the Borrower first learns of such default; (h) default by the Borrower in the performance of any covenant or agreement contained in any other agreement (including the CRL Subordinated Debt Agreements) to which it is a party or by which it is bound involving a liability or obligation of the Borrower in excess of $10,000 which shall not be remedied within the period of time (if any) within which such other agreement permits such default to be remedied without the consent or waiver of the other party thereto, unless such default is waived or excused as a matter of law; (i) failure by the Borrower to make any payment of principal or interest beyond the period of grace contained in any instrument or agreement to which the Borrower is a party or by which it may be bound evidencing any indebtedness for money borrowed in excess of $10,000 (unless such default is the result of a good faith dispute arising under such agreement or instrument and the other party or parties thereto have not accelerated the maturity of such indebtedness), or default by the Borrower in the performance of any other covenant or agreement contained in any such agreement or instrument referenced in this subparagraph which results in the acceleration of the maturity of any indebtedness of the Borrower to any other party; (j) any guarantor of the Borrower's obligations hereunder shall take any action to terminate its guarantee or there shall exist any payment default thereunder; (k) all or any substantial part of the assets of the Borrower shall be condemned, seized or otherwise appropriated by any governmental authority or any officer or instrumentally thereof; (l) a judgment or Judgments for the payment of money in excess of the sum of $10,000 in the aggregate (not covered by insurance) shall be rendered against the Borrower and such judgment or judgments shall remain unsatisfied and in effect for any period of sixty (60) days without a stay of execution; or 34 (m) there shall occur any material adverse change in the financial condition of the Borrower; (n) either (i) any of Kyle D. Parker, individually and in his capacity as trustee of the Parker Trust dated March 15, 1989, Melissa Parker, or the CRL Subordinated Creditors cease to own 80% of those interests in the Borrower they own as of the date hereof or shall own collectively less than ninety percent (90%) of the capital stock of the Borrower, or (ii) Kyle D. Parker shall cease to be actively engaged as the chief executive officer and president of the Borrower; (o) if any of the Credit Documents shall be cancelled, terminated, revoked or rescinded or the Bank's security interests, mortgages or liens in a substantial portion of the collateral shall cease to be perfected, or shall cease to have the priority contemplated by the Credit Documents, in each case otherwise than in accordance with the terms thereof or with the express prior written agreement, consent or approval of the Bank, or any action at law, suit or in equity or other legal proceeding to cancel, revoke or rescind any of the Credit Documents shall be commenced by or on behalf of the Borrower or any of its Subsidiaries party thereto or any of their respective stockholders, or any court or any other governmental or regulatory authority or agency of competent jurisdiction shall make a determination that, or issue a judgment, order, decree or ruling to the effect that, any one or more of the Credit Document is illegal, invalid or unenforceable in accordance with the terms thereof; (p) the closing of a Qualifying Liquidity Event (as such term is defined in the CRL Purchase Agreement); then and in every such event, while such event shall be continuing, the Bank may, by notice to the Borrower, (i) terminate the Revolving Credit, Equipment Line of Credit and/or the SBLC Line of Credit with respect to further advances, whereupon no advances may be made hereunder, (ii) declare the Notes to be forthwith due and payable, whereupon the Notes shall forthwith become due and payable without presentment, demand, protest or further notice of any kind, all of which are expressly waived by the Borrower, and the right to borrow hereunder shall terminate and/or (iii) require the Borrower to cash collateralize any outstanding L/C's; provided, however, that upon the happening of any event under Subsections (c) or (d) of this Article VI, then the Credit shall automatically terminate and the Notes shall, without the taking of any action by the Bank, immediately become due and payable and the right to borrow hereunder shall immediately terminate. ARTICLE VII. INDEMNIFICATION. - ----------- --------------- Without limitation of any other obligation or liability of the Borrower or right or remedy of the Bank contained herein, the Borrower hereby covenants and agrees to indemnify and hold the Bank, and the shareholders; directors, agents, officers, partners, subsidiaries and affiliates of the Bank, harmless from and against any and all damages, losses, settlement payments, obligations, liabilities, claims, including, without limitation, claims for finder's or broker's fees, actions or causes of action, and reasonable costs and expenses incurred, suffered, sustained or required to be paid by an indemnified party in each case by reason of or resulting from any claim relating to the transactions contemplated hereby (including without limitation taxes, fees or fines in connection with any filings contemplated under the Security Documents and this Agreement) other than any such claims which 35 are determined by a final, non-appealable order of a court to be the result of the Bank's gross negligence or willful misconduct. Promptly upon receipt by any indemnified party hereunder of notice of the commencement of any action against such indemnified party for which a claim is to be made against the Borrower hereunder, such indemnified party shall notify the Borrower in writing of the commencement thereof, although the failure to provide such notice shall not affect the indemnification rights of any such indemnified party hereunder. The Borrower shall have the right, at its option upon notice to the indemnified parties, to defend any such matter at its own expense and with its own counsel, except as provided below, which counsel must be reasonably acceptable to the indemnified parties. The indemnified party shall cooperate with the Borrower in the defense of such matter. The indemnified party shall have the right to employ separate counsel and to participate in the defense of such matter at its own expense. In the event that (a) the employment of separate counsel by an indemnified party has been authorized in writing by the Borrower, (b) the Borrower has failed to assume the defense of such matter or (c) the named parties to any), such action (including impleaded parties) include any indemnified party who has been advised by counsel that there may be one or more legal defenses available to it or prospective bases for liability against it, which are different from those available to or against the Borrower, then the Borrower shall not have the right to assume the defense of such matter with respect to such indemnified party. The Borrower shall not be liable for any compromise or settlement of any such matter effected without its written consent, which consent may not be unreasonably delayed. The Borrower shall not compromise or settle any such matter against an indemnified party without the written consent of the indemnified party, which consent may not be unreasonably withheld or delayed. ARTICLE VIII. ASSIGNMENTS, PARTICIPATIONS, ETC. - ------------ -------------------------------- Section 8.01. Successors and Assigns. ------------ ---------------------- (a) This Agreement shall bind and shall be enforceable by the respective successors and assigns of the parties hereto. The representations and warranties made by the Borrower in this Agreement shall bind the Borrower's successors and assigns. (b) The Bank and any subsequent holder of all or a portion of the Bank's interests hereunder shall have the right from time to time and at any time to sell, assign, transfer, negotiate and grant participation interests in all or any part of its commitments hereunder and its rights under the Notes and any other Credit Documents to one or more Persons. In the case of any such sale, assignment, transfer, negotiation or participation of all or any portion of such commitments, the assignee, transferee or recipient thereof shall have, to the extent of such sale, assignment, transfer, negotiation or participation, the same rights, benefits and obligations as the Bank hereunder. The Borrowers hereby acknowledge and agree that any such transfer, assignment or other disposition described in this Section 8.01(b) (other than participations) will give rise to direct obligations of the Borrowers to the buyer, assignee or transferee, as the case may be, and in such event the term "Bank" as used herein shall include each such buyer, assignee or transferee, each of which, to the extent of its interest therein, may rely on, and possess all rights of the Bank hereunder and under the Notes and all other Credit Documents. 36 ARTICLE IX. MISCELLANEOUS. - ---------- ------------- Section 9.01. Term of Agreement. ------------ ----------------- This Agreement shall terminate whenever both of the following conditions shall have been met: (a) all principal of and interest on the Notes and all other amounts due and payable under this Agreement have been paid and discharged in full, and (b) the Borrower shall have no further right to borrow under this Agreement. Section 9.02. Notices. ------------ ------- Except as otherwise specifically provided in this Agreement, all notices and other communications hereunder shall be in writing and shall be delivered in person, mailed by United States registered or certified first class mail, postage prepaid, sent by overnight courier, or telexed, telegraphed, telecopied or telefaxed to the parties hereto addressed as follows: To the Bank: Fleet National Bank One Federal Street Mail Stop MA0FD07A Boston, Massachusetts 02110 Attention: Scott D. Wheelock Vice President, High Technology Division Telefax Number: (617) 346-0151 With copies to: Goodwin, Procter & Hoar LLP Exchange Place Boston, Massachusetts 02109 Attention: H. David Henken, Esq. Telefax Number: (617) 523-1231 To the Borrower: Law Office Information Systems, Inc. 105 N. 28th Street Van Buren, Arkansas 72956 Attention: Kyle D. Parker, President Telefax Number: Any such notice or demand shall be deemed to have been duly given or made and to have become effective (a) if delivered by hand or overnight courier, or sent by telegraph, telecopy, facsimile or telex, at the time of the receipt thereof or the sending of such telegraph, telecopy, facsimile or telex, if during normal business hours on a Banking Day, and (b) if sent by registered or certified first-class mail, postage prepaid, on the third Banking Day following the mailing thereof. Section 9.03. No Waiver. ------------ --------- No failure to exercise, and no delay in exercising, on the part of the Bank, any right, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any 37 right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law. Section 9.04. Construction. ------------ ------------ The descriptive headings of the several Sections hereof are for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. This Agreement, together with the Exhibits hereto and all documents, instruments and agreements executed pursuant hereto, constitutes the entire agreement and understanding between the parties hereto with respect to the subject matter hereof, supersedes all prior agreements, understandings or representations pertaining to the subject matter hereof, whether oral or written, and may not be contradicted by evidence of any alleged oral agreement. Section 9.05. Amendments, Waivers and Consents. ------------ -------------------------------- Compliance by the Borrower with any term, covenant or condition of this Agreement may be omitted or waived (either generally or in a particular instance and either retroactively or prospectively) only by a consent or consents in writing signed by the Bank. Section 9.06. Closing. ------------ ------- The closing of the Credit ("Closing") shall take place at 10:00 a.m. on August 20, 1998, at the offices of Goodwin, Procter & Hoar LLP, Exchange Place, Boston, Massachusetts 02109, or such other time and place as the parties hereto may agree. Section 9.07. Governing Law; Jurisdictions; Venue. THIS AGREEMENT SHALL ------------ ----------------------------------- BE DEEMED TO BE A CONTRACT MADE UNDER, AND SHALL BE CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS. The Borrower hereby agrees that the state and federal courts of The Commonwealth of Massachusetts shall have jurisdiction to hear and determine any claims or disputes between the Bank and the Borrower pertaining directly or indirectly to this Agreement and all documents, instruments and agreements executed pursuant hereto, or to any matter arising therefrom (unless otherwise expressly provided for therein). To the extent permitted by law, the Borrower hereby expressly submit and consent in advance to such jurisdiction in any action or proceeding commenced by the Bank in any of such courts, and agrees that service of such summons and complaint or other process or papers may be made by registered or certified mail addressed to the Borrower at the address to which notices are to be sent pursuant to this Agreement. The Company waives any claim that Boston, Massachusetts is an inconvenient forum or an improper forum based on lack of venue. The choice of forum set forth in this Section 9.07 shall not be deemed to preclude the enforcement of any judgment obtained in such forum or the taking of any action to enforce the same in any other appropriate jurisdiction. Section 9.08. Waiver of Jury Trial. THE BANK AND THE BORROWER AGREE THAT ------------ -------------------- NEITHER OF THEM NOR ANY ASSIGNEE OR SUCCESSOR SHALL (A) SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER ACTION 38 BASED UPON OR ARISING OUT OF, THIS AGREEMENT, ANY NOTE OR ANY CREDIT DOCUMENT, ANY COLLATERAL OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG ANY OF THEM, OR (B) SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED BY THE BANK AND THE BORROWER, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NEITHER THE BANK NOR THE BORROWER HAS AGREED WITH OR REPRESENTED TO THE OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES. Section 9.09. Set-Off. ------------ ------- The Borrower and any Guarantor hereby grant to the Bank, a lien, security interest and right of setoff as security for all liabilities and 'Obligations of the Borrower or Guarantor to the Bank, whether now or existing or hereafter arising, upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of the Bank or any entity under the control of Fleet Financial Group, Inc., or in transit to any of them. At any time, without demand or notice, the Bank may set off the same or any part thereof and apply the same to any liability or obligation of the Borrower and any Guarantor even though unmatured and regardless of the adequacy of any other collateral securing the Credit. ANY AND ALL RIGHTS TO REQUIRE THE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER, COLLATERAL WHICH SECURES THE CREDIT, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE BORROWER OR ANY GUARANTOR, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED. Section 9.10. Usury Compliance. ------------ ---------------- All agreements between the Borrower and/or Guarantor and the Bank are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration of maturity of the indebtedness evidenced hereby or otherwise, shall the amount paid or agreed to be paid to the Bank for the use or the forbearance of the indebtedness evidenced hereby exceed the maximum permissible under applicable law. As used herein, the term "applicable law": shall mean the law in effect as of the date hereof provided, however that in the event there is a change in the law which results in a higher permissible rate of interest, then this Agreement (and the Notes) shall be governed by such new law as of its effective date. In this regard, it is expressly agreed that it is the intent of the Borrower and Lender in the execution, delivery and acceptance of this Agreement (and the Notes) to contract in strict compliance with the laws of the Commonwealth of Massachusetts from time to time in effect. If, under or from any circumstances whatsoever, fulfillment of any provision hereof or any of the Credit Documents at the time of performance of such provision shall be due, shall involve transcending the limit of such validity prescribed by applicable law, then the obligation to be fulfilled shall automatically be reduced to the limits of such validity, and if under or from circumstances whatsoever the Bank should ever receive as interest an amount which would exceed the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of the principal balance evidenced hereby (or by the Notes) and not to the payment of 39 interest. This provision shall control every other provision of all agreements between the Borrower and/or the Guarantor and the Bank. Section 9.11. Further Assurances Replacement Notes. ------------ ------------------------------------ From time to time hereafter, the Borrower shall, and shall cause its Subsidiaries to, execute and deliver or cause to be executed and delivered, such additional instruments, certificates and documents, and take all such actions, as the Bank shall reasonably request for the purpose of implementing or effectuating the provisions of the Credit Documents, and upon the exercise by the Bank of any power, right, privilege or remedy pursuant to the Credit Documents which requires any consent, approval, registration, qualification or authorization of any governmental authority or instrumentality, exercise and deliver all applications, certifications, instruments and other documents and papers that the Bank may be so required to obtain. Without limited the generality of the foregoing, upon receipt of an affidavit of an officer of the Bank as to the loss, theft, destruction or mutilation of any Note or any other security document which is not of public record, and, in the case of any such loss, theft, destruction or mutilation, upon surrender and cancellation of such Note or other Credit Document, the Borrower will issue, in lieu thereof, a replacement Note or other Credit Document in the same principal amount thereof and otherwise of like tenor. [END OF TEXT] 40 IN WITNESS WHEREOF, the parties hereto have executed this Agreement under seal as of the date first above written. LAW OFFICE INFORMATION SYSTEMS, INC. /s/ Kyle D. Parker By:_________________________________________ Name: Kyle D. Parker Title: President FLEET NATIONAL BANK /s/ Scott D. Wheelock By:_________________________________________ Name: Scott D. Wheelock Title: Vice President, High Technology Division Attachments to Credit Agreement not filed herewith SCHEDULES: Schedule 2.04 Outstanding Letters of Credit Schedule 3.01 Outstanding Capital Stock Schedule 3.02 Subsidiaries Schedule 3.05 Material Adverse Change Schedule 3.06 Litigation Schedule 3.07 Title Schedule 3.08 Tax Returns and Payments; IRS Settlements Schedule 3.12 Credit Agreements Schedule 3.13 Leases Schedule 3.14 Real Estate Owned Schedule 3.16 Hazardous Waste Schedule 3.17 Permits Schedule 3.18(a) Intellectual Property Rights Exceptions Schedule 3.18(b) Intellectual Property Rights Schedule 5.1(c) Indebtedness Schedule 5.14 Guarantees, Liens, Negative Pledges EXHIBITS: Exhibit 2.02(a) Form of Borrowing Base Certificate Exhibit 2.02(b) Form of Revolving Credit Note Exhibit 2.03(b) Form of Equipment Line of Credit Note Exhibit 2.03(d) Form of Equipment Line of Credit Term Note Exhibit 2.03(f) Certificate Accompanying Notice of Equipment Line of Credit Advance Exhibit 2.04(b) Form of SBLC Line of Credit Note Exhibit 2.04(d) Form of SBLC Line of Credit Term Note Exhibit 4.01(f) Form of Limited Guaranty Agreement Exhibit 4.01(h) Certificate of Insurance Exhibit 4.01(i) Certification of President Secretary's Certificate Exhibit 4.01(j) Law Office Information Systems, Inc. Perfection Certificate Exhibit 5.09(c) Form of Compliance Certificate EX-10.8 15 FIRST AMENDMENT TO CREDIT AGREEMENT Exhibit 10.8 FIRST AMENDMENT TO CREDIT AGREEMENT ---------------- This First Amendment to Credit Agreement ("First Amendment to Credit Agreement") is made as of this 31st day of December, 1998 by and between Law Office Information Systems, Inc., an Arkansas corporation ("Borrower"), and Fleet National Bank, a national banking association (hereinafter referred to as the "Bank"), as lender. WHEREAS, as of August 20, 1998, the Borrower and the Bank entered into a Credit Agreement (the "Original Credit Agreement"); and WHEREAS, the Borrower and the Bank now desire to amend the Original Credit Agreement by (i) increasing the maximum permitted amount of SBLC line of Credit Advances from $2,500,000 to $3,500,000 (the "Increase in Cash Advances") and (ii) requiring the conversion of the Increase in Cash Advances into a term loan with a maturity date of February 28, 1999, together with such other changes, all as set forth in this First Amendment to Credit Agreement. NOW, THEREFORE, in consideration of the mutual promises contained in this First Amendment to Credit Agreement, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. All references in the Original Credit Agreement to "Agreement" shall from and after the date hereof mean the Credit Agreement as amended by this First Amendment to Credit Agreement. 2. The defined term "Notes" as used in the Original Credit Agreement shall be amended as follows: "Notes" shall mean collectively, the Equipment Line of Credit Note and each Equipment Line of Credit Term Note, the SBLC Line of Credit Note, the SBLC Line of Credit Term Note, the SBLC Line of Credit Term Note II and the Revolving, Credit note, all substitutions and replacements of any of the foregoing, and any other notes issued by the Borrower to the Bank pursuant to this Agreement. 3. Sections 2.04, 2.05(a) and 2.06 and Exhibits 2.04(b) and 2.04(d) of the Original Credit Agreement are hereby amended by deleting said Sections and Exhibits in their entirety and substituting therefore the following: 1 Section 2.04. SBLC Line of Credit. ------------ ------------------- (a) General Terms. Subject to the terms and conditions hereof and ------------- provided that no Default or Event of Default has occurred or is continuing, the Borrower may, from time to time from the date hereof (1) up to December 31, 1998 directly borrow up to a maximum amount of $3,500,000 of the SBLC Line of Credit from the Bank, and the Bank shall advance funds to the Borrower as requested pursuant to Section 2.04(f) (each, an "SBLC Line of Credit Advance" and collectively, the "SBLC Line of Credit Advances") to finance the development of the Borrower's law library databases, and (ii) up to June 30, 1999, request and the Bank shall arrange to issue for the account of the Borrower, standby letters of credit pursuant to Section 2.05; provided, however, that the aggregate of (A) all outstanding SBLC -------- ------- Line of Credit Advances (including SBLC Line of Credit Advances evidenced by the SBLC Line of Credit Term Note and evidenced by the SBLC Line of Credit Term Note II (each as defined below)), and (B) the maximum aggregate liability of the Bank under all outstanding letters of credit issued by the Bank under Section 2.05 and under all outstanding letters of credit listed on Schedule 2.04 attached hereto (" L/C Obligations") shall at no time ------------- exceed $7,000,000 (the "Maximum SBLC Line of Credit"). The Borrower may. not reborrow SBLC Line of Credit Advances once repaid and to the extent that some portion of the SBLC Line of Credit is not borrowed prior to June 30, 1999, the Borrower shall have no further right to borrow under this Section 2.04 or request L/C's under Section 2.05. SBLC Line of Credit Advances made by the Bank shall automatically be converted into the SBLC Line of Credit Term Note and the SBLC Line of Credit Term Note II, respectively, pursuant to Section 2.04(d). (b) The SBLC Line of Credit Note. All amounts owed by the Borrower ---------------------------- with respect to SBLC Line of Credit Advances shall be evidenced by a converting SBLC line of credit note in the original principal amount of $3,500,000, dated the date hereof in the form attached hereto as Exhibit ------- 2.04(b) (the "SBLC Line of Credit Note "). ------- (c) SBLC Line of Credit Payment. If at any time the aggregate amount --------------------------- of outstanding SBLC Line of Credit Advances (including SBLC Line of Credit Advances evidenced by the SBLC Line of Credit Term Note and the SBLC Line of Credit Term Note II) and L/C Obligations exceeds the Maximum SBLC Line of Credit, then the Borrower shall immediately pay such excess to the Bank, and the Bank may, without prior notice to the Borrower, charge any of Borrower's accounts with the Bank in order to effect such payment. (d) (i) The SBLC Line Credit Term Note. On December 31, 1998 (the ------------------------------ "SBLC Line of Credit Conversion Date"), $2,500,000 of the aggregate outstanding SBLC Line of Credit Advances as of such date shall automatically be converted to a term note (hereinafter referred to as "SBLC Line of Credit Term Note") dated as of such date, in the 2 form attached hereto as Exhibit 2.04(d). The SBLC Line of Credit Term Note --------------- shall be in the original principal amount of $2,500,000 of SBLC Line of Credit Advances as of the SBLC Line of Credit Conversion Date. The conversion of SBLC Line of Credit Advances into an SBLC Line of Credit Term Note shall not constitute a prepayment of such SBLC Line of Credit Advances. Unless sooner prepaid pursuant to Section 2.09 or accelerated pursuant to Article VI hereof, the Borrower shall repay the principal of the SBLC Line of Credit Term Note in thirty-five (35) equal monthly installments of an amount equal to 2.778 % of the original principal amount of the SBLC Line of Credit Term Note, payable on the first day of each month commencing on February 1, 1999, with a final installment in the amount of the entire unpaid balance of the SBLC Line of Credit Term Note (including principal, all accrued but unpaid interest and any other amounts then due) due and payable on February 1, 2002. Interest shall be payable on the SBLC Line of Credit Term Note as provided in Section 2.04(e). (ii) The SBLC Line Credit Term Note II. On the SBLC Line of --------------------------------- Credit Conversion Date, up to $1,000,000 of the aggregate outstanding SBLC Line of Credit Advances as of such date that have not converted as provided in Section 2.04(d)(i) above shall automatically be converted to a term note (hereinafter referred to as "SBLC Line of Credit Term Note II") dated as of such date, in the form attached hereto as Exhibit 2.04(d)(i). The SBLC Line of Credit Term Note II shall be in the original principal amount of up to $1,000,000 of SBLC Line of Credit Advances as of the SBLC Line of Credit Conversion Date. The conversion of SBLC Line of Credit Advances into an SBLC Line of Credit Term Note II shall not constitute a prepayment of such SBLC Line of Credit Advances. Unless sooner prepaid pursuant to Section 2.09 or accelerated pursuant to Article VI hereof, the Borrower shall repay in full the principal of the SBLC Line of Credit Term Note II (including principal, all accrued but unpaid interest and any other amounts then due) due on February 28, 1999. Interest shall be payable on the SBLC Line of Credit Term Note II as provided in Section 2.04(e). (e) Interest. SBLC Line of Credit Advances made by the Bank and -------- amounts outstanding under the SBLC Line of Credit Term Note and the SBLC Line of Credit Term Note II shall bear interest prior to the occurrence of an Event of Default or maturity (computed on the basis of actual number of days elapsed over a 360-day year) on the unpaid principal balance outstanding from time to time at a fluctuating rate per annum equal to the aggregate of (i) the Prime Rate, plus (ii) one and one-half percent (1.5%). From and after the occurrence and during the continuation of an Event of Default or maturity (whether by demand, acceleration or otherwise), the unpaid principal balance of the SBLC Line of Credit (including amounts outstanding under SBLC Line of Credit Term Note and the SBLC Line of Credit Term Note II) shall bear interest at a fluctuating rate per annum equal to four percent (4%) above the rate of interest otherwise payable with respect to the SBLC Line of Credit. Interest shall be payable monthly in arrears on the first day of the next succeeding month commencing September 1, 1998. The effective rate of interest shall change on each date on which the Prime Rate shall change. 3 (f) Requests for Advances. Subject to the conditions of Section --------------------- 2.04(a), each SBLC Line of Credit Advance to the Borrower shall be made on a Banking Day on notice given by the Borrower to tie Bank prior to 11: 00 a.m. Boston time on the date of the proposed borrowing. Each request for an SBLC Line of Credit Advance shall be made to the Bank in writing (including by facsimile) or by telephone by a duly authorized representative of the Borrower, and the Bank may rely upon any telephone request which it reasonably believes is made by such a representative, and shall specify the amount of such SBLC Line of Credit Advance (which must be a minimum of $100,000). The Borrower agrees to indemnify and hold the Bank harmless for any. action, including the making of SBLC Line of Credit Advances hereunder, or loss or expense, taken or incurred by the Bank in good faith reliance upon such telephone request. At the time of the initial request for a SBLC Line of Credit Advance made under this Section 2.04(f), the Borrower shall have provided the Bank with a Compliance Certificate in the form required by Section 5.09(c) hereof. The Borrower hereby , agrees (i) that the Bank shall be entitled to rely upon the most recent Compliance Certificate in its possession until it is superseded by another Compliance Certificate, and (ii) that each request for a SBLC Line of Credit Advance, whether by telephone or in writing or otherwise, shall constitute a confirmation of the representations and warranties contained in the most recent Compliance Certificate then in the Bank's possession. (g) Expiration of SBLC Line of Credit. The SBLC Line of Credit shall --------------------------------- expire (i) with respect to direct borrowings of SBLC Line of Credit Advances on December 31, 1998, and (ii) with respect to letters of credit under Section 2.05, on June 30, 1999, whereupon no further advances may be made thereunder. Section 2.05. Letters of Credit. ------------ ----------------- (a) Issuance procedures. The Borrower may request, and the Bank will ------------------- arrange to issue standby letters of credit (individually, an "L/C", and collectively, with all outstanding letters of credit listed on Schedule -------- 2.04 attached hereto which shall be deemed to have been requested under ---- this Section 2.05, the "L/C's") for the account of the Borrower; provided that after giving effect to all such L/C's the L/C Obligations at such time shall not exceed $7,000,000 less (i) the aggregate principal amount of all SBLC Line of Credit Advances outstanding at such time, and (ii) the aggregate principal amount of the SBLC Line of Credit Term Note and the SBLC Line of Credit Term Note II. All L/C's shall have an expiration date not later than June 30, 2001. The Company shall deliver to the Bank an L/C application and L/C agreement together with the proposed form of such L/C (which, together with all schedules and exhibits thereto, shall be in form and substance satisfactory to the Bank and its counsel) and such other certificates, documents and other papers and information as the Bank may reasonably request. Any foreign beneficiary must be satisfactory to the Bank. Within five Banking Days following receipt of the above-described documents in satisfactory form, the Bank shall issue such 4 L/C, provided that immediately prior to the issuance of such L/C and after giving effect thereto no Default or Event of Default shall have occurred and be continuing. Section 2.06. Method of Payment. ------------ ----------------- All payments and prepayments of principal and interest due under the Notes and of fees due hereunder shall be made by the Borrower to the Bank in lawful money of the United States in immediately available funds. Payments received by the Bank after 11: 00 a.m. Boston time shall be deemed received on the next succeeding Banking Day. All payments of principal, interest or fees to be made to the Bank may be effected by the Bank debiting accounts of the Borrower with the Bank. If a Default or Event of Default has occurred or is continuing, all payments and prepayments made by the Borrower to the Bank hereunder shall apply first to pay all principal and interest due under the SBLC Line of Credit Note, the SBLC Line of Credit Term Note, the SBLC Line of Credit Term Note II and toward any obligation to reimburse the Bank under the L/C's. 4. After giving effect to this First Amendment to Agreement, all representations and warranties made by the Borrower in the Original Credit Agreement and the Security Documents are true and correct as of the date hereof (except for those representations which relate to a specific date which are true and correct on such date). 5. The Borrower represents that it has performed and complied with all covenants and agreements required to be performed and complied with by it under the Original Credit Agreement and the Security Documents. 6. Except as amended by this First Amendment to Credit Agreement, all provisions of the Original Credit Agreement, the Security Documents and all other documents referred to therein shall remain in full force and effect after giving effect to this First Amendment to Credit Agreement. 7. The Obligations (as defined in the Security Documents executed and delivered by the Borrower and the Guarantor) of Borrower and the Guarantor to the Bank secured by its respective Security Documents shall be deemed to include any additional obligations of the respective parties created by the terms of this First Amendment to Credit Agreement. 8. The execution of this First Amendment to Credit Agreement does not (i) waive any breaches or defaults or (ii) relieve the Borrower from any liability caused by any breaches or defaults prior to the date hereof of any representations, warranties and covenants (including any financial covenants) contained in the Original Credit Agreement, and the Bank expressly reserves any and all rights and remedies it may have in connection therewith or with respect thereto. 9. The amendments set forth in this First Amendment to Credit Agreement shall not be effective, and the Bank shall not be obligated to make a SBLC Line of Credit Advance 5 hereunder, or otherwise amend, modify or alter the Original Credit Agreement unless and until all of the following conditions shall have been fulfilled or waived by the Bank: (a) Execution of Notes. The Borrower shall have executed and ------------------ delivered to the Bank the SBLC Line: of Credit Note, the SBLC Line of Credit Term Note and the SBLC Line of Credit Term Note II, in each case in the form attached to this First Amendment to Credit Agreement. (b) Officer's Certificate for Borrower. The Borrower shall have ---------------------------------- delivered to the Bank a certificate substantially in the form of attached to the Original Credit Agreement with attached corporate resolutions authorizing the transactions contemplated by this First Amendment to Credit Agreement. (c) Acknowledgment by Guarantor. Capital Resource Lenders II, L.P., --------------------------- the Guarantor under that certain Limited Guaranty dated as of August 20, 1998, shall have acknowledged in writing that the Limited Guaranty shall remain in full force and effect after giving effect to this First Amendment to Credit Agreement and all references in the Limited Guaranty (i) to SBLC Line of Credit Note shall be deemed to refer to both the SBLC Line of Credit Note and the SBLC Line of Credit Note II and (ii) to Line of Credit Advances shall be deemed to refer to SBLC Line of Credit Advances as amended by this First Amendment to Credit Agreement. (d) Acknowledgment of Purchasers under the Subordination and -------------------------------------------------------- Intercreditor Agreement. Capital Resources Lenders III, L.P., CRP ----------------------- Investment Partners III, L.L.C. and Rowland Moriarty, the Purchasers under that certain Subordination and Intercreditor Agreement dated as of August 20, 1998, shall have acknowledged in writing that the Subordination and Intercreditor Agreement shall remain in full force and effect after giving effect to this First Amendment to Credit Agreement and all references in the Subordination and Intercreditor Agreement to the Credit Agreement shall be deemed to refer to the Original Credit Agreement as amended by this First Amendment to Credit Agreement. (e) Acknowledgment of Purchasers under Amendment No. 2. Capital -------------------------------------------------- Resource Lenders III, L.P., CRP Investment Partners III, L.L.C. and Rowland Moriarty, the Purchasers under that certain Amendment No. 2 dated as of August 20, 1998, shall have acknowledged in writing that Amendment No. 2 shall remain in full force and effect after giving effect to this First Amendment to Credit Agreement and all references in Amendment No. 2 to the CRL III Guaranty shall be deemed to refer to the Limited Guaranty referred to in Section 9(c) above after giving effect to this First Amendment to Credit Agreement. 10. The Borrower represents that the Borrower has full power and authority and has taken all required corporate and other action necessary to permit it to execute and deliver and 6 perform all of its obligations contained in this First Amendment to Credit Agreement, and to borrow thereunder, and none of such actions will violate any provision of law applicable to, or of the charter or by-laws of, the Borrower, or result in the breach of or constitute a default under any agreement or instrument to which the Borrower is a party or by which it is bound. This First Amendment to Credit Agreement has been duly authorized and validly executed and is the valid and binding obligation of the Borrower enforceable in accordance with its respective terms. Neither the execution or delivery by the Borrower of this First Amendment to Credit Agreement or the performance by the Borrower of its respective obligations thereunder, require the consent, approval or authorization of any person or governmental authority. 11. Promptly upon receipt of an invoice therefor, the Borrower will pay all legal fees of the Bank's counsel in connection with the preparation, negotiation, execution and delivery of this First Amendment to Credit Agreement. 12. This First Amendment to Credit Agreement represents the entire agreement among the parties thereto relating to the amendment to the Original Credit Agreement effected hereby, and supersedes all prior understandings and agreements among the parties relating to the subject matter of this amendment to the Original Credit Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement under seal as of the date first above written. LAW OFFICE INFORMATION SYSTEMS, INC. /s/ Kyle D. Parker By: _____________________________________ Name: Kyle D. Parker Title: President FLEET NATIONAL BANK /s/ Scott D. Wheelock By: ______________________________________ Name: Scott D. Wheelock Title: Vice President, High Technology Division 7 EX-10.9 16 SECOND AGREEMENT TO CREDIT AGREEMENT EXHIBIT 10.9 SECOND AMENDMENT AND WAIVER TO CREDIT AGREEMENT ---------------- This Second Amendment and Waiver to Credit Agreement (this "Second Amendment") is made as of April 30, 1999 by and between Law Office Information Systems, Inc., an Arkansas corporation (the "Borrower"), and Fleet National Bank, a national banking association (the "Bank"). WHEREAS, the Borrower and the Bank are parties to a Credit Agreement dated as of August 20, 1998, as amended by a First Amendment To Credit Agreement dated as of December 31, 1998 (as amended, the "Credit Agreement"); and WHEREAS, the Borrower has requested that the Bank amend the Credit Agreement to, among other things, (i) increase the maximum permitted amount of SBLC line of Credit Advances and (ii) modify the dates on which the SBLC Line of Credit Advances shall convert to term notes and begin to amortize; and WHEREAS, the Borrower has also requested that the Bank waive the Borrower's obligation to comply with certain financial covenants set forth in the Credit Agreement for the fiscal period ended December 31, 1998; and WHEREAS, the Bank is willing to amend and waive certain provisions of the Credit Agreement, on the terms and conditions more fully set forth in this Second Amendment; NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows: 1. All references in the Credit Agreement to the "Agreement" shall from and after the date hereof mean the Credit Agreement as amended by the First Amendment to Credit Agreement and by this Second Amendment. 2. The term "Notes" as defined in Section 1.01 of the Credit Agreement is hereby amended to read as follows: "Notes" shall mean collectively, the Revolving Credit Note, the Equipment Line of Credit Note and each Equipment Line of Credit Term Note, the $500,000 SBLC Line of Credit Note, the $3,500,000 SBLC Line of Credit Term Note and all other SBLC Line of Credit Notes, SBLC Line of Credit Term Notes and other notes which may be issued by the Borrower to the Bank pursuant to this Agreement, and all substitutions and replacements of any of the foregoing. 3. Sections 2.04, 2.05(a) and 2.06 and Exhibits 2.04(b) and 2.04(d) of ---------------- ------- the Original Credit Agreement are hereby amended by deleting said Sections and Exhibits in their entirety and substituting therefore the following: Section 2.04. SBLC Line of Credit. ------------ ------------------- (a) General Terms. Subject to the terms and conditions hereof, the ------------- Bank has established a $7,000,000 SBLC Line of Credit in favor of the Borrower, pursuant to which the Bank has (i) made advances (each an "SBLC Line of Credit Advance" and collectively, the "SBLC Line of Credit Advances") directly to the Borrower in the aggregate principal amount as of April __, 1999 of $3,500,000 (the "$3,500,000 Outstanding SBLC Line of Credit Advances") to finance the development of the Borrower's law library databases; (ii) agreed to make up to $500,000 in aggregate principal amount of additional SBLC Line of Credit Advances (the $500,000 Additional SBLC Line of Credit Advances") to the Borrower during the period from April __, 1999 through the Additional SBLC Line of Credit Advance Expiration Date (as hereinafter defined) to finance additional developments of the Borrower's law library databases, and (iii) issued, and agreed to issue, from time to time through and until June 30, 1999 for the account of the Borrower, standby letters of credit pursuant to Section 2.05; provided, however, that -------- ------- the aggregate of (A) all outstanding SBLC Line of Credit Advances (including both the $3,500,000 Outstanding SBLC Line of Credit Advances and the $500,000 Additional Line of Credit Advances), and (B) the maximum aggregate liability of the Bank under all outstanding letters of credit issued by the Bank under Section 2.05 and under all outstanding letters of credit listed on Schedule 2.04 attached hereto ("L/C Obligations") shall at ------------- no time exceed $7,000,000 (the "Maximum SBLC Line of Credit"). The Borrower may not reborrow SBLC Line of Credit Advances once repaid and (i) to the extent that the Borrower has not borrowed the entire $500,000 of Additional SBLC Line of Credit Advances by the Additional SBLC Line of Credit Advance Expiration Date, the Borrower shall have no further right to borrow SBLC Line of Credit Advances under this Section 2.04. In addition, the Borrower shall have no further right to request L/C's under Section 2.05 after June 30, 1999. As used herein, the term "Additional SBLC Line of Credit Advance Expiration Date" shall mean the earlier of (i) May 15, 1999 or (ii) the date on which the Borrower receives proceeds from the issuance and/or sale of any of its debt or equity securities or interests. (b) The SBLC Line of Credit Note. All amounts owed by the Borrower ---------------------------- with respect to the $500,000 Additional SBLC Line of Credit Advances shall be evidenced by a SBLC line of credit note in substantially the form attached hereto as Exhibit 2.04(b) (the "SBLC Line of Credit Note"), in the --------------- original principal amount of $500,000, dated the date hereof and due and payable in full (together with all accrued and unpaid interest thereon) on the Additional SBLC Line of Credit Advance Expiration Date. Interest shall be payable on the SBLC Line of Credit Note as provided in Section 2.04(e). 2 (c) SBLC Line of Credit Payments. If at any time the aggregate amount ---------------------------- of outstanding SBLC Line of Credit Advances (including both the $3,500,000 Outstanding SBLC Line of Credit Advances and the $500,000 Additional SBLC Line of Credit Advances) and L/C Obligations exceeds the Maximum SBLC Line of Credit, then the Borrower shall immediately pay such excess to the Bank, and the Bank may, without prior notice to the Borrower, charge any of Borrower's accounts with the Bank in order to effect such payment. (d) The SBLC Line Credit Term Note. All amounts owed by the Borrower ------------------------------ with respect to the $3,500,000 Outstanding SBLC Line of Credit Advances shall be evidenced by a SBLC line of credit term note in substantially the form attached hereto as Exhibit 2.04(d) (the "SBLC Line of Credit Term --------------- Note"), in the original principal amount of $3,500,000, dated the date hereof and due and payable in thirty-two (32) equal monthly installments, each in the amount of $109,375, payable on the first day of each month commencing on May 1, 1999, with a final installment in the amount of the entire unpaid principal balance of the $3,500,000 Outstanding SBLC Line of Credit Advances (together with all accrued and unpaid interest thereon), due and payable on February 1, 2002. Interest shall be payable on the SBLC Line of Credit Term Note as provided in Section 2.04(e). (e) Interest. All SBLC Line of Credit Advances made by the Bank -------- (including all amounts outstanding under the SBLC Line of Credit Note and under the SBLC Line of Credit Term Note) shall bear interest prior to the occurrence of an Event of Default or maturity (computed on the basis of actual number of days elapsed over a 360-day year) on the unpaid principal balance outstanding from time to time at a fluctuating rate per annum equal to the aggregate of (i) the Prime Rate, plus (ii) one and one-half percent (1.5%). From and after the occurrence and during the continuation of an Event of Default or maturity (whether by demand, acceleration or otherwise), the unpaid principal balance of the SBLC Line of Credit (including all amounts outstanding under the SBLC Line of Credit Note and under the SBLC Line of Credit Term Note) shall bear interest at a fluctuating rate per annum equal to four percent (4%) above the rate of interest otherwise payable with respect to the SBLC Line of Credit. Interest shall be payable monthly in arrears on the first day of the next succeeding month commencing September 1, 1998. The effective rate of interest shall change on each date on which the Prime Rate shall change. (f) Requests for Advances. Subject to the conditions of Section --------------------- 2.04(a), each SBLC Line of Credit Advance to the Borrower shall be made on a Banking Day on notice given by the Borrower to the Bank prior to 11:00 a.m. Boston time on the date of the proposed borrowing. Each request for an SBLC Line of Credit Advance shall be made to the Bank in writing (including by facsimile) or by telephone by a duly authorized representative of the Borrower, and the Bank may rely upon any telephone request which it reasonably believes is made by such a representative, and shall specify the amount of such SBLC Line of Credit Advance (which must be a minimum of $100,000). The Borrower agrees to indemnify and hold the Bank harmless for any action, including the making of SBLC Line of Credit Advances hereunder, or loss or expense, taken or incurred by the Bank in good faith reliance upon such telephone request. At the time of 3 the initial request for a SBLC Line of Credit Advance made under this Section 2.04(f), the Borrower shall have provided the Bank with a Compliance Certificate in the form required by Section 5.09(c) hereof. The Borrower hereby agrees (i) that the Bank shall be entitled to rely upon the most recent Compliance Certificate in its possession until it is superseded by another Compliance Certificate, and (ii) that each request for a SBLC Line of Credit Advance, whether by telephone or in writing or otherwise, shall constitute a confirmation of the representations and warranties contained in the most recent Compliance Certificate then in the Bank's possession. (g) Expiration of SBLC Line of Credit. The SBLC Line of Credit shall --------------------------------- expire (i) with respect to direct borrowings of SBLC Line of Credit Advances on the Additional SBLC Line of Credit Advance Expiration Date, and (ii) with respect to letters of credit under Section 2.05, on June 30, 1999, whereupon no further advances may be made thereunder. Section 2.05. Letters of Credit. ------------ ----------------- (a) Issuance procedures. The Borrower may request, and the Bank will ------------------- arrange to issue standby letters of credit (individually, an "L/C", and collectively, with all outstanding letters of credit listed on Schedule -------- 2.04 attached hereto which shall be deemed to have been requested under ---- this Section 2.05, the "L/C's") for the account of the Borrower; provided -------- that after giving effect to all such L/C's the L/C Obligations at such time shall not exceed $7,000,000 less (i) the aggregate principal amount of all SBLC Line of Credit Advances outstanding at such time (including the principal amount of the SBLC Line of Credit Note and the SBLC Line of Credit Term Note). All L/C's shall have an expiration date not later than June 30, 2001. The Company shall deliver to the Bank an L/C application and L/C agreement together with the proposed form of such L/C (which, together with all schedules and exhibits thereto, shall be in form and substance satisfactory to the Bank and its counsel) and such other certificates, documents and other papers and information as the Bank may reasonably request. Any foreign beneficiary must be satisfactory to the Bank. Within five Banking Days following receipt of the above-described documents in satisfactory form, the Bank shall issue such L/C, provided that immediately prior to the issuance of such L/C and after giving effect thereto no Default or Event of Default shall have occurred and be continuing. Section 2.06. Method of Payment. ------------ ----------------- All payments and prepayments of principal and interest due under the Notes and of fees due hereunder shall be made by the Borrower to the Bank in lawful money of the United States in immediately available funds. Payments received by the Bank after 11:00 a.m. Boston time shall be deemed received on the next succeeding Banking Day. All payments of principal, interest or fees to be made to the Bank may be effected by the Bank debiting accounts of the Borrower with the Bank. If a Default or Event of Default has occurred or is continuing, all payments and prepayments made by the Borrower to the Bank hereunder shall apply first to all outstanding fees and expenses of the Bank, second to pay all interest and fees due in respect of the SBLC Line of Credit Note, the SBLC Line of Credit Term Note and the L/C's, third to pay all principal due under the SBLC 4 Line of Credit Note, fourth to pay all principal due under the SBLC Line of Credit Term Note, and fifth toward any reimbursement obligations of the Borrower to the Bank in respect of L/C's. 4. The Borrower has indicated to the Bank that as of December 31, 1998, the Borrower was not in compliance with the minimum annual revenue, minimum quick ratio, minimum tangible capital base and maximum quarterly net loss covenants set forth in Sections 5.28, 5.29, 5.30 and 5.32 of the Credit Agreement. Based upon the representations and warranties of the Borrower set forth herein, and subject to the terms and conditions of this Second Amendment, the Bank hereby waives the Events of Default resulting from the Borrower's failure to comply with the financial covenants set forth in Sections 5.28, 5.29, 5.30 and 5.32 of the Credit Agreement as at December 31, 1998. The foregoing waiver shall apply only to those specific Sections of the Credit Agreement referenced above and only as of December 31, 1998, and nothing herein shall be deemed to constitute an amendment, modification or waiver of any other covenant set forth in the Credit Agreement. 5. The Borrower hereby represents and warrants that after giving effect to this Second Amendment, (a) all representations and warranties made by the Borrower in the Credit Agreement and the Security Documents are true and correct as of the date hereof (except for those representations which relate to a specific date which are true and correct on such date), and (b) the Borrower has performed and complied with all covenants and agreements required to be performed and complied with by it under the Credit Agreement and the Security Documents. 6. Except as amended by this Second Amendment to Credit Agreement, all provisions of the Credit Agreement, the Security Documents and all other documents referred to therein shall remain in full force and effect after giving effect to this Second Amendment. 7. The Obligations (as defined in the Security Documents executed and delivered by the Borrower and the Guarantor) of Borrower and the Guarantor to the Bank secured by its respective Security Documents shall be deemed to include any and all additional obligations of the respective parties created by the terms of this Second Amendment. The Borrower hereby grants in favor of the Bank, and confirms its prior grant in favor of the Bank, pursuant to the Security Documents, of security interests in substantially all of the Borrower's property and assets as security for the prompt payment and performance of all of the Obligations, including, without limitation, all obligations of the Borrower under this Second Amendment. 8. Except as otherwise expressly set forth in paragraph 4 of this Second Amendment, the execution of this Second Amendment does not constitute a waiver by the Bank of, and does not in any way relieve the Borrower from any liability caused by, any breaches or defaults by the Borrower prior to the date hereof of any representations, warranties and covenants (including any financial covenants) contained in, the Credit Agreement, and the Bank expressly reserves any and all rights and remedies it may have in connection therewith or with respect thereto. 9. The amendments and waiver set forth in this Second Amendment shall not be effective, and the Bank shall not be obligated to make any additional SBLC Line of Credit Advances or to issue any additional L/C's under the Credit Agreement, or otherwise amend, 5 modify or alter the Original Credit Agreement unless and until all of the following conditions shall have been fulfilled or waived by the Bank: (a) Execution of Notes. The Borrower shall have executed and ------------------ delivered to the Bank the SBLC Line of Credit Note and the SBLC Line of Credit Term Note, in each case in the form attached to this Second Amendment. (b) Officer's Certificate for Borrower. The Borrower shall have ---------------------------------- delivered to the Bank a certificate substantially in the form of attached to the Credit Agreement with attached corporate resolutions authorizing the transactions contemplated by this Second Amendment. (c) Acknowledgment by Guarantor. Capital Resource Lenders III, L.P., --------------------------- the Guarantor under that certain Limited Guaranty dated as of August 20, 1998, shall have acknowledged in writing that the Limited Guaranty shall remain in full force and effect after giving effect to this Second Amendment and all references in the Limited Guaranty (i) to the SBLC Line of Credit Note shall be deemed to refer to both the SBLC Line of Credit Note and the SBLC Line of Credit Term Note and (ii) to SBLC Line of Credit Advances shall be deemed to refer to all SBLC Line of Credit Advances made under the Credit Agreement, as amended by this Second Amendment. (d) Acknowledgment of Purchasers under the Subordinated Note and ------------------------------------------------------------ Securities Purchase Agreement and under the Subordination and Intercreditor --------------------------------------------------------------------------- Agreement. Capital Resources Lenders III, L.P., CRP Investment Partners --------- III, L.L.C. and Rowland Moriarty, the Purchasers under that certain Subordinated Note and Securities Purchase Agreement dated as of November 24, 1997, as amended (as so amended, the "Purchase Agreement") and under that certain Subordination and Intercreditor Agreement dated as of August 20, 1998 (the "Subordination and Intercreditor Agreement"), shall have acknowledged in writing that the Purchase Agreement and the Subordination and Intercreditor Agreement shall remain in full force and effect after giving effect to this Second Amendment, all references in the Purchase Agreement and the Subordination and Intercreditor Agreement to the Credit Agreement shall be deemed to refer to the Credit Agreement as amended by this Second Amendment, and all references in the Purchase Agreement to the CRL III Guaranty shall be deemed to refer to the Limited Guaranty referred to in paragraph 9(c) of this Second Amendment, after giving effect to this Second Amendment. 10. The Borrower represents and warrants to the Bank that the Borrower has full power and authority and has taken all required corporate and other action necessary to permit it to execute and deliver and perform all of its obligations contained in this Second Amendment, and to borrow under the Credit Agreement, and none of such actions will violate any provision of law applicable to, or of the charter or by-laws of, the Borrower, or result in the breach of or constitute a default under any agreement or instrument to which the Borrower is a party or by which it is bound. This Second Amendment has been duly authorized and validly executed and is the valid and binding obligation of the Borrower enforceable in accordance with its respective terms. Neither the execution or delivery by the Borrower of this Second Amendment nor the performance by the Borrower of its respective obligations under this Second Amendment, the 6 Credit Agreement or the Security Documents, requires the consent, approval or authorization of any person or governmental authority. 11. Promptly upon receipt of an invoice therefor, the Borrower will pay all legal fees of the Bank's counsel in connection with the preparation, negotiation, execution and delivery of this Second Amendment. 12. This Second Amendment represents the entire agreement among the parties thereto relating to the amendment to the Credit Agreement effected hereby, and supersedes all prior understandings and agreements among the parties relating to the subject matter of this amendment to the Credit Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement under seal as of the date first above written. LAW OFFICE INFORMATION SYSTEMS, INC. /s/ Kyle D. Parker By:______________________________________ Name: Kyle D. Parker Title: President FLEET NATIONAL BANK /s/ Scott D. Wheelock By:______________________________________ Name: Scott D. Wheelock Title: Vice President, High Technology Division 7 ACKNOWLEDGMENT OF GUARANTOR --------------------------- The undersigned, Capital Resource Lenders III, L.P., the Guarantor under that certain Limited Guaranty dated as of August 20, 1998, hereby acknowledges that such Limited Guaranty remains in full force and effect after giving effect to the foregoing Second Amendment and Waiver to Credit Agreement and all references in such Limited Guaranty (i) to the SBLC Line of Credit Note shall be deemed to refer to both the SBLC Line of Credit Note and the SBLC Line of Credit Term Note and (ii) to SBLC Line of Credit Advances shall be deemed to refer to all SBLC Line of Credit Advances made under the Credit Agreement, as amended by the foregoing Second Amendment and Waiver to Credit Agreement. Dated: April __, 1999 CAPITAL RESOURCE LENDERS III, L.P. By: Capital Resource Partners III, L.L.C., its general partner By:_________________________________ Name: Title: 8 ACKNOWLEDGMENT OF PURCHASERS ---------------------------- The undersigned, Capital Resources Lenders III, L.P., CRP Investment Partners III, L.L.C. and Rowland Moriarty, the Purchasers under that certain Subordinated Note and Securities Purchase Agreement dated as of November 24, 1997, as amended (as so amended, the "Purchase Agreement"), and under that certain Subordination and Intercreditor Agreement dated as of August 20, 1998 (the "Subordination and Intercreditor Agreement"), hereby acknowledge that the Purchase Agreement and the Subordination and Intercreditor Agreement remain in full force and effect after giving effect to the foregoing Second Amendment and Waiver to Credit Agreement, all references in the Purchase Agreement and the Subordination and Intercreditor Agreement to the Credit Agreement shall be deemed to refer to the Credit Agreement as amended by the foregoing Second Amendment and Waiver to Credit Agreement, and all references in the Purchase Agreement to the CRL III Guaranty shall be deemed to refer to the Limited Guaranty dated as of August 20, 1998 from Capital Resource Lenders III, L.P. in favor of the Bank, after giving effect to the foregoing Second Amendment and Waiver to Credit Agreement. Dated: April __, 1999 CAPITAL RESOURCE LENDERS III, L.P. By: Capital Resource Partners III, L.L.C., its general partner By:_________________________________ Name: Title: Dated: April __, 1999 CRP INVESTMENT PARTNERS III, L.L.C. By:_________________________________ Name: Title: Dated: April __, 1999 ____________________________________ Rowland Moriarty 9 EX-10.10 17 THIRD AGREEMENT TO CREDIT AGREEMENT EXHIBIT 10.10 THIRD AMENDMENT AND WAIVER TO CREDIT AGREEMENT ---------------- This Third Amendment and Waiver to Credit Agreement (this "Third Amendment") is made as of May 25, 1999 by and between Law Office Information Systems, Inc., an Arkansas corporation (the "Borrower"), and Fleet National Bank, a national banking association (the "Bank"). WHEREAS, the Borrower and the Bank are parties to a Credit Agreement dated as of August 20, 1998, as amended by a First Amendment to Credit Agreement dated as of December 31, 1998 and a Second Amendment and Waiver to Credit Agreement dated as of April 30, 1999 (as amended, the "Credit Agreement"); and WHEREAS, the Borrower has requested that the Bank amend the Credit Agreement to, among other things, (i) increase the amount of and extend the maturity date of a portion of the credit facilities, and (ii) modify certain financial covenants; and WHEREAS, the Bank is willing to amend the Credit Agreement, on the terms and subject to the conditions set forth in this Third Amendment; NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows: 1. All references in the Credit Agreement to the "Agreement" shall from and after the date hereof mean the Credit Agreement as amended by the First Amendment to Credit Agreement, the Second Amendment and Waiver to Credit Agreement, and this Third Amendment. 2. The term "Notes" as defined in Section 1.01 of the Credit Agreement is hereby amended to read as follows: "Notes" shall mean collectively, the Revolving Credit Note, the Equipment Line of Credit Note A, the Equipment Line of Credit Note B, the $500,000 SBLC Line of Credit Note, the $3,500,000 SBLC Line of Credit Term Note and all other notes which may be issued by the Borrower to the Bank pursuant to this Agreement, and all substitutions and replacements of any of the foregoing. 3. Sections 2.01, 2.02 and 2.03, and Exhibits 2.02(b), 2.03(b), and ---------------- ------- 2.03(d) of the Credit Agreement are hereby amended by deleting said Sections and - ------- Exhibits in their entirety and substituting therefore the following new Sections 2.01, 2.02 and 2.03 and new Exhibits 2.02(b), 2.03(a), 2.03(b): ---------------- ------- ------- Section 2.01. The Credit. ------------ ---------- Subject to the terms and conditions hereof, and in reliance on the representations and warranties contained herein, the Bank hereby establishes a credit facility in favor of the Borrower in the maximum aggregate principal amount of $12,000,000 as set forth below (the "Credit"). The Credit shall consist of (i) a secured working capital revolving line of credit in the maximum principal amount of $2,500,000 (the "Revolving Credit"), (ii) a secured converting equipment line of credit in the maximum principal amount of $1,000,000 (the "Equipment Line of Credit A"), (iii) a secured converting equipment line of credit in the maximum principal amount of $1,500,000 (the "Equipment Line of Credit B"), and (iv) a secured converting SBLC line of credit in the maximum principal amount of $7,000,000 (the "SBLC Line of Credit"). Section 2.02. The Revolving Credit. ------------ -------------------- (a) General Terms. Subject to the terms and conditions hereof and provided ------------- that no Default or Event of Default has occurred and is continuing, the Borrower may, from time to time from the date hereof through June 1, 2000 (the "Revolving Credit Maturity Date") borrow and reborrow from the Bank, and the Bank shall advance funds to the Borrower as requested pursuant to Section 2.02(e) (a "Revolving Credit Advance" and collectively, the "Revolving Credit Advances"); provided, however, that the aggregate of all Revolving Credit Advances outstanding at any time shall not exceed the lesser of (i) $2,500,000 or (ii) the "Borrowing Base" (the "Maximum Revolving Credit"). The Borrowing Base shall equal the sum of (i) 80% of Qualified Accounts (as hereinafter defined), plus (ii) 80% of the Net Present Value of Electronic Funds Transfer Receivables (as hereinafter defined). "Qualified Accounts" (without any duplication of any accounts falling within the definition of Net Present Value of Electronic Funds Transfer Receivables) shall mean all accounts of the Borrower arising in the ordinary course of business (i) in which the Bank has a perfected security interest; (ii) which are not with respect to sales or services to a supplier, employee, shareholder, Subsidiary or Affiliate of the Borrower, or to the United States of America or any agency thereof, or to an account debtor located outside of the United States of America; (iii) which are not on account of consigned goods; (iv) which are not with respect to accounts of account debtors of the Borrower who have any accounts or portions thereof evidenced by a promissory note; (v) which are accounts billed in a manner consistent with past business practices of the Borrower and not more than 90 days due from the date of issuance of the invoice; (vi) which are not subject to any dispute, setoff, finance charge, credit, allowance or adjustment by the account debtor; and (vii) which the Bank has not otherwise determined to be unsatisfactory. "Net Present Value of Electronic Funds Transfer Receivables" shall mean all accounts receivable of the Borrower relating to electronic funds monthly transfer arrangements between the Borrower and its customers and subscribers that are due within 2 one year of the date of determination of the relevant Borrowing Base, discounted to net present value using a discount rate equal to the rate of interest applicable to Revolving Credit Advances (as provided in Section 2.02(d)) as of the date of determination of the relevant Borrowing Base. The Borrower shall furnish to the Bank not later than fifteen (15) days following the end of each monthly accounting period a Borrowing Base Certificate in the form of Exhibit 2.02(a) attached hereto, completed and signed by the --------------- Borrower's chief financial officer. The Borrowing Base shown on such certificate shall be as of the last day of said monthly accounting period. If a Borrowing Base Certificate is not delivered within the specified period the Bank shall not be obligated to make further Revolving Credit Advances until a Borrowing Base Certificate as of the most recent month ended is delivered. (b) The Revolving Credit Note. All amounts owed by the Borrower with ------------------------- respect to Revolving Credit Advances shall be evidenced by a revolving credit note in the principal amount of $2,500,000, dated the date hereof in the form attached hereto as Exhibit 2.02(b) (the "Revolving Credit Note"). --------------- (c) Revolving Credit Payment. Revolving Credit Advances may be repaid at ------------------------ any time. The aggregate of all Revolving Credit Advances shall not at any time exceed the Maximum Revolving Credit. If at any time the aggregates outstanding Revolving Credit Advances exceeds the Maximum Revolving Credit, then the Borrower shall immediately pay such excess to the Bank, and the Bank may, without prior notice to the Borrower, charge any of Borrower's accounts with the Bank in order to effect such payment. (d) Interest. Revolving Credit Advances made by the Bank shall bear -------- interest prior to the occurrence of an Event of Default or maturity (computed on the basis of actual number of days elapsed over a 360-day year) on the unpaid principal balance outstanding from time to time at a fluctuating rate per annum equal to the aggregate of (i) the Prime Rate, plus (ii) one-half of one percent (0.50%). From and after the occurrence and during the continuation of an Event of Default or maturity (whether by demand, acceleration or otherwise), the unpaid principal balance of the Revolving Credit shall bear interest at a fluctuating rate per annum equal to four percent (4%) above the rate of interest otherwise payable with respect to the Revolving Credit. Interest shall be payable monthly in arrears on the first day of the next succeeding month commencing September 1, 1998. The effective rate of interest shall change on each date on which the Prime Rate shall change. (e) Requests for Advances. Each Revolving Credit Advance shall be made on --------------------- the day on which the Bank receives notice from the Borrower or, if such day is not a Banking Day, on the next succeeding Banking Day, provided the Bank receives notice from the Borrower prior to 11:00 a.m. Boston time on such Banking Day. Each request for a Revolving Credit Advance shall be made to the Bank in writing (including by facsimile) or by telephone by a duly authorized representative of the Borrower, and the Bank may rely upon any telephone request which it reasonably believes is made by such 3 a representative. The Borrower agrees to indemnify and hold the Bank harmless for any action, including the making of Revolving Credit Advances hereunder, or loss or expense, taken or incurred by the Bank in good faith reliance upon such telephone request. At the time of the initial request for a Revolving Credit Advance made under this Section 2.02(e), the Borrower shall have provided the Bank with a Compliance Certificate in the form required by Section 5.09 hereof. The Borrower hereby agrees (i) that the Bank shall be entitled to rely upon the most recent Compliance Certificate in its possession until it is superseded by another Compliance Certificate, and (ii) that each request for a Revolving Credit Advance, whether by telephone or in writing or otherwise, shall constitute a confirmation of the representations and warranties contained in the most recent Compliance Certificate then in the Bank's possession. (f) Payment Upon Revolving Credit Maturity Date. The Revolving Credit ------------------------------------------- shall expire on the Revolving Credit Maturity Date and all Revolving Credit Advances then outstanding shall be due and payable on the Revolving Credit Maturity Date together with all accrued and unpaid interest thereon and any other amounts then due. Section 2.03. The Equipment Lines of Credit. ------------ ----------------------------- (a) Equipment Line of Credit A. Subject to the terms and conditions hereof -------------------------- and provided that no Default or Event of Default has occurred and is continuing, the Borrower may, from time to time from the date hereof up to June 30, 1999 (the "Equipment Line of Credit A Conversion Date") borrow from the Bank, and the Bank shall advance funds to the Borrower as requested pursuant to Section 2.03(f) (each, an "Equipment Line of Credit A Advance" and collectively, the "Equipment Line of Credit A Advances"); provided, however, that the aggregate of all outstanding Equipment Line of Credit A Advances shall at no time exceed $1,000,000 (the "Maximum Equipment Line of Credit A Amount"). The Borrower may not reborrow Equipment Line of Credit A Advances once repaid and to the extent that some portion of the Equipment Line of Credit A is not borrowed prior to the Equipment Line of Credit A Conversion Date, the Borrower shall have no further right to borrow Equipment Line of Credit A Advances under this Section 2.03(a). Each Equipment Line of Credit A Advance shall be an amount up to 80% of the Borrower's net invoice cost (purchase price less taxes, trade-ins, discounts freight charges, insurance, software, installation or similar items) of "Qualified Equipment" (as defined in Section 2.03(f)), to be purchased with proceeds of such Equipment Line of Credit A Advance. (b) Equipment Line of Credit B. Subject to the terms and conditions hereof -------------------------- and provided that no Default or Event of Default has occurred and is continuing, the Borrower may, from time to time from the date hereof up to June 1, 2000 (the "Equipment Line of Credit B Conversion Date") borrow from the Bank, and the Bank shall advance funds to the Borrower as requested pursuant to Section 2.03(f) (each, an "Equipment Line of Credit B Advance" and collectively, the "Equipment Line of Credit B Advances"); provided, however, that the aggregate of all outstanding Equipment Line of Credit B Advances shall at no time exceed $1,500,000 (the "Maximum Equipment Line of Credit B Amount"). The Borrower may not reborrow Equipment Line of Credit 4 B Advances once repaid and to the extent that some portion of the Equipment Line of Credit B is not borrowed prior to the Equipment Line of Credit B Conversion Date, the Borrower shall have no further right to borrow Equipment Line of Credit B Advances under this Section 2.03(b). Each Equipment Line of Credit B Advance shall be an amount up to 80% of the Borrower's net invoice cost (purchase price less taxes, trade-ins, discounts freight charges, insurance, software, installation or similar items) of "Qualified Equipment" (as defined in Section 2.03(f)), to be purchased with proceeds of such Equipment Line of Credit B Advance. (c) The Equipment Lines of Credit Notes and Payments. All amounts owed by ------------------------------------------------ the Borrower with respect to the Equipment Line of Credit A Advances shall be evidenced by a converting equipment line of credit note in the original principal amount of $1,000,000 in the form attached hereto as Exhibit 2.03(a) --------------- (the "Equipment Line of Credit A Note"). All amounts owed by the Borrower with respect to the Equipment Line of Credit B Advances shall be evidenced by a converting equipment line of credit note in the original principal amount of $1,500,000 in the form attached hereto as Exhibit 2.03(b) (the "Equipment Line --------------- of Credit B Note"). If at any time the aggregate outstanding amount of Equipment Line of Credit A Advances exceeds the Maximum Equipment Line of Credit A Amount, then the Borrower shall immediately pay such excess to the Bank, and the Bank may, without prior notice to the Borrower, charge any of Borrower's accounts with the Bank in order to effect such payment. If at any time the aggregate outstanding amount of Equipment Line of Credit B Advances exceeds the Maximum Equipment Line of Credit B Amount, then the Borrower shall immediately pay such excess to the Bank, and the Bank may, without prior notice to the Borrower, charge any of Borrower's accounts with the Bank in order to effect such payment. (d) Conversion of Equipment Lines of Credit. --------------------------------------- (i) On the Equipment Line of Credit A Conversion Date, the aggregate outstanding Equipment Line of Credit A Advances as of such date shall automatically be converted to a term loan (the "Equipment Line of Credit A Term Loan") in the principal amount of the outstanding Equipment Line of Credit A Advances as of the Equipment Line of Credit A Conversion Date. The Equipment Line of Credit A Term Loan shall continue to be evidenced by the Equipment Line of Credit A Note, and, unless the Bank shall otherwise request, no further promissory note shall be required to evidence the Equipment Line of Credit A Term Loan. The conversion of Equipment Line of Credit A Advances into the Equipment Line of Credit A Term Loan shall not constitute a prepayment of such Equipment Line of Credit A Advances. Unless sooner prepaid pursuant to Section 2.09 or accelerated pursuant to Article VI hereof, the Borrower shall repay the principal of Equipment Line of Credit A Term Loan in thirty-five (35) equal monthly installments of an amount equal to 2.778% of the original principal amount of Equipment Line of Credit Term Note A, payable on the first day of each month commencing on July 1, 1999, with a final installment in the amount of the entire unpaid balance of Equipment Line of Credit Term Note A (including principal, all accrued but unpaid interest and any other amounts then due) due and payable on June 1, 2002. 5 (ii) On the Equipment Line of Credit B Conversion Date, the aggregate outstanding Equipment Line of Credit B Advances as of such date shall automatically be converted to a term loan (the "Equipment Line of Credit B Term Loan") in the principal amount of the outstanding Equipment Line of Credit B Advances as of the Equipment Line of Credit B Conversion Date. The Equipment Line of Credit B Term Loan shall continue to be evidenced by the Equipment Line of Credit B Note, and, unless the Bank shall otherwise request, no further promissory note shall be required to evidence the Equipment Line of Credit B Term Loan. The conversion of Equipment Line of Credit B Advances into the Equipment Line of Credit B Term Loan shall not constitute a prepayment of such Equipment Line of Credit B Advances. Unless sooner prepaid pursuant to Section 2.09 or accelerated pursuant to Article VI hereof, the Borrower shall repay the principal of Equipment Line of Credit B Term Loan in thirty-five (35) equal monthly installments of an amount equal to 2.778% of the original principal amount of Equipment Line of Credit Term Note B, payable on the first day of each month commencing on July 1, 2000, with a final installment in the amount of the entire unpaid balance of Equipment Line of Credit Term Note B (including principal, all accrued but unpaid interest and any other amounts then due) due and payable on June 1, 2003. (e) Interest. All Equipment Line of Credit A Advances and Equipment Line -------- of Credit B Advances (collectively, "Equipment Line of Credit Advances) made by the Bank, and the unpaid principal balance of the Equipment Line of Credit A Term Loan and of the Equipment Line of Credit B Term Loan (including, without duplication, all amounts from time to time outstanding under the Equipment Line of Credit A Note and under the Equipment Line of Credit B Note (collectively, the "Equipment Line of Credit Notes")) shall bear interest prior to the occurrence of an Event of Default or maturity (computed on the basis of actual number of days elapsed over a 360-day year) on the unpaid principal balance outstanding from time to time (without duplication) at a fluctuating rate per annum equal to the aggregate of (i) the Prime Rate, plus (ii) one and one-half percent (1.5%). From and after the occurrence and during the continuation of an Event of Default or maturity (whether by demand, acceleration or otherwise), the unpaid principal balance of the Equipment Line of Credit Advances and the unpaid principal balance of the Equipment Line of Credit Term Loans(including, without duplication, amounts outstanding under Equipment Line of Credit Notes) shall bear interest at a fluctuating rate per annum equal to four percent (4%) above the rate of interest otherwise payable with respect to the Equipment Line of Credit Advances and Equipment Line of Credit Term Loans. Interest shall be payable monthly in arrears on the first day of the next succeeding month commencing September 1, 1998. The effective rate of interest shall change on each date on which the Prime Rate shall change. (f) Requests for Advances. Subject to the conditions of Section 2.03(a), --------------------- each Equipment Line of Credit Advance shall be made on a Banking Day on notice given by the Borrower to the Bank prior to 11:00 a.m. Boston time on the date three (3) days prior to the date of the proposed borrowing. Each request for an Equipment Line of Credit Advance shall be made to the Bank in writing (including by facsimile) or by telephone by a duly authorized representative of the Borrower, and the Bank may rely upon any 6 telephone request which it reasonably believes is made by such a representative, and shall specify (i) the requested date of such Equipment Line of Credit Advance, and (ii) the amount of such Equipment Line of Credit Advance (which must be a minimum of $100,000). The Borrower agrees to indemnify and hold the Bank harmless for any action, including the making of Equipment Line of Credit Advances hereunder, or loss or expense, taken or incurred by the Bank in good faith reliance upon such telephone request. At the time of the initial request for a Equipment Line of Credit Advance made under this Section 2.03(f), the Borrower shall have provided the Bank with a Compliance Certificate in the form required by Section 5.09(c) hereof. The Borrower hereby agrees (i) that the Bank shall be entitled to rely upon the most recent Compliance Certificate in its possession until it is superseded by another Compliance Certificate, and (ii) that each request for a Equipment Line of Credit Advance, whether by telephone or in writing or otherwise, shall constitute a confirmation of the representations and warranties contained in the most recent Compliance Certificate then in the Bank's possession. Notwithstanding the foregoing, each Equipment Line of Credit Advance shall be subject to the prior satisfactory review by the Bank, in its sole discretion, of the equipment to be purchased by such Equipment Line of Credit Advance. Each notice of Equipment Line of Credit Advance shall be accompanied by all invoices for the purchase of such equipment (which invoices shall be dated not more than ninety (90) days prior to the date of delivery of such invoices to the Bank) and a certificate signed by the Borrower in the form of Exhibit ------- 2.03(f) attached hereto, certifying that (a) the equipment has been ------- delivered to the Borrower, (b) the Borrower has paid, or will pay with the requested Equipment Line of Credit Advance, the full purchase price, and (c) the equipment meets the definition of "Qualified Equipment." "Qualified Equipment" means equipment utilized in the conduct of the Borrower's business which is: (i) in good working order and condition; (ii) located at place of business of the Borrower which has been identified to the Bank; (iii) subject to first priority security interest in favor of the Bank; (iv) upon payment in full thereof, owned by the Borrower free and clear of any lien, security interest, claim or other encumbrance except those in favor of the Bank; and (v) has not otherwise been designated by the Bank in its discretion as unacceptable for any reason. 4. Section 2.04(a) of the Credit Agreement is hereby amended by changing all references in Section 2.04(a) to the date "June 30, 1999" to "June 1, 2000". 5. Section 2.06 of the Credit Agreement is hereby amended by deleting said Section in its entirety and substituting therefore the following new Section 2.06: 7 Section 2.06. Method of Payment. ------------ ----------------- All payments and prepayments of principal and interest due under the Notes and of fees due hereunder shall be made by the Borrower to the Bank in lawful money of the United States in immediately available funds. Payments received by the Bank after 11:00 a.m. Boston time shall be deemed received on the next succeeding Banking Day. All payments of principal, interest or fees to be made to the Bank may be effected by the Bank debiting accounts of the Borrower with the Bank. If a Default or Event of Default has occurred and is continuing, all payments and prepayments made by the Borrower to the Bank hereunder shall apply first to all outstanding fees and expenses of the Bank, second to pay all interest and fees due in respect of the Notes and the L/C's, third to pay all principal due under the SBLC Line of Credit Note, fourth to pay all principal due under the SBLC Line of Credit Term Note, fifth to pay all principal due under the Revolving Credit Note, sixth to pay all principal due under the Equipment Line of Credit Notes, and seventh toward any reimbursement obligations of the Borrower to the Bank in respect of L/C's. 6. Sections 2.08(b) of the Credit Agreement is hereby amended by deleting said Section in its entirety and substituting therefore the following new Section 2.08(b): (b) The Revolving Credit Commitment Fee. The Borrower shall pay the ----------------------------------- Bank a commitment fee with respect to the Revolving Credit quarterly in advance on the first day of each fiscal quarter, commencing July 1, 1999 in the amount of $6,250. 7. Section 2.09 of the Credit Agreement is hereby amended by deleting said Section in its entirety and substituting therefore the following new Section 2.09: Section 2.09. Prepayment. ------------ ---------- The Notes may be prepaid in whole or in part at any time without premium or penalty. 8. Sections 5.22 of the Credit Agreement is hereby amended by deleting said Section 5.22 in its entirety and substituting therefore the following new Section 5.22: Section 5.22. Compensation of Certain Officers. ------------ -------------------------------- The aggregate Compensation paid by the Borrower to Kyle D. Parker during any fiscal year shall not exceed $300,000. 8 "Compensation" shall mean all sums paid by the Borrower to such individual as salary, bonus, benefits, fees, draw, reimbursements, dividends, deferred compensation or other renumeration. 9. Sections 5.27, 5.28, 5.29, 5.30, 5.31 and 5.32 of the Credit Agreement are hereby amended by deleting said Sections in their entirety and substituting therefore the following new Sections 5.27, 5.28, 5.29, 5.30, 5.31 and 5.32: Section 5.27. Capital Expenditures. ------------ -------------------- The Borrower and its Subsidiaries shall not make or incur Capital Expenditures in an aggregate amount in excess of $3,000,000 in fiscal year 1999, and $1,500,000 in any fiscal year thereafter. "Capital Expenditures" shall mean expenditures which are properly chargeable to capital account under generally accepted accounting principals (including leases which are capitalized). Section 5.28. Minimum Annual Revenue. ------------ ---------------------- The consolidated revenues of the Borrower and its Subsidiaries shall not be less than the amounts set forth below as of the end of each fiscal period set forth below:
Fiscal Period Minimum Annual Revenue ------------- ---------------------- January 1, 1999 to December 31, 1999 $ 8,500,000 January 1, 2000 to December 31, 2000 $25,000,000 January 1, 2001 to December 31, 2001 $50,000,000
Section 5.29. Minimum Quick Ratio. ------------ ------------------- At the end of each fiscal quarter set forth below, the Ratio of (a) consolidated Adjusted Current Assets to (b) consolidated Adjusted Current Liabilities shall not be less than the Minimum Ratios set forth below:
Fiscal Quarter Ending Minimum Ratio --------------------- ------------- June 30, 1999 1.75:1.00 September 30, 1999 1.50:1.00 December 31, 1999 1.75:1.00 Each Fiscal Quarter Thereafter 1.75:1.00
9 "Adjusted Current Assets" shall mean, as of any date of determination, the sum of (i) cash and cash equivalents, (ii) the Maximum Cumulative Liability (as defined under the CRL Guaranty) plus the amount of the CRL Subordinated Creditors' aggregate unfunded commitment obligations under Section 2.02(c) of the CRL Purchase Agreement and (iii) Net Accounts Receivable. "Adjusted Current Liabilities" shall mean, as of any date of determination, (i) current liabilities (as determined in accordance with generally accepted accounting principles consistently applied) less (ii) Deferred Revenue. "Net Accounts Receivable" shall mean, as of any date of determination, the consolidated accounts receivable of the Borrower less all applicable reserves (in each case, as determined in accordance with generally accepted accounting principles consistently applied). "Deferred Revenue" shall mean all liabilities of the Borrower under subscription contracts, which under generally accepted accounting principles consistently applied are recorded as deferred revenues. Section 5.30. Minimum Tangible Capital Base. ------------ ----------------------------- At the end of each fiscal quarter set forth below, the Tangible Capital Base of the Borrower shall not be less than the amounts set forth below:
Fiscal Quarter Ending Minimum Tangible Capital Base --------------------- ----------------------------- June 30, 1999 $11,000,000 September 30, 1999 $ 8,000,000 December 31, 1999 $ 6,000,000 Each Fiscal Quarter Thereafter $ 4,000,000
"Tangible Capital Base" shall mean, as of any date of determination, the sum of (i) Stockholders' Equity (as determined in accordance with generally accepted accounting principles consistently applied), (ii) Subordinated Debt and (iii) the Maximum Cumulative Liability (as defined under the CRL Guaranty) plus the amount of the CRL Subordinated Creditors' aggregate unfunded commitment obligations under Section 2.02(c) of the CRL Purchase Agreement less Net Intangible Assets, provided, however, that the database assets, to the extent under generally accepted accounting principles they are included as net intangible assets, shall not be included as Net Intangible Assets. "Subordinated Debt" shall mean all debt of the Borrower and its Subsidiaries owed to any entity other than the Bank which is expressly subordinated and made junior to the payment and performance of the obligations of the Borrower and its Subsidiaries to the Bank, on terms and conditions satisfactory to the Bank. 10 "Net Intangible Assets" shall mean the total book value of all assets of the Borrower and its Subsidiaries which would be treated as intangible assets under generally accepted accounting principles, including without limitation, such items as goodwill, trademarks, trade names, service marks, brand names, copyrights, patents and licenses, and right with respect to the foregoing. Section 5.31. Cash Flow Coverage and Leverage Ratios ------------ -------------------------------------- (a) Cash Flow Coverage Ratio. At the end of each fiscal quarter ------------------------ commencing with the fiscal quarter ending December 31, 2000, the ratio of (a) consolidated EBITDA of the Borrower and its Subsidiaries for the period of twelve (12) consecutive months ending at the end of such fiscal quarter, to (b) consolidated Debt Service of the Borrower and its Subsidiaries as of the end of such fiscal quarter, shall not be less than 1.00:1.00. "Debt Service" shall mean, as of any date of determination, the sum of (i) consolidated interest expense of the Borrower and its Subsidiaries for the period of twelve (12) consecutive months ending on such date, plus (ii) scheduled principal payments on long term debt (including, without limitation, all indebtedness of the Borrower to the Bank) to be made during the period of twelve (12) consecutive months following such date of determination. "EBITDA" shall mean, as of any date of determination, the sum of the consolidated pre-tax earnings of Borrower and its Subsidiaries, plus to the extent deducted in calculating pre-tax earnings, consolidated depreciation, amortization and interest expense of the Borrower and its Subsidiaries for the period of twelve (12) consecutive months ending on such date. (b) Leverage Ratio. At the end of each fiscal quarter commencing with -------------- the fiscal quarter ending December 31, 2000, the ratio of (a) the outstanding principal amount of indebtedness for borrowed money (including capital leases) of the Borrower and its Subsidiaries as of the end of each fiscal quarter, to (b) consolidated EBITDA of the Borrower and its Subsidiaries for the period of twelve (12) consecutive months ending at the end of such fiscal quarter, shall not be greater than 3.00:1.00. Section 5.32. Maximum Quarterly Net Losses. ------------ ---------------------------- The consolidated net loss of the Borrower and its Subsidiaries for each fiscal quarter set forth below shall not exceed the maximum loss amounts (designated in parentheses) set forth below:
Fiscal Quarter Ending Maximum Loss Amount --------------------- ------------------- June 30, 1999 ($4,100,000) September 30, 1999 ($4,600,000) December 31, 1999 ($3,900,000) Each Fiscal Quarter Thereafter ($3,000,000)
11 10. Section (a) of Article VI of the Credit Agreement is hereby amended by deleting said Section (a) in its entirety and substituting therefore the following new Section (a): (a) non-payment of principal of any of the Notes when due or failure to reimburse the Bank for any amounts drawn under any L/C when due; 11. The Borrower has indicated to the Bank that as of March 31, 1999, the Borrower was not in compliance with the financial covenants set forth in Sections 5.28 through 5.32 of the Credit Agreement (as in effect prior to the amendments to said sections set forth in this Third Amendment). Based upon the representations and warranties of the Borrower set forth herein, and subject to the terms and conditions of this Third Amendment, the Bank hereby waives the Events of Default resulting from the Borrower's failure to comply with the financial covenants set forth in Sections 5.28 through 5.32 of the Credit Agreement (as in effect prior to the amendments to said sections set forth in this Third Amendment) as at March 31, 1999. The foregoing waiver shall apply only to those specific Sections of the Credit Agreement referenced above (as in effect prior to the amendments to said sections set forth in this Third Amendment) and only as of March 31, 1999, and nothing herein shall be deemed to constitute an amendment, modification or waiver of any other covenant set forth in the Credit Agreement (including, without limitation, the Borrower's obligations under Section 5.27 through 5.32 of the Credit Agreement (as amended by this Third Amendment). 12. The Borrower hereby represents and warrants that attached hereto are new Schedules 3.01, 3.08, 3.12 and 3.13 to the Credit Agreement, which Schedules have been revised and updated and are true and accurate as of the date hereof after giving effect to the transactions contemplated by this Third Amendment. The Borrower further represents and warrants that after giving effect to this Third Amendment, (a) all representations and warranties made by the Borrower in the Credit Agreement and the Security Documents are true and correct as of the date hereof (except for those representations which relate to a specific date which are true and correct on such date), and (b) the Borrower has performed and complied with all covenants and agreements required to be performed and complied with by it under the Credit Agreement and the Security Documents. 13. Except as amended by this Third Amendment, all provisions of the Credit Agreement, the Security Documents and all other documents referred to therein shall remain in full force and effect after giving effect to this Third Amendment. 14. The Obligations (as defined in the Security Documents executed and delivered by the Borrower and the Guarantor) of Borrower and the Guarantor to the Bank secured by its respective Security Documents shall be deemed to include any and all additional obligations of the respective parties created by the terms of this Third Amendment. The Borrower hereby grants in favor of the Bank, and confirms its prior grant in favor of the Bank, pursuant to the Security Documents, of security interests in substantially all of the Borrower's property and assets as security for the prompt payment and performance of all of the Obligations, including, without limitation, all obligations of the Borrower under this Third Amendment. 12 15. Except as otherwise expressly set forth in paragraph 8 of this Third Amendment, the execution of this Third Amendment does not constitute a waiver by the Bank of, and does not in any way relieve the Borrower from any liability caused by, any breaches or defaults by the Borrower prior to the date hereof of any representations, warranties and covenants (including any financial covenants) contained in, the Credit Agreement, and the Bank expressly reserves any and all rights and remedies it may have in connection therewith or with respect thereto. 16. The amendments and waiver set forth in this Third Amendment shall not be effective, and the Bank shall not be obligated to make any additional loans or advances or to issue any additional L/C's under the Credit Agreement, or otherwise amend, modify or alter the Credit Agreement unless and until all of the following conditions shall have been fulfilled or waived by the Bank: (a) Execution of Notes. The Borrower shall have executed and ------------------ delivered to the Bank the new Revolving Credit Note, Equipment Line of Credit A Note, and the Equipment Line of Credit B Note, in each case in the form attached to this Third Amendment. (b) Equity Financing. The Borrower shall have received net cash ---------------- proceeds of approximately $10,000,000 from the issuance and sale by the Borrower of additional equity securities to Capital Resource Lenders III, L.P., Sandler Capital Partners IV, L.P., Sandler Capital Partners IV, FTE, L.P., Mark Beyland and Exeter Capital Partners IV, L.P., on terms and conditions reasonably satisfactory to the Bank. (c) Officer's Certificate for Borrower. The Borrower shall have ---------------------------------- delivered to the Bank a certificate with attached corporate resolutions authorizing the transactions contemplated by this Third Amendment. (d) Legal Opinion of Borrower's Counsel. The Bank shall have received ----------------------------------- the written opinion of counsel for the Borrower, in form and substance satisfactory to the Bank and its special counsel, with respect to the transactions contemplated by this Third Amendment. (e) Acknowledgment by Guarantor. Capital Resource Lenders III, L.P., --------------------------- the Guarantor under that certain Limited Guaranty dated as of August 20, 1998, shall have acknowledged in writing that the Limited Guaranty shall remain in full force and effect after giving effect to this Third Amendment. (f) Acknowledgment of Purchasers under the Subordinated Note and ------------------------------------------------------------ Securities Purchase Agreement and under the Subordination and Intercreditor --------------------------------------------------------------------------- Agreement. Capital Resources Lenders III, L.P., CRP Investment Partners --------- III, L.L.C. and Rowland Moriarty, the Purchasers under that certain Subordinated Note and Securities Purchase Agreement dated as of November 24, 1997, as amended (as so amended, the "Purchase Agreement") and under that certain Subordination and Intercreditor Agreement dated as of August 20, 1998 (the "Subordination and Intercreditor Agreement"), shall have acknowledged in writing that the Purchase Agreement and the Subordination and Intercreditor Agreement shall remain in full force and effect after giving effect to this 13 Third Amendment, all references in the Purchase Agreement and the Subordination and Intercreditor Agreement to the Credit Agreement shall be deemed to refer to the Credit Agreement as amended by this Third Amendment, and all references in the Purchase Agreement to the CRL III Guaranty shall be deemed to refer to the Limited Guaranty referred to in paragraph 13(e) of this Third Amendment, after giving effect to this Third Amendment. (g) Bank Fees. The Borrower shall have paid to the Bank (i) a $15,000 --------- closing fee in consideration of the establishment by the Bank of the new $1,500,000 Equipment Line of Credit B, and (ii) a $1,667 adjustment fee in consideration of the $1,000,000 increase by the Bank in the amount of the Revolving Credit. 17. The Borrower represents and warrants to the Bank that the Borrower has full power and authority and has taken all required corporate and other action necessary to permit it to execute and deliver and perform all of its obligations contained in this Third Amendment, and to borrow under the Credit Agreement, and none of such actions will violate any provision of law applicable to, or of the charter or by-laws of, the Borrower, or result in the breach of or constitute a default under any agreement or instrument to which the Borrower is a party or by which it is bound. This Third Amendment has been duly authorized and validly executed and is the valid and binding obligation of the Borrower enforceable in accordance with its respective terms. Neither the execution or delivery by the Borrower of this Third Amendment nor the performance by the Borrower of its obligations under this Third Amendment, the Credit Agreement or the Security Documents, requires the consent, approval or authorization of any person or governmental authority. 18. Promptly upon receipt of an invoice therefor, the Borrower will pay all legal fees of the Bank's counsel in connection with the preparation, negotiation, execution and delivery of this Third Amendment. 14 IN WITNESS WHEREOF, the parties hereto have executed this Agreement under seal as of the date first above written. LAW OFFICE INFORMATION SYSTEMS, INC. /s/ Kyle D. Parker By:_________________________________ Name: Kyle D. Parker Title: President FLEET NATIONAL BANK /s/ Scott D. Weetlock By:_________________________________ Name: Scott D. Weetlock Title: Vice President, High Technology Division 15 ACKNOWLEDGMENT OF GUARANTOR --------------------------- The undersigned, Capital Resource Lenders III, L.P., the Guarantor under that certain Limited Guaranty dated as of August 20, 1998, hereby acknowledges that such Limited Guaranty remains in full force and effect after giving effect to the foregoing Third Amendment and Waiver to Credit Agreement. Dated: May __, 1999 CAPITAL RESOURCE LENDERS III, L.P. By: Capital Resource Partners III, L.L.C., its general partner By:________________________________________ Name: Title: 16 ACKNOWLEDGMENT OF PURCHASERS ---------------------------- The undersigned, Capital Resources Lenders III, L.P., CRP Investment Partners III, L.L.C. and Rowland Moriarty, the Purchasers under that certain Subordinated Note and Securities Purchase Agreement dated as of November 24, 1997, as amended (as so amended, the "Purchase Agreement"), and under that certain Subordination and Intercreditor Agreement dated as of August 20, 1998 (the "Subordination and Intercreditor Agreement"), hereby acknowledge that the Purchase Agreement and the Subordination and Intercreditor Agreement remain in full force and effect after giving effect to the foregoing Third Amendment and Waiver to Credit Agreement, all references in the Purchase Agreement and the Subordination and Intercreditor Agreement to the Credit Agreement shall be deemed to refer to the Credit Agreement as amended by the foregoing Third Amendment and Waiver to Credit Agreement, and all references in the Purchase Agreement to the CRL III Guaranty shall be deemed to refer to the Limited Guaranty dated as of August 20, 1998 from Capital Resource Lenders III, L.P. in favor of the Bank, after giving effect to the foregoing Third Amendment and Waiver to Credit Agreement. Dated: May __, 1999 CAPITAL RESOURCE LENDERS III, L.P. By: Capital Resource Partners III, L.L.C., its general partner By:_______________________________________ Name: Title: Dated: May __, 1999 CRP INVESTMENT PARTNERS III, L.L.C. By:_______________________________________ Name: Title: Dated: May __, 1999 __________________________________________ Rowland Moriarty 17 EX-10.11 18 FORM OF INDEMNIFICATION AGREEMENT Exhibit 10.11 The following people will execute Indemnity Agreements in substantially the same form as the Form of Indemnity Agreement filed herewith: 1. Kyle D. Parker; 2. Mark O. Beyland; 3. W. Clark Wigley; 4. Reves W. Dillon, Jr.; 5. Jay Scott Thompson; 6. Pamela G. Rogers; 7. Douglas W. Parker, Sr.; 8. Robert C. Ammerman; 9. D. Randy Laney; and 10. Hannah C. Stone. FORM OF INDEMNITY AGREEMENT --------------------------- This Agreement made and entered into as of this _____ day of June, by and between Loislaw.com, Inc., a Delaware corporation (the "Company"), and __________________ ("Indemnitee"), who is currently serving the Company in the capacity of a director and/or officer thereof; W I T N E S S E T H: WHEREAS, the Company and Indemnitee recognize that the interpretation of ambiguous statutes, regulations and court opinions and of the Certificate of Incorporation and Bylaws of the Company, and the vagaries of public policy, are too uncertain to provide the directors and officers of the Company with adequate or reliable advance knowledge or guidance with respect to the legal risks and potential liabilities to which they become personally exposed as a result of performing their duties in good faith for the Company; and WHEREAS, the Company and the Indemnitee are aware that highly experienced and capable persons are often reluctant to serve as directors or officers of a corporation unless they are protected to the fullest extent permitted by law by comprehensive insurance or indemnification, especially since the legal risks and potential liabilities, and the very threat thereof, associated with lawsuits filed against the officers and directors of a corporation, and the resultant substantial time, expense, harassment, ridicule, abuse and anxiety spent and endured in defending against such lawsuits, whether or not meritorious, bear no reasonable or logical relationship to the amount of compensation received by the directors or officers from the corporation; and WHEREAS, Section 145 of the General Corporation Law of the State of Delaware, which sets forth certain provisions relating to the mandatory and permissive indemnification of, and advancement of expenses to, officers and directors (among others) of a Delaware corporation by such corporation, is specifically not exclusive of other rights to which those indemnified thereunder may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, and, thus, does not by itself limit the extent to which the Company may indemnify persons serving as its officers and directors (among others); and WHEREAS, after due consideration and investigation of the terms and provisions of this Agreement and the various other options available to the Company and the Indemnitee in lieu thereof, the board of directors of the Company has determined that the following Agreement is not only reasonable and prudent but necessary to promote and ensure the best interests of the Company and its stockholders; and WHEREAS, the Company desires to have Indemnitee serve or continue to serve as an officer and/or director of the Company, free from undue concern for unpredictable, inappropriate or unreasonable legal risks and personal liabilities by reason of his acting in good faith in the performance of his duty to the Company; and Indemnitee desires to serve, or to continue to serve 2 (provided that he is furnished the indemnity provided for hereinafter), in either or both of such capacities; NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Indemnitee, intending to be legally bound, do hereby agree as follows: 1. Agreement to Serve. Indemnitee agrees to serve or continue to serve as director and/or officer of the Company, at the will of the Company or under separate contract, if such exists, for so long as he is duly elected or appointed and qualified in accordance with the provisions of the Bylaws of the Company or until such time as he tenders his resignation in writing. 2. Definitions. As used in this Agreement: (a) The term "Proceeding" shall mean any action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative, any appeal in such an action, suit or proceeding, and any inquiry or investigation that could lead to such an action, suit or proceeding, except one initiated by Indemnitee to enforce his rights under this Agreement. (b) The term "Expenses" includes, without limitation, all reasonable attorneys' fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, or being or preparing to be a witness in a Proceeding. (c) References to "other enterprise" shall include employee benefit plans; references to "fines" shall include any (i) excise taxes assessed with respect to any employee benefit plan and (ii) penalties; references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acts in good faith and in a manner he reasonably believes to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement. 3. Indemnity in Third Party Proceedings. The Company shall indemnify Indemnitee in accordance with the provisions of this Section 3 if Indemnitee is a party to or is threatened to be made a party to or otherwise involved in any threatened, pending or completed Proceeding (other than a Proceeding by or in the right of the Company to procure a judgment in its favor) by reason of the fact that Indemnitee is or was a director and/or officer of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against all Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee in connection with such 3 Proceeding, provided it is determined pursuant to Section 7 of this Agreement or by the court having jurisdiction in the matter, that Indemnitee acted in good faith and in a manner that he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal Proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any Proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner that he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal Proceeding, had reasonable cause to believe that his conduct was unlawful. 4. Indemnity in Proceedings By or In the Right of the Company. The Company shall indemnify Indemnitee in accordance with the provisions of this Section 4 if Indemnitee is a party to or is threatened to be made a party to or otherwise involved in any threatened, pending or completed Proceeding by or in the right of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director and/or officer of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against all Expenses actually and reasonably incurred by Indemnitee in connection with the defense, settlement or other disposition of such Proceeding, but only if he acted in good faith and in a manner that he reasonably believed to be in or not opposed to the best interests of the Company, except that no indemnification shall be made under this Section 4 in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Company unless and only to the extent that the Delaware Court of Chancery or the court in which such Proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such Expenses as the Delaware Court of Chancery or such other court shall deem proper. 5. Indemnification for Expenses of Successful Party. Notwithstanding any other provision of this Agreement to the contrary, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any Proceeding referred to in Sections 3 and/or 4 of this Agreement, or in defense of any claim, issue or matter therein, including dismissal without prejudice, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by Indemnitee in connection therewith. 6. Advances of Expenses. The Expenses incurred by Indemnitee pursuant to Sections 3 and/or 4 of this Agreement in connection with any Proceeding shall, at the written request of the Indemnitee, be paid by the Company in advance of the final disposition of such Proceeding upon receipt by the Company of an undertaking by or on behalf of Indemnitee ("Indemnitee's Undertaking") to repay such amount to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company. The request for advancement of Expenses by Indemnitee and the undertaking to repay of Indemnitee, which need not be secured, shall be substantially in the form of Exhibit A to this --------- Agreement. 4 7. Right of Indemnitee to Indemnification or Advancement of Expenses Upon Application; Procedure Upon Application. (a) If required by the terms of this Agreement, indemnification under Sections 3 and/or 4 of this Agreement shall be made no later than 45 days after receipt by the Company of the written request of Indemnitee. A determination shall be made within said 45-day period by (i) a majority vote of the directors of the Company who are not parties to the involved Proceeding, even though less than a quorum, or (ii) independent legal counsel in a written opinion (which counsel shall be appointed if there are no such directors or if such directors so direct), as to whether the Indemnitee has met the applicable standards for indemnification set forth in Section 3 or 4, as the case may be. (b) Any advancement of Expenses under Section 6 of this Agreement shall be made no later than 10 days after receipt by the Company of Indemnitee's Undertaking. (c) In any action to establish or enforce the right of indemnification or to receive advancement of Expenses as provided in this Agreement, the burden of proving that indemnification or advancement of Expenses is not appropriate shall be on the Company. Neither the failure of the Company (including its board of directors or independent legal counsel) to have made a determination prior to the commencement of such action that indemnification or advancement of Expenses is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including its board of directors or independent legal counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct. The Company shall also indemnify Indemnitee against all Expenses incurred by Indemnitee in connection with successfully establishing or enforcing his right of indemnification or to receive advancement of Expenses, in whole or in part, under this Agreement. 8. Indemnification and Advancement of Expenses Under this Agreement Not Exclusive. The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under the Certificate of Incorporation or Bylaws of the Company, any other agreement, any vote of stockholders or disinterested directors, the General Corporation Law of the State of Delaware, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. 9. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification or to receive advancement by the Company for a portion of the Expenses, judgments, fines or amounts paid in settlement actually and reasonably incurred by Indemnitee in the investigation, defense, appeal, settlement or other disposition of any Proceeding but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled. 5 10. Rights Continued. The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall continue as to Indemnitee even though Indemnitee may have ceased to be a director or officer of the Company and shall inure to the benefit of Indemnitee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 11. No Construction as an Employment Agreement or Any Other Commitment. Nothing contained in this Agreement shall be construed as giving Indemnitee any right to be retained in the employ of the Company or any of its subsidiaries, if Indemnitee currently serves as an officer of the Company, or to be renominated as a director of the Company, if Indemnitee currently serves as a director of the Company. 12. Liability Insurance. To the extent the Company maintains an insurance policy or policies providing directors' and officers' liability insurance, Indemnitee shall be covered by such policy or policies in accordance with its or their terms, to the maximum extent of the coverage available for any director or officer of the Company under such policy or policies. 13. No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable under this Agreement if, and to the extent that, Indemnitee has otherwise actually received such payment under any contract, agreement or insurance policy, the Certificate of Incorporation or Bylaws of the Company, or otherwise. 14. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all the rights of recovery of Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including without limitation the execution of such documents as may be necessary to enable the Company effectively to bring suit to enforce such rights. 15. Exceptions. Notwithstanding any other provision in this Agreement, the Company shall not be obligated pursuant to the terms of this Agreement, to indemnify or advance Expenses to Indemnitee with respect to any Proceeding, or any claim therein, (i) brought or made by Indemnitee against the Company, or (ii) in which final judgment is rendered against Indemnitee for an accounting of profits made from the purchase and sale or the sale and purchase by Indemnitee of securities of the Company pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of any federal, state or local statute. 16. Notices. Any notice or other communication required or permitted to be given or made to the Company or Indemnitee pursuant to this Agreement shall be given or made in writing by depositing the same in the United States mail, with postage thereon prepaid, addressed to the person to whom such notice or communication is directed at the address of such person on the records of the Company, and such notice or communication shall be deemed given or made at the time when the same shall be so deposited in the United States mail. Any such notice or communication to the Company shall be addressed to the Secretary of the Company. 6 17. Contractual Rights. The right to be indemnified or to receive advancement of Expenses under this Agreement (i) is a contract right based upon good and valuable consideration, pursuant to which Indemnitee may sue, (ii) is and is intended to be retroactive and shall be available as to events occurring prior to the date of this Agreement and (iii) shall continue after any rescission or restrictive modification of this Agreement as to events occurring prior thereto. 18. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby; and, to the fullest extent possible, the provisions of this Agreement shall be construed so as to give effect to the intent manifested by the provisions held invalid, illegal or unenforceable. 19. Successors; Binding Agreement. The Company shall require any successor to all or substantially all of the business and/or assets of the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise), by agreement in form and substance reasonably satisfactory to Indemnitee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid that executes and delivers the agreement provided for in this Section 19 or that otherwise becomes bound by the terms and provisions of this Agreement by operation of law. 20. Counterparts, Modification, Headings, Gender. (a) This Agreement may be executed in counterparts, each of which shall constitute one and the same instrument, and either party hereto may execute this Agreement by signing any such counterpart. (b) No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Indemnitee and an appropriate officer of the Company. No waiver by any party at any time of any breach by any other party of, or compliance with, any condition or provision of this Agreement to be performed by any other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same time or at any prior or subsequent time. (c) Section headings are not to be considered part of this Agreement, are solely for convenience of reference, and shall not affect the meaning or interpretation of this Agreement or any provision set forth herein. (d) Pronouns in masculine, feminine and neuter genders shall be construed to include any other gender, and words in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires. 21. Assignability. This Agreement shall not be assignable by either party without the consent of the other. 7 22. Exclusive Jurisdiction; Governing Law. The Company and Indemnitee agree that all disputes in any way relating to or arising under this Agreement, including, without limitation, any action for advancement of Expenses or indemnification, shall be litigated, if at all, exclusively in the Delaware Court of Chancery, and, if necessary, the corresponding appellate courts. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in such state without giving effect to the principles of conflicts of laws. The Company and Indemnitee expressly submit themselves to the personal jurisdiction of the State of Delaware. 23. Termination. (a) This Agreement shall terminate upon the mutual agreement of the parties that this Agreement shall terminate or upon the death of Indemnitee or the resignation, retirement, removal or replacement of Indemnitee from all of his positions as a director and/or officer of the Company. (b) The termination of this Agreement shall not terminate: (i) the Company's liability for claims or actions against Indemnitee arising out of or related to acts, omissions, occurrences, facts or circumstances occurring or alleged to have occurred prior to such termination; or (ii) the applicability of the terms and conditions of this Agreement to such claims or actions. IN WITNESS WHEREOF, the Company and Indemnitee have executed this Agreement as of the date and year first above written. LOISLAW.COM, INC. By: ----------------------------------- Name: ----------------------------- Title: ----------------------------- INDEMNITEE --------------------------------------- Name: --------------------------------- 8 EX-10.12 19 LEASE AGREEMENT EXHIBIT 10.12 LEASE This agreement, executed in duplicate, between PARKER LAW FIRM, of Van Buren, Arkansas, hereinafter called PARKER, and LAW OFFICE INFORMATION SYSTEMS, INC., an Arkansas Corporation, of Van Buren, Arkansas, hereinafter called LOIS, witnesseth: PARKER agrees to grant, and LOIS to take, a lease of those premises, situated in Van Buren, in the county of Crawford, Arkansas, more particularly described as follows: Part of the Southeast Quarter of the Southeast Quarter of Section 19, Township 9 North, Range 31 West, Crawford County, Arkansas, being more particularly described as follows: COMMENCING at the Southeast corner of the Southeast Quarter of the Southeast Quarter of said Section 19; thence North 00 degrees 09 minutes West, 220.0 feet, to the POINT OF BEGINNING: Thence West 200.0 feet; Thence North 00 degrees 09 minutes West, 368.2 feet to a point 75 feet South of The South line of Valley View Addition to the City of Van Buren; Thence South 89 degrees 56 minutes East parallel to said South line, 200.0 feet; Thence South 00 degrees 09 minutes East, 367.9 feet to the POINT OF BEGINNING, according to Survey by Hoffman- Prieur & Associates, Inc. dated August 10, 1988. The East half of Lots 7 and 8, Block 1, Valley View Addition to the City of Van Buren, Arkansas. Also, all that part of the West half of Allan Avenue closed by City Ordinance recorded in Miscellaneous Book 43 at page 71 lying between the extended North line of Lot 8 and the extended South line of Lot 7, Block 1, Valley View Addition to the City of Van Buren, Arkansas. ALSO: All that part of the East half of Allan Avenue closed by City Ordinance recorded in Miscellaneous Book 43 at Page 71 lying between the extended North line of Lot 3 and the extended South line of Lot 4, Block 3, Valley View Addition to the City of Van Buren, Arkansas. ALSO: Lots 3 and 4, Block 3, of Valley View Addition to the City of Van Buren, Arkansas, the same being part of the North half of the Southeast Quarter of the Southeast Quarter of Section 19, Township 9 North, Range 31 West. Crawford County, Arkansas. ALSO: The East 60 feet of Lot 7 and all of Lots 8 and A, Block 2, Valley View Addition to the City of Van Buren, Arkansas, the same being part of the Southeast Quarter of the Southeast Quarter of Section 19, Township 9 North, Range 31 West, according to plat filed for record August 18, 1948. Lots Five (5), Six (6), and Seven (7), and Eight (8) of Holmes Addition to the City of Van Buren, Arkansas, the same being part of the S/2 SE SE, 19-9-31, as reflected by plat filed November 2, 1962, of said addition. Said property being more specifically identified as 105 North 28th Street, 2701 Kibler Road, and the Northwest corner of Russel Road and North 28th Streets, Van Buren, Arkansas 72956. Subject to existing oil, gas and mineral lease, if any. Subject to existing right of ways, easements, restrictions and previous reservations, if any. For a term of five years, from the 5th day of May 1999, at a monthly rental of $14,144.00. In addition to the monthly base rental, LOIS shall be responsible for all taxes, insurance, maintenance, re-modelling and improvements to the premises, together with any increase in interest rates charged by City National Bank of Fort Smith, AR for the financing of the property for a term of five years. The said premises shall be used for the purpose of LOIS'S business activities and all activities in relation thereto. And it is agreed that LOIS will well and truly pay said rent on a monthly basis; that LOIS will keep the premises in good repair, and at the end of the term hereof surrender the same in good order, condition and repair as the same are not or may hereafter be put in, subject to ordinary wear and tear. This lease shall be renewable for two (2) additional successive periods of five (5) years each for a total term of fifteen (15) years at the option of LOIS. Witness our hands on this 5th day of May, 1999. LESSOR; PARKER LAW FIRM /s/ Douglas W. Parker --------------------- By Douglas W. Parker Partner LESSEE; LAW OFFICE INFORMATION SYSTEMS /s/ Kyle D. Parker ------------------ By Kyle D. Parker President EX-10.18 20 SENIOR SUB NOTES AND SECURITIES PURCHASE AGREEMENT Exhibit 10.18 =================================================================== SENIOR SUBORDINATED NOTE AND SECURITIES PURCHASE AGREEMENT between LAW OFFICE INFORMATION SYSTEMS, INC. and CAPITAL RESOURCE LENDERS III, L.P. Dated as of November 24, 1997 =================================================================== LAW OFFICE INFORMATION SYSTEMS, INC. Senior Subordinated Note and Securities Purchase Agreement Dated as of November 24, 1997 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS 1.01. Definitions.................................................................................. 1 1.02. Accounting Terms............................................................................. 8 ARTICLE II PURCHASE, SALE AND TERMS OF NOTES; PAYMENTS 2.01. The Notes.................................................................................... 8 2.02. Purchase and Sale of Notes................................................................... 8 2.03. Issue Price; Original Issue Discount......................................................... 9 2.04. Use of Proceeds.............................................................................. 9 2.05. Payments and Endorsements.................................................................... 9 2.06. Redemptions.................................................................................. 10 (a) Required Periodic Redemptions................................................................ 10 (b) Required Liquidity Redemptions............................................................... 10 (c) Optional Redemptions......................................................................... 10 (d) Notice of Redemptions; Pro Rata Redemptions.................................................. 10 2.07. Default Rate of Interest..................................................................... 10 2.08. Maximum Legal Rate of Interest............................................................... 10 2.09. Payment on Non-Business Days................................................................. 11 2.10. Transfer and Exchange of Notes............................................................... 11 2.11. Replacement of Notes......................................................................... 11 2.12. Subordination................................................................................ 11 ARTICLE III PURCHASE AND SALE OF EQUITY SECURITIES 3.01. The Equity Securities........................................................................ 11 3.02. Purchase and Sale of Preferred Shares and Warrants........................................... 12 3.03. Right to Purchase New Mezzanine Securities................................................... 12 3.04 Right to Purchase New Equity Securities...................................................... 12 3.05. Termination Upon Qualified IPO............................................................... 13 ARTICLE IV
CONDITIONS TO PURCHASER'S OBLIGATION 4.01. Representations and Warranties............................................................... 13 4.02A. Documentation at the Initial Closing......................................................... 14 4.02B. Documentation at Takedown Closings........................................................... 15 4.03. Board Matters................................................................................ 15 4.04. No Default................................................................................... 15 4.05. Key Person Life Insurance.................................................................... 16 4.06. Parker Family Debt........................................................................... 16 4.08. Payment of Certain Indebtedness.............................................................. 16 ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASER 5.01. Representations and Warranties of the Purchaser.............................................. 16 ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE COMPANY 6.01. Organization and Standing of the Company and Subsidiaries; Ownership......................... 17 6.02. Corporate Action............................................................................. 18 6.03. Governmental Approvals....................................................................... 18 6.04. Litigation................................................................................... 18 6.05. Compliance with Law.......................................................................... 18 6.06. Federal Reserve Regulations.................................................................. 19 6.07. Title to Assets, Patents..................................................................... 19 6.08. Financial Information........................................................................ 19 6.09. Taxes........................................................................................ 20 6.10. ERISA........................................................................................ 20 6.11. Transactions with Affiliates................................................................. 20 6.12. Assumptions or Guaranties of Indebtedness of Other Persons................................... 20 6.13. Investments in Other Persons................................................................. 20 6.14. Securities Act............................................................................... 20 6.15. Disclosure................................................................................... 21 6.16. No Brokers or Finders........................................................................ 21 6.17. Other Agreements of Officers................................................................. 21 6.18. Capitalization of the Company; Status of Capital Stock....................................... 21 6.19. Capital Stock of Subsidiaries................................................................ 22 6.20. Insurance.................................................................................... 22 6.21. Books and Records............................................................................ 22 6.22. Registration Rights.......................................................................... 22 6.23. Other Agreements............................................................................. 22 6.24. Hazardous and Toxic Materials................................................................ 24 6.25. Customers, Vendors and Suppliers............................................................. 24 6.26. No Violations................................................................................ 24 ARTICLE VII COVENANTS OF THE COMPANY 7.01. Affirmative Covenants of the Company Other Than Reporting Requirements........................ 25
(a) Punctual Payment............................................................................. 25 (b) Payment of Taxes and Trade Debt.............................................................. 25 (c) Maintenance of Insurance..................................................................... 25 (d) Preservation of Corporate Existence.......................................................... 25 (e) Compliance with Laws......................................................................... 25 (f) Inspection Rights............................................................................ 26 (g) Keeping of Records and Books of Account...................................................... 26 (h) Maintenance of Properties, Etc............................................................... 26 (i) Compliance with ERISA........................................................................ 26 (j) Attendance at Board Meetings................................................................. 26 (k) Payment of Senior Debt by the Purchaser...................................................... 26 (l) Board of Directors and Committees............................................................ 27 (m) Interest Coverage Ratio...................................................................... 27 (n) Fixed Charge Coverage Ratio.................................................................. 27 (o) Maximum Total Funded Debt to EBITDA Ratio.................................................... 27 (p) Minimum Tangible Capital Base................................................................ 28 (q) Database Expenditures........................................................................ 28 (r) Minimum EBITDA............................................................................... 28 7.02. Negative Covenants of the Company............................................................ 29 (a) Liens........................................................................................ 29 (b) Indebtedness................................................................................. 30 (c) Lease Obligations............................................................................ 30 (d) Assumptions or Guaranties of Indebtedness of Other Persons................................... 30 (e) Mergers, Sale of Assets, Etc................................................................. 30 (f) Investments in Other Persons................................................................. 30 (g) Distributions................................................................................ 31 (h) Dealings with Affiliates..................................................................... 32 (i) Maintenance of Ownership of Subsidiaries..................................................... 32 (j) Change in Nature of Business................................................................. 32 (k) No Amendment or Waiver of Charter Documents.................................................. 32 (l) Capital Expenditures......................................................................... 32 (m) Compensation................................................................................. 32 (n) Preferred Stock.............................................................................. 32 7.03. Reporting Requirements........................................................................ 32 ARTICLE VIII EVENTS OF DEFAULT 8.01. Events of Default............................................................................. 34 8.02. Annulment of Defaults......................................................................... 36 ARTICLE IX MISCELLANEOUS 9.01. No Waiver; Cumulative Remedies................................................................ 36 9.02. Amendments, Waivers and Consents.............................................................. 36 9.03. Addresses for Notices, Etc.................................................................... 37 9.04. Costs, Expenses and Taxes..................................................................... 38 9.05. Binding Effect; Assignment.................................................................... 38 9.06. Payments in Respect of Notes.................................................................. 39
9.07. Payments in Respect of the Preferred Shares and Warrants...................................... 39 9.08. Indemnification............................................................................... 39 9.09. Survival of Representations and Warranties.................................................... 39 9.10. Prior Agreements.............................................................................. 39 9.11. Severability.................................................................................. 39 9.12. Governing Law................................................................................. 39 9.13. Waiver of Right to Jury Trial................................................................. 40 9.14. Headings...................................................................................... 40 9.15. Sealed Instrument............................................................................. 40 9.16. Counterparts.................................................................................. 40 9.17. Further Assurances............................................................................ 40 9.18. Consent to Jurisdiction....................................................................... 40 9.19. Effect of Judgment............................................................................ 40 9.20. Service of Process............................................................................ 40 9.21. No Limitation................................................................................. 40 9.22. Specific Performance.......................................................................... 41 9.23. Actions by Purchaser.......................................................................... 41 9.24. Confidentiality............................................................................... 41
EXHIBITS - -------- 2.01 Form of Senior Subordinated Notes 2.04 Schedule of Use of Proceeds 2.12 Form of Subordination and Intercreditor Agreement 3.01A Rights, Designations and Preferences of Series A Preferred Stock 3.01B Form of Common Stock Purchase Warrants 4.02A(e) Form of Stockholders' Agreement 4.02A(g) Form of Registration Rights Agreement 4.02A(i) Form of Non-Competition Agreement 4.02A(j) Form of Certificate to The Rockefeller Foundation 4.02A(k) Form of Preferred Stock Subordination Agreement 6.01 Schedule of Subsidiaries 6.04 Schedule of Litigation 6.07 Schedule of Title Exceptions 6.08A Financial Statements 6.08B Schedule of Indebtedness 6.11 Schedule of Affiliate Transactions 6.18 Schedule of Capital Stock, Options and Other Rights 6.23 Schedule of Other Agreements -7- law office information systems, inc. 105 North 28th Street Van Buren, Arkansas 72956 Dated as of November 24, 1997 Capital Resource Lenders III, L.P. 85 Merrimac Street Suite 200 Boston, Massachusetts 02114 Re: Senior Subordinated Notes due 2004, Preferred Stock and Common Stock Purchase Warrants ------------------------------------------------------- Ladies and Gentlemen: Law Office Information Systems, Inc., an Arkansas corporation, hereby agrees with Capital Resource Lenders III, L.P., a Delaware limited partnership, as follows: ARTICLE I DEFINITIONS 1.01. Definitions. As used herein, the following terms shall have the ----------- following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Affiliate" means, as to any specified Person, any other Person --------- controlling, controlled by or under common control with such specified Person. "Agreement" means this Senior Subordinated Note and Securities Purchase --------- Agreement as from time to time amended and in effect between the parties. "Applicable Laws" shall have the meaning assigned to that term in Section --------------- 6.05. "Audited Financial Statements" shall have the meaning assigned to that term ---------------------------- in Section 6.08. "Board" shall have the meaning assigned to that term in Section 4.03. ----- "Budget" shall have the meaning assigned to that term in Section 7.03(d). ------ "Business Day" means any day other than a Saturday, Sunday or public ------------ holiday or the equivalent for banks under the laws of The Commonwealth of Massachusetts. -8- "Business Partner" shall have the meaning assigned to that term in Section ---------------- 6.25. "Capital Expenditure" means, for any period, any payment made directly or ------------------- indirectly for the purpose of acquiring or constructing fixed assets, real property or equipment which in accordance with GAAP would be added as a debit to the fixed asset account of the Person making such expenditure, including without limitation, amounts paid or payable under any conditional sale or other title retention agreement or under any lease or other periodic payment arrangement which is of such a nature that payment obligations of the lessee or obligor thereunder would be required by GAAP to be capitalized and shown as liabilities on the balance sheet of such lessee or obligor. "Capital Lease" means any lease of property (real, personal or mixed) ------------- which, in accordance with GAAP, should be capitalized on the lessee's balance sheet or for which the amount of the asset and liability thereunder as if so capitalized should be disclosed in a note to such balance sheet. "Change in Control" means any transaction or any event as a result of which ----------------- (i) any one or more Persons (other than (a) the Purchaser and its Affiliates and its direct or indirect assigns or (b) Kyle D. Parker, individually, or through The Parker Trust dated March 15, 1989, together with members of his immediate family or trusts for their benefit, provided Kyle D. Parker continues to have all voting rights with respect to all shares of Common Stock beneficially owned or held by such family members and such trusts) acquires or for the first time controls or is able to vote (directly or through nominees or beneficial ownership) after the Initial Closing Date (other than as the direct result of a transfer by descent or distribution of a decedent's estate) fifty percent (50%) or more of the outstanding Common Stock; or (ii) Kyle D. Parker is no longer chief executive officer or president of the Company, unless his position as chief executive officer and president is terminated by the Board without Cause (as such term is defined in the Non-Competition Agreement) and the Purchaser's representatives on the Board vote for such termination. "Code" shall have the meaning assigned to that term in Section 2.03. ---- "Commission" means the United States Securities and Exchange Commission (or ---------- any other federal agency at that time administering the Securities Act). "Common Stock" includes (a) the Company's common stock, par value $0.001 ------------ per share, as authorized on the date of this Agreement, (b) any other capital stock of any class or classes (however designated) of the Company, authorized on or after the date hereof, the holders of which shall have the right, without limitation as to amount per share, either to all or to a share of the balance of current dividends and liquidating distributions after the payment of dividends and distributions on any shares entitled to preference in the payment thereof, and the holders of which shall ordinarily, in the absence of contingencies, be entitled to vote for the election of a majority of directors of the Company (even though the right so to vote may have been suspended by the happening of such a contingency), and (c) any other securities into which or for which any of the securities described in (a) or (b) above may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. "Company" means and shall include Law Office Information Systems, Inc., an ------- Arkansas corporation, and its successors and assigns. "CRL III" means Capital Resource Lenders III, L.P., a Delaware limited ------- partnership, and its successors and assigns. -9- "Database Assets" means the book value of the Company's databases for --------------- electronic legal libraries determined in accordance with GAAP. "Database Expenditure" means, for any period, any payment made directly or -------------------- indirectly for the purpose of acquiring or developing databases for electronic legal libraries. "Distribution" shall have the meaning assigned to that term in Section ------------ 7.02(g). "Dublind Warrants" shall have the meaning assigned to that term in Section ---------------- 6.16. "EBITDA" means, for any period, the Net Income (or Net Loss) of the Company ------ and its Subsidiaries on a consolidated basis for such period, plus each of the following items, without duplication: (i) all interest on any Indebtedness paid or accrued during such period and actually deducted on the books of the Company and its Subsidiaries on a consolidated basis for the purposes of the computation of such Net Income (or Net Loss) for the period involved, (ii) all federal, state and foreign income taxes (but not ad valorem property taxes, sales taxes -- ------- or taxes in the nature of an excise tax) paid or accrued by the Company and its Subsidiaries on a consolidated basis with respect to such period and deducted on the books of the Company and its Subsidiaries on a consolidated basis for the purposes of the computation of such Net Income (or Net Loss) for the period involved and (iii) the amount of the provision for depreciation and/or amortization actually deducted on the books of the Company and its Subsidiaries on a consolidated basis for the purposes of the computation of Net Income (or Net Loss) for the period involved. "EFT Financing" means a financing of the Company by an institutional lender ------------- where such financing is secured solely by the accounts receivable of the Company relating to electronic funds transfer arrangements between the Company and its customers and/or subscribers. "Equity Securities" shall have the meaning assigned to that term in Section ----------------- 3.04. "ERISA" shall have the meaning assigned to that term in Section 6.10. ----- "Events of Default" shall have the meaning assigned to that term in Section ----------------- 8.01. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or ------------ any similar successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Financial Statements" shall have the meaning assigned to that term in -------------------- Section 6.08. "First Takedown Closing" shall have the meaning assigned to that term in ---------------------- Section 2.02(b). "First Takedown Closing Date" shall have the meaning assigned to that term --------------------------- in Section 202(b). "First Takedown Notice" shall have the meaning assigned to that term in --------------------- Section 2.02(b). "First Takedown Principal" shall have the meaning assigned to that term in ------------------------ Section 2.02(b). "Fixed Charges" means, for any period, the aggregate of (i) Total Funded ------------- Debt, plus (ii) Interest Expense, plus (iii) Capital Expenditures, plus (iv) ---- ---- ---- state and federal income taxes for the period being tested -10- determined in accordance with GAAP during such period. "GAAP" means generally accepted accounting principles recognized as such by ---- the American Institute of Certified Public Accountants. Unless otherwise specifically stated herein, use of the term "GAAP" means that such principles are applied and maintained on a consistent basis for the Company and its Subsidiaries throughout the period indicated and consistent with the prior financial practices of the Company and its Subsidiaries as reflected on the Financial Statements so as to properly reflect the financial condition, and the results of operations and cash flows of the Company and its Subsidiaries. "Hazardous Discharge" shall have the meaning assigned to that term in ------------------- Section 6.24. "Hazardous Substances" shall have the meaning assigned to that term in -------------------- Section 6.24. "Indebtedness" means all obligations, contingent and otherwise, which ------------ should, in accordance with GAAP, be classified upon the obligor's balance sheet as liabilities, but in any event including, without limitation, liabilities secured by any mortgage on property owned or acquired subject to such mortgage, whether or not the liability secured thereby shall have been assumed, and also including, without limitation, (i) all guaranties, endorsements and other contingent obligations in respect of Indebtedness of others, whether or not the same are or should be so reflected in said balance sheet, except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, and (ii) the present value of any Capital Leases. "Indebtedness for Money Borrowed" of a Person means at any time the sum at ------------------------------- such time of (a) Indebtedness of such Person for borrowed money or for the deferred purchase price of property or services, (b) any obligations of such Person in respect of letters of credit, banker's or other acceptances or similar obligations issued or created for the account of such Person, (c) obligations of such Person with respect to Capital Leases, (d) all liabilities secured by any Lien on any property owned by such Person, to the extent attached to such Person's interest in such property, even though such Person has not assumed or become personally liable for the payment thereof, (e) obligations of third parties which are being guaranteed or indemnified against by such Person or which are secured by the property of such Person, and (f) any obligation of such Person under an employee stock ownership plan or other similar employee benefit plan; but excluding trade and other accounts payable in the ordinary course of business in accordance with customary trade terms and which are not overdue (as determined in accordance with past practices) or which are being disputed in good faith by such Person and for which adequate reserves are being provided on the books of such Person in accordance with GAAP. "Initial Closing" shall have the meaning assigned to that term in Section --------------- 2.02(a). "Initial Closing Date" shall have the meaning assigned to that term in -------------------- Section 2.02(a). "Interest Expense" means the aggregate interest expense of the Company and ---------------- its Subsidiaries on a consolidated basis (including, without limitation, interest expense attributable to Capital Leases) determined in accordance with GAAP for the relevant period. "Liquidity Disposition" means (i) any merger or consolidation with any --------------------- Person, (ii) any sale, assignment, lease or other disposition of or voluntary parting with the control of (whether in one transaction or in a series of transactions) all or substantially all of the consolidated assets (whether now owned or hereafter acquired) of the Company and its Subsidiaries and (iii) any issuance of equity securities of the Company which, when aggregated with all issuances of equity securities of the Company subsequent to the -11- Initial Closing, exceeds fifty percent (50%) of the aggregate of all outstanding equity securities of the Company immediately after the Initial Closing on a fully diluted basis, except for (1) mergers, consolidations or asset transfers with or between two or more Subsidiaries, (2) mergers or asset transfers by any Subsidiary with or to the Company and (3) the merger of any Person into the Company or other issuance of securities by the Company in connection with the acquisition of a Person as long as the Company is the surviving entity, such merger or acquisition does not result in the violation of any of the provisions of this Agreement and no such violation exists at the time of such merger or acquisition, and the consideration paid by the Company in connection with such merger or acquisition has a fair market value of less than one million dollars ($1,000,000) at the date of the closing of such transaction. "Liquidity IPO" means a firm commitment underwritten public offering of ------------- shares of the Company's Common Stock in which (i) the aggregate proceeds to the Company and/or any shareholders participating in the offering, if any, are at least $20 million and (ii) the aggregate market valuation of the Company's Common Stock is then not less than $40 million. "Material Adverse Effect" shall have the meaning assigned to that term in ----------------------- Section 6.01. "Mezzanine Securities" shall have the meaning assigned to that term in -------------------- Section 3.03. "Net Income" (or "Net Loss") means the consolidated net income (or --------------------------- consolidated net loss, expressed as a negative number) of the Company for any period, after deductions for all taxes actually paid or accrued and all expenses and other charges (not including (i) any extraordinary or non-recurring non-cash expenses and other non-cash charges, or (ii) extraordinary or non-recurring cash or non-cash gains), determined in accordance with GAAP consistently applied. "Net Worth" shall mean the total of all assets appearing on the --------- consolidated balance sheet of the Company, after deducting therefrom all liabilities appearing on such balance sheet, determined in accordance with GAAP. "Notes" shall have the meaning assigned to that term in Section 2.01. ----- "Non-Competition Agreement" shall have the meaning assigned to that term in ------------------------- Section 4.02A(i). "Offer" shall have the meaning assigned to that term in Section 3.03. ----- "Operative Documents" shall mean each of the Notes, the Warrants, the ------------------- Stockholders' Agreement, the Registration Rights Agreement, the Non-Competition Agreement and the Preferred Stock Subordination Agreement. "Outstanding Common Stock" shall mean the aggregate of all outstanding ------------------------ Common Stock, including the Preferred Conversion Shares, the Warrant Shares and all shares of Common Stock which could be acquired from the Company upon exercise or conversion of any outstanding options or other securities then exercisable or convertible into Common Stock. "Permitted Liens" shall have the meaning assigned to that term in Section --------------- 7.02(a). "Person" means and includes an individual, a corporation, a partnership, a ------ joint venture, a trust, an unincorporated organization, a limited liability company or partnership, or a government or any agency or political subdivision thereof. -12- "Preferred Conversion Shares" shall have the meaning assigned to that term --------------------------- in Section 3.01. "Preferred Shares" shall have the meaning assigned to that term in Section ---------------- 3.01. "Preferred Stock" means the Preferred Stock, $0.001 par value per share, of --------------- the Company as authorized on the date of this Agreement. "Preferred Stock Subordination Agreement" shall have the meaning assigned --------------------------------------- to that term in Section 4.02A(k). "Proposal" shall have the meaning assigned to that term in Section 3.03. -------- "Purchaser" means and shall include CRL III and any other holder or holders --------- from time to time of any of the Securities. "Qualified IPO" means a firm commitment underwritten public offering of ------------- shares of the Company's Common Stock in which (i) the aggregate proceeds to the Company and/or any shareholders participating in the offering, if any, are at least $20 million and (ii) the aggregate market valuation of the Company's Common Stock is then not less than $40 million. "Qualifying Liquidity Event" means each of (i) a Change in Control, (ii) a -------------------------- Liquidity Disposition and (iii) a Liquidity IPO. "Registration Rights Agreement" shall have the meaning assigned to that ----------------------------- term in Section 4.02A(g). "Revised Proposal" shall have the meaning assigned to that term in Section ---------------- 3.03. "Second Takedown Closing" shall have the meaning assigned to that term in ----------------------- Section 2.02(c). "Second Takedown Closing Date" shall have the meaning assigned to that term ---------------------------- in Section 2.02(c). "Second Takedown Notice" shall have the meaning assigned to that term in ---------------------- Section 2.02(c). "Second Takedown Principal" shall have the meaning assigned to that term in ------------------------- Section 2.02(c). "Securities" means collectively the Notes, the Preferred Shares, the ---------- Preferred Conversion Shares, the Warrants and the Warrant Shares. "Securities Act" means the Securities Act of 1933, as amended, or any -------------- similar successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Senior Debt" means (i) all Indebtedness for Money Borrowed of the Company ----------- and any of its Subsidiaries from banks or institutional lenders, including any extensions or renewals thereof, whether outstanding on the date hereof or hereafter created or incurred, which is not by its terms subordinate and junior to the Notes and which is disclosed on the Financial Statements or is permitted by this Agreement at the time it is created or incurred, (ii) all Indebtedness for Money Borrowed of the Company and any of its Subsidiaries incurred to refinance any of the Indebtedness for Money Borrowed referred to in item (i) -13- above, where the security securing such Indebtedness is substantially the same security as that securing the Indebtedness for Money Borrowed being refinanced, (iii) all obligations of the Company and any of its Subsidiaries under Capital Leases which are permitted by this Agreement at the time they are incurred and (iv) all guarantees by the Company and any of its Subsidiaries which are not by their terms subordinate and junior to the Notes and which are permitted hereby at the time they are made of Indebtedness of any Subsidiary if such Indebtedness would have been Senior Debt pursuant to the provisions of clause (i), (ii) or (iii) of this sentence had it been Indebtedness of the Company. "Series A Preferred Stock" means the Company's Preferred Stock designated ------------------------ as Series A Convertible Preferred Stock, $0.001 par value per share, as authorized on the date of this Agreement. "Series B Preferred Stock" means the Company's Preferred Stock designated ------------------------ as Series B Redeemable Preferred Stock, $0.001 par value per share, as authorized on the date of this Agreement. "Stockholders' Agreement" shall have the meaning assigned to that term in ----------------------- Section 4.02A(e). "Subordinated Debt" means all Indebtedness for Money Borrowed of the ----------------- Company and any of its Subsidiaries from any Person, including any extensions or renewals thereof, whether outstanding on the date hereof or hereafter created or incurred, which is by its terms subordinate and junior to Senior Debt on terms acceptable to the holders of Senior Debt and which is permitted by this Agreement at the time it is created or incurred, including, without limitation, the Notes. "Subordination Agreement" shall have the meaning assigned to that term in ----------------------- Section 2.12. "Subsidiary" or "Subsidiaries" means (i) any corporation more than fifty ---------- ------------ percent (50%) of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned directly or indirectly by the Company and/or any one or more of its Subsidiaries, and (ii) any partnership, association, joint venture or other entity in which the Company and/or one or more of its Subsidiaries has more than a fifty percent (50%) equity interest at the time. "Takedown Closing" shall have the meaning assigned to that term in Section ---------------- 2.02(c). "Tangible Capital Base" means (i) the Company's Net Worth less (ii) the --------------------- ---- Company's intangible assets (which include, but are not limited to, the Database Assets), determined in accordance with GAAP. "Total Funded Debt" means all Indebtedness for Money Borrowed of the ----------------- Company (other than in connection with Capital Leases) which bear interest, including, without limitation, the Senior Debt and the Subordinated Debt; provided, however, that the amount of Subordinated Debt to be included in the - -------- ------- calculation of Total Funded Debt shall include the face amount of all Subordinated Debt without any deduction for any original issue discount required by GAAP. "Unaudited Financial Statements" shall have the meaning assigned to that ------------------------------ term in Section 6.08. "Warrant Shares" shall have the meaning assigned to that term in Section -------------- 3.01. "Warrants" shall have the meaning assigned to that term in Section 3.01. -------- -14- 1.02. Accounting Terms. All accounting terms not specifically defined ---------------- herein shall be construed in accordance with GAAP, and all financial data submitted pursuant to this Agreement and all financial tests to be calculated in accordance with this Agreement shall be prepared and calculated in accordance with GAAP. ARTICLE II PURCHASE, SALE AND TERMS OF NOTES; PAYMENTS 2.01. The Notes. The Company has authorized the issuance and sale to --------- the Purchaser of the Company's 12.5% Senior Subordinated Notes, due 2004, in the original aggregate principal amount of $10,000,000. The 12.5% Senior Subordinated Notes shall be substantially in the form set forth as Exhibit 2.01 ------------ attached hereto and are herein referred to individually as a "Note" and collectively as the "Notes", which terms shall also include any notes delivered in exchange or replacement therefor. The Notes shall (a) be payable on September 30, 2004 and (b) bear interest (based on a 360-day year counting actual days elapsed) on the unpaid principal amount thereof until due and payable at the rate of twelve and one-half percent (12.5%) per annum, which interest shall be payable quarterly in arrears on the last Business Day of March, June, September and December in each year, commencing December 31, 1997, and at maturity or prior prepayment of the Notes in full. 2.02. Purchase and Sale of Notes. The Company agrees to issue and sell to -------------------------- the Purchaser, and, subject to and in reliance upon the representations, warranties, terms and conditions of this Agreement, the Purchaser agrees to purchase the Notes. (a) At the initial closing (the "Initial Closing") to be held at the offices of Testa, Hurwitz & Thibeault, LLP, High Street Tower, 125 High Street, Boston, Massachusetts, at 10:00 a.m. local time on the date on which this Agreement is executed and delivered (the "Initial Closing Date"), the Company will issue and sell to the Purchaser a single Note, dated the Initial Closing Date, in the principal amount of $4,000,000, the Preferred Shares and the Warrants (as provided in Section 3.02), against receipt of funds by wire transfer to an account or accounts designated by the Company prior to the Initial Closing in the amount of $7,000,000, in payment of the purchase price for the Note, the Preferred Shares and the Warrants. (b) The purchase and sale of up to an additional $3,000,000 aggregate principal amount of Notes shall take place at a closing (the "First Takedown Closing") to be held at the offices of Testa, Hurwitz & Thibeault, LLP, High Street Tower, 125 High Street, Boston, Massachusetts, at 10:00 a.m. local time on March 31, 1998 (the "First Takedown Closing Date"), upon written notice (the "First Takedown Notice") given by the Company to the Purchaser at least twenty (20) days prior to the First Takedown Closing Date. Such First Takedown Notice shall specify the aggregate principal amount (the "First Takedown Principal") of the Notes to be issued and sold at such First Takedown Closing, which First Takedown Principal shall not exceed $3,000,000. At the First Takedown Closing, the Company will issue and sell to the Purchaser a single Note, dated the First Takedown Closing Date and in the principal amount equal to the First Takedown Principal, against receipt of funds by wire transfer to an account or accounts designated by the Company prior to such First Takedown Closing in the amount of the First Takedown Principal, in payment of the purchase price for such Note. (c) The purchase and sale of up to an additional $3,000,000 aggregate principal amount of Notes shall take place at a closing (the "Second Takedown Closing") to be held at the offices of -15- Testa, Hurwitz & Thibeault, LLP, High Street Tower, 125 High Street, Boston, Massachusetts, at 10:00 a.m. local time on June 30, 1998 (the "Second Takedown Closing Date"), upon written notice (the "Second Takedown Notice") given by the Company to the Purchaser at least twenty (20) days prior to the Second Takedown Closing Date. Such Second Takedown Notice shall specify the aggregate principal amount (the "Second Takedown Principal") of the Notes to be issued and sold at such Second Takedown Closing, which Second Takedown Principal shall not exceed $3,000,000. At the Second Takedown Closing, the Company will issue and sell to the Purchaser a single Note, dated the Second Takedown Closing Date and in the principal amount equal to the Second Takedown Principal, against receipt of funds by wire transfer to an account or accounts designated by the Company prior to such Second Takedown Closing in the amount of the Second Takedown Principal, in payment of the purchase price for such Note. The First Takedown Closing and the Second Takedown Closing are sometimes herein referred to individually as a "Takedown Closing" and collectively as the "Takedown Closings"). (d) Except as otherwise set forth herein, no amendment of this Agreement shall be required for any Takedown Closing. Notwithstanding the foregoing, the Purchaser's obligation to purchase any Notes from the Company at the Initial Closing and any Takedown Closing shall be in each case subject to the satisfaction of all of the conditions specified in Article IV of this Agreement. 2.03. Issue Price; Original Issue Discount. Having considered all facts ------------------------------------ relevant to a determination of the value of the Notes, the Warrants and the Preferred Shares being acquired by the Purchaser, including among other things the leveraged nature of the Company's capitalization and the nature of its business and prospects, the Company and the Purchaser have concluded and do hereby agree that, within the meaning of Section 1273 of the Internal Revenue Code of 1986, as amended (the "Code"), the issue price for the Note issued at the Initial Closing is $3,425,000; and the issue price for the remaining portion of the Notes shall equal the principal amount of the Note issued at each Takedown Closing. The Company and the Purchaser recognize that this Agreement creates original issue discount of $575,000 as the amount to be taken into account by the Company and the Purchaser for federal income tax purposes on the Note issued at the Initial Closing, and they agree to adhere to this Agreement for such purposes and not to take any action inconsistent herewith. 2.04. Use of Proceeds. The Company agrees to use the full proceeds from the --------------- sale of the Notes for the purposes set forth on Exhibit 2.04 attached hereto. ------------ 2.05. Payments and Endorsements. Payments of principal, interest and ------------------------- premium, if any, on the Notes shall be made without setoff or counterclaim directly by check duly mailed or delivered to the Purchaser at its address referred to in Section 9.03 hereof, without any presentment or notation of payment, except that prior to any transfer of any Note, the holder thereof shall endorse on such Note a record of the date to which interest has been paid and all payments made on account of principal of such Note. All payments and prepayments of principal of and interest on the Notes shall be applied (to the extent thereof) to all of the Notes pro rata based on the principal amount --- ---- outstanding and held by each holder thereof. 2.06. Redemptions. ----------- (a) Required Periodic Redemptions. Beginning on and with the last ----------------------------- Business Day of December 2000, on the last Business Day of March, June, September and December of each year through and including the last Business Day of September 2004, the Company will redeem, without penalty or premium, principal amount of the Notes equal to 6.25% of the aggregate principal amount of the Notes outstanding on the last Business Day of December 2000, together with all accrued and unpaid interest then due on the amount so redeemed. (By way of example and without limiting the foregoing, if $10,000,000 in -16- aggregate principal amount of the Notes is outstanding as of the last Business Day of December 2000, $625,000 in aggregate principal amount of Notes shall be redeemed on such date and on the last Business Day of each subsequent quarter). On the stated or accelerated maturity of the Notes, the Company will pay the principal amount of the Notes then outstanding together with all accrued and unpaid interest then due thereon. Except as set forth in subsection 2.06(c), no optional redemption of less than all of the Notes shall affect the obligation of the Company to make the redemptions required by this subsection. (b) Required Liquidity Redemptions. In the event and upon the ------------------------------ closing of a Qualifying Liquidity Event, the Company shall redeem, without premium, all of the outstanding Notes, together with all accrued and unpaid interest then due thereon. (c) Optional Redemptions. In addition to the redemptions of the -------------------- Notes required under subsection 2.06(a) and (b), the Company may, at any time and from time to time, redeem, without premium, the Notes, in whole or in part (in integral multiples of $1,000), together with interest due on the amount so redeemed through the date of redemption. Partial redemptions made as provided in this subsection 2.06(c) shall, to the extent thereof, be applied first to reduce the principal due at maturity of the Notes and next to reduce the payments required by subsection 2.06(a) in inverse order of maturity thereof. (d) Notice of Redemptions; Pro Rata Redemptions. Notice of any ------------------------------------------- optional redemption pursuant to subsection 2.06(c) shall be given to all holders of the Notes at least ten (10) Business Days prior to the date of such redemption and notice of any required redemption pursuant to Section 2.06(b) shall be given to all holders of the Notes at least ten (10) Business Days prior to the closing of a Qualifying Liquidity Event. Each redemption of Notes pursuant to subsections 2.06(a) or (c) shall be made so that the Notes then held by each holder shall be redeemed in a principal amount which shall bear the same ratio to the total unpaid principal amount being redeemed on all Notes as the unpaid principal amount of Notes then held by such holder bears to the aggregate unpaid principal amount of the Notes then outstanding. 2.07. Default Rate of Interest. If an Event of Default has occurred and is ------------------------ continuing, from and after the date such Event of Default occurred the entire outstanding unpaid principal balance of the Notes and any unpaid interest from time to time due thereon shall bear interest, payable on demand, at the rate of fifteen and one-half percent (15.5%) per annum, or such lower rate as then may be the maximum rate permitted by applicable law; provided, however, that upon -------- ------- the cessation or cure of such Event of Default, if no other Event of Default is then continuing, the Notes shall again bear interest at the rate of 12.5% per annum as set forth in Section 2.01. 2.08. Maximum Legal Rate of Interest. Nothing in this Agreement or in the ------------------------------ Notes shall require the Company to pay interest at a rate in excess of the maximum rate permitted by applicable law. 2.09. Payment on Non-Business Days. Whenever any payment to be made shall ---------------------------- be due on a day which is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest due. 2.10. Transfer and Exchange of Notes. The holder of any Note or Notes may, ------------------------------ prior to maturity or prepayment thereof, surrender such Note or Notes at the principal office of the Company for transfer or exchange. Any holder desiring to transfer or exchange any Note shall first notify the Company in writing at least five (5) days in advance of such transfer or exchange. Within a reasonable time after such notice to the Company from a holder of its intention to make such exchange and without expense (other than transfer taxes, if any) to such holder, the Company shall issue in exchange therefor another Note or Notes, in such -17- denominations as requested by the holder, for the same aggregate principal amount, as of the date of such issuance, as the unpaid principal amount of the Note or Notes so surrendered and having the same maturity and rate of interest, containing the same provisions and subject to the same terms and conditions as the Note or Notes so surrendered. Each new Note shall be made payable to such Person or Persons, or assigns, as the holder of such surrendered Note or Notes may designate, and such transfer or exchange shall be made in such a manner that no gain or loss of principal or interest shall result therefrom. Notwithstanding anything to the contrary in this Section 2.10, the transfer or exchange of any Note, other than to the registered holder of such Note, is subject to the prior consent of the Company and such consent shall not be unreasonably withheld. 2.11. Replacement of Notes. Upon receipt of evidence satisfactory to the -------------------- Company of the loss, theft, destruction or mutilation of any Note and, if requested in the case of any such loss, theft or destruction, upon delivery of an indemnity bond or other agreement or security reasonably satisfactory to the Company, or, in the case of any such mutilation, upon surrender and cancellation of such Note, the Company will issue a new Note, of like tenor and amount and dated the date to which interest has been paid, in lieu of such lost, stolen, destroyed or mutilated Note; provided, however, if any Note of which a Purchaser, its nominee, or any of its partners is the holder is lost, stolen or destroyed, the affidavit of an authorized partner or officer of the holder setting forth the circumstances with respect to such loss, theft or destruction shall be accepted as satisfactory evidence thereof, and no indemnification bond or other security shall be required as a condition to the execution and delivery by the Company of a new Note in replacement of such lost, stolen or destroyed Note other than the holder's written agreement to indemnify the Company. 2.12. Subordination. In the event the Company consummates the EFT Financing ------------- on terms reasonably satisfactory to the Purchaser, the Purchaser agrees to enter into a Subordination and Intercreditor Agreement with the lender and the Company in substantially the form attached hereto as Exhibit 2.12 (the "Subordination ------------ Agreement"). ARTICLE III PURCHASE AND SALE OF EQUITY SECURITIES 3.01. The Equity Securities. The Company has authorized the issuance and --------------------- sale to the Purchaser of (i) an aggregate of 931,044 shares (the "Preferred Shares") of the Company's Series A Preferred Stock where the rights, designations and preferences and other terms and conditions relating to the Series A Preferred Stock shall be as set forth on Exhibit 3.01A attached hereto ------------- and (ii) the Company's Common Stock Purchase Warrants for the purchase (subject to adjustment as provided therein) of an aggregate of 972,293 shares of the Company's Common Stock. The Common Stock Purchase Warrants shall be substantially in the form set forth as Exhibit 3.01B attached hereto and are ------------- herein referred to individually as a "Warrant" and collectively as the "Warrants", which terms shall also include any warrants delivered in exchange or replacement therefor. The Warrants shall be exercisable at a purchase price, subject to adjustment, of $0.01 per Warrant Share. The shares of Common Stock issuable upon conversion of the Preferred Shares are referred to herein as the "Preferred Conversion Shares." The shares of Common Stock issuable upon exercise of the Warrants are referred to herein as the "Warrant Shares." 3.02. Purchase and Sale of Preferred Shares and Warrants. The Company -------------------------------------------------- agrees to issue and sell to the Purchaser and, subject to and in reliance upon the representations, warranties, terms and conditions of this Agreement, the Purchaser agrees to purchase the Preferred Shares and the Warrants. Such purchase and sale shall take place at the Initial Closing and at the Initial Closing the Company will -18- issue to the Purchaser the Preferred Shares and the Warrants. 3.03. Right to Purchase New Mezzanine Securities. Prior to issuing any ------------------------------------------ Subordinated Debt, whether or not in combination with warrants or other equity securities (such Subordinated Debt and/or warrants or other equity securities herein referred to collectively as "Mezzanine Securities") of the Company or any of its Subsidiaries to any Person, the Company will first offer, or cause such Subsidiary to offer (the "Offer"), to the Purchaser an opportunity to submit a proposal providing for the Purchaser or any Affiliate of the Purchaser to purchase such Mezzanine Securities (the "Proposal"). The Proposal shall be made by the Purchaser within thirty (30) days of their receipt of the Offer and shall include the material terms upon which the Purchaser (or its Affiliate) will purchase the Mezzanine Securities. The Purchaser and the Company may negotiate the material terms of the Proposal, in which case the material revised terms of the Proposal shall be set forth by the Purchaser in a revised proposal as soon as reasonably practicable thereafter (the "Revised Proposal"). If the Company accepts the Proposal or a Revised Proposal, as applicable, within fifteen (15) days of its receipt of the Proposal or a Revised Proposal, as applicable, the Purchaser (or its Affiliate) shall be entitled to purchase such Mezzanine Securities and the Company and the Purchaser shall each negotiate in good faith to finalize the terms of the Mezzanine Securities and the Purchaser's (or its Affiliate's) purchase thereof. The obligation to negotiate in good faith shall not impose an obligation to remove or materially alter any material term or provision in, or to add any material term or provision to, those set forth in the Proposal or Revised Proposal, as applicable. If the Company fails to accept (within the fifteen (15) day consideration period) or rejects the Proposal or Revised Proposal, as applicable, neither the Company nor any Subsidiary shall issue such Mezzanine Securities unless (i) the material financial terms and conditions of such Mezzanine Securities to be issued are materially more favorable in the aggregate to the Company or such Subsidiary than those set forth in the Proposal or Revised Proposal, as applicable, (ii) promptly upon its decision to reject the Proposal or the Revised Proposal or upon the expiration of the fifteen (15) day consideration period, as applicable, the Company has provided the Purchaser with a written notice of rejection providing an explanation of its conclusion that the material financial terms and conditions of such Mezzanine Securities are materially more favorable than those set forth in the Proposal or the Revised Proposal and (iii) such issuance of Mezzanine Securities occurs within six (6) months of the date of the Proposal or the date of the Revised Proposal, whichever is later. 3.04 Right to Purchase New Equity Securities. Prior to issuing any --------------------------------------- equity securities or any options or convertible securities exercisable for or convertible into such equity securities (collectively, "Equity Securities") of the Company or any Subsidiary to any Person, the Company will first give or cause such Subsidiary to give to each of the holders of the Preferred Shares, the Preferred Conversion Shares, the Warrants and the Warrant Shares the right to purchase, on the same terms, the same proportion of the securities proposed to be sold by the Company or such Subsidiary as the number of Preferred Shares, Preferred Conversion Shares, Warrants and Warrant Shares owned by such holder bears to the total number of shares of Outstanding Common Stock at that time. Persons electing to purchase Equity Securities pursuant to this Section shall also be entitled to purchase (pro rata according to their holdings of Preferred Shares, Preferred Conversion Shares, Warrants and Warrant Shares) offered Equity Securities that other holders decline to purchase. Any such right of purchase shall be exercisable for a period of thirty (30) days after the holders receive written notice of a proposed issuance of Equity Securities (and any such notice by the Company or a Subsidiary shall be given not less than thirty (30) nor more than ninety (90) days prior to any such issuance). The Company shall be entitled to sell any Equity Securities not purchased by the holders of Preferred Shares, Preferred Conversion Shares, Warrants and Warrant Shares -19- pursuant to this Section 3.04 (i) during the period ending six (6) months after the date of the Company's notice to such holders and (ii) at not less than the same price and upon terms not materially less favorable to the Company than those offered to the holders of Preferred Shares, Preferred Conversion Shares, Warrants and Warrant Shares, but may not otherwise sell such Equity Securities without renewed compliance with this Section 3.04. Notwithstanding anything to the contrary contained in this Agreement, for purposes of this Agreement the definition of "Equity Securities" shall not include: (a) up to 500,000 shares of Common Stock (and/or options, warrants or other Common Stock purchase rights issued pursuant to such options, warrants or other rights) issued or to be issued to employees, officers or directors of, or consultants or advisors to the Company or any Subsidiary, pursuant to stock option plans or other arrangements that are approved by the Board; (b) stock issued pursuant to any rights or agreements outstanding as of the date of this Agreement or pursuant to options, warrants or convertible securities (including without limitation the Preferred Shares, Warrants and the Dublind Warrants) outstanding as of the date of this Agreement; (c) any equity securities issued for consideration other than cash pursuant to a merger, consolidation, acquisition or similar business combination; or (d) shares of Common Stock issued in connection with any split, stock dividend or recapitalization by the Company. 3.05. Termination Upon Qualified IPO. The Purchaser's right to purchase ------------------------------ new Mezzanine Securities set forth in Section 3.03 and the Purchaser's right to purchase new Equity Securities set forth in Section 3.04, shall terminate immediately prior to the closing of a Qualified IPO. ARTICLE IV CONDITIONS TO PURCHASER'S OBLIGATION' The obligation of the Purchaser (i) to purchase and pay for the Notes, the Preferred Shares and the Warrants at the Initial Closing and to purchase and pay for the Notes at the Takedown Closings, if any, is subject to the following conditions, all or any of which may be waived in writing by the Purchaser: 4.01. Representations and Warranties. At the Initial Closing and each ------------------------------ Takedown Closing, each of the representations and warranties of the Company set forth in Article VI hereof shall be true and correct in all respects at the time of, and immediately after giving effect to, the sale of the Notes, the Preferred Shares and the Warrants. 4.02A. Documentation at the Initial Closing. The Purchaser shall have ------------------------------------ received prior to or at the Initial Closing all of the following, each in form and substance satisfactory to the Purchaser and its special counsel: (a) A certified copy of all charter documents of the Company and each of its Subsidiaries; a certified copy of the resolutions of the board of directors and, to the extent required, the stockholders of the Company evidencing approval, as applicable, of this Agreement, the Operative Documents and all other matters contemplated hereby and thereby; a certified copy of the By-laws of the Company and each of its Subsidiaries; and certified copies of all documents evidencing other necessary corporate or other action and governmental approvals, if any, with respect to this Agreement, the Operative Documents and all other matters contemplated hereby or thereby. (b) A favorable opinion of Sullivan & Worcester LLP, counsel for the Company, in form and substance reasonably satisfactory to the Purchaser and its special counsel. -20- (c) A certificate of the Secretary or an Assistant Secretary of the Company which shall certify the names of the officers of the Company authorized to sign this Agreement, the Operative Documents and any other documents or certificates to be delivered pursuant hereto or thereto by the Company or any of its officers, together with the true signatures of such officers. The Purchaser may conclusively rely on such certificate until they shall receive a further certificate of the Secretary or an Assistant Secretary of the Company cancelling or amending the prior certificate and submitting the signatures of the officers named in such further certificate. (d) A certificate from a duly authorized officer of the Company stating that the representations and warranties contained in Article VI hereof and otherwise made by the Company in writing in connection with the transactions contemplated hereby are true and correct and that no condition or event has occurred or is continuing or will result from the execution and delivery of this Agreement or the Operative Documents which constitutes an Event of Default or would constitute an Event of Default but for the requirement that notice be given or time elapse or both. (e) A Stockholders' Agreement (the "Stockholders' Agreement") executed by the Company and its stockholders substantially in the form of Exhibit 4.02A(e). - ---------------- (f) Payment for the costs, expenses, taxes and filing fees identified in Section 9.04 as to which the Purchaser gives the Company notice prior to the Initial Closing. (g) A Registration Rights Agreement (the "Registration Rights Agreement") executed by the Company substantially in the form of Exhibit ------- 4.02A(g). - -------- (h) A certificate from a duly authorized officer of the Company stating that all the conditions set forth in this Article IV have been satisfied, other than those, if any, waived by the Purchasers in writing. (i) A Non-Competition Agreement (the "Non-Competition Agreement") executed by the Company and Kyle D. Parker substantially in form of Exhibit 4.02A(i). (j) A representation letter executed by the president and chief executive officer of the Company and issued to The Rockefeller Foundation in the form attached hereto as Exhibit 4.02A(j). ---------------- (k) A Preferred Stock Subordination Agreement (the "Preferred Stock Subordination Agreement") executed by the Purchaser, all holders of the Company's Series B Preferred Stock and the Company, substantially in the form of Exhibit 4.02A(k). - ---------------- (l) Such other documents referenced in any Exhibit hereto or relating to the transactions contemplated by this Agreement as the Purchaser or its special counsel may reasonably request. 4.02B. Documentation at Takedown Closings. The Purchaser shall have ---------------------------------- received prior to each Takedown Closing all of the following, each in form and substance satisfactory to the Purchaser and its special counsel: (a) A certificate from a duly authorized officer of the Company stating on behalf of the Company that (i) the representations and warranties contained in Article VI hereof and otherwise made by the Company in writing in connection with the transactions contemplated hereby are true and correct in -21- all material respects as of such Takedown Closing; (ii) no condition or event has occurred or is continuing or will result from the execution and delivery of this Agreement or the Operative Documents which constitutes an Event of Default or would constitute an Event of Default but for the requirement that notice be given or time elapse or both; (iii) all of the conditions set forth in this Article IV have been satisfied, other than those, if any, waived by the Purchaser in writing; (iv) there have been no changes in the names of the officers of the Company authorized to sign this Agreement, the Operative Documents and any other documents or certificates to be delivered pursuant hereto or thereto; (v) there have been no amendments, restatements or other changes to the charter documents or By-laws of the Company or any of its Subsidiaries, except for any amendments, restatements or changes provided to the Purchaser prior to such Takedown Closing; and (vi) the approval of the board of directors and, to the extent required, the stockholders of the Company, of this Agreement, the Operative Documents and all other matters contemplated hereby and thereby remains in full force and effect. (b) Certified copies of all amendments, restatements or other changes to the charter documents or By-laws of the Company or any of its Subsidiaries. (c) All documents evidencing necessary corporate or other action and governmental approvals, if any, with respect to this Agreement, the Operative Documents and all other matters contemplated hereby or thereby with respect to such Takedown Closing. (d) Payment for the costs, expenses, taxes and filing fees identified in Section 9.04 as to which the Purchaser gives the Company notice prior to the Takedown Closing. 4.03. Board Matters. In accordance with the Stockholders' Agreement, ------------- the number of persons constituting the Board of Directors of the Company (the "Board") shall be fixed at no more than seven (7), with the Purchasers having the right to appoint three (3) representatives to the Board and Kyle D. Parker having the right to appoint four (4) representatives to the Board. As of the Initial Closing Date, the Board shall consist of five (5) members who shall initially be Kyle D. Parker, Douglas W. Parker, Jack W. Holt, Jr., Robert C. Ammerman and Christian P. Michalik. 4.04. No Default. At the time of and immediately following the Initial ---------- Closing and each Takedown Closing, there shall exist no Event of Default and no condition, event or act that, with the giving of notice or lapse of time, or both, would constitute such an Event of Default. 4.05. Key Person Life Insurance. Within ninety (90) days of the Initial ------------------------- Closing Date, the Company shall obtain with a financially sound and reputable insurance company term life insurance on the life of Kyle D. Parker in the face amount of at least $3.0 million, the proceeds of which shall be payable to the order of the Company. 4.06. Parker Family Debt. The indebtedness of the Company to Melissa Ann ------------------ Parker in the aggregate amount of $4,395,891.01 shall have been, or simultaneously with the Initial Closing shall be, exchanged for 439,589 shares of Series B Preferred Stock. 4.07 Payment of Certain Indebtedness. The indebtedness of the Company (i) ------------------------------- to Deposit Guaranty National Bank in the aggregate amount of $1,869,210.30, (ii) to Johnnie Hernreich and Larry Murray in the aggregate amount of $307,429.75 and (iii) to the Arkansas Science and Technology Authority in the aggregate amount of $62,660.20, shall have been, or simultaneously with the Initial Closing shall be, paid in full by the Company. -22- ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASER 5.01. Representations and Warranties of the Purchaser. The Purchaser ----------------------------------------------- hereby represents and warrants that: (a) The Purchaser has duly authorized, executed and delivered this Agreement and such of the Operative Documents as require execution by the Purchaser. (b) It is the Purchaser's present intention to acquire the Securities for its own account. (c) The Securities are being and will be acquired for the purpose of investment and not with a view to distribution or resale thereof; subject, nevertheless, to the condition that, except as otherwise provided herein or in the Stockholders' Agreement, the disposition of the property of the Purchaser shall at all times be within its control. (d) The Purchaser acknowledges that it has reviewed and discussed the Company's business, affairs and current prospects with such officers of the Company and others as it has deemed appropriate or desirable in connection with the transactions contemplated by this Agreement. The Purchaser further acknowledges that it has requested, received and reviewed such information, undertaken such investigation and made such further inquiries of officers of the Company and others as it has deemed appropriate or desirable in connection with such transactions, provided, however, no investigation made heretofore or hereafter by or on behalf of the Purchaser shall have any effect whatsoever on the representations and warranties of the Company hereunder, each of which will survive any such investigation. (e) The Purchaser understands that it must bear the economic risk of its investment for an indefinite period of time because the Securities are not, and will not be, registered under the Securities Act or any applicable state securities laws, except as may be provided in this Agreement and the Registration Rights Agreement, and may not be resold unless subsequently registered under the Securities Act and such other laws or unless an exemption from such registration is available. The Purchaser also understands that except as may be provided in this Agreement and the Registration Rights Agreement, it is not contemplated that any registration will be made under the Securities Act or any state securities laws, or that the Company will take steps which will make the provisions of Rule 144 under the Securities Act available to permit resale of the Securities. (f) The Purchaser represents that it has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its investment in the Securities. The Purchaser further represents that it is (i) an "accredited investor" as such term is defined in Rule 501 of Regulation D of the Commission under the Securities Act and (ii) an "institutional investor" as such term is defined in Section 402(b)(8) of Massachusetts General Laws Chapter 110A, with respect to the purchase of the Securities. (g) No Person has or will have, as a result of the transactions contemplated by this Agreement, any rights, interest or valid claim against or upon the Company or any of its Subsidiaries for any commission, fee or other compensation as a finder or broker because of any act or omission by the Purchaser or any agent of the Purchaser. -23- (h) The Purchaser hereby acknowledges that the Notes, the Warrants and each certificate representing the Preferred Shares, the Preferred Conversion Shares, the Warrant Shares and any other securities issued in respect of such shares upon any stock split, stock dividend, recapitalization, merger or similar event (unless no longer required in the opinion of counsel, which opinion and counsel shall be reasonably satisfactory to the Company, it being agreed that Testa, Hurwitz & Thibeault, LLP shall be satisfactory) shall bear a legend substantially in the following form: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED WITHOUT COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM. The acquisition by the Purchaser of the Securities shall constitute a confirmation by it of the foregoing representations. ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to the Purchaser as follows: 6.01. Organization and Standing of the Company and Subsidiaries; ---------------------------------------------------------- Ownership. The Company and each of its Subsidiaries is a corporation duly - --------- organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority for the ownership and operation of its properties and for the carrying on of its business as now conducted and as now proposed to be conducted. The Company and each of its Subsidiaries is duly licensed or qualified and in good standing as a foreign corporation authorized to do business in all jurisdictions wherein the character of the property owned or leased, or the nature of the activities conducted, by it makes such licensing or qualification necessary, except where the failure to be so licensed or qualified, either individually or in the aggregate, would not have a material adverse effect on the business, assets, liabilities, financial condition, or on the results of operations or prospects of the Company and its Subsidiaries taken as a whole (a "Material Adverse Effect"). Except as set forth on Exhibit 6.01 attached hereto, neither ------------ the Company nor any of its Subsidiaries owns, directly or indirectly, any capital stock or other equity or ownership or proprietary interest in any Person. 6.02. Corporate Action. The Company has all necessary corporate power ---------------- and has taken all corporate action required to make all the provisions of this Agreement, the Operative Documents and any other agreements and instruments executed by it in connection herewith and therewith valid and enforceable obligations of the Company. The Company has duly executed and delivered this Agreement, each of the Operative Documents and each other agreement and instrument executed by it in connection herewith and therewith and each is a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting creditors' rights generally and by general principles of equity. Sufficient shares of authorized but unissued Common Stock of the Company have been reserved by appropriate corporate action in connection with the prospective conversion of the Preferred Shares and exercise of the Warrants. Neither the issuance of the Notes, the -24- Preferred Shares or Warrants, nor the issuance of shares of Common Stock upon the conversion of the Preferred Shares or the exercise of the Warrants, is subject to preemptive or other similar statutory or contractual rights. 6.03. Governmental Approvals. No authorization, consent, approval, ---------------------- license, exemption of or filing or registration with any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, is or will be necessary for, or in connection with, the offer, issuance, sale, execution or delivery by the Company of, or for the performance by the Company of its obligations under, this Agreement, any of the Operative Documents, the Warrants, the Preferred Shares, the Preferred Conversion Shares or the Warrant Shares, except as may be necessary for registration under the Securities Act of any of the Preferred Conversion Shares or Warrant Shares pursuant to the Registration Rights Agreement. 6.04. Litigation. Except as set forth on Exhibit 6.04 attached ---------- ------------ hereto, there is no litigation, action or governmental proceeding or investigation pending or, to the best knowledge of the Company, threatened against the Company or any of its Subsidiaries, affecting any of their respective properties or assets, or against any officer, key employee or principal stockholder of the Company or any of its Subsidiaries where such litigation, proceeding or investigation (i) either individually or in the aggregate would have a Material Adverse Effect, (ii) might call into question the validity of this Agreement, any Operative Document or any action taken or to be taken pursuant hereto or thereto or (iii) seeks to prevent the consummation of the transactions contemplated by this Agreement, nor, to the best knowledge of the Company, has there occurred any event on the basis of which any litigation, proceeding or investigation meeting the criteria of (i), (ii) or (iii) above might properly be instituted. Except as set forth on Exhibit 6.04, ------------ neither the Company nor any of its Subsidiaries is in default with respect to any order, writ, injunction, decree, ruling or decision of any court, commission, board or other government agency affecting the Company or any of its Subsidiaries. 6.05. Compliance with Law. The Company and each of its Subsidiaries ------------------- is in compliance in all respects with the terms and provisions of this Agreement and of its Articles of Incorporation (or comparable charter documents) and by- laws and in all material respects with the terms and provisions of all judgments, decrees, governmental orders, statutes, rules and regulations to which it and its properties and assets are subject (collectively, the "Applicable Laws"). 6.06. Federal Reserve Regulations. Neither the Company nor any of --------------------------- its Subsidiaries is engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation G of the Board of Governors of the Federal Reserve System), and no part of the proceeds of the Notes, the Preferred Shares or the Warrants will be used to purchase or carry any margin security or to extend credit to others for the purpose of purchasing or carrying any margin security or in any other manner which would involve a violation of any of the regulations of the Board of Governors of the Federal Reserve System. 6.07. Title to Assets, Patents. Except as set forth on Exhibit 6.07 ------------------------ ------------ attached hereto, the Company and each of its Subsidiaries has good and marketable title in fee to such of its fixed assets as are real property, and good and merchantable title to all of its other assets, now carried on its books including those reflected in the most recent balance sheet of the Company included in the Financial Statements, or acquired since the date of such balance sheet (except personal property disposed of since said date in the ordinary course of business), free of any mortgages, pledges, charges, liens, security interests or other encumbrances. The Company and each of its Subsidiaries enjoys peaceful and undisturbed possession under all leases under which it is operating, and all of said leases are valid and subsisting and in full force -25- and effect. The Company and each of its Subsidiaries owns or has a valid right to use the patents, patent rights, licenses, permits, trade secrets, trademarks, trademark rights, trade names or trade name rights or franchises, copyrights, inventions and intellectual property rights being used to conduct its business as now operated and as now proposed to be operated; and the conduct of its business as now operated and as now proposed to be operated does not and will not to the best knowledge of the Company conflict with valid patents, patent rights, licenses, permits, trade secrets, trademarks, trademark rights, trade names or trade name rights or franchises, copyrights, inventions and intellectual property rights of others. Neither the Company nor any of its Subsidiaries has any obligation to compensate any Person for the use of any such patents or such rights nor has the Company or any of its Subsidiaries granted to any Person any license or other rights to use in any manner any of such patents or such rights. 6.08. Financial Information. (a) Attached hereto as Exhibit 6.08A --------------------- ------------- are the following financial statements: (i) the audited balance sheets of the Company and its Subsidiaries as of December 31, 1996 and 1995 and the related statements of income and stockholders' equity and of cash flows for the fiscal years then ended (the "Audited Financial Statements"), certified by KPMG Peat Marwick LLP, the Company's independent public accountants, and (ii) the unaudited balance sheet of the Company and its Subsidiaries as of August 31, 1997 and the related unaudited statements of income and stockholders' equity and of cash flows for the eight (8) months then ended (the "Unaudited Financial Statements" and together with the Audited Financial Statements, including the notes thereto, are collectively referred to as the "Financial Statements"). The Audited Financial Statements have been prepared in accordance with GAAP and consistent with prudent business management practices, the Financial Statements are complete in all material respects and fairly present the financial position of the Company and its Subsidiaries as of the respective dates thereof and results of operations and changes in financial position of the Company and its Subsidiaries for each of the periods then ended. (b) Since December 31, 1996, there has been no material adverse change in the business, assets, liabilities, condition (financial or other), or in the results of operations or prospects of the Company and its Subsidiaries taken as a whole. (c) Neither the Company nor any of its Subsidiaries has any liability, contingent or otherwise, not disclosed in the Financial Statements or in the notes thereto that could, together with all such other liabilities, have a Material Adverse Effect, nor does the Company have any reasonable grounds to know of any such liability. (d) A schedule of Indebtedness of the Company and its Subsidiaries as of the Initial Closing Date (including Capital Leases) is attached hereto as Exhibit 6.08B. - ------------- 6.09. Taxes. Except as set forth on Exhibit 6.09, the Company and ----- ------------ each of its Subsidiaries has accurately prepared and timely filed all federal, state and other tax returns required by law to be filed by it, and all taxes shown to be due and all additional assessments have been paid or provision made therefor. The Company does not know of any additional assessments or adjustments pending or threatened against the Company or any of its Subsidiaries for any period, nor of any basis for any such assessment or adjustment. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Company, adequate. 6.10. ERISA. The Company and each of its Subsidiaries is in compliance ----- in all material respects with the currently applicable provisions of The Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the applicable provisions of Section 401(a) of the Code. No employee benefit plan established or maintained, or to which contributions have been made, by the Company or any -26- of its Subsidiaries, which is subject to part 3 of Subtitle B of Title I of ERISA, had an accumulated funding deficiency (as such term is defined in Section 302 of ERISA) as of the last day of the most recent fiscal year of such plan ended prior to the date hereof, and no material liability to the Pension Benefit Guaranty Corporation has been incurred with respect to any such plan by the Company or any of its Subsidiaries. 6.11. Transactions with Affiliates. Except as set forth on Exhibit ---------------------------- ------- 6.11 attached hereto and as specifically contemplated by this Agreement, there - ---- are no loans, leases, royalty agreements or other continuing transactions between the Company or any of its Subsidiaries, on the one hand, and any officer or director of the Company, or any Person (including any Person who is an equitable owner of any Common Stock held by Kyle D. Parker, Trustee for The Parker Trust dated March 15, 1989) owning, or who did own at any time within the two-year period preceding the date of this Agreement, any class of capital stock of the Company or any of its Subsidiaries or other entity controlled by such stockholder or a member of such stockholder's family, on the other hand. 6.12. Assumptions or Guaranties of Indebtedness of Other Persons. Neither ---------------------------------------------------------- the Company nor any of its Subsidiaries has assumed, guaranteed, endorsed or otherwise become directly or contingently liable on (including, without limitation, liability by way of agreement, contingent or otherwise, to purchase, to provide funds for payment, to supply funds to or otherwise invest in the debtor or otherwise to assure the creditor against loss) any Indebtedness of any other Person. 6.13. Investments in Other Persons. Neither the Company nor any of its ---------------------------- Subsidiaries has made any loan or advance to any Person which is outstanding on the date of this Agreement, nor is the Company or any of its Subsidiaries obligated or committed to make any such loan or advance. 6.14. Securities Act. Neither the Company nor anyone acting on its behalf -------------- has offered or will offer to sell the Notes, the Preferred Shares, the Warrants or similar securities to, or solicit offers with respect thereto from any Person, so as to bring the issuance and sale of the Notes, the Preferred Shares and the Warrants under the registration provisions of the Securities Act. The issuance and the sale of the Notes, the Preferred Shares and the Warrants pursuant to this Agreement is not required to be registered under the Securities Act or applicable state securities or "Blue Sky" laws. 6.15. Disclosure. None of this Agreement, the Operative Documents, and ---------- any other agreement, document, certificate or written statement furnished to the Purchaser or the Purchaser's special counsel by or on behalf of the Company or any of its Subsidiaries in connection with the transactions contemplated hereby or thereby contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading. There is no fact within the knowledge of the Company which has not been disclosed herein or in writing by them to the Purchaser and which has a Material Adverse Effect, or in the future in its opinion could reasonably be expected to have a Material Adverse Effect. 6.16. No Brokers or Finders. Except for a fee of $650,000 paid to Dublind --------------------- Partners Inc. and the issuance to Dublind Investments LLC of warrants (the "Dublind Warrants") to purchase up to an aggregate of 365,340 shares of Common Stock, which fee and warrants will be paid in full and issued, as the case may be, by the Company as of the Initial Closing, no Person had, has or will have, as a result of the transactions contemplated by this Agreement, any right, interest or valid claim against or upon the Purchaser, the Company or any of its Subsidiaries for any commission, fee or other compensation as a finder or broker because of any act or omission by the Company, any of its Subsidiaries or any of its or their agents. -27- 6.17. Other Agreements of Officers. To the best knowledge of the Company, ---------------------------- no officer or key employee of the Company or any of its Subsidiaries is a party to or bound by any agreement, contract or commitment, or subject to any restrictions, particularly but without limitation in connection with any previous employment of any such person, which has a Material Adverse Effect, or in the future may (so far as the Company can reasonably foresee) have a Material Adverse Effect. To the best knowledge of the Company, no officer or key employee of the Company or any of its Subsidiaries has any present intention of terminating his employment with the Company or any of its Subsidiaries and neither the Company nor any of its Subsidiaries has any present intention of terminating any such employment. 6.18. Capitalization of the Company; Status of Capital Stock. ------------------------------------------------------ Immediately prior to the Initial Closing Date, the Company has a total authorized capitalization consisting of 10,000,000 shares of Common Stock, of which 3,590,000 shares are issued and outstanding, and 2,000,000 shares of Preferred Stock. Of the authorized shares of Preferred Stock, 931,044 shares are designated Series A Preferred Stock, none of which are issued and outstanding, and 439,589 shares are designated Series B Preferred Stock, all of which are issued and outstanding. A complete list of the outstanding capital stock of the Company and the names in which such capital stock of the Company is registered is set forth on Exhibit 6.18 hereto. All the outstanding shares of ------------ capital stock of the Company have been duly authorized, are validly issued and are fully paid and nonassessable. The shares of Common Stock issuable upon conversion of the Preferred Shares and upon exercise of the Warrants, when so issued against payment of the purchase price for such Common Stock, will be duly authorized, validly issued and fully paid and nonassessable. Except as otherwise set forth on Exhibit 6.18 and except for the Preferred Shares, the ------------ Warrants and the Dublind Warrants, there are no options, warrants or rights to purchase shares of capital stock or other securities of the Company authorized, issued or outstanding, nor is the Company obligated in any other manner to issue shares of its capital stock or other securities. Except as otherwise set forth on Exhibit 6.18 or as set forth in the Stockholders' Agreement, there are no ------------ restrictions on the transfer of shares of capital stock of the Company other than those imposed by relevant state and federal securities laws. Except as set forth in this Agreement, in the Stockholders' Agreement or as otherwise set forth on Exhibit 6.18, no holder of any security of the Company is entitled to ------------ preemptive or similar statutory or contractual rights, either arising pursuant to any agreement or instrument to which the Company is a party, or which are otherwise binding upon the Company. The offer and sale of all shares of capital stock and other securities of the Company issued before the Initial Closing complied with or were exempt from all federal and state securities laws. 6.19. Capital Stock of Subsidiaries. The Company owns all of the ----------------------------- outstanding capital stock of each of the Subsidiaries, beneficially and of record, free and clear of all liens, encumbrances, restrictions and claims of every kind. All the outstanding shares of capital stock of each of the Subsidiaries have been duly authorized, are validly issued and are fully paid and nonassessable. There are no options, warrants or rights to purchase shares of capital stock or other securities of any of the Subsidiaries authorized, issued or outstanding, nor is any Subsidiary obligated in any other manner to issue shares of its capital stock or other securities. 6.20. Insurance. The Company and each of its Subsidiaries has insurance --------- covering its properties and business adequate and customary for the type and scope of its properties and business, and in any event in amounts sufficient to prevent the Company and its Subsidiaries from becoming co-insurers. 6.21. Books and Records. The books of account, ledgers, order books and ----------------- records of the Company and its Subsidiaries accurately and completely reflect all material information relating to the business of the Company and its Subsidiaries, the nature, acquisition, maintenance, location and collection -28- of the assets of the Company and its Subsidiaries, and the nature of all transactions giving rise to the obligations or accounts receivable of the Company and its Subsidiaries. 6.22. Registration Rights. Other than pursuant to the terms of the ------------------- Registration Rights Agreement, no Person has demand or other rights to cause the Company or any of its Subsidiaries to file any registration statement under the Securities Act relating to any securities of the Company or any of its Subsidiaries or any right to participate in any such registration statement. 6.23. Other Agreements. Except as explicitly disclosed and described ---------------- in the Financial Statements or as set forth on Exhibit 6.23 attached hereto, ------------ neither the Company nor any of its Subsidiaries is a party to any written or oral contract or instrument or other corporate restriction the due performance of which individually or in the aggregate could have a Material Adverse Effect. Except as specifically contemplated by this Agreement or as set forth on Exhibit ------- 6.23 attached hereto neither the Company nor any of its Subsidiaries is a party - ---- to or otherwise bound or affected by any written or oral: (a) agreement, contract or commitment with any present or former shareholder, director, officer, employee or consultant or for the employment of any Person; (b) agreement, contract, commitment or arrangement with any labor union or other representative of employees; (c) agreement, contract or commitment for the purchase of, or payment for, supplies or products, or for the performance of services by a third party, involving in any one case $25,000 or more, other than purchase orders for the acquisition of raw materials inventory incurred in the ordinary course of business; (d) agreement, contract or commitment to sell or supply products or to perform services, involving in any one case $25,000 or more, other than for the sale of its inventory goods by the Company and its Subsidiaries incurred in the ordinary course of business; (e) agreement, contract or commitment continuing over a period of more than six months from the date hereof or exceeding $25,000 in value; (f) representative or sales agency agreement, contract or commitment; (g) lease under which it is either lessor or lessee; (h) note, debenture, bond, conditional sale agreement, equipment trust agreement, letter of credit agreement, loan agreement or other agreement or contract, commitment or arrangement for the borrowing or lending of money (including without limitation loans to or from officers, directors, any shareholder or any member of any of their immediate families), agreement, contract, commitment or arrangement for a line of credit or guarantee, pledge or undertaking of the indebtedness of any other Person; (i) agreement, contract or commitment for any charitable or political contribution; (j) agreement, contract or commitment for any capital expenditure in excess of $25,000; -29- (k) agreement, contract or commitment limiting or restraining it from engaging or competing in any lines of business with any Person, nor is any officer or employee of the Company or any Subsidiary subject to any such agreement except where such limitation runs to the benefit of the Company; (l) license, franchise, distributorship or other similar agreement, contract or commitment, including without limitation (i) those which relate to the compilation, conversion, publication, joint-publication and/or marketing of state and federal law libraries and legal treatises and other legal publications into electronic formats, and/or (ii) those which relate in whole or in part to any patent, trademark, trade name, service mark or copyright or to any ideas, technical assistance or other know-how of or used by the Company or any Subsidiary; or (m) agreement, contract or commitment not made in the ordinary course of business exceeding the sum of $25,000 in value or liability. The Company and each of its Subsidiaries and, to the best of the Company's knowledge, each other party thereto have in all material respects performed all the obligations required to be performed by them to date, have received no notice of default and are not in material default under any lease, agreement or contract now in effect to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries or its respective property may be bound. Neither the Company nor any of its Subsidiaries has any present expectation or intention of not fully performing all its obligations under each such lease, contract or other agreement, and the Company has no knowledge of any material breach by the other party to any contract or commitment to which the Company or any of its Subsidiaries is a party. 6.24. Hazardous and Toxic Materials. (a) None of the properties owned, ----------------------------- leased or operated by the Company or any of its Subsidiaries is in material violation of any federal, state or local laws, ordinances or regulations existing or enacted relating to the environment, health and safety, any Hazardous Discharges (as hereinafter defined) or to industrial hygiene or the environmental conditions on, under or about any of the property owned, leased or operated by the Company or any of its Subsidiaries, including, without limitation, soil and ground water conditions; (b) neither the Company nor any of its Subsidiaries has received any complaint, order, citation or notice with regard to air emissions, Hazardous Discharges or other environmental, health or safety matters affecting any of the properties at any time owned, leased or operated by the Company or any of its Subsidiaries or the businesses therein conducted, and (c) there has been no spill, discharge, release or cleanup of any hazardous or toxic waste or substance or any oil or pesticide which would result in a Material Adverse Effect ("Hazardous Substances") at any of the properties at any time owned, leased or operated by the Company or any of its Subsidiaries, including, without limitation, into or upon any of its soils, surface water, ground water or the improvements located thereon (a "Hazardous Discharge"). To the extent that any of the properties owned, leased or operated by the Company or any of its Subsidiaries are used for the handling, storage, transportation or disposal of hazardous or toxic materials, such use is in accordance with all federal, state and local environmental laws, rules, and regulations which apply to the handling, storage, transportation or disposal of hazardous or toxic materials and the Company and each of its Subsidiaries has obtained any and all necessary permits, licenses and approvals with respect to such use, including without limitation, United States Environmental Protection Agency identification numbers, hazardous waste manifests and hazardous waste permits required under the Federal Resource Conversation and Recovery Act. 6.25. Customers, Vendors and Suppliers. None of the fifteen (15) -------------------------------- largest customers or subscribers of the Company's and its Subsidiaries' products (based on total sales volume for the latest full fiscal year) or any party (a "Business Partner") with which the Company and its Subsidiaries maintains any publishing, joint-publishing, marketing, and/or royalty relationship involving the Company's business -30- and/or its products has cancelled or otherwise terminated or made any threat to cancel or otherwise terminate its relationship with the Company or such Subsidiary, nor has any such customer, subscriber or Business Partner indicated an intent or desire to materially decrease its purchase volume, change its subscription, or change its relationship, as the case may be, with the Company or such Subsidiary. 6.26. No Violations. Neither the execution and delivery of this ------------- Agreement and the Operative Documents, nor the consummation of any of the transactions contemplated hereby or thereby, by the Company, will (a) violate, conflict with, or result in a breach or default under any provision of the Articles of Incorporation or By-Laws of the Company or any of its Subsidiaries, (b) violate any provision of any Applicable Laws, or (c) result in a material violation or breach by the Company or any of its Subsidiaries of, conflict with, constitute (with or without due notice or lapse of time or both) a default by the Company or any of its Subsidiaries (or give rise to any right of termination, cancellation, payment or acceleration) under, or result in the creation of any Lien upon any of the properties or assets of the Company or any of its Subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, franchise, permit, agreement, lease, franchise agreement or other instrument or obligation to which the Company or any of its Subsidiaries is a party, or by which it or any of its respective properties or assets may be bound. ARTICLE VII COVENANTS OF THE COMPANY 7.01. Affirmative Covenants of the Company Other Than Reporting --------------------------------------------------------- Requirements. Without limiting any other covenants and provisions hereof, the - ------------ Company covenants and agrees that, as long as any of the Notes or at least fifty percent (50%) of the Preferred Shares are outstanding, it will perform and observe the following covenants and provisions and will cause each Subsidiary to perform and observe such of the following covenants and provisions as are applicable to such Subsidiary: (a) Punctual Payment. Pay the principal of, premium, if any, and ---------------- interest on each of the Notes at the times and place and in the manner provided in the Notes and herein. (b) Payment of Taxes and Trade Debt. Pay and discharge, and cause ------------------------------- each Subsidiary to pay and discharge, all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or business, or upon any properties belonging to it, prior to the date on which penalties attach thereto, and all lawful claims which, if unpaid, might become a lien or charge upon any properties of the Company or any Subsidiary, provided that neither the Company nor any Subsidiary shall be required to pay any such tax, assessment, charge, levy or claim which is being contested in good faith and by appropriate proceedings if the Company or the Subsidiary concerned shall have set aside on its books adequate reserves with respect thereto. Pay and cause each Subsidiary to pay, when due, or in conformity with customary trade terms, all lease obligations, all trade debt, and all other Indebtedness incident to the operations of the Company or the Subsidiaries, except such as are being contested in good faith and by appropriate proceedings if the Company or the Subsidiary concerned shall have set aside on its books adequate reserves with respect thereto. (c) Maintenance of Insurance. Maintain, and cause each Subsidiary ------------------------ to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Company or such Subsidiary operates, and in any event in -31- amounts sufficient to prevent the Company or such Subsidiary from becoming a co- insurer. (d) Preservation of Corporate Existence. Preserve and maintain, ----------------------------------- and cause each Subsidiary to preserve and maintain, its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified, and cause each Subsidiary to qualify and remain qualified, as a foreign corporation in each jurisdiction in which such qualification is necessary or desirable in view of its business and operations or the ownership of its properties, except where the failure to remain so qualified would not, either individually or in the aggregate, have a Material Adverse Effect; provided, however, that nothing herein contained shall prevent any merger, consolidation or transfer of assets permitted by subsection 7.02(e). Preserve and maintain, and cause each Subsidiary to preserve and maintain, all licenses and other rights to use patents, processes, licenses, trademarks, trade names, inventions, intellectual property rights or copyrights owned or possessed by it and necessary to the conduct of its business. (e) Compliance with Laws. Comply, and cause each Subsidiary to -------------------- comply, with all applicable laws, rules, regulations and orders of any governmental authority, the noncompliance with which could have a Material Adverse Effect. (f) Inspection Rights. At any reasonable time and from time to time ----------------- and upon prior written notice, permit the Purchaser or any of its agents or representatives to examine and make copies of and extracts from the records and books of account of, and visit and inspect the properties of, the Company and any Subsidiary, and to discuss the affairs, finances and accounts of the Company and any Subsidiary with any of their officers or directors and independent accountants. If an Event of Default then exists, all reasonable out-of-pocket expenses of the Purchaser (or its agents or representatives), the Company or any Subsidiary incurred in connection with such inspection rights shall be borne by the Company. (g) Keeping of Records and Books of Account. Keep, and cause each --------------------------------------- Subsidiary to keep, adequate records and books of account, in which complete entries will be made in accordance with GAAP, reflecting all financial transactions of the Company and each Subsidiary, and in which, for each fiscal year, all proper reserves for depreciation, depletion, obsolescence, amortization, taxes, bad debts and other purposes in connection with its business shall be made. (h) Maintenance of Properties, Etc. Maintain and preserve, and ------------------------------ preserve, and cause each Subsidiary to maintain and preserve, all of its properties, necessary or useful in the proper conduct of its business, in good repair, working order and condition, ordinary wear and tear excepted. (i) Compliance with ERISA. Comply, and cause each Subsidiary to --------------------- comply, with all minimum funding requirements applicable to any pension or other employee benefit or employee contribution plans which are subject to ERISA or to the Code, and comply, and cause each Subsidiary to comply, in all other material respects with the provisions of ERISA and the Code, and the rules and regulations thereunder, which are applicable to any such plan. Neither the Company nor any Subsidiary will permit any event or condition to exist which could permit any such plan to be terminated under circumstances which would cause the lien provided for in Section 4068 of ERISA to attach to the assets of the Company or any Subsidiary. (j) Attendance at Board Meetings. At any time at which a nominee of ---------------------------- the Purchaser is not a member of the Board or any committee of the Board as provided in this Agreement and the Stockholders' Agreement, so long as the Notes remain outstanding or, if no Notes are then outstanding, the Purchaser holds either (i) at least twenty five percent (25%) of the Common Stock issued or issuable upon -32- the conversion of the Preferred Shares then outstanding or (ii) at least twenty five percent (25%) of the Common Stock issued and issuable upon the exercise of the Warrants then outstanding, permit the Purchaser or its designee to have one observer attend each meeting of the Board and any committee thereof. The Company will send to the Purchaser and its designee the notice of the time and place of any such meeting in the same manner and at the same time as notice is sent to the directors or committee members, as the case may be. The Company shall also provide to such Purchaser copies of all notices, reports, minutes, consents and other documents at the time and in the manner as they are provided to the Board or committees. The Company shall reimburse the Purchaser for all reasonable costs incurred by the Purchaser or its designee in connection with traveling to and from and attending meetings of the Board and committees. (k) Payment of Senior Debt by the Purchaser. In the event that any --------------------------------------- default occurs in the payment of the principal of or any interest on any Senior Debt and such default shall continue for a period of thirty (30) days (or such shorter period as is necessary in order to permit the Purchaser to act pursuant to this subsection prior to any acceleration of such Senior Debt) without waiver or forbearance by the lender of such Senior Debt, permit the Purchaser, on behalf of the Company, to cure such default, to prepay in full any such Senior Debt or to purchase such Senior Debt, upon terms and conditions set forth in the Subordination Agreement. (l) Board of Directors and Committees. The Company shall use its --------------------------------- best efforts to fix the Board at not more than seven (7) members and cause three (3) representatives of the Purchaser to be recommended to the stockholders for election as a director at all meetings for such purpose. The Board shall meet at least four (4) times per calendar year. The Company shall at all times maintain a Compensation Committee and an Audit Committee of the Board and each such committee shall consist of three (3) members. The Purchaser shall at all times be entitled to appoint one representative to each of the Compensation Committee and the Audit Committee. The Purchaser shall at all times have a representative on each other committee of the Board unless and only for so long as they waive such right with respect to a specific committee. The Company shall reimburse the Purchaser and its appointees for all reasonable costs incurred by them in connection with traveling to and from and attending meetings of the Board and committees of the Board, in addition to any directors fees regularly paid to all members of the Board. (m) Interest Coverage Ratio. As of the dates set forth below, the ----------------------- Company will maintain a ratio of EBITDA to Interest Expense for the twelve (12) month period ending on such dates of at least the ratio set forth opposite such dates: Twelve Month Period Ending Interest Coverage Ratio -------------------------- ----------------------- December 31, 1998 1 to 1 March 31, 1999 2 to 1 June 30, 1999 and the last day of 3 to 1 each fiscal quarter of the Company thereafter (n) Fixed Charge Coverage Ratio . As of the dates set forth below, the Company will maintain a ratio of EBITDA to Fixed Charges for the twelve (12) month period ending on such dates of at least the ratio set forth opposite such dates: Twelve Month Period Ending Fixed Charge Coverage Ratio -------------------------- --------------------------- -33- December 31, 1998 .40 to 1 March 31, 1999 1 to 1 June 30, 1999 1 to 1.5 September 30, 1999 and the last day of each fiscal quarter 2 to 1 of the Company thereafter (o) Maximum Total Funded Debt to EBITDA Ratio. As of the dates set ----------------------------------------- forth below, the Company will not permit the ratio of Total Funded Debt to EBITDA for the twelve (12) month period ending on such dates to be more than the ratio set forth opposite such date: Twelve Month Period Ending Total Funded Debt to EBITDA Ratio -------------------------- --------------------------------- December 31, 1998 10 to 1 March 31, 1999 3.5 to 1 June 30, 1999 and the last day 2.5 to 1 of each fiscal quarter of the Company thereafter (p) Minimum Tangible Capital Base. The Company shall maintain a ----------------------------- Tangible Capital Base, measured as at each of the dates set forth below, equal to or greater than the amount set forth opposite such date: Minimum Fiscal Quarter End Tangible Capital Base ------------------ March 31, 1998 $ (5,500,000) June 30, 1998 (8,000,000) September 30, 1998 (11,000,000) December 31, 1998 (12,000,000) March 31, 1999 (10,000,000) June 30, 1999 (7,500,000) September 30, 1999 (2,500,000) December 31, 1999 2,500,000 March 31, 2000 and the last day $2,500,000 plus 80% of the of each fiscal quarter of the cumulative amount of Net Company thereafter Income earned by the Company for each fiscal quarter subsequent to December 31, 1999. (q) Database Expenditures. The Company shall not make any Database --------------------- Expenditure during any fiscal year of the Company which, when aggregated with all other Database Expenditures in such fiscal year, exceeds, in the case of the Company's fiscal year ended December 31, 1998, $10,000,000, and in the case of each fiscal year thereafter $750,000. -34- (r) Minimum EBITDA. EBITDA for the each of the periods set forth below -------------- shall not be less than the amount set forth opposite such period: Period Minimum EBITDA ------ -------------- Three (3) month period ended March 31, 1998 $(600,000) Six (6) month period ended June 30, 1998 (800,000) Nine (9) month period ended September 30, 1998 (600,000) Twelve (12) month period ended December 31, 1998 1,000,000 7.02. Negative Covenants of the Company. Without limiting any other --------------------------------- covenants and provisions hereof, the Company covenants and agrees that, as long as any of the Notes or fifty percent (50%) of the Preferred Shares are outstanding, it will comply with and observe the following covenants and provisions, and will cause each Subsidiary to comply with and observe such of the following covenants and provisions as are applicable to such Subsidiary, and will not: (a) Liens. Create, incur, assume or suffer to exist, or permit ----- any Subsidiary to create, incur, assume or suffer to exist, any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance (including the lien or retained security title of a conditional vendor) of any nature, upon or with respect to any of its properties, now owned or hereafter acquired, or assign or otherwise convey any right to receive income, except that the foregoing restrictions shall not apply to mortgages, deeds of trust, pledges, liens, security interests or other charges or encumbrances (collectively, "Permitted Liens"): (i) for taxes, assessments or governmental charges or levies on property of the Company or any Subsidiary if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings; (ii) imposed by law, such as carriers', warehousemen's and mechanics' liens and other similar liens arising in the ordinary course of business; (iii) arising out of pledges or deposits under workmen's compensation laws, unemployment insurance, old age pensions, or other social security or retirement benefits, or similar legislation; (iv) securing the performance of bids, tenders, contracts (other than for the repayment of borrowed money), statutory obligations and surety bonds; (v) in the nature of zoning restrictions, easements and rights or restrictions of record on the use of real property which do not materially detract from its value or impair its use; (vi) arising by operation of law in favor of the owner or sublessor of leased premises and confined to the property rented; -35- (vii) arising from any litigation or proceeding which is being contested in good faith by appropriate proceedings, provided, however, that no execution or levy has been made; (viii) described on Exhibit 6.07 which secure the Indebtedness set ------------ forth on Exhibit 6.08B, provided that no such lien is extended to cover ------------- other or different property of the Company or any Subsidiary; and (ix) liens on the accounts receivable of the Company which secure Indebtedness permitted by Section 7.02(b). (b) Indebtedness . Without the prior written consent of the ------------ Purchaser, create, incur, assume or suffer to exist, or permit any Subsidiary to create, incur, assume or suffer to exist, any liability with respect to Indebtedness except for (1) up to $10,000,000 in principal amount of Indebtedness for Money Borrowed incurred pursuant to the EFT Financing, (2) current liabilities, other than for Indebtedness for Money Borrowed, which are incurred in the ordinary course of business, (3) purchase money security interests securing the purchase of equipment to be used in connection with the business of the Company and its Subsidiaries, and (5) the Notes, provided that the incurrence and maintenance of all such Indebtedness does not result in the Company's or any Subsidiary's failure to comply with any of the provisions of Article VII hereof. (c) Lease Obligations. Become obligated to pay rent under any ----------------- leases or other rental arrangements (including Capital Leases) under which the amount of the aggregate lease or other payments under all such agreements or arrangements exceeds $150,000 on a consolidated basis for any twelve-month period. (d) Assumptions or Guaranties of Indebtedness of Other Persons. ---------------------------------------------------------- Assume, guarantee, endorse or otherwise become directly or contingently liable on, or permit any Subsidiary to assume, guarantee, endorse or otherwise become directly or contingently liable on (including, without limitation, liability by way of agreement, contingent or otherwise, to purchase, to provide funds for payment, to supply funds to or otherwise invest in the debtor or otherwise to assure the creditor against loss) any Indebtedness of any other Person, except for guarantees by endorsement of negotiable instruments for deposit or collection in the ordinary course of business and except by the Company with respect to any Indebtedness of any Subsidiary which is permitted by this Agreement. (e) Mergers, Sale of Assets, Etc. Without the prior written ---------------------------- consent of the Purchaser, merge or consolidate with any Person, or sell, assign, lease or otherwise dispose of or voluntarily part with the control of (whether in one transaction or in a series of transactions) any of its assets (whether now owned or hereinafter acquired) or permit any Subsidiary to do so, except that (1) any Subsidiary may merge into or consolidate with or transfer assets to any other Subsidiary, (2) any Subsidiary may merge into or transfer assets to the Company and (3) the Company or any Subsidiary may sell, assign, lease or otherwise dispose of (i) electronic legal library information in the ordinary course of business, (ii) equipment that is no longer used or useful in the Company's or any of its Subsidiaries' business or that is physically obsolete, provided that the proceeds thereof are used first to reduce outstanding Senior Debt and then to reduce other outstanding Indebtedness, (iii) sales of equipment the net proceeds of which are applied within thirty (30) days of such sale to the purchase of replacement equipment with like value and function and (iv) other sales of assets in any given year which have a fair market value of less than one million dollars ($1,000,000) in the aggregate provided that at least fifty percent (50%) of the net proceeds from such dispositions are applied first to reduce outstanding Senior Debt and then to reduce other -36- outstanding Indebtedness. (f) Investments in Other Persons. Without the prior written ---------------------------- consent of the Purchaser, make or permit any Subsidiary to make, any loan or advance to any Person, or purchase, otherwise acquire, or permit any Subsidiary to purchase or otherwise acquire, any capital stock, assets or other property of, obligations of, or any interest in, any Person, except: (i) investments by the Company or a Subsidiary in evidences of indebtedness issued or fully guaranteed by the United States of America and having a maturity of not more than one year from the date of acquisition; (ii) investments by the Company or a Subsidiary in certificates of deposit, notes, acceptances and repurchase agreements having a maturity of not more than one year from the date of acquisition issued by a bank organized in the United States having capital, surplus and undivided profits of at least $100,000,000 and whose parent holding company has long- term debt rated Aa1 or higher, and whose commercial paper (if rated) is rated Prime 1 by Moody's Investors Service, Inc.; (iii) loans or advances from a Subsidiary to the Company or from the Company to a Subsidiary; (iv) investments by the Company or a Subsidiary in the highest- rated commercial paper having a maturity of not more than one year from the date of acquisition; (v) advances to employees for travel or relocation in accordance with the ordinary course of business; and (vi) acquisitions or assets, capital stock or other property which individually and in the aggregate are not material to the Company or such Subsidiary (assets, capital stock and other property with a fair market value of less than $250,000 acquired in any one-year period in the aggregate shall not be deemed "material"); provided, however, that each such acquisition can be made in compliance with the other terms of this Agreement, including, without limitation, Section 7.02(l). (g) Distributions. Without the prior written consent of the ------------- Purchaser, declare or pay any dividends, purchase, redeem, retire, or otherwise acquire for value any of its capital stock (or rights, options or warrants to purchase such shares) now or hereafter outstanding, return any capital to its stockholders as such, or make any distribution of assets to its stockholders as such, or permit any Subsidiary to do any of the foregoing (such transactions being hereinafter referred to as "Distributions"); provided, however, that nothing herein contained shall prevent: (i) the Company from effecting a stock split or declaring or paying any dividend consisting of shares of any class of Common Stock to the holders of shares of such class of Common Stock, provided that such stock split or dividend is effected equally across all classes of Common Stock, or (ii) the Company from repurchasing or redeeming the Warrants and the Preferred Shares and the shares of Common Stock issued or issuable upon exercise or conversion thereof in accordance with the terms of Section 3.10 of the Stockholders' Agreement; or (iii) the Company from redeeming the Series B Preferred Stock issued and outstanding on the date of this Agreement; (iv) any Subsidiary from declaring or making payment of cash and stock dividends, returns of capital or distributions of assets to the Company; if in the case of any such transaction the Distribution can be made in compliance with the other terms of this Agreement. (h) Dealings with Affiliates. Without the prior written consent of ------------------------ the Purchaser, enter or permit any Subsidiary to enter into any transaction with any holder of any class of capital stock of the Company, or any member of their families or any corporation or other entity in which any one or more of such stockholders or members of their immediate families directly or indirectly holds any class of capital stock; provided, however, that this Section 7.02(h) shall not apply to any transaction which is governed by Section 7.02(m). (i) Maintenance of Ownership of Subsidiaries. Sell or otherwise ---------------------------------------- dispose of any shares of capital stock of any Subsidiary, except to the Company or another Subsidiary, or permit any Subsidiary to issue, sell or otherwise dispose of any shares of its capital stock or the capital stock of any Subsidiary, except to the Company or another Subsidiary, provided, however, that nothing herein contained shall prevent any merger, consolidation or transfer of assets permitted by subsection 7.02(e). (j) Change in Nature of Business. Without the prior written consent ---------------------------- of the Purchaser, make, or permit any Subsidiary to make, any change in the nature of its business as carried on at the date hereof. (k) No Amendment or Waiver of Charter Documents. Amend, alter, ------------------------------------------- repeal or terminate its Articles of Incorporation (or comparable charter documents) without the prior written consent of the Purchaser. (l) Capital Expenditures. Make, or permit any Subsidiary to make, -------------------- any Capital Expenditure during (i) during the period from the Initial Closing Date through the fiscal year of the Company ended December 31, 1998 which exceeds $1,500,000 and (ii) any fiscal year of the Company thereafter which exceeds $500,000 in the aggregate. (m) Compensation. Pay, directly or indirectly, as salary, bonuses, ------------ fringe benefits, expenses, stock option grants, drawing accounts or otherwise any compensation to any executive officer (or any relative of any executive officer) of the Company or any Subsidiary not approved by the Compensation Committee of the Board other than such compensation arrangements as are in place as of the Initial Closing Date. (n) Preferred Stock. Without the prior written consent of the --------------- Purchaser, issue any shares of, or rights to acquire any shares of, Preferred Stock as authorized in the Company's Articles of Incorporation as in effect on the date hereof (except the 931,044 shares of Series A Preferred Stock and the 439,589 shares of Series B Preferred Stock issued and outstanding as of the date hereof). 7.03. Reporting Requirements. The Company will furnish to each holder of any ---------------------- Note, any Preferred Share, any Preferred Conversion Share, any Warrant or any Warrant Shares (except that the provisions of Sections 7.03 (d), (e), (f) and (g) shall terminate upon payment in full of the aggregate outstanding principal balance of the Notes together with all interest and premium, if any, due thereon and when less than fifty percent (50%) of the Preferred Shares remain outstanding): (a) as soon as possible and in any event within five (5) days after the occurrence of each Event of Default or each event which, with the giving of notice or lapse of time or both, would constitute an Event of Default, the statement of the chief financial officer of the Company setting forth details of such Event of Default or event and the action which the Company proposes to take with respect thereto; (b) as soon as available and in any event within thirty (30) days after the end of each month, consolidated and consolidating balance sheets of the Company and its Subsidiaries as of the end of such month and consolidated and consolidating statements of income and retained earnings and of cash flows of the Company and its Subsidiaries for such month and for the periods commencing at the end of the previous fiscal year and ending with the end of such month, setting forth in each case in comparative form the corresponding figures for the corresponding period of the preceding fiscal year and the Budget for the current year, all in reasonable detail, in a format reasonably satisfactory to the Purchaser, and duly certified (subject to normal year-end adjustments) by the chief financial officer of the Company as having been prepared in accordance with GAAP and including a discussion by the Company's management of any variance from the Budget for such fiscal year; (c) as soon as available and in any event within ninety (90) days after the end of each fiscal year of the Company (except that with respect to the Company's fiscal year ended December 31, 1997, the Company will have to furnish the information required by this Section 7.03(c) within 120 days after the end of such fiscal year), a copy of the annual audit report for such year for the Company and its Subsidiaries, including therein consolidated and consolidating balance sheets of the Company and its Subsidiaries as of the end of such fiscal year and consolidated and consolidating statements of income and retained earnings and of cash flows of the Company and its Subsidiaries for such fiscal year, setting forth in each case in comparative form the corresponding figures for the preceding fiscal year, all duly certified by independent public accountants of recognized national standing acceptable to the Purchasers and including a discussion by the Company's management of any variance from the Budget for the fiscal year just ended; (d) at least thirty (30) days prior to the end of each fiscal year of the Company, (x) an operating budget (the "Budget") of the Company and its Subsidiaries for the next fiscal year in the form customarily prepared by management for internal use, which Budget shall be reasonably satisfactory in form to the Purchaser but which shall in any case include a detailed balance sheet and detailed monthly statements of income and cash flows, and (y) three to five year financial plans for the Company and the Subsidiaries in the form customarily prepared by management for internal use, which shall be reasonably satisfactory in form to the Purchaser; (e) at the time of delivery of each monthly and annual statement, a certificate, executed by the chief financial officer of the Company, stating that such officer has caused this Agreement, the Notes, and the Warrants to be reviewed and has no knowledge of any default by the Company or any Subsidiary in the performance or observance of any of the provisions of this Agreement, the Notes or the Warrants or, if such officer has such knowledge, specifying such default and the nature thereof, and setting forth computations in reasonable detail demonstrating compliance with the provisions of subsections 7.01(m), (n), (o) and (p) and subsections 7.02(b) and (d); (f) at the time of delivery of each annual statement, a certificate executed by the Company's independent public accountants, setting forth computations in reasonable detail demonstrating compliance with the provisions of subsections 7.01(m), (n), (o) and (p) and subsections 7.02(b) and (d); (g) promptly upon receipt thereof, any written report submitted to the Company or any Subsidiary by independent public accountants in connection with an annual or interim audit of the books of the Company and the Subsidiaries made by such accountants; (h) promptly after the commencement thereof, notice of all actions, suits and proceedings before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting the Company or any Subsidiary of the type described in Section 6.04; (i) promptly after sending, making available, or filing the same, such reports and financial statements as the Company or any Subsidiary shall send or make available to the stockholders of the Company or the Commission; and (j) such other information respecting the business, assets, liabilities, financial condition, results of operations or prospects of the Company or any of its Subsidiaries as the Purchaser may from time to time reasonably request, and to make available to the Purchaser and its representatives, members of management and employees with significant responsibilities (such as department heads) for the purposes of updating the Purchaser as to the condition of the Company and its Subsidiaries. ARTICLE VIII EVENTS OF DEFAULT 8.01. Events of Default. If any of the following events ("Events of ----------------- Default") shall occur and be continuing : (a) The Company shall fail to pay any installment of principal of any of the Notes when due; or (b) The Company shall fail to pay any interest or premium, if any, on any of the Notes when due; or (c) The Company shall default in the performance of any covenant contained in subsections 7.01(m), (n), (o) and (p) or shall default in the performance of any covenant contained in Section 7.02 for ten (10) consecutive Business days; or (d) Any representation or warranty made by the Company in this Agreement or by the Company (or any of its officers) in any certificate, instrument or written statement made or delivered pursuant to or in connection with this Agreement, shall prove to have been incorrect when made in any material respect; or (e) The Company or any Subsidiary shall fail to perform or observe any other term, covenant or agreement contained in this Agreement, the Notes or the Warrants on its part to be performed or observed and any such failure remains unremedied for fifteen (15) Business Days after written notice thereof shall have been given to the Company by any registered holder of the Notes; or (f) The Company or any Subsidiary shall fail to pay any Indebtedness for Money Borrowed exceeding $100,000 owing by the Company or such Subsidiary (as the case may be), or any interest or premium thereon, when due (or, if permitted by the terms of the relevant document, within any applicable grace period), whether such Indebtedness for Money Borrowed shall become due by scheduled maturity, by required prepayment, by acceleration, by demand or otherwise, or shall fail to perform any term, covenant or agreement on its part to be performed under any agreement or instrument evidencing or securing or relating to any such Indebtedness for Money Borrowed owing by the Company or any Subsidiary, as the case may be, when required to be performed (or, if permitted by the terms of the relevant document, within any applicable grace period), if the effect of such failure to pay or perform is to accelerate, or to permit the holder or holders of such Indebtedness for Money Borrowed, or the trustee or trustees under any such agreement or instrument to accelerate the maturity of such Indebtedness for Money Borrowed, unless such failure to pay or perform shall be waived by the holder or holders of such Indebtedness for Money Borrowed or such trustee or trustees; or (g) The Company or any Subsidiary shall be involved in financial difficulties evidenced (i) by its admitting in writing its inability to pay its debts generally as they become due; (ii) by its commencement of a voluntary case under Title 11 of the United States Code as from time to time in effect, or by its authorizing, by appropriate proceedings of its board of directors or other governing body, the commencement of such a voluntary case; (iii) by its filing an answer or other pleading admitting or failing to deny the material allegations of a petition filed against it commencing an involuntary case under said Title 11, or seeking, consenting to or acquiescing in the relief therein provided, or by its failing to controvert timely the material allegations of any such petition; (iv) by the entry of an order for relief in any involuntary case commenced under said Title 11; (v) by its seeking relief as a debtor under any applicable law, other than said Title 11, of any jurisdiction relating to the liquidation or reorganization of debtors or to the modification or alteration of the rights of creditors, or by its consenting to or acquiescing in such relief; (vi) by the entry of an order by a court of competent jurisdiction (a) finding it to be bankrupt or insolvent, (b) ordering or approving its liquidation, reorganization or any modification or alteration of the rights of its creditors, or (c) assuming custody of, or appointing a receiver or other custodian for, all or a substantial part of its property; or (vii) by its making an assignment for the benefit of, or entering into a composition with, its creditors, or appointing or consenting to the appointment of a receiver or other custodian for all or a substantial part of its property; or (h) A Change in Control occurs, which Change in Control is not consented to specifically with reference to this Section 8.01(h) by the Purchaser; or (i) Any judgment, writ, warrant of attachment or execution or similar process shall be issued or levied against a substantial part of the property of the Company or any Subsidiary and such judgment, writ, or similar process shall not be released, vacated or fully bonded within sixty (60) days after its issue or levy; then, and in any such event, (1) the Purchaser may, by notice to the Company, declare the entire unpaid principal amount of the Notes, all interest accrued and unpaid thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Notes, all such accrued interest and all such amounts shall become and be forthwith due and payable (unless there shall have occurred an Event of Default under subsection 8.01(g) in which case all such amounts shall automatically become due and payable), without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Company, and (2) the Purchaser may proceed to protect and enforce their rights by suit in equity (including without limitation a suit for rescission), action at law and/or other appropriate proceeding either for specific performance of any covenant, provision or condition contained or incorporated by reference in this Agreement or any term of the Articles of Incorporation of the Company, or in aid of the exercise of any power granted in this Agreement or in the Articles of Incorporation of the Company, and, immediately, in the case of Section 8.01(g) hereof, and at any time after the giving of the Put Notice (as such term is defined in the Stockholders' Agreement) to the Company pursuant to Section 3.10 of the Stockholders' Agreement, the theretofore unexercised "put" rights set forth in Section 3.10 of the Stockholders' Agreement, to the extent not already exercisable, be deemed to have become immediately exercisable and thereafter the Purchaser may in such Put Notice to the Company declare all or part of such theretofore unexercised "put" rights to be forthwith exercised and due and payable (unless there shall have occurred an Event of Default under Section 8.01(g) hereof, in which case such "put" rights shall be automatically exercised and due and payable), whereupon the Repurchase Price (as such term is defined in the Stockholders' Agreement) for the Preferred Shares, the Warrants, the Preferred Conversion Shares and the Warrant Shares subject thereto shall become so due and payable without presentation, presentment, protest or further demand or notice of any kind, all of which are expressly waived), and any such holder or holders may proceed to enforce payment of such amount or part thereof in such manner as it or they may elect. Without in any way limiting the rights of the holders of the Notes, the Company hereby agrees that the holders of the Preferred Shares, the Warrants, the Preferred Conversion Shares and the Warrant Shares would have no adequate remedy at law, for monetary compensation or otherwise, for the damages that would be suffered if the Company were to fail to comply with its obligations under Article III hereof and Section 3.10 of the Stockholders' Agreement, and that the Company therefore agrees that the holders of the Warrants and the Warrant Shares shall be entitled to obtain specific performance of the Company's obligations under Article III of this Agreement and Section 3.10 of the Stockholders' Agreement. 8.02. Annulment of Defaults. Section 8.01 is subject to the --------------------- condition that, if at any time after the principal of any of the Notes shall have become due and payable, and before any judgment or decree for the payment of the moneys so due, or any portion thereof, shall have been entered, then and in every such case the holders of sixty-six and two-thirds percent (662/3%) or more in principal amount of all Notes then outstanding may, by written instrument filed with the Company, rescind and annul such declaration and its consequences; but no such rescission or annulment shall extend to or affect any subsequent default or Event of Default or impair any right consequent thereon. ARTICLE IX MISCELLANEOUS 9.01. No Waiver; Cumulative Remedies. No failure or delay on the part of ------------------------------ the Purchaser, or any other holder of the Notes, Preferred Shares, Warrants, Preferred Conversion Shares or Warrant Shares in exercising any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. 9.02. Amendments, Waivers and Consents. Any provision in this -------------------------------- Agreement, the Notes, the Warrants or the other Operative Documents to the contrary notwithstanding, changes in or additions to this Agreement may be made, and compliance with any covenant or provision herein set forth may be omitted or waived, if the Company shall, as long as any Notes are outstanding, obtain consent thereto in writing from the holder or holders of at least sixty-six and two-thirds percent (662/3%) in principal amount of all Notes then outstanding, or, if no Notes are then outstanding, obtain consent thereto in writing from (i) the holder or holders of at least sixty-six and two-thirds percent (662/3%) of the Common Stock issued or issuable upon conversion of the Preferred Shares then outstanding and (ii) the holder or holders of at least sixty-six and two-thirds percent (662/3%) of the Common Stock issued and issuable upon exercise of the Warrants then outstanding, and shall, in any case, deliver copies of such consent in writing to all other holders of Notes, Preferred Shares and/or Warrants; provided that no such consent shall be effective to reduce or to postpone the date fixed for the payment of the principal (including any required redemption) or interest payable on any Note without the consent of the holder thereof, or to alter or amend the consent mechanism provided for under this Section 9.02. Any waiver or consent may be given subject to satisfaction of conditions stated therein and any waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. Written notice of any waiver or consent effected under this subsection shall promptly be delivered by the Company to any holders who did not execute the same. 9.03. Addresses for Notices, Etc. All notices, requests, demands and -------------------------- other communications provided for hereunder shall be in writing and mailed (by first class registered or certified mail, postage prepaid), telegraphed, sent by express overnight courier service or electronic facsimile transmission with a copy by mail, or delivered to the applicable party at the addresses indicated below: If to the Company: Law Office Information Systems, Inc. 105 North 28th Street Van Buren, AR 72956 Attn: Kyle D. Parker, President Telecopy No.: (501) 471-9224 With a copy to: Sullivan & Worcester LLP One Post Office Square Boston, MA 02109 Attention: Karen L. Linsley, Esq. Telecopy No.: (617) 338-2880 If to CRL III: Capital Resource Lenders III, L.P. c/o Capital Resource Partners 85 Merrimac Street Suite 200 Boston, Massachusetts 02114 Attention: Robert C. Ammerman Telecopy No.: (617) 723-9819 With a copy to: Testa, Hurwitz & Thibeault, LLP High Street Tower 125 High Street Boston, Massachusetts 02110 Attention: Andrew E. Taylor, Jr., Esq. Telecopy No.: (617) 248-7100 If to any other holder of the Notes, Preferred Shares or Warrants: at such holder's address for notice as set forth in the transfer records of the Company or, as to each of the foregoing, at such other address as shall be designated by such Person in a written notice to the other party complying as to delivery with the terms of this Section. All such notices, requests, demands and other communications shall, when mailed, telegraphed or sent, respectively, be effective (i) three days after being deposited in the mails or (ii) one day after being delivered to the telegraph company, deposited with the express overnight courier service or sent by electronic facsimile transmission (with receipt confirmed), respectively, addressed as aforesaid. 9.04. Costs, Expenses and Taxes. The Company agrees to pay on demand all ------------------------- costs and expenses of the Purchaser in connection with the preparation, execution and delivery of this Agreement, the Notes, the Preferred Shares, the Warrants, the other Operative Documents and other instruments and documents to be delivered hereunder, and in connection with the consummation of the transactions contemplated hereby and thereby, as well as all costs and expenses of the Purchaser in connection with the amendment, waiver (whether or not such amendment or waiver becomes effective) or enforcement of this Agreement, the Notes, the Preferred Shares, the Warrants, the other Operative Documents, and other instruments and documents to be delivered hereunder and thereunder. Notwithstanding the preceding sentence, and in addition to the provisions of such sentence, the Company agrees to pay on demand all fees and out-of-pocket expenses of Testa, Hurwitz & Thibeault, LLP, special counsel to the Purchaser, in connection with the transactions contemplated by this Agreement, including any amendment, waiver (whether or not such amendment or waiver becomes effective) or enforcement of this Agreement, the Notes, the Preferred Shares, the Warrants, the Operative Documents, and other instruments and documents to be delivered hereunder and thereunder. In addition, the Company agrees to pay any and all stamp and other taxes payable or determined to be payable in connection with the execution and delivery of this Agreement, the Notes, the Preferred Shares, the Warrants, the other Operative Documents, and the other instruments and documents to be delivered hereunder or thereunder and the Company agrees to save the Purchaser harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and filing fees. 9.05. Binding Effect; Assignment. This Agreement shall be binding upon -------------------------- and inure to the benefit of the Company and the Purchaser and their respective successors and assigns, except that the Company shall not have the right to assign its rights hereunder or any interest therein without the prior written consent of the Purchaser. Except as expressly set forth herein, nothing in this Agreement shall confer any claim, right, interest or remedy on any third party or inure to the benefit of any third party. 9.06. Payments in Respect of Notes. The Purchaser and any successor ---------------------------- holder of the Notes, by their acceptance thereof, agree that, with respect to all sums received by them applicable to the payment of principal of or interest on the Notes, equitable adjustment will be made among them so that, in effect, all such sums shall be shared ratably by all of the holders of the Notes whether received by voluntary payment, by realization upon security, by the exercise of the right of setoff, by counterclaim or cross-action or by the enforcement of any or all of the Notes. If any holder of the Notes receives any payment on its Notes in excess of its pro rata portion, then such holder receiving such excess payment shall purchase for cash from the other holders an interest in their Notes in such amounts as shall result in a ratable participation by all of the holders in the aggregate unpaid amount of Notes then outstanding. The Company shall not have any obligation to any Person under this Section 9.06. 9.07. Payments in Respect of the Preferred Shares and Warrants. The -------------------------------------------------------- Purchaser and any successor holder of the Preferred Shares or Warrants, by their acceptance thereof, agree that, with respect to the sale to, or repurchase by, the Company or any Person directly or indirectly affiliated with the Company or any of its directors, officers, or shareholders, of the Preferred Shares or the Warrants, equitable adjustment will be made among the holders of the Preferred Shares or the Warrants so that in effect all sums so received shall be shared ratably in proportion to their respective holdings of the Preferred Shares or Warrants. If any holder of the Preferred Shares or the Warrants receives any such sum in respect of its Preferred Shares or Warrants in excess of its pro rata portion, then such holder receiving such excess shall purchase for cash from the other holders of the Preferred Shares or the Warrants an interest in their Preferred Shares or Warrants in such amount as shall result in a ratable participation of all of the holders in the aggregate of all Preferred Shares or Warrants then outstanding. The Company shall not have any obligation to any Person under this Section 9.07. 9.08. Indemnification. The Company agrees to indemnify and hold --------------- harmless the Purchaser, its subsidiaries, directors, officers, partners, counsel and employees, from and against any and all liability (including, without limitation, reasonable legal fees incurred in defending against any such liability) under, arising out of or relating to this Agreement, the Notes, the Warrants and the Warrant Shares, the transactions contemplated hereby or thereby or in connection herewith or therewith, including (to the maximum extent permitted by law) any liability arising under federal or state securities laws, except to the extent such liability shall result from any act or omission on the part of such Purchaser or its employees, agents, brokers or other representatives. The obligations of the Company under this Section 9.08 shall survive and continue to be in full force and effect notwithstanding (a) the repayment of the Notes and (b) the termination of this Agreement. 9.09. Survival of Representations and Warranties. All representations ------------------------------------------ and warranties made in this Agreement, the Notes, the Warrants, the Operative Documents or any other instrument or document delivered in connection herewith or therewith, shall survive the execution and delivery hereof and thereof, regardless of any investigation made by the Purchaser or on behalf of the Purchaser . 9.10. Prior Agreements. This Agreement constitutes the entire agreement ---------------- between the parties and supersedes any prior understandings or agreements con cerning the subject matter hereof. 9.11. Severability . The invalidity or unenforceability of any provision ------------ hereof shall in no way affect the validity or enforceability of any other provision. 9.12. Governing Law. This Agreement shall be governed by, and construed ------------- in accordance with, the internal laws of The Commonwealth of Massachusetts. 9.13. Waiver of Right to Jury Trial. The parties hereby waive all ----------------------------- rights to a trial by jury for all legal proceedings concerning this Agreement, the Notes or the Warrants. 9.14. Headings. Article, Section and subsection headings in this -------- Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. 9.15. Sealed Instrument. This Agreement is executed as an ----------------- instrument under seal. 9.16. Counterparts. This Agreement may be executed in any number ------------ of counterparts, all of which taken together shall constitute one and the same instrument, and each of the parties hereto may execute this Agreement by signing any such counterpart. 9.17. Further Assurances. From and after the date of this Agreement, ------------------ upon the request of the Purchasers, the Company and each Subsidiary shall execute and deliver such instruments, documents and other writings as may be reasonably necessary or desirable to confirm and carry out and to effectuate fully the intent and purposes of this Agreement, the Notes and the Warrants. 9.18. Consent to Jurisdiction. The Company irrevocably submits to the ----------------------- non-exclusive jurisdiction of any state or federal court sitting in The Commonwealth of Massachusetts over any suit, action or proceeding arising out of or relating to this Agreement or any of the Notes, the Preferred Shares, the Warrants, the Preferred Conversion Shares or Warrant Shares. To the fullest extent it may effectively do so under applicable law, the Company irrevocably waives and agrees not to assert, by way of motion, as a defense or otherwise, any claim that it is not subject to the jurisdiction of any such court, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. 9.19. Effect of Judgment. The Company agrees, to the fullest extent ------------------ it may effectively do so under applicable law, that a judgment in any suit, action or proceeding of the nature referred to in Section 9.18 brought in any such court shall, subject to such rights of appeal on issues other than jurisdiction as may be available to the Company, be conclusive and binding upon the Company and may be enforced in the courts of the United States of America or The Commonwealth of Massachusetts (or any other courts to the jurisdiction of which the Company is or may be subject) by a suit upon such judgment. 9.20. Service of Process. The Company consents to service of process in ------------------ any suit, action or proceeding of the nature referred to in Section 9.18 by actual receipt of a copy thereof by registered or certified mail, postage prepaid, return receipt requested, to the address of the Company specified in or designated pursuant to Section 9.03. The Company agrees that such service (i) shall be deemed in every respect effective service of process upon the Company in any such suit, action or proceeding and (ii) shall, to the fullest extent permitted by law, be taken and held to be valid personal service upon and personal delivery to the Company. 9.21. No Limitation. Nothing in Section 9.18, 9.19, 9.20 or 9.22 shall ------------- affect the right of any Purchaser to serve process in any manner permitted by law, or limit any right that any Purchaser may have to bring proceedings against the Company in the courts of any jurisdiction or to enforce in any lawful manner a judgment obtained in one jurisdiction in any other jurisdiction. 9.22. Specific Performance. Upon breach or default by the Company -------------------- with respect to any obligation hereunder, under the Notes, the Preferred Shares, the Warrants, the Preferred Conversion Shares or the Warrant Shares the Purchaser shall be entitled to protect and enforce its rights at law, or in equity or by other appropriate proceedings for specific performance of such obligation, or for an injunction against such breach or default, or in aid of the exercise of any power or remedy granted hereby or thereby or by law. 9.23. Actions by Purchaser. Wherever in this Agreement action is -------------------- required or permitted to be taken by, or consent is required of, or a matter requires the satisfaction of, the Purchaser, unless the context otherwise requires, such action may be taken by, and/or such consent may be obtained from, and/or such satisfaction may be expressed by, (i) for as long as any of the Notes remain outstanding, the holders of at least sixty-six and two-thirds percent (66 2/3%) of the principal amount of all Notes then outstanding, or (ii) if no Notes are then outstanding, the holders of at least sixty-six and two thirds percent (66 2/3%) of the Common Stock issued and issuable upon conversion of the Preferred Shares then outstanding and the holders of at least sixty-six and two-thirds percent (66 2/3%) of the Common Stock issued and issuable upon exercise of the Warrants then outstanding. 9.24. Confidentiality. The Company's obligations under Sections --------------- 7.02(f) and 7.03 shall at all times be contingent upon the Purchaser's agreement, and the Purchaser hereby agrees, to take all reasonable precautions to safeguard the confidentiality of the information received by or disclosed to the Purchaser by the Company in the fulfillment of the Company's obligations under such Sections and to refrain from disclosure of such information to anyone other than a person who will assist the Purchaser in evaluating the Company or to the Purchaser's accountants, attorneys and other professional advisors and, in the case of Section 7.03, to its equity investors (but only to the extent reasonably necessary to meet the Purchaser's reporting obligations). [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties hereto have executed this Senior Subordinated Note and Securities Purchase Agreement as of the date first above written. LAW OFFICE INFORMATION SYSTEMS, INC. By: /s/ Kyle D. Parker ------------------------------------------- Name: Kyle D. Parker Title: President CAPITAL RESOURCE LENDERS III, L.P. By: Capital Resource Partners III, L.L.C. Its General Partner By: /s/ Robert C. Ammerman ------------------------------------------- EXHIBIT 10.18 (cont.) AMENDMENT This Amendment dated as of June 29, 1998 (this "Amendment") amends that certain Senior Subordinated Note and Securities Purchase Agreement dated as of November 24, 1997 (the "Purchase Agreement") among Law Office Information Systems, Inc. (the "Company") and Capital Resource Lenders III, L.P. ("CRL III"). WHEREAS, pursuant to the Purchase Agreement (i) the Company issued and sold to CRL III (A) 12.5% Senior Subordinated Notes due 2004 of the Company dated November 24, 1997 in the aggregate principal amount of $4,000,000 (the "Notes"), (B) an aggregate of 931,044 shares of Series A Convertible Preferred Stock, par value $.001 per share, of the Company (the "Preferred Shares"), and (C) Common Stock Purchase Warrants (the "Warrants") to purchase up to an aggregate of 972,293 shares of Common Stock, par value $.001 per share, of the Company; and (ii) CRL III agreed to purchase from the Company up to an additional $6,000,000 aggregate principal amount of 12.5% Senior Subordinated Notes due 2004 of the Company at separate closings to be held on March 31, 1998 (the "First Takedown Closing") and June 30, 1998 (the "Second Takedown Closing"), WHEREAS, pursuant to an Assignment, Assumption and Consent dated as of January 1, 1998 (the "Assignment Agreement") by and among the Company, CRL III, CRP Investment Partners III, LLC ("CRP Investment") and Rowland Moriarty ("Moriarty" and, together with CRL III and CRP Investment, the "Purchasers"), (i) CRL III assigned, transferred and set over a portion of its rights, interests and obligations associated with the Notes, the Preferred Shares and the Warrants to CRP Investment and Moriarty, including the right and obligation under Article II of the Purchase Agreement for CRP Investment and Moriarty to purchase its Pro Rata Share (as such term is defined in the Assignment Agreement) of the First Takedown Principal and the Second Takedown Principal at the First Takedown Closing and the Second Takedown Closing, respectively, and (ii) CRP Investment and Moriarty each agreed to accept the rights and assume the performance of the obligations transferred by CRL III under the Assignment Agreement; WHEREAS, the First Takedown Closing occurred on March 2, 1998 and at such First Takedown Closing the Company issued and sold to the Purchasers Notes in the aggregate principal amount of $3,000,000; and WHEREAS, the Company and the Purchasers hereby desire to extend the date of the Second Takedown Closing to December 31, 1998 and amend the Purchase Agreement as hereinafter set forth. NOW THEREFORE, in consideration of the premises and the agreements herein contained, and intending to be bound hereby, the parties hereby agree as follows: 1. Amendment of Purchase Agreement. ------------------------------- 1 1.01. Section 1.01 of the Purchase Agreement shall be amended by adding the following defined terms: "Assignment Agreement" shall mean that certain Assignment, -------------------- Assumption and Consent dated as of January 1, 1998 among the Company, CRL III, CRP Investment Partners, a Delaware limited partnership, and Rowland Moriarty. "CRL III Guarantees" means any and all guarantees by CRL III in ------------------ favor of Fleet National Bank and on behalf of the Company. "Guaranty Amount" means, at any time, the maximum amount being --------------- guaranteed by CRL III under any and all CRL III Guarantees in effect at such time. "Purchasers" shall mean CRL III, CRP Investment Partners III, LLC, a ---------- Delaware limited liability company, and Rowland Moriarty, and their successors and assigns. 1.02. Section 2.01(c) of the Purchase Agreement is hereby amended to read in its entirety as follows: (c) The purchase and sale of up to an additional $3,000,000 aggregate principal amount of Notes shall take place at a closing (the "Second Takedown Closing") to be held at the offices of Testa, Hurwitz & Thibeault, LLP, High Street Tower, 125 High Street, Boston, Massachusetts, at 10:00 a.m. local time on December 31, 1998 (the "Second Takedown Closing Date"), upon written notice (the "Second Takedown Notice") given by the Company to the Purchasers at least twenty (20) days prior to the Second Takedown Closing Date. Such Second Takedown Notice shall specify the aggregate principal amount (the "Second Takedown Principal") of the Notes to be issued and sold at such Second Takedown Closing, which Second Takedown Principal shall not exceed $3,000,000 less the ---- Guaranty Amount, if any. At the Second Takedown Closing, the Company will issue and sell to each Purchaser a single Note, dated the Second Takedown Closing Date, in the principal amount equal to such Purchaser's Pro Rata Share (as such term is defined in the Assignment Agreement) of the Second Takedown Principal, against receipt of funds by wire transfer to an account or accounts designated by the Company prior to such Second Takedown Closing in the amount of such Purchaser's Pro Rata Share of the Second Takedown Principal, in payment of the purchase price for such Note. The First Takedown Closing and the Second Takedown Closing are sometimes herein referred to individually as a "Takedown Closing" and collectively as the "Takedown Closings"). 2. Miscellaneous. 2.01. Effect. The Assignment Agreement shall remain in full force and ------ effect and, except as amended hereby, the Purchase Agreement shall remain in full force and effect. 2.02. No Waiver. This Amendment is effective only in the specific --------- instance and for the specific purpose for which it is executed and shall not be considered a waiver or agreement to amend as to any provision of the Purchase Agreement (as amended) in the future. 2 2.03. Defined Terms. All capitalized terms used but not specifically ------------- defined herein shall have the same meanings given such terms in the Purchase Agreement unless the context clearly indicates or dictates a contrary meaning. 2.04. Notices. All notices, requests, demands and other communications ------- provided for in this Amendment shall be delivered in compliance with Section 9.03 of the Purchase Agreement. 2.05. Costs, Expenses, Taxes. The Company agrees to pay on demand all ---------------------- costs and expenses of the Purchasers in connection with the preparation, execution and delivery of this Amendment and other instruments and documents to be delivered hereunder, including the reasonable fees and out-of-pocket expenses of Messrs. Testa, Hurwitz & Thibeault, special counsel for the Purchasers. 2.06. Governing Law. This Amendment shall be governed by, and construed ------------- and enforced in accordance with, the internal laws of The Commonwealth of Massachusetts. 2.07. Seal. This Amendment is executed as an instrument under seal. ---- 2.08. Counterparts. This Amendment may be executed in any number of ------------ counterparts, all of which taken together shall constitute one and the same instrument, and each of the parties hereto may execute this Amendment by signing any of such counterparts. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 3 IN WITNESS WHEREOF, the parties hereto have executed this Amendment or have caused it to be executed by their respective officers thereunto duly authorized, as of the date first above written. Law Office Information Systems, Inc. By: /s/ Kyle D. Parker -------------------------------- Name: Kyle D. Parker Title: President CAPITAL RESOURCE LENDERS III, L.P. By: Capital Resource Partners III, L.L.C. Its General Partner By: /s/ Robert C. Ammerman -------------------------------- CRP INVESTMENT PARTNERS III, LLC By: /s/ Robert C. Ammerman --------------------------------- /s/ Rowland Moriarty ------------------------------------------ Rowland Moriarty 4 -1- EXHIBIT 10.18 (cont.) AMENDMENT NO. 2 This Amendment No. 2 dated as of August 20, 1998 (this "Amendment") by and among the Company, Capital Resource Lenders III, L.P. ("CRL III"), CRP Investment Partners III, L.L.C. ("CRP Investment") and Rowland Moriarty ("Moriarty" and together with CRL III and CRP Investment, the "Purchasers") amends that certain Senior Subordinated Note and Securities Purchase Agreement dated as of November 24, 1997 by and between the Company and CRL III, as amended by that certain Amendment dated as of June 29, 1998 ("Amendment No. 1") by and among the Company, CRL III, CRP Investment and Moriarty (as so amended by Amendment No. 1, the "Purchase Agreement"). WHEREAS, pursuant to the Purchase Agreement and that certain Assignment, Assumption and Consent dated as of January 1, 1998 (the "Assignment Agreement") by and among the Company and the Purchasers, the Company has issued and sold to the Purchasers (i) 12.5% Senior Subordinated Notes due 2004 (the "Notes") of the Company dated November 24, 1997 in the aggregate principal amount of $7,000,000, (ii) an aggregate of 931,044 shares of Series A Convertible Preferred Stock, par value $.001 per share, of the Company, and (iii) Common Stock Purchase Warrants to purchase up to an aggregate of 972,293 shares of Common Stock, par value $.001 per share, of the Company; WHEREAS, pursuant to Section 2.01(c) of the Purchase Agreement, the Purchasers remain obligated to purchase additional Notes (a) on December 31, 1998 such that the aggregate amount of outstanding Notes issued on December 31, 1998 is equal to a minimum of $3,000,000 Less the Maximum Cumulative Liability ---- (as such term is defined in the CRL III Guaranty), and (b) on May 31, 1999 such that the aggregate amount of outstanding Notes issued on December 31, 1998 and May 31, 1999 is equal to a minimum of $3,000,000 less the Maximum Cumulative ---- Liability (as such term is defined in the CRL III Guaranty). WHEREAS, (i) the Company and the Bank have entered into a Credit Agreement dated as of the date hereof (the "Loan Agreement"), pursuant to which the Bank has agreed, subject to the terms and conditions set forth therein, to establish a credit facility in the original aggregate principal amount of $10,000,000 in favor of the Company, and (ii) as contemplated by the Credit Agreement, CRL III has executed a Limited Guaranty dated the date hereof (the "CRL III Guaranty") in favor of the Bank, pursuant to which CRL III has agreed to guarantee certain obligations of the Company under the Loan Agreement; and WHEREAS, as a condition to the Loan Agreement and in connection with the consummation of the transactions contemplated thereby, the parties hereto desire to amend the Purchase Agreement as hereinafter set forth. NOW THEREFORE, in consideration of the premises and the agreements herein contained, and intending to be bound hereby, the parties hereby agree as follows: 1. Amendment of Purchase Agreement. ------------------------------- -2- 1.01. Section 1.01 of the Purchase Agreement shall be amended by deleting in their entirety the following definitions: "CRL Guarantees," "EFT Financing," "Fixed Assets," "Guaranty Amount," "Interest Expense," "Net Income," "Net Loss" and "Total Funded Debt." 1.02. Section 1.01 of the Purchase Agreement shall be further amended by amending the definitions of "EBITDA" and "Senior Debt" to read in their entirety as follows and by adding the following other defined terms: "Adjusted Current Assets" shall mean, as of any date of ----------------------- determination, the sum of (i) cash and cash equivalents and (ii) the Maximum Cumulative Liability (as defined under the CRL III Guaranty) plus the amount of the CRL Subordinated Creditors' aggregate unfunded commitment obligations under Section 2.02(c) of this Agreement and (iii) Net Accounts Receivable. "Adjusted Current Liabilities" shall mean, as of any date of ---------------------------- determination, (i) current liabilities (as determined in accordance GAAP consistently applied) less (ii) Deferred Revenue. "Adjusted EBITDA" shall mean, as of any date of determination, --------------- EBITDA for the twelve (12) month period ending on such date minus the sum of (i) those amounts attributable to Capital Expenditures during such twelve (12) month period, which such amounts have not been incurred in violation of Section 5.27 of the Loan Agreement, and (ii) all taxes due or payable with respect to such twelve (12) month period. "Bank" means and shall include Fleet National Bank, a national ---- banking association, and its successors and assigns. "Capital Expenditures" shall mean expenditures which are properly -------------------- chargeable to capital account under GAAP (including Capital Leases). "CRL III Guaranty" shall mean that certain Limited Guaranty dated as ---------------- of August 20, 1998 executed by CRL III in favor of the Bank, pursuant to which CRL III has agreed to guarantee certain obligations of the Company under the Loan Agreement. "Debt Service" shall mean, as at any date of determination, the sum ------------ of (i) consolidated interest expense of the Company and its Subsidiaries for the twelve month period ending on such date, plus (ii) schedule principal payments on long term debt (including, without limitation, all Indebtedness of the Company to the Bank and the Purchasers) for the twelve month period commencing on the date following such date of determination, plus (iii) any amounts paid by the Company in respect of the Deferred Facility Fee (as such term is defined in the Loan Agreement) during the twelve month period ending on such date, all as determined in accordance with GAAP consistently applied. -3- "Deferred Revenue" shall mean all liabilities of the Company under ---------------- subscription contracts, which under GAAP consistently applied are recorded as deferred revenues. "EBITDA" shall mean, as of any date of determination, the sum of the ------ consolidated pre-tax earnings of the Company and its Subsidiaries, plus to ---- the extent deducted in calculating pre-tax earnings, consolidated depreciation, amortization and interest expense of the Company and its Subsidiaries. "Loan Agreement" shall mean that certain Credit Agreement dated as -------------- of August 20, 1998 by and between the Company and the Bank, as from time to time amended and in effect between the parties thereto. "Net Accounts Receivable" shall mean, as of any date of ----------------------- determination, the consolidated accounts receivable of the Company less all applicable reserves (in each case, as determined in accordance with GAAP consistently applied). "Net Intangible Assets" shall mean the total book value of all --------------------- assets of the Company and its Subsidiaries which would be treated as intangible assets under GAAP, including without limitation, such items as goodwill, trademarks, trade names, service marks, brand names, copyrights, patents and licenses, and right with respect to the foregoing. "Renewal Rate" shall mean as of any date of determination, the ------------ percentage of the Company's and its Subsidiaries' customers whose subscriptions come up for renewal during the relevant fiscal year that renew their subscriptions with the Company and/or its Subsidiaries, on terms no less favorable than those terms generally being offered by the Company and its Subsidiaries at the time of each such renewal. "Senior Debt" means (i) all Indebtedness for Money Borrowed of the ----------- Company and any of its Subsidiaries from the Bank pursuant to the Loan Agreement or from other banks or institutional lenders, including any extensions or renewals thereof, whether outstanding on the date hereof or hereafter created or incurred, which is not by its terms subordinate and junior to the Notes and which is disclosed on the Financial Statements or is permitted by this Agreement at the time it is created or incurred, (ii) all Indebtedness for Money Borrowed of the Company and any of its Subsidiaries incurred to refinance any of the Indebtedness for Money Borrowed referred to in item (i) above, where the security securing such Indebtedness is substantially the same security as that securing the Indebtedness for Money Borrowed being refinanced, (iii) all obligations of the Company and any of its Subsidiaries under Capital Leases which are permitted by this Agreement at the time they are incurred and (iv) all guarantees by the Company and any of its Subsidiaries which are not by their terms subordinate and junior to the Notes and which are permitted hereby at the time they are made of Indebtedness of any Subsidiary if such Indebtedness would have been Senior Debt pursuant to the provisions of clause (i), (ii) or (iii) of this sentence had it been Indebtedness of the Company. -4- "Tangible Capital Base" shall mean, as of any date of determination, --------------------- the sum of (i) stockholders' equity (as determined in accordance with GAAP consistently applied), (ii) Subordinated Debt and (iii) the Maximum Cumulative Liability (as defined under the CRL III Guaranty) plus the amount of the CRL Subordinated Creditors' aggregate unfunded commitment obligations under Section 2.02(c) of the CRL Purchase Agreement less Net Intangible Assets, provided, however, that the database assets, to the extent under GAAP they are included as net intangible assets, shall not be included as Net Intangible Assets. 1.03. Section 2.02(c) of the Purchase Agreement is hereby amended to read in its entirety as follows: (c)(i) The purchase and sale of up to an additional $3,000,000 aggregate principal amount of Notes shall take place at a closing (the "Second Takedown Closing") to be held at the offices of Testa, Hurwitz & Thibeault, LLP, High Street Tower, 125 High Street, Boston, Massachusetts, at 10:00 a.m. local time on December 31, 1998 (the "Second Takedown Closing Date"), upon written notice (the "Second Takedown Notice") given by the Company to the Purchasers at least twenty (20) days prior to the Second Takedown Closing Date. Such Second Takedown Notice shall specify the aggregate principal amount (the "Second Takedown Principal") of the Notes to be issued and sold at such Second Takedown Closing, which Second Takedown Principal shall not exceed $3,000,000 less the Maximum Cumulative ---- Liability (as such term is defined in the CRL III Guaranty) of CRL III under the CRL III Guaranty as of the Second Takedown Closing Date. At the Second Takedown Closing, the Company will issue and sell to each Purchaser and each purchaser shall have the obligation to purchase a single Note, dated the Second Takedown Closing Date, in the principal amount equal to such Purchaser's Pro Rata Share (as such term is defined in the Assignment Agreement) of the Second Takedown Principal, against receipt of funds by wire transfer to an account or accounts designated by the Company prior to such Second Takedown Closing in the amount of such Purchaser's Pro Rata Share of the Second Takedown Principal, in payment of the purchase price for such Note ; and (ii) the purchase and sale of up to an additional $3,000,000 aggregate principal amount of Notes shall take place at a closing (the "Third Takedown Closing") to be held at the offices of Testa, Hurwitz & Thibeault, LLP, High Street Tower, 125 High Street, Boston, Massachusetts, at 10:00 a.m. local time on May 31, 1999 (the "Third Takedown Closing Date"), upon written notice (the "Third Takedown Notice") given by the Company to the Purchasers at least twenty (20) days prior to the Third Takedown Closing Date. Such Third Takedown Notice shall specify the aggregate principal amount (the "Third Takedown Principal") of the Notes to be issued and sold at such Third Takedown Closing, which Third Takedown Principal, when aggregated with the Second Takedown Principal, shall not exceed $3,000,000 less the Maximum Cumulative Liability (as such ---- term is defined in the CRL III Guaranty) of CRL III under the CRL III Guaranty as of the Third Takedown Closing Date. At the Third Takedown Closing, the Company will issue and sell to each Purchaser and each purchaser shall have the obligation to purchase a single Note, dated the Third Takedown Closing Date, in the principal amount equal to such Purchaser's Pro Rata Share (as such term is -5- defined in the Assignment Agreement) of the Third Takedown Principal, against receipt of funds by wire transfer to an account or accounts designated by the Company prior to such Third Takedown Closing in the amount of such Purchaser's Pro Rata Share of the Third Takedown Principal, in payment of the purchase price for such Note. The First Takedown Closing, the Second Takedown Closing and the Third Takedown Closing are sometimes herein referred to individually as a "Takedown Closing" and collectively as the "Takedown Closings"). 1.04. Section 2.12 of the Purchase Agreement is hereby amended to read in its entirety as follows: 2.12. Subordination. The Indebtedness evidenced by the Notes and ------------- the rights and remedies of the Purchasers under this Agreement shall be subordinate and junior to certain Indebtedness of the Company to the Bank in the manner and to the extent provided in the Subordination and Intercreditor Agreement dated as of August 20, 1998 by and among the Bank, the Company and the Purchasers (the "Subordination Agreement"). 1.05. Section 7.01(m) of the Purchase Agreement is hereby amended to read in its entirety as follows: (m) Minimum Annual Revenue. The consolidated revenues of the ---------------------- Company and its Subsidiaries shall not be less than the amounts set forth below as of the end of each fiscal period set forth below: Period Minimum Annual Revenue ------ ---------------------- January 1, 1998 to December 31, 1998 $ 5,850,000 January 1, 1999 to December 31, 1999 $13,500,000 January 1, 2000 to December 31, 2000 $27,000,000 1.06. Section 7.01(n) of the Purchase Agreement is hereby amended to read in its entirety as follows: (n) Minimum Quick Ratio. The ratio of (a) consolidated Adjusted ------------------- Current Assets to (b) consolidated Adjusted Current Liabilities shall not be less than 1.50 to 1.0 as at the end of each three (3) month period ending on each fiscal quarter commencing with the fiscal quarter ending June 30, 1998. 1.07. Section 7.01(o) of the Purchase Agreement is hereby amended to read in its entirety as follows: (o) Minimum Tangible Capital Base. The Tangible Capital Base ----------------------------- shall not be less than the amounts set forth below at the end of each three (3) month fiscal period set forth below: -6- Period Minimum Tangible Capital Base ------ ----------------------------- July 1, 1998 to September 30, 1998 $4,770,000 October 1, 1998 to December 31, 1998 $4,140,000 January 1, 1999 to March 31, 1999 $2,520,000 April 1, 1999 to June 30, 1999 $1,350,000 July 1, 1999 to September 30, 1999 $ 585,000 October 1, 1999 to December 31, 1999 $ 200,000 In addition, for the three (3) month quarterly fiscal period ending after March 31, 2000, and for each three (3) month quarterly fiscal period ending thereafter, the Borrower and its Subsidiaries shall have a Tangible Capital Base of not less than $495,000. 1.08. Section 7.01(p) of the Purchase Agreement is hereby amended to read in its entirety as follows: (p) Debt Service Coverage. The ratio of (a) consolidated --------------------- Adjusted EBITDA to (b) consolidated Debt Service of the Company and its Subsidiaries shall not be less than 1.10 to 1.0 at the end of each twelve (12) month period ending on each fiscal quarter commencing with the fiscal quarter ending December 31, 1999; provided, however, that Adjusted EBITDA -------- ------- for the twelve (12) month period ending December 31, 1999 shall be based upon the annualized nine (9) month period commencing April 1, 1999 and ending December 31, 1999. 1.09. Section 7.01(q) of the Purchase Agreement is hereby amended to read in its entirety as follows: (q) Maximum Quarterly Net Losses; Minimum Income. The Company -------------------------------------------- and its Subsidiaries shall not, during each three (3) month quarterly fiscal period set forth below, have a consolidated net loss (denoted in parentheses) (as determined in accordance with GAAP consistently applied) in excess of the amount set forth opposite such three (3) month fiscal period: Period Maximum Consolidated Net Loss ------ ----------------------------- July 1, 1998 to September 30, 1998 *($1,650,000) October 1, 1998 to December 31, 1998 *($1,100,000) January 1, 1999 to March 31, 1999 *($2,200,000) April 1, 1999 to June 30, 1999 *($1,925,000) July 1, 1999 to September 30, 1999 *($1,375,000) October 1, 1998 to December 31, 1999 * ($550,000) * Less than or equal to In addition, for each three (3) month quarterly fiscal period ending after December 31, 1999, the Company and its Subsidiaries shall have positive consolidated net income (as determined in accordance with generally accepted accounting principles consistently -7- applied) of not less than $1.00. 1.10. Section 7.01(r) of the Purchase Agreement is hereby amended to read in its entirety as follows: (r) Renewal Rate. The consolidated Company's Renewal Rate shall ------------ not be less than eighty percent (70%) as of the end of each twelve (12) month period ending on each fiscal year of the Company, commencing with the fiscal year ending December 31, 1998. 1.11. Section 7.02(b) of the Purchase Agreement is hereby amended to read in its entirety as follows: (b) Indebtedness. Without the prior written consent of the Purchasers, create, incur, assume or suffer to exist, or permit any Subsidiary to create, incur, assume or suffer to exist, any liability with respect to Indebtedness except for (1) up to $12,500,000 in the aggregate (exclusive of interest, fees, expenses, costs, protective advances and other amounts which may be added to principal under the Loan Agreement) in Senior Debt, (2) current liabilities, other than for Indebtedness for Money Borrowed, which are incurred in the ordinary course of business, (3) purchase money security interests securing the purchase of equipment to be used in connection with the business of the Company and its Subsidiaries, and (5) the Notes, provided that the incurrence of all such Indebtedness does not result in the Company's or any Subsidiary's failure to comply with any of the provisions of Article VII hereof. 1.12. Section 7.02(l) of the Purchase Agreement is hereby amended to read in its entirety as follows: (l) Capital Expenditures. Make, or permit any Subsidiary to -------------------- make or incur, Capital Expenditures in an aggregate amount in excess of $1,650,000 in fiscal year 1998, and $1,100,000 in any fiscal year thereafter. 1.13. Section 7.03(e) of the Purchase Agreement is hereby amended to read in its entirety as follows: (e) at the time of delivery of each monthly and annual statement, a certificate, executed by the chief financial officer of the Company, stating that such officer has caused this Agreement, the Notes, and the Warrants to be reviewed and has no knowledge of any default by the Company or any Subsidiary in the performance or observance of any of the provisions of this Agreement, the Notes or the Warrants or, if such officer has such knowledge, specifying such default and the nature thereof, and setting forth computations in reasonable detail demonstrating compliance with the provisions of subsections 7.01(m), (n), (o) (p), (q) and (r) and subsections 7.02(b) and (d); 1.14. Section 7.03(f) of the Purchase Agreement is hereby amended to read in its -8- entirety as follows: (f) at the time of delivery of each annual statement, a certificate executed by the Company's independent public accountants, setting forth computations in reasonable detail demonstrating compliance with the provisions of subsections 7.01(m), (n), (o), (p), (q) and (r) and subsections 7.02(b) and (d); 1.15. Section 8.01(c) of the Purchase Agreement is hereby amended to read in its entirety as follows: (c) The Company shall default in the performance of any covenant contained in subsections 7.01(m), (n), (o), (p), (q) and (r) or shall default in the performance of any covenant contained in Section 7.02 for ten (10) consecutive Business days; or 1.16. The Purchase Agreement is hereby amended to add a new Section 7.02(o) which shall read in its entirety as follows: (o) Prepayments under Loan Agreement. Without the prior written -------------------------------- consent of the Purchasers, make any prepayments of principal or interest under the Revolving Credit or the Equipment Line of Credit (as such terms are defined in the Loan Agreement), until such time as all outstanding SBLC Line of Credit Advances (including all SBLC Line of Credit Advances evidenced by the SBLC Line of Credit Term Note) (as such terms are defined in the Loan Agreement) have been repaid to the Bank in full. 1.17. The Purchase Agreement is hereby amended to add a new Section 7.02(p) which shall read in its entirety as follows: (p) Borrowings under the SBLC Line of Credit. Without the prior ---------------------------------------- written consent of the Purchasers, make (i) any requests for SBLC Line of Credit Advances (as such term is defined in the Loan Agreement) pursuant to Section 2.04(f) of the Loan Agreement or (ii) any requests of the Bank to issue L/C's (as such term is defined in the Loan Agreement) pursuant to Section 2.05(a) of the Loan Agreement. 2. Consent to Credit Documents. The Purchasers hereby consent to the Company entering into the Loan Agreement and the Credit Documents (as such term is defined in the Loan Agreement). 3. Miscellaneous. 3.01. Effect. The Assignment Agreement shall remain in full force and ------ effect and, except as amended hereby, the Purchase Agreement shall remain in full force and effect . 3.02. No Waiver. This Amendment is effective only in the specific --------- instance and for the specific purpose for which it is executed and shall not be considered a waiver or agreement to -9- amend as to any provision of the Purchase Agreement (as amended) in the future. 3.03. Defined Terms. All capitalized terms used but not specifically ------------- defined herein shall have the same meanings given such terms in the Purchase Agreement unless the context clearly indicates or dictates a contrary meaning. 3.04. Notices. All notices, requests, demands and other communications ------- provided for in this Amendment shall be delivered in compliance with Section 9.03 of the Purchase Agreement. 3.05. Costs, Expenses, Taxes. The Company agrees to pay on demand all ---------------------- costs and expenses of the Purchasers in connection with the preparation, execution and delivery of this Amendment and other instruments and documents to be delivered hereunder, including the reasonable fees and out-of-pocket expenses of Messrs. Testa, Hurwitz & Thibeault, special counsel for the Purchasers. 3.06. Governing Law. This Amendment shall be governed by, and construed ------------- and enforced in accordance with, the internal laws of The Commonwealth of Massachusetts. 3.07. Seal. This Amendment is executed as an instrument under seal. ---- 3.08. Counterparts. This Amendment may be executed in any number of ------------ counterparts, all of which taken together shall constitute one and the same instrument, and each of the parties hereto may execute this Amendment by signing any of such counterparts. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] -10- IN WITNESS WHEREOF, the parties hereto have executed this Amendment or have caused it to be executed by their respective officers thereunto duly authorized, as of the date first above written. LAW OFFICE INFORMATION SYSTEMS, INC. By: /s/ Kyle D. Parker ---------------------------------------- Name: Kyle D. Parker Title: President CAPITAL RESOURCE LENDERS III, L.P. By: Capital Resource Partners III, L.L.C. Its General Partner By: /s/ Robert C. Ammerman ----------------------------------------- CRP INVESTMENT PARTNERS III, LLC By: /s/ Robert C. Ammerman ----------------------------------------- /s/ Rowland Moriarty -------------------------------------------- Rowland Moriarty -1- EXHIBIT 10.18 (cont.) 1/12/98 AMENDMENT NO. 3 This Amendment No. 3 dated as of November 30, 1998 (this "Amendment") by and among the Company, Capital Resource Lenders III, L.P. ("CRL III"), CRP Investment Partners III, L.L.C. ("CRP Investment") and Rowland Moriarty ("Moriarty" and together with CRL III and CRP Investment, the "Purchasers") amends that certain Senior Subordinated Note and Securities Purchase Agreement dated as of November 24, 1997 by and between the Company and CRL III, as amended by that certain Amendment dated as of June 29, 1998 by and among the Company and the Purchasers and that certain Amendment No. 2 dated as of August 20, 1998 by and among the Company and the Purchasers (as so amended, the "Purchase Agreement"). WHEREAS, pursuant to the Purchase Agreement and that certain Assignment, Assumption and Consent dated as of January 1, 1998 (the "Assignment Agreement") by and among the Company and the Purchasers, the Company has issued and sold to the Purchasers (i) 12.5% Senior Subordinated Notes due 2004 (the "Notes") of the Company in the aggregate principal amount of $7,000,000, (ii) an aggregate of 931,044 shares of Series A Convertible Preferred Stock, par value $.001 per share, of the Company, and (iii) Common Stock Purchase Warrants to purchase up to an aggregate of 972,293 shares of Common Stock, par value $.001 per share, of the Company; WHEREAS, pursuant to Section 2.02(c) of the Purchase Agreement, the Purchasers remain obligated to purchase additional Notes at separate Takedown Closings; and WHEREAS, the Company and the Purchasers desire to amend Sections 1.01 and 2.02(c) of the Purchase Agreement as hereinafter set forth. NOW THEREFORE, in consideration of the premises and the agreements herein contained, and intending to be bound hereby, the parties hereby agree as follows: 1. Amendment of Purchase Agreement. ------------------------------- 1.01. Section 1.01 of the Purchase Agreement shall be amended to delete in its entirety the definition of "Second Takedown Notice" and by adding the following definitions: "Fourth Takedown Closing" shall have the meaning assigned to that ----------------------- term in Section 2.02(c). "Fourth Takedown Closing Date" shall have the meaning assigned to ---------------------------- that term in Section 2.02(c). "Fourth Takedown Notice" shall have the meaning assigned to that ---------------------- term in Section 2.02(c). -2- "Fourth Takedown Principal" shall have the meaning assigned to that ------------------------- term in Section 2.02(c). "Third Takedown Closing" shall have the meaning assigned to that ---------------------- term in Section 2.02(c). "Third Takedown Closing Date" shall have the meaning assigned to --------------------------- that term in Section 2.02(c). "Third Takedown Principal" shall have the meaning assigned to that ------------------------ term in Section 2.02(c). 1.02. Section 2.02(c) of the Purchase Agreement is hereby amended to read in its entirety as follows: (c)(i) The purchase and sale of up to an additional $500,000 aggregate principal amount of Notes (the "Second Takedown Principal") shall take place at a closing (the "Second Takedown Closing") to be held at the offices of Testa, Hurwitz & Thibeault, LLP, High Street Tower, 125 High Street, Boston, Massachusetts, at 10:00 a.m. local time on November 30, 1998 (the "Second Takedown Closing Date"). At the Second Takedown Closing, the Company will issue and sell to each Purchaser and each Purchaser shall have the obligation to purchase a single Note, dated the Second Takedown Closing Date, in the principal amount equal to such Purchaser's Pro Rata Share (as such term is defined in the Assignment Agreement) of the Second Takedown Principal, against receipt of funds by wire transfer to an account or accounts designated by the Company prior to such Second Takedown Closing in the amount of such Purchaser's Pro Rata Share of the Second Takedown Principal, in payment of the purchase price for such Note; (ii) The purchase and sale of up to an additional $500,000 aggregate principal amount of Notes (the "Third Takedown Principal") shall take place at a closing (the "Third Takedown Closing") to be held at the offices of Testa, Hurwitz & Thibeault, LLP, High Street Tower, 125 High Street, Boston, Massachusetts, at 10:00 a.m. local time on December 15, 1998 (the "Third Takedown Closing Date"). At the Third Takedown Closing, the Company will issue and sell to each Purchaser and each Purchaser shall have the obligation to purchase a single Note, dated the Third Takedown Closing Date, in the principal amount equal to such Purchaser's Pro Rata Share (as such term is defined in the Assignment Agreement) of the Third Takedown Principal, against receipt of funds by wire transfer to an account or accounts designated by the Company prior to such Third Takedown Closing in the amount of such Purchaser's Pro Rata Share of the Third Takedown Principal, in payment of the purchase price for such Note; and (iii) The purchase and sale of up to an additional $2,000,000 aggregate principal amount of Notes shall take place at a closing (the "Fourth Takedown Closing") to be held at the offices of Testa, Hurwitz & Thibeault, LLP, High Street Tower, 125 High Street, Boston, Massachusetts, at 10:00 a.m. local time on May 31, 1999 (the "Fourth Takedown Closing Date"), upon written notice (the "Fourth Takedown Notice") given by the Company to the Purchasers at least twenty (20) days prior to the Fourth Takedown Closing Date. -3- Such Fourth Takedown Notice shall specify the aggregate principal amount (the "Fourth Takedown Principal") of the Notes to be issued and sold at such Fourth Takedown Closing, which Fourth Takedown Principal shall not exceed $2,000,000 less the Maximum Cumulative Liability (as such term is ---- defined in the CRL III Guaranty) of CRL III under the CRL III Guaranty as of the Fourth Takedown Closing Date. At the Fourth Takedown Closing, the Company will issue and sell to each Purchaser and each Purchaser shall have the obligation to purchase a single Note, dated the Fourth Takedown Closing Date, in the principal amount equal to such Purchaser's Pro Rata Share (as such term is defined in the Assignment Agreement) of the Fourth Takedown Principal, against receipt of funds by wire transfer to an account or accounts designated by the Company prior to such Fourth Takedown Closing in the amount of such Purchaser's Pro Rata Share of the Fourth Takedown Principal, in payment of the purchase price for such Note. The First Takedown Closing, the Second Takedown Closing, the Third Takedown Closing and the Fourth Takedown Closing are sometimes herein referred to individually as a "Takedown Closing" and collectively as the "Takedown Closings"). 2. Miscellaneous. 2.01. Effect. The Assignment Agreement shall remain in full force and ------ effect and, except as amended hereby, the Purchase Agreement shall remain in full force and effect. 2.02. No Waiver. This Amendment is effective only in the specific --------- instance and for the specific purpose for which it is executed and shall not be considered a waiver or agreement to amend as to any provision of the Purchase Agreement (as amended) in the future. 2.03. Defined Terms. All capitalized terms used but not specifically ------------- defined herein shall have the same meanings given such terms in the Purchase Agreement unless the context clearly indicates or dictates a contrary meaning. 2.04. Notices. All notices, requests, demands and other communications ------- provided for in this Amendment shall be delivered in compliance with Section 9.03 of the Purchase Agreement. 2.05. Costs, Expenses, Taxes. The Company agrees to pay on demand all ---------------------- costs and expenses of the Purchasers in connection with the preparation, execution and delivery of this Amendment and other instruments and documents to be delivered hereunder, including the reasonable fees and out-of-pocket expenses of Messrs. Testa, Hurwitz & Thibeault, special counsel for the Purchasers. 2.06. Governing Law. This Amendment shall be governed by, and construed ------------- and enforced in accordance with, the internal laws of The Commonwealth of Massachusetts. 2.07. Seal. This Amendment is executed as an instrument under seal. ---- 2.08. Counterparts. This Amendment may be executed in any number of ------------ counterparts, all of which taken together shall constitute one and the same instrument, and each of the parties -4- hereto may execute this Amendment by signing any of such counterparts. [Remainder of Page Intentionally Left Blank] -5- IN WITNESS WHEREOF, the parties hereto have executed this Amendment or have caused it to be executed by their respective officers thereunto duly authorized, as of the date first above written. Law Office Information Systems, Inc. By: /s/ Kyle D. Parker ---------------------------------------- Name: Kyle D. Parker Title: President CAPITAL RESOURCE LENDERS III, L.P. By: Capital Resource Partners III, L.L.C. Its General Partner By: /s/ Robert C. Ammerman ---------------------------------------- CRP INVESTMENT PARTNERS III, LLC By: /s/ Robert C. Ammerman ---------------------------------------- /s/ Rowland Moriarty ------------------------------------------- Rowland Moriarty -1- Exhibit 10.18 (cont.) AMENDMENT NO. 5 This Amendment No. 5 dated as of May 25, 1999 (this "Amendment") by and among the Company, Capital Resource Lenders III, L.P. ("CRL III"), CRP Investment Partners III, L.L.C. ("CRP Investment") and Rowland Moriarty ("Moriarty" and together with CRL III and CRP Investment, the "Purchasers") amends that certain Senior Subordinated Note and Securities Purchase Agreement dated as of November 24, 1997 by and between the Company and CRL III, as amended by that certain Amendment dated as of June 29, 1998, that certain Amendment No. 2 dated as of August 20, 1998, that certain Amendment No. 3 dated as of November 30, 1998 and that certain Amendment No. 4 dated as of January 29, 1999, all by and among the Company and the Purchasers (as so amended, the "Purchase Agreement"). WHEREAS, pursuant to the Purchase Agreement and that certain Assignment, Assumption and Consent dated as of January 1, 1998 by and among the Company and the Purchasers, the Company has issued and sold to the Purchasers (i) 12.5% Senior Subordinated Notes due 2004 of the Company dated November 24, 1997 in the aggregate principal amount of $10,000,000 (the "Notes"), (ii) an aggregate of 931,044 shares of Series A Convertible Preferred Stock, par value $.001 per share, of the Company, and (iii) Common Stock Purchase Warrants to purchase up to an aggregate of 972,293 shares of Common Stock, par value $.001 per share, of the Company; WHEREAS, the Company requested that the Purchasers amend certain provisions of the Purchase Agreement and that the Purchasers waive the Company's obligation to comply with certain financial covenants set forth in the Purchase Agreement; and WHEREAS, the Purchasers are willing to amend and waive certain provisions of the Purchase Agreement, on the terms and conditions more fully set forth in this Amendment. NOW THEREFORE, in consideration of the premises and the agreements herein contained, and intending to be bound hereby, the parties hereby agree as follows: 1. Amendment of Purchase Agreement. ------------------------------- 1.01. Section 1.01 of the Purchase Agreement shall be amended by amending the definitions of "Change of Control", "Qualified IPO" and "Senior Debt" to read in their entirety as follows: "Change of Control" means any of the following: (i) any person other than Kyle D. Parker or a Person controlled by Kyle D. Parker at any time becomes the beneficial owner, directly or indirectly and whether as a result of issuances, redemptions or repurchases by the Company of Common Stock or transfers of Common Stock by stockholders of the Company, of Common Stock representing 50% or more of the combined voting power with respect to the election of directors of the Company represented by all then outstanding Common Stock of the Company; -2- (ii) the Company consolidates with, or merges with or into, another person, sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets directly or indirectly to any Person, or any person consolidates with, or merges with or into, the Company, in any such event pursuant to a transaction in which the outstanding Common Stock of the Company is converted into or exchanged for cash, securities, equity interests or other property and immediately after such transaction the persons who were the beneficial owners of the outstanding Common Stock of the Company immediately prior to such transaction are not the beneficial owners, directly or indirectly, of more than 50% of the combined voting power represented by all then outstanding common stock of the surviving or transferee Person; or (iii) the Company or any of its Subsidiaries purchase, lease or otherwise acquire assets of any Person or Persons, in one or a series of related transactions, for consideration consisting in whole or in part of Common Stock, Convertible Securities or Rights and the number of shares of Common Stock issued by the Company (including all shares issuable or purchasable upon exercise of all such Convertible Securities and Rights) in such transaction is equal to 50% or more of the number of fully diluted shares of Common Stock outstanding immediately prior to such transaction (or the first of such transactions). "Qualified IPO" means a firm commitment underwritten public offering of shares of the Company's Common Stock in which (i) the aggregate proceeds to the Company in such underwritten public offering equals or exceeds $20,000,000, and (ii) the per share price of Common Stock offered for sale in such offering is at least $6.4444 (as adjusted for stock splits, dividends, recapitalizations and the like). "Senior Debt" means (i) all Indebtedness for Money Borrowed of the ----------- Company and any of its Subsidiaries from the Bank pursuant to the Loan Agreement or from other banks or institutional lenders, including any extensions or renewals thereof, whether outstanding on the date hereof or hereafter created or incurred, which is not by its terms subordinate and junior to the Notes at the time it is created or incurred, (ii) all Indebtedness for Money Borrowed of the Company and any of its Subsidiaries incurred to refinance any of the Indebtedness for Money Borrowed referred to in item (i) above, where the security securing such Indebtedness is substantially the same security as that securing the Indebtedness for Money Borrowed being refinanced, (iii) all obligations of the Company and any of its Subsidiaries under Capital Leases which are permitted by this Agreement at the time they are incurred and (iv) all guarantees by the Company and any of its Subsidiaries which are not by their terms subordinate and junior to the Notes and which are permitted hereby at the time they are made of Indebtedness of any Subsidiary if such Indebtedness would have been Senior Debt pursuant to the provisions of clause (i), (ii) or (iii) of this sentence had it been Indebtedness of the Company. 1.02. Section 2.01 of the Purchase Agreement is hereby amended so that all references to the year "2004" shall read "2003" and all references to "September 30, 2004" shall read -3- "November 30, 2003". 1.03. Section 2.06(a) of the Purchase Agreement is hereby amended to read in its entirety as follows: (a) Required Redemption. On the stated or accelerated maturity of ------------------- the Notes, the Company will pay the principal amount of the Notes then outstanding together with all accrued and unpaid interest then due thereon. Except as set forth in subsection 2.06(c), no optional redemption of less than all of the Notes shall affect the obligation of the Company to make the redemption required by this subsection. 1.04. Section 3.04 of the Purchase Agreement is hereby deleted in its entirety. 1.05. Section 3.05 of the Purchase Agreement is hereby amended to read in its entirety as follows: 3.05. Termination Upon Liquidity IPO. The Purchasers' right to ------------------------------ purchase new Mezzanine Securities set forth in Section 3.03 shall terminate immediately prior to the closing of a Liquidity IPO. 1.06. Section 7.01 of the Purchase Agreement is hereby amended to read in its entirety as follows: 7.01. Affirmative Covenants of the Company Other Than Reporting --------------------------------------------------------- Requirements. Without limiting any other covenants and provisions ------------ hereof, the Company covenants and agrees that, as long as any of the Notes are outstanding and, thereafter, only in the case of Section 7.01(f), as long as at least fifty percent (50%) of the Preferred Shares are outstanding, it will perform and observe the following covenants and provisions and will cause each Subsidiary to perform and observe such of the following covenants and provisions as are applicable to such Subsidiary: (a) Punctual Payment. Pay the principal of, premium, if any, ---------------- and interest on each of the Notes at the times and place and in the manner provided in the Notes and herein. (b) Payment of Taxes and Trade Debt. Pay and discharge, and ------------------------------- cause each Subsidiary to pay and discharge, all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or business, or upon any properties belonging to it, prior to the date on which penalties attach thereto, and all lawful claims which, if unpaid, might become a lien or charge upon any properties of the Company or any Subsidiary, provided that neither the Company nor any Subsidiary shall be required to pay any such tax, assessment, charge, levy or claim which is being contested in good faith and by appropriate proceedings if the Company or the Subsidiary concerned shall have set aside on its books adequate reserves with respect thereto. Pay and cause each Subsidiary to pay, when due, or in conformity with customary trade terms, all lease obligations, all trade debt, and all other Indebtedness incident to the operations of the Company or the Subsidiaries, except such as are being contested in good faith and by appropriate -4- proceedings if the Company or the Subsidiary concerned shall have set aside on its books adequate reserves with respect thereto. (c) Maintenance of Insurance. Maintain, and cause each ------------------------ Subsidiary to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Company or such Subsidiary operates, and in any event in amounts sufficient to prevent the Company or such Subsidiary from becoming a co-insurer. (d) Preservation of Corporate Existence. Preserve and maintain, ----------------------------------- and cause each Subsidiary to preserve and maintain, its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified, and cause each Subsidiary to qualify and remain qualified, as a foreign corporation in each jurisdiction in which such qualification is necessary or desirable in view of its business and operations or the ownership of its properties, except where the failure to remain so qualified would not, either individually or in the aggregate, have a Material Adverse Effect; provided, however, that nothing herein contained shall prevent any merger, consolidation or transfer of assets permitted by subsection 7.02(e). Preserve and maintain, and cause each Subsidiary to preserve and maintain, all licenses and other rights to use patents, processes, licenses, trademarks, trade names, inventions, intellectual property rights or copyrights owned or possessed by it and necessary to the conduct of its business. (e) Compliance with Laws. Comply, and cause each Subsidiary to -------------------- comply, with all applicable laws, rules, regulations and orders of any governmental authority, the noncompliance with which could have a Material Adverse Effect. (f) Inspection Rights. At any reasonable time and from time to ----------------- time and upon prior written notice, permit the Purchasers or any of their agents or representatives to examine and make copies of and extracts from the records and books of account of, and visit and inspect the properties of, the Company and any Subsidiary, and to discuss the affairs, finances and accounts of the Company and any Subsidiary with any of their officers or directors and independent accountants. If an Event of Default then exists, all reasonable out-of-pocket expenses of the Purchasers (or their agents or representatives), the Company or any Subsidiary incurred in connection with such inspection rights shall be borne by the Company. (g) Keeping of Records and Books of Account. Keep, and cause --------------------------------------- each Subsidiary to keep, adequate records and books of account, in which complete entries will be made in accordance with GAAP, reflecting all financial transactions of the Company and each Subsidiary, and in which, for each fiscal year, all proper reserves for depreciation, depletion, obsolescence, amortization, taxes, bad debts and other purposes in connection with its business shall be made. (h) Maintenance of Properties, Etc. Maintain and preserve, and ------------------------------ cause each Subsidiary to maintain and preserve, all of its properties, necessary or useful in the proper conduct of its business, in good repair, working order and condition, ordinary wear -5- and tear excepted. (i) Compliance with ERISA. Comply, and cause each Subsidiary to --------------------- comply, with all minimum funding requirements applicable to any pension or other employee benefit or employee contribution plans which are subject to ERISA or to the Code, and comply, and cause each Subsidiary to comply, in all other material respects with the provisions of ERISA and the Code, and the rules and regulations thereunder, which are applicable to any such plan. Neither the Company nor any Subsidiary will permit any event or condition to exist which could permit any such plan to be terminated under circumstances which would cause the lien provided for in Section 4068 of ERISA to attach to the assets of the Company or any Subsidiary. (j) Attendance at Board Meetings. At any time at which a nominee ---------------------------- of the Purchasers is not a member of the Board or any committee of the Board as provided in this Agreement and the Amended and Restated Stockholders Agreement dated as of May ___, 1999 (as the same may be amended, modified or supplemented from time to time, the "Amended and Restated Stockholders Agreement") among the Company, the Purchasers and the other parties thereto, permit the Purchasers or their designee to have one observer attend each meeting of the Board and any committee thereof. The Company will send to the Purchasers and their designee the notice of the time and place of any such meeting in the same manner and at the same time as notice is sent to the directors or committee members, as the case may be; provided, however, that the Purchasers and their designee shall always received at least ten (10) days prior notice of any meeting which is not an emergency meeting and at least three (3) Business Days' notice of any emergency meeting. The Company shall also provide to the Purchasers copies of all notices, reports, minutes, consents and other documents at the time and in the manner as they are provided to the Board or committees. The Company shall reimburse the Purchasers for all reasonable costs incurred by the Purchasers or their designee in connection with traveling to and from and attending meetings of the Board and committees. Any observer who attends any meetings of the Board or committees thereof, as a condition to his or her right to attend such meetings, shall execute and comply with an agreement with the Company containing such restrictions on the use or disclosure of confidential information and similar matters as the Company may reasonably request. (k) Payment of Senior Debt by the Purchasers. In the event that ---------------------------------------- any default occurs in the payment of the principal of or any interest on any Senior Debt and such default shall continue for a period of thirty (30) days (or such shorter period as is necessary in order to permit the Purchasers to act pursuant to this subsection prior to any acceleration of such Senior Debt) without waiver or forbearance by the lender of such Senior Debt, permit the Purchasers, on behalf of the Company, to cure such default, to prepay in full any such Senior Debt or to purchase such Senior Debt, upon terms and conditions set forth in the Subordination Agreement. (l) Minimum Annual Revenue. The consolidated revenues of the ---------------------- Company and its Subsidiaries shall not be less than the amounts set forth below as of the end of each fiscal period set forth below: -6- Period Minimum Annual Revenue ------ ---------------------- January 1, 1999 to December 31, 1999 $ 7,500,000 January 1, 2000 to December 31, 2000 $15,000,000 January 1, 2001 to December 31, 2001 $25,000,000 1.07. Section 7.02 of the Purchase Agreement is hereby amended to read in its entirety as follows: 7.02. Negative Covenants of the Company. Without limiting any other covenants and agrees that, until repayment in full of the aggregate outstanding principal balance of the Notes together with all interest and premium, if any, due thereon, it will comply with and observe the following covenants and provisions, and will cause each Subsidiary to comply with and observe such of the following covenants and provisions as are applicable to such Subsidiary, and will not: (a) Liens. Create, incur, assume or suffer to exist, or ----- permit any Subsidiary to create, incur, assume or suffer to exist, any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance (including the lien or retained security title of a conditional vendor) of any nature, upon or with respect to any of its properties, now owned or hereafter acquired, or assign or otherwise convey any right to receive income, except that the foregoing restrictions shall not apply to mortgages, deeds of trust, pledges, liens, security interests or other charges or encumbrances (collectively, "Permitted Liens"): (i) for taxes, assessments or governmental charges or levies on property of the Company or any Subsidiary if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings; (ii) imposed by law, such as carriers', warehousemen's and mechanics' liens and other similar liens arising in the ordinary course of business; (iii) arising out of pledges or deposits under workmen's compensation laws, unemployment insurance, old age pensions, or other social security or retirement benefits, or similar legislation; (iv) securing the performance of bids, tenders, contracts (other than for the repayment of borrowed money), statutory obligations and surety bonds; (v) in the nature of zoning restrictions, easements and rights or restrictions of record on the use of real property which do not materially detract from its value or impair its use; (vi) arising by operation of law in favor of the owner or sublessor of leased premises and confined to the property rented; -7- (vii) arising from any litigation or proceeding which is being contested in good faith by appropriate proceedings, provided, however, that no execution or levy has been made; (viii) described on Exhibit 6.07 which secure the Indebtedness ------------ set forth on Exhibit 6.08B, provided that no such lien is extended to ------------- cover other or different property of the Company or any Subsidiary; and (ix) liens on the accounts receivable of the Company which secure Indebtedness permitted by Section 7.02(b). (b) Indebtedness. Without the prior written consent of the ------------ Purchasers, create, incur, assume or suffer to exist, or permit any Subsidiary to create, incur, assume or suffer to exist, any liability with respect to Indebtedness except for (1) up to $12,500,000 in the aggregate (exclusive of interest, fees, expenses, costs, protective advances and other amounts which may be added to principal under any applicable loan agreement) in Senior Debt, (2) current liabilities, other than for Indebtedness for Money Borrowed, which are incurred in the ordinary course of business, (3) purchase money security interests securing the purchase of equipment to be used in connection with the business of the Company and its Subsidiaries, and (4) the Notes. (c) Lease Obligations. Become obligated to pay rent under ----------------- any leases or other rental arrangements (other than Capital Leases) under which the amount of the aggregate lease or other payments under all such agreements or arrangements exceeds $150,000 on a consolidated basis for any twelve-month period. (d) Assumptions or Guaranties of Indebtedness of Other -------------------------------------------------- Persons. Assume, guarantee, endorse or otherwise become directly or ------- contingently liable on, or permit any Subsidiary to assume, guarantee, endorse or otherwise become directly or contingently liable on (including, without limitation, liability by way of agreement, contingent or otherwise, to purchase, to provide funds for payment, to supply funds to or otherwise invest in the debtor or otherwise to assure the creditor against loss) any Indebtedness of any other Person, except for guarantees by endorsement of negotiable instruments for deposit or collection in the ordinary course of business and except by the Company with respect to any Indebtedness of any Subsidiary which is permitted by this Agreement. (e) Mergers, Sale of Assets, Etc. Without the prior written ---------------------------- consent of the Purchasers (i) merge or consolidate with any other Person, or sell, assign, lease or otherwise dispose of or voluntarily part with the control of (whether in one transaction or in a series of transactions) all, or substantially all, of its assets (whether now owned or hereinafter acquired), or dissolve, liquidate or wind-up its business or affairs or otherwise terminate or permit the termination of its legal existence, except that any wholly-owned Subsidiary may merge into or consolidate with or transfer assets to the Company or any wholly-owned Subsidiary, or (ii) sell, transfer, convey, mortgage, pledge or otherwise dispose of or encumber any of their respective properties (including any property -8- consisting of an equity interest or other investment or interest in any Subsidiary), except for (A) sales of property in the ordinary course of business, consistent with past practices, in arm's length transactions with non-Affiliates, (B) encumbrances of assets on customary terms and consistent with past practices to secure Indebtedness permitted by paragraph (b) of this Section 7.02, and (C) the sale of property not permitted by subclause (A) or (B) of this clause if such sale is to a non- Affiliate of the Company, is at a price not less than fair market value and the aggregate sale price for such sale and all other sales (whether or nor related) during any single fiscal year made in reliance on this subclause (C) does not exceed $1,000,000, provided that at least 50% of the net proceeds from any such dispositions in excess of $250,000 during any single fiscal year are applied to reduce outstanding Indebtedness. (f) Investments in Other Persons. Without the prior written ---------------------------- consent of the Purchasers, make or permit any Subsidiary to make, any loan or advance to any Person, or purchase, otherwise acquire, or permit any Subsidiary to purchase or otherwise acquire, any capital stock, assets or other property of, obligations of, or any interest in, any Person, except: (i) investments by the Company or a Subsidiary in evidences of indebtedness issued or fully guaranteed by the United States of America and having a maturity of not more than one year from the date of acquisition; (ii) investments by the Company or a Subsidiary in certificates of deposit, notes, acceptances and repurchase agreements having a maturity of not more than one year from the date of acquisition issued by a bank organized in the United States having capital, surplus and undivided profits of at least $100,000,000 and whose parent holding company has long-term debt rated Aa1 or higher, and whose commercial paper (if rated) is rated Prime 1 by Moody's Investors Service, Inc.; (iii) loans or advances from a Subsidiary to the Company or from the Company to a Subsidiary; (iv) investments by the Company or a Subsidiary in the highest- rated commercial paper having a maturity of not more than one year from the date of acquisition; (v) advances to employees for travel or relocation in accordance with the ordinary course of business; and (vi) acquisitions or assets, capital stock or other property which individually and in the aggregate are not material to the Company or such Subsidiary (assets, capital stock and other property with a fair market value of less than $250,000 acquired in any one- year period in the aggregate shall not be deemed "material"); provided, however, that each such acquisition can be made in compliance with the other terms of this Agreement, including, without limitation, Section 7.02(l). -9- (g) Distributions. Without the prior written consent of the ------------- Purchasers, declare or pay any dividends, purchase, redeem, retire, or otherwise acquire for value any of its capital stock (or rights, options or warrants to purchase such shares) now or hereafter outstanding, return any capital to its stockholders as such, or make any distribution of assets to its stockholders as such, or permit any Subsidiary to do any of the foregoing (such transactions being hereinafter referred to as "Distributions"); provided, however, that nothing herein contained shall prevent: (i) the Company from effecting a stock split or declaring or paying any dividend consisting of shares of any class of Common Stock to the holders of shares of such class of Common Stock, provided that such stock split or dividend is effected equally across all classes of Common Stock, or (ii) any Subsidiary from declaring or making payment of cash and stock dividends, returns of capital or distributions of assets to the Company; if in the case of any such transaction the Distribution can be made in compliance with the other terms of this Agreement. (h) Dealings with Affiliates. Without the prior written consent ------------------------ of the Purchasers, enter or permit any Subsidiary to enter into any transaction with any holder of any class of capital stock of the Company, or any member of their families or any corporation or other entity in which any one or more of such stockholders or members of their immediate families directly or indirectly holds any class of capital stock; provided, however, that this Section 7.02(h) shall not apply to any transaction which is governed by Section 7.02(m) or to the sale of goods or services in the ordinary course of business. (i) Maintenance of Ownership of Subsidiaries. Sell or other- ---------------------------------------- wise dispose of any shares of capital stock of any Subsidiary, except to the Company or another Subsidiary, or permit any Subsidiary to issue, sell or otherwise dispose of any shares of its capital stock or the capital stock of any Subsidiary, except to the Company or another Subsidiary, provided, however, that nothing herein contained shall prevent any merger, consolidation or transfer of assets permitted by subsection 7.02(e). (j) Change in Nature of Business. Without the prior written ---------------------------- consent of the Purchasers, make, or permit any Subsidiary to make, any change in the nature of its business as carried on at the date hereof. (k) No Amendment or Waiver of Charter Documents . Amend, ------------------------------------------- alter, repeal or terminate its Articles of Incorporation (or comparable charter documents) without the prior written consent of the Purchasers. (l) Capital Expenditures. Make, or permit any Subsidiary to -------------------- make or incur, Capital Expenditures in an aggregate amount in excess of $5,000,000 in fiscal year 1999, and $1,650,000 in any fiscal year thereafter. -10- (m) Compensation. Pay, directly or indirectly, as salary, ------------ bonuses, fringe benefits, expenses, stock option grants, drawing accounts or otherwise any compensation to any executive officer (or any relative of any executive officer) of the Company or any Subsidiary not approved by the Compensation Committee of the Board other than such compensation arrangements as are in place as of the Initial Closing Date. (n) Preferred Stock. Without the prior written consent of the --------------- Purchasers, issue any shares of, or rights to acquire any shares of, Preferred Stock as authorized in the Company's Articles of Incorporation as amended and in effect on May 21, 1999 (except the 931,044 shares of Series A Preferred Stock and the 439,589 shares of Series B Preferred Stock and the 2,581,756 shares of Series C Preferred Stock authorized for issuance as of that date). 1.08. Section 7.03(e) and (f), respectively, are hereby amended to read in their entirety as follows: (e) at the time of delivery of each monthly and annual statement, a certificate, executed by the chief financial officer of the Company, stating that such officer has caused this Agreement, the Notes, and the Warrants to be reviewed and has no knowledge of any default by the Company or any Subsidiary in the performance or observance of any of the provisions of this Agreement, the Notes or the Warrants or, if such officer has such knowledge, specifying such default and the nature thereof, and setting forth computations in reasonable detail demonstrating compliance with the provisions of subsections 7.01(l) and subsections 7.02(b) and (d); (f) at the time of delivery of each annual statement, a certificate executed by the Company's independent public accountants, setting forth computations in reasonable detail demonstrating compliance with the provisions of subsections 7.01(l) and subsections 7.02(b) and (d); 1.09. Section 8.01 is hereby amended to read in its entirety as follows: Events of Default. If any of the following events ("Events of ----------------- Default") shall occur and be continuing: (a) The Company shall fail to pay any installment of principal of any of the Notes when due; or (b) The Company shall fail to pay any interest or premium, if any, on any of the Notes when due; or (c) The Company shall default in the performance of any covenant contained in subsections 7.01(l) or shall default in the performance of any covenant contained in Section 7.02 for ten (10) consecutive Business days; or -11- (d) Any representation or warranty made by the Company in this Agreement or by the Company (or any of its officers) in any certificate, instrument or written statement made or delivered pursuant to or in connection with this Agreement, shall prove to have been incorrect when made in any material respect; or (e) The Company or any Subsidiary shall fail to perform or observe any other term, covenant or agreement contained in this Agreement, the Notes or the Warrants on its part to be performed or observed and any such failure remains unremedied for fifteen (15) Business Days after written notice thereof shall have been given to the Company by any registered holder of the Notes; or (f) The Company or any Subsidiary shall fail to pay any Indebtedness for Money Borrowed exceeding $100,000 owing by the Company or such Subsidiary (as the case may be), or any interest or premium thereon, when due (or, if permitted by the terms of the relevant document, within any applicable grace period), whether such Indebtedness for Money Borrowed shall become due by scheduled maturity, by required prepayment, by acceleration, by demand or otherwise, or shall fail to perform any term, covenant or agreement on its part to be performed under any agreement or instrument evidencing or securing or relating to any such Indebtedness for Money Borrowed owing by the Company or any Subsidiary, as the case may be, when required to be performed (or, if permitted by the terms of the relevant document, within any applicable grace period), if the effect of such failure to pay or perform is to accelerate, or to permit the holder or holders of such Indebtedness for Money Borrowed, or the trustee or trustees under any such agreement or instrument to accelerate the maturity of such Indebtedness for Money Borrowed, unless such failure to pay or perform shall be waived by the holder or holders of such Indebtedness for Money Borrowed or such trustee or trustees; or (g) The Company or any Significant Subsidiary (as such term is defined in Section 5.1 of Part A of Article Fourth of the Company's Articles of Incorporation, as amended and in effect on May 21, 1999) shall (i) admit in writing its inability to pay its debts generally as they become due; (ii) commence a voluntary case under Title 11 of the United States Code as from time to time in effect, or authorize, by appropriate proceedings of its board of directors or other governing body, the commencement of such a voluntary case; (iii) file an answer or other pleading admitting or failing to deny the material allegations of a petition filed against it commencing an involuntary case under said Title 11, or seeking, consenting to or acquiescing in the relief therein provided, or by its failing to controvert timely the material allegations of any such petition; (iv) be the subject of the entry of an order for relief in any involuntary case commenced under said Title 11; (v) seek relief as a debtor under any applicable law, other than said Title 11, of any jurisdiction relating to the liquidation or reorganization of debtors or to the modification or alteration of the rights of creditors, or by its consenting to or acquiescing in such relief; (vi) be the subject of the entry of an order by a court of competent jurisdiction (a) finding it to be bankrupt or insolvent, (b) ordering or approving its liquidation, reorganization or any modification or alteration of the rights of its creditors, or (c) assuming custody of, or appointing a receiver or other custodian for, all or a substantial part of its property; or (vii) make an assignment for the benefit of, or enter into a composition with, its creditors, or appoint or consent to the appointment of a receiver or -12- other custodian for all or a substantial part of its property; or (h) A Change in Control occurs, which Change in Control is not consented to specifically with reference to this Section 8.01(h) by the Purchasers; or (i) Any judgment, writ, warrant of attachment or execution or similar process shall be issued or levied against a substantial part of the property of the Company or any Subsidiary and such judgment, writ, or similar process shall not be released, vacated or fully bonded within sixty (60) days after its issue or levy; then, and in any such event, (1) the Purchasers may, by notice to the Company, declare the entire unpaid principal amount of the Notes, all interest accrued and unpaid thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Notes, all such accrued interest and all such amounts shall become and be forthwith due and payable (unless there shall have occurred an Event of Default under subsection 8.01(g) in which case all such amounts shall automatically become due and payable), without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Company, and (2) the Purchasers may proceed to protect and enforce their rights by suit in equity (including without limitation a suit for rescission), action at law and/or other appropriate proceeding either for specific performance of any covenant, provision or condition contained or incorporated by reference in this Agreement or any term of the Articles of Incorporation of the Company, or in aid of the exercise of any power granted in this Agreement or in the Articles of Incorporation of the Company. 1.10. Section 9.24 is hereby amended to read in its entirety as follows: Confidentiality. The Company's obligations under Sections 7.01(f) --------------- and 7.03 shall at all times be contingent upon the Purchasers' agreement, and the Purchasers hereby agrees, to take all reasonable precautions to safeguard the confidentiality of the information received by or disclosed to the Purchasers by the Company in the fulfillment of the Company's obligations under such Sections and to refrain from disclosure of such information to anyone other than a person who will assist the Purchasers in evaluating the Company or to the Purchasers' accountants, attorneys and other professional advisors and, in the case of Section 7.03, to its equity investors (but only to the extent reasonably necessary to meet the Purchasers' reporting obligations). 1. Modification to Terms of Notes. ------------------------------ 2.01. Modification of Notes. The parties hereto agree that, subject to --------------------- the terms of the Purchase Agreement, the scheduled maturity date of the Notes be changed from September 30, 2004 to November 30, 2003, and that, in accordance with Section 1.02 of this Amendment, the -13- Purchase Agreement shall be deemed to be amended to reflect such new maturity date. 2.02. Cancellation of Notes. Upon execution and delivery of this Amendment, --------------------- in order to properly reflect the new maturity date of the Notes as contemplated by Section 2.01 hereof, the Purchasers shall each surrender the Notes in exchange for new Notes (the "New Notes"), dated March 31, 1999 (the last day through which interest thereon has been accounted for). The New Notes issued in exchange for the Notes shall be substantially in the form set forth as Exhibit A --------- attached hereto and shall be in the aggregate principal amounts set forth opposite the Purchasers' respective names on Schedule I attached hereto. The ---------- parties hereto further agree that any reference to the term Notes in the Purchase Agreement shall include the New Notes issued in exchange for the Notes pursuant to this Section 2.02. 3. Waiver. The Company has indicated to the Purchasers that the Company is ------ not in compliance with the financial covenants set forth in Sections 7.01(m) through 7.01(q) of the Purchase Agreement (as in effect prior to the amendments set forth in this Amendment). Based on the representations and warranties set forth herein, and subject to the terms and conditions of this Amendment, the Purchasers hereby waive any and all Events of Default resulting from the Company's failure to comply with the financial covenants set forth in Sections 7.01(m) through 7.01(q) of the Purchase Agreement (as in effect prior to the amendments set forth in this Amendment) up to and through the date of this Amendment. The foregoing waiver shall apply only to those specific Sections of the Purchase Agreement referenced above (as in effect prior to the amendments set forth in this Amendment). Except as set forth herein, nothing herein shall be deemed to constitute an amendment, modification or waiver of any other covenant set forth in the Purchase Agreement or any breach, default or Event of Default under the Purchase Agreement (as amended hereby) that may arise after the date hereof. 4. Miscellaneous. ------------- 4.01. Effect. The Assignment Agreement shall remain in full force and ------ effect, and the Purchase Agreement (as amended hereby) shall remain in full force and effect. 4.02. No Waiver. This Amendment is effective only in the specific instance --------- and for the specific purpose for which it is executed and shall not be considered a waiver or agreement to amend as to any provision of the Purchase Agreement (as amended) in the future. 4.03. Defined Terms. All capitalized terms used but not specifically ------------- defined herein shall have the same meanings given such terms in the Purchase Agreement unless the context clearly indicates or dictates a contrary meaning. 4.04. Notices. All notices, requests, demands and other communications ------- provided for in this Amendment shall be delivered in compliance with Section 9.03 of the Purchase Agreement. 4.05. Costs, Expenses, Taxes. The Company agrees to pay on demand all ---------------------- costs and expenses of the Purchasers in connection with the preparation, execution and delivery of this Amendment and other instruments and documents to be delivered hereunder, including the reasonable fees and out-of-pocket expenses of Messrs. Testa, Hurwitz & Thibeault, special counsel for the Purchasers. -14- 4.06. Governing Law. This Amendment shall be governed by, and construed ------------- and enforced in accordance with, the internal laws of The Commonwealth of Massachusetts. 4.07. Seal. This Amendment is executed as an instrument under seal. ---- 4.08. Counterparts. This Amendment may be executed in any number of ------------ counterparts, all of which taken together shall constitute one and the same instrument, and each of the parties hereto may execute this Amendment by signing any of such counterparts. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] -15- IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 5 or have caused it to be executed by their respective officers thereunto duly authorized, as of the date first above written. LAW OFFICE INFORMATION SYSTEMS, INC. By: /s/ Kyle D. Parker ---------------------------------------- Name: Kyle D. Parker Title: President CAPITAL RESOURCE LENDERS III, L.P. By: Capital Resource Partners III, L.L.C. Its General Partner By: /s/ Robert C. Ammerman ---------------------------------------- CRP INVESTMENT PARTNERS III, LLC By: /s/ Robert C. Ammerman ---------------------------------------- /s/ Rowland Moriarty ------------------------------------------- Rowland Moriarty -16- SCHEDULE I ---------- PRINCIPAL AMOUNTS OF NOTES REFLECTING NEW MATURITY DATE ---------------------------- Name Principal Amount - ---- ---------------- Capital Resource Lenders III, L.P. $9,824,050 CRP Investment Partners, L.L.C. $ 11,539 Rowland Moriarty $ 153,844 ---------- TOTAL: $9,989,433 ========== EX-10.19 21 INTERNET SERVICES GENERAL AGREEMENTS EXHIBIT 10.19 AT&T INTERNET SERVICES GENERAL AGREEMENT - -------------------------------------------------------------------------------- Customer Name ("Customer") AT&T Internet Services Contract Management Lois, Inc. - -------------------------------------------------------------------------------- Address Address 105 north 28th 55 Corporate Drive, Room - 32B15 van buren, ar 72956 Bridgewater, NJ 08807 - -------------------------------------------------------------------------------- This Agreement consists of this Cover Sheet, the attached General Terms and Conditions and all Service Attachments ("Attachments") indicated below (collectively, this "Agreement"). In the event of conflict between the General Terms and Conditions and any Attachment, the Attachment shall take precedence. This Agreement shall become effective when signed by both parties and shall continue in effect for as long as any Attachment remains in effect, unless earlier terminated in accordance with the provisions of the Agreement. The term of each Attachment is stated in the Attachment. CAPTION> ================================================================================================================================== SERVICE(S) ORDERED ================================================================================================================================== [_] AT&T WorldNet(R) Managed Internet Service All of the following services must be accompanied with an AT&T Web [_] AT&T WorldNet(R) Managed Internet Service - Burstable Site Services Attachment Service [_] AT&T Easy World Wide Web(R) Service ("EW3") [_] AT&T WorldNet(R) Enhanced Fax Service [_] AT&T Easy World Wide Web(R) Service ("EW3" Basic) [_] AT&T WorldNet(R) Asynchronous Service [_] AT&T Easy World Wide Web(R) Service ("EW3" Basic for Alternate [_] AT&T WorldNet(R) Virtual Private Network Service Channel) [_] AT&T WorldNet(R) Business Dial Service [_] AT&T Enhanced Web Development Package ("EWDP") [_] AT&T Dedicated Hosting Service - Level 1 [_] AT&T Dedicated Hosting Service - Level 2 [_] AT&T SecureBuy(SM) Service [_] AT&T interactiveAnswers(SM) Service [_] AT&T Web Site Service eCommerce Suite ==================================================================================================================================
- -------------------------------------------------------------------------------- CUSTOMER'S SIGNATURE BELOW ACKNOWLEDGES THAT CUSTOMER HAS READ AND UNDERSTANDS EACH OF THE TERMS AND CONDITIONS OF THIS AGREEMENT AND AGREES TO BE BOUND BY THEM. - -------------------------------------------------------------------------------- CUSTOMER: AT&T CORP. By: /s/ Kyle Parker By: /s/ Yolanda Wilson ------------------------------- ------------------------------------ (Authorized Signature) (Authorized Signature) Kyle Parker Yolanda Wilson - ----------------------------------- ---------------------------------------- (Typed or Printed Name) (Typed or Printed Name) C.E.O. Contract Manager - ----------------------------------- ---------------------------------------- (Title) (Title) 12-8-98 12/21/98 - ----------------------------------- ---------------------------------------- (Date) (Date) 501-471-5581 - ------------- (Telephone #) SALES TRACKING INFORMATION
- ------------------------------------------------------------------------------------------------------ AT&T SALES REPRESENTATIVE INFORMATION AT&T AUTHORIZED AGENT INFORMATION ====================================================================================================== BRANCH MANAGER: Joe Houawcak NAME: - ------------------------------------------------------------------------------------------------------ NAME: Joice Vinsant COMPANY NAME: - ------------------------------------------------------------------------------------------------------ PHONE NUMBER: 501-474-6520 PHONE NUMBER: - ------------------------------------------------------------------------------------------------------ E-MAIL: Jvinsant@ATT.com E-MAIL: - ------------------------------------------------------------------------------------------------------ ADDRESS: 7600 I 30 ADDRESS: Little Rock, AR 72209 - ------------------------------------------------------------------------------------------------------ SALES STRATA: Commercial AGENT CODE: - ------------------------------------------------------------------------------------------------------ SALES REGION: Southern - -------------------------------------------------
AT&T INTERNET SERVICES GENERAL AGREEMENT The following terms and conditions shall apply to the provisions and use of the products and services (individually a "Service") provided pursuant to the Attachments. 1.0 DEFINITIONS 1.1 "Affiliate" of a party means any entity that controls, is controlled by or is under common control with such party, and, in the case of AT&T, also means any entity which AT&T has authorized under contract to offer any Service or part of any Service. 1.2 "Content" means information made available, displayed or transmitted in connection with a Service (including, without limitation, information made available by means of an HTML, "hot link", a third party posting or similar means) including all trademarks, service marks and domain names contained therein as well as the contents of any bulletin boards or chat forums and, all updates, upgrades, modifications and other versions of any of the foregoing. 1.3 "User" means anyone whom CUSTOMER, allows, by action or omission, to use or access any Service including, without limitation, CUSTOMER'S Affiliates. 2.0 CHARGES AND BILLING 2.1 CUSTOMER shall pay AT&T for its and Users' use of the Services at the rates and charges specified in the Attachments, without deductions, setoff or delay for any reason, including circumstances arising under any other Attachment. Charges set forth in the Attachments are exclusive of any applicable taxes. CUSTOMER may be required to pay a deposit before Services are provided or as specified in Section 10.1. 2.2 CUSTOMER shall pay all shipping charges, taxes (excluding those on AT&T's net income (and other similar charges (and any related interest and penalties) relating to the sale, transfer of ownership, installation, license, use or provision of the Services, except to the extent a valid tax exemption certificates is provided by CUSTOMER to AT&T prior to the delivery of Services. 2.3 Payment is due within 30 days after the date of invoice and shall refer to the invoice number. Restrictive endorsements or other statements on checks accepted by AT&T will not apply. CUSTOMER shall reimburse AT&T for all costs (including reasonable attorney fees) associated with collecting delinquent or dishonored payments. At AT&T's option, interest charges may be added to any past due amounts at the lower of 1.5% per month or the maximum rate allowed by law. 3.0 RESPONSIBILITIES OF THE PARTIES 3.1 AT&T shall provide Services to CUSTOMER in accordance with the terms and conditions and at the charges specified in this Agreement. 3.2 CUSTOMER represents and warrants that its and User's use of the Services and the Content will at all times comply with all applicable laws, regulations and written and electronic instructions for use. CUSTOMER shall promptly resolve all claims by anyone that CUSTOMER'S or Users' use or Content violate any laws or regulations. AT&T reserves the right to terminate affected Attachments, suspend affected Services and/or remove CUSTOMER or Users' Content from the Services if AT&T (i) determines, in its sole discretion, that AT&T's public image, reputation or goodwill will be adversely affected or that such use or Content does not conform with the requirements set forth in this Agreement, or that AT&T could be subject to liability; or (ii) receives notice from anyone that CUSTOMER's or Users' use or Content may violate any laws or regulations. AT&T's actions or inaction under this Section shall not constitute review or approval of CUSTOMER's or Users' use or Content. 3.3 AT&T grants to CUSTOMER the right to permit Users to access and use the Services, provided that CUSTOMER shall remain solely responsible for such access and use and shall defend, indemnify and hold harmless AT&T from and against all Damages (including, without limitation, reasonable attorney fees), whether or not arising out of third-party claims and regardless of the form of action, whether in contract, tort, strict liability or otherwise, concerning or relating to: any noncompliance by CUSTOMER or Users with any provision of this Agreement; negligent acts or omissions by CUSTOMER or Users; CUSTOMER's or Users' Content or use of the Services (including, without limitation, infringement of any personal or property rights); and claims by any User or business affiliate of Customer relating to any Service failure, defect or outage. 3.4 Except to the extent required by law or expressly permitted in an Attachment, CUSTOMER may not resell any Services. 4.0 USE OF INFORMATION 4.1 All documentation, technical information, Software, business information, proposals for new Services or other materials that are disclosed by either party to the other in the course of performing this Agreement shall be considered proprietary information ("INFORMATION") of the disclosing party, provided such information is in written or other tangible form that is clearly marked as "proprietary" or "confidential", or is disclosed orally and is both identified as proprietary or confidential at the time of disclosure and summarized in a writing so marked within 15 business days following the oral disclosure. This Agreement shall be deemed to be AT&T INFORMATION. 4.2 Each party's INFORMATION shall, for a period of 3 years following its disclosure (except in the case of Software, for an indefinite period): (i) be held in confidence; (ii) be used only for purposes of performing this Agreement and using the Services; and, (iii) not be disclosed except to the receiving party's employees, agents and contractors having a need-to-know (provided that such agents and contractors are not direct AT&T competitors and agree in writing to use and disclosure restrictions as restrictive as this Article 4) or to the extent required by law. 4.3 The restrictions in Section 4.2 shall not apply to any information that: (i) is independently developed by the receiving party; or (ii) is lawfully received by the receiving party free of any obligation to keep it confidential; or (iii) becomes generally available to the public other than by breach of this Agreement. 4.4 CUSTOMER authorizes AT&T to: (i) monitor and record calls and transmissions using the Services and callas or transmissions to AT&T concerning the Services in order to detect fraud, check quality and operate, maintain and repair the Services; and (ii) disclose such information to the extent AT&T deems it is legally required. 5.0 PUBLICITY AND MARKS 5.1 No public statements or announcements relating to this Agreement shall be issued by either party without the prior written consent of the other party. 5.2 Each party agrees not to display or use, in advertising or otherwise, any of the other party's trade names, logos, trademarks, service marks or other indicia or origin (collectively, "Marks") without the other party's prior written consent, provided that such consent may be revoked at any time and consent to use AT&T's Marks can only be granted by the AT&T Vice President, Corporate Identity. 6.0 SOFTWARE 6.1 AT&T grants CUSTOMER a personal, non-transferable and non-exclusive license (without the right to sublicense) to use, in object code form, all software and associated written and electronic documentation and data furnished pursuant to the Attachments (collectively, the "Software"), solely in connection with the Services and solely in accordance with applicable written and electronic documentation. CUSTOMER will refrain from taking any steps to reverse assemble, reverse compile or otherwise derive a source code version of the Software. The Software shall at all times remain the sole and exclusive property of AT&T or its suppliers. "Third-Party Software" means Software that bears a copyright notice of a third party. "AT&T Software" means all Software other than Third- Party Software." 6.2 CUSTOMER shall not copy or download the Software, except to the extent expressly provided otherwise in the applicable documentation for the Service or in a writing signed by AT&T. Any copy must contain the same copyright notices and proprietary markings as the original Software. 6.3 CUSTOMER shall ensure that its employees and Users comply with the terms and conditions of this Article 6. 6.4 The term of the license granted hereunder shall be coterminous with the Attachment which covers the Software. 6.5 CUSTOMER agrees to comply with any additional restrictions that are provided with any Third-Party Software. 6.6 AT&T warrants that all AT&T Software will perform substantially in accordance with its applicable published specifications during a warranty period of ninety (90) days beginning on the date of delivery of the AT&T Software to CUSTOMER. If CUSTOMER returns to AT&T, within the 90-day warranty period, any AT&T Software that does not comply with this warranty, then AT&T, at its option, will either repair or replace the portion of the AT&T Software that does not comply or refund the amount paid by CUSTOMER for such failed or defective AT&T Software. This warranty will apply only if the AT&T Software is used in accordance with the terms of this Agreement and is not altered, modified or tampered with by CUSTOMER or Users. 7.0 DISPUTE RESOLUTION 7.1 Except as described in Section 7.3, all disputes, controversies or claims, whether based in contract, tort, statute, fraud, misrepresentation or any other legal theory, arising out of or relating to this Agreement and the Services provided under this Agreement (collectively, "Disputes"), not resolved amicably between the parties shall be settled by final and binding arbitration conducted in New York or other mutually agreed location by one neutral arbitrator, in accordance with this Agreement and the then current Commercial Arbitration Rules of the American Arbitrator Association ("AAA"). The arbitrability of Disputes shall also be determined by the arbitrator. Each party shall bear its own expenses and the parties shall equally share the filing and other administrative fees of the AAA and the expenses of the arbitrator. Any award of the arbitrator shall be in writing and shall state the reasons for the award. Judgment upon an award may be entered in any Court having competent jurisdiction. The arbitrator shall not have the power to award any damages in excess of the liability limitations set forth in this Agreement, including any Attachment. The arbitrator shall not have the power to order pre-hearing discovery of documents or the taking of depositions, but may compel attendance of witnesses and the production of documents at the AT&T INTERNET SERVICES GENERAL AGREEMENT hearing. The Federal Arbitration Act, 9 U.S.C. Sections 1 to 14, shall govern the interpretation and enforcement of this Section 7.1. 7.2 The parties, their representatives and participants and the arbitrator shall hold the existence, content and result of the arbitration in confidence, except to the limited extent necessary to enforce a final settlement agreement or to obtain or enforce a judgment on an arbitration decision and award. 7.3 Disputes relating to: (i) matters that are subject to the primary jurisdiction of the FCC, a state public utility commission or other administrative agency, or (ii) non-compliance with Articles 4, 5 or 6 of this Agreement, a violation of which would cause irreparable harm for which damages would be inadequate; or (iii) billing or payment of charges under an Attachment; or (iv) Software, technology or other intellectual property; shall be exempt from the binding arbitration requirement described in Section 7.1. As to Disputes described in this Section 7.3, the claimant reserves the right to seek relief from an administrative agency having primary jurisdiction or a court of competent jurisdiction, as appropriate. 8.0 FORCE MAJEURE Neither AT&T nor Customer shall be liable for any delay, failure in performance, loss or damage due to: fire, explosion, power blackout, earthquake, flood, the elements, strike, embargo, labor disputes, acts of civil or military authority, war, acts of God, acts or omissions of carriers, or suppliers, acts of regulatory or governmental agencies, or other causes beyond such party's reasonable control, whether or not similar to the foregoing, except that CUSTOMERS's obligation to pay for charges incurred shall not be excused. 9.0 LIMITATIONS OF LIABILITY 9.1 For purposes of Section 3.3, and Articles 8 and 9 and all other exclusive remedies and limitations of liability set forth in this Agreement or any Attachment, "AT&T" shall be defined as AT&T, its Affiliates, and its and their employees, directors, officers, agents, representatives, subcontractors, interconnection service providers and suppliers; and "Damages" will refer collectively to all injury, damage, liability, loss, penalty, interest and expense incurred. 9.2 AT&T'S ENTIRE LIABILITY, AND CUSTOMER'S EXCLUSIVE REMEDIES AGAINST AT&T, FOR ANY DAMAGES CAUSED BY ANY SERVICE DEFECT OR FAILURE, OR FOR OTHER CLAIMS ARISING IN CONNECTION WITH ANY SERVICE OR THIS AGREEMENT SHALL BE: (i) FOR BODILY INJURY OR DEATH TO ANY PERSON NEGLIGENTLY CAUSED BY AT&T, CUSTOMER'S RIGHT TO PROVEN DIRECT DAMAGES; (ii) FOR DEFECTS OR FAILURES OF SOFTWARE, THE REMEDIES SET FORTH IN SECTION 6.6; (iii) FOR DAMAGES OTHER THAN THOSE SET FORTH ABOVE AND NOT EXCLUDED UNDER THIS AGREEMENT OR ANY ATTACHMENT, AT&T'S LIABILITY SHALL BE LIMITED TO PROVEN DIRECT DAMAGES NOT TO EXCEED PER CLAIM (OR IN THE AGGREGATE DURING ANY TWELVE-MONTH PERIOD) THE TOTAL NET PAYMENTS MADE BY CUSTOMER FOR THE APPLICABLE SERVICE UNDER THE APPLICABLE ATTACHMENT DURING THE 12 MONTHS PRECEDING THE MONTH IN WHICH THE DAMAGE OCCURRED. 9.3 IN NO EVENT SHALL AT&T BE LIABLE FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, PUNITIVE, RELIANCE OR SPECIAL DAMAGES, INCLUDING WITHOUT LIMITATION, DAMAGES FOR LOST PROFITS, ADVANTAGE, SAVINGS OR REVENUES OF ANY KIND OR INCREASED COST OF OPERATIONS, WHETHER OR NOT AT&T HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 9.4 AT&T ALSO SHALL NOT BE LIABLE FOR ANY DAMAGES ARISING OUT OF OR RELATING TO: SERVICE INTERRUPTIONS; LOST OR ALTERED MESSAGES OR TRANSMISSIONS; INTEROPERABILITY, INTERACTION OR INTERCONNECTION PROBLEMS WITH APPLICATIONS, EQUIPMENT SERVICES OR NETWORKS PROVIDED BY CUSTOMER OR THIRD PARTIES; OR, UNAUTHORIZED ACCESS TO OR THEFT, ALTERATION, LOSS OR DESTRUCTION OF CUSTOMER'S, USERS' OR THIRD PARTIES' APPLICATIONS, CONTENT, DATA, PROGRAMS, INFORMATION, NETWORK OR SYSTEMS. 9.5 EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, AT&T MAKES NO WARRANTIES, EXPRESS OR IMPLIED, AND SPECIFICALLY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE OR NON-INFRINGEMENT OR ANY WARRANTY ARISING BY USAGE OF TRADE, COURSE OF DEALING OR COURSE OF PERFORMANCE. AT&T DOES NOT WARRANT THAT THE SERVICES WILL BE UNINTERRUPTED OR ERROR-FREE, OR THAT THE SERVICES WILL MEET CUSTOMER'S REQUIREMENTS OR THAT THE SERVICES WILL PREVENT UNAUTHORIZED ACCESS BY THIRD PARTIES. AT&T DOES NOT AUTHORIZE ANYONE TO MAKE A WARRANTY OF ANY KIND ON ITS BEHALF AND CUSTOMER SHOULD NOT RELY ON ANYONE MAKING SUCH STATEMENTS. 9.6 THE LIMITATIONS OF LIABILITY SET FORTH IN THIS ARTICLE 9 AND IN ANY ATTACHMENT SHALL APPLY: (i) REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT, STRICT LIABILITY OR OTHERWISE; AND (ii) WHETHER OR NOT DAMAGES WERE FORESEEABLE. THESE LIMITATIONS OF LIABILITY SHALL SURVIVE FAILURE OF ANY EXCLUSIVE REMEDIES PROVIDED IN THIS AGREEMENT. 9.7 This Agreement does not expressly or implicitly provide any third party (including Users) with any remedy, claim, liability, reimbursement, cause of action or other right or privilege. 10.0 TERMINATION 10.1 If a party fails to perform or observe any material term or condition of this Agreement and the failure continues unremedied for 30 days after receipt of written notice, the other party may terminate for cause any Attachment affected by the breach. If CUSTOMER fails to pay any charge when due and such failure continues unremedied for ten days after written notice by AT&T, AT&T may, at its option, terminate affected Attachments, suspend Service under affected Attachments, require a deposit under any or all Attachments as a condition of continuing to provide Services and/or terminate this entire Agreement. 10.2 An Attachment may be terminated immediately upon written notice by: (i) either party if the other party has violated the other's Marks, becomes insolvent or involved in a liquidation or termination of its business, files a bankruptcy petition, has an involuntary bankruptcy petition filed against it (if not dismissed within 30 days of filing), becomes adjudicated bankrupt, or becomes involved in an assignment for the benefit of its creditors; (ii) AT&T pursuant to Section 3.2 or in the event of a material breach of any provision of Article 6; or (iii) either party if mandated by governmental or regulatory authority. 10.3 CUSTOMER shall be responsible for payment of all charges under a terminated Attachment incurred as of the effective date of termination. CUSTOMER shall also be liable to AT&T for termination Charges, as specified in a terminated Attachment, in the event that AT&T terminates under Section 10.1, 10.2(i) or (ii), or CUSTOMER terminates without cause 10.4 Termination by either party of an Attachment does not waive any other rights or remedies it may have under this Agreement. 10.5 Except as provided under Section 10.1, termination or suspension of an Attachment shall not affect the Services provided or the rights and obligations of the parties under any other Attachment. 11. GENERAL PROVISIONS 11.1 Any supplement, modification or waiver of any provision of this Agreement or any Attachment must be in writing and signed by authorized representatives of both parties. 11.2 This Agreement may not be assigned by either party without the prior written consent of the other, except that AT&T may, without CUSTOMER's consent, assign this Agreement or any Attachment to a present or future Affiliate or successor and may assign its right to receive payments. AT&T may subcontract work to be performed under this Agreement, but shall retain responsibility for all such work. 11.3 If any portion of this Agreement is found to be invalid or unenforceable, the remaining provisions shall remain in effect and the parties shall promptly begin negotiations to replace invalid or unenforceable portions that are essential parts of this Agreement. 11.4 Any initial demand for arbitration pursuant to Section 7.1 and any legal action arising in connection with this Agreement must begin within two years after the cause of action arises. 11.5 All notices under this Agreement shall be in writing and either mailed by certified or registered mail, postage prepaid return receipt requested, sent by express courier or hand delivered and addressed to each party at the address set forth on the front of this Agreement or, if the notice relates to a specific Attachment, the address set forth in such Attachment, or, in any case, such other address a party designates in writing. 11.6 The construction, interpretation and performance of this Agreement shall be governed by the substantive law of the State of New York, excluding its choice of law rules and the United Nations Convention on Contracts for International Sale of Goods. 11.7 The respective obligations of CUSTOMER and AT&T which by their nature would continue beyond the termination or expiration of this Agreement or any Attachment shall survive termination or expiration of this Agreement or any Attachment. 11.8 With respect to any indemnification obligations under this Agreement: (i) the indemnified party will notify the indemnifying party in writing promptly upon learning of any claim or suit for which indemnification may be sought; provided that failure to do so shall not affect the indemnity except to the extent the indemnifying party is prejudiced thereby; (ii) the indemnifying party shall have control of the defense or settlement, provided that the indemnified party shall have the right to participate in such defense or settlement with counsel of its own selection and at its sole expense; (iii) the indemnified party shall AT&T INTERNET SERVICES GENERAL AGREEMENT reasonably cooperate with the defense, at the indemnifying party's expense; and (iv) the indemnifying part shall not, without the indemnified party's express prior written consent, make any admission or stipulation, or consent to any settlement agreement or injunctive or non-monetary relief which could adversely affect any indemnified party. 11.9 THIS AGREEMENT CONSTITUTES THE ENTIRE AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SERVICES TO BE PROVIDED HEREUNDER. THIS AGREEMENT SUPERSEDES ALL PRIOR AGREEMENTS, PROPOSALS, REPRESENTATIONS, STATEMENTS OR UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, CONCERNING SUCH SERVICES OR THE RIGHTS AND OBLIGATIONS RELATING TO THOSE SERVICES. THIS AGREEMENT SHALL NOT BE CONTRADICTED, EXPLAINED OR SUPPLEMENTED BY ANY WRITTEN OR ORAL STATEMENTS, PROPOSALS, REPRESENTATIONS, ADVERTISEMENTS, SERVICE DESCRIPTIONS OR CUSTOMER PURCHASE ORDER FORMS NOT EXPRESSLY SET FORTH IN THIS AGREEMENT OR AN ATTACHMENT. EX-10.20 22 AT&T CONTRACT TARIFF ORDER FORM EXHIBIT 10.20 [Logo] AT&T
AT&T Contract Tariff Order Form - ------------------------------------------------------------------------------------------------------------------------------------ Customer Name (Full Legal Name): AT&T Corp. Law Office Information Systems, Inc. ("AT&T") - ------------------------------------------------------------------------------------------------------------------------------------ Customer Address: AT&T Address: 105 North 28th Street - ------------------------------------------------------------------------------------------------------------------------------------ 55 Corporate Drive AT&T Contact Name: Rowland McKinney - ------------------------------------------------------------------------------------------------------------------------------------ City State Zip Code City State Zip Code AT&T Contact Telephone Number: Van Buren, AR 72956 Bridgewater NJ 08807 501 973-9458 - ------------------------------------------------------------------------------------------------------------------------------------ Customer hereby places an order for: [_] New AT&T Contract Tariff (attachment required) [_] Existing AT&T Contract Tariff No. 10358-(attachment required) Customer hereby agrees to the following term commitment:
TERM: [_] 18 months [_] 24 months [X] 36 months ================================================================================ Existing Pricing Plan Replacement/Discontinuance: [_] Check here and identify below any AT&T CT or other AT&T pricing plan being discontinued in conjunction with this order. Also specify the CT No., Plan ID No. or Main Billed Account No. (Note: Charges may apply as specified in the plan being discontinued.) ================================================================================ 1. Services will be provided Contract Tariff ("CT") ordered hereunder, subject to the rates , terms and conditions in the CT as well as the AT&T tariffs (if any) referenced in the CT ("Applicable Tariffs"), as those under the Applicable Tariffs may be modified from time to time. 2. This Form (including its addenda, if any), the CT and the Applicable Tariffs constitute the entire agreement (collectively the "Agreement") between Customer and AT&T with respect to the services provided under the CT and supersede any and all prior agreements, proposals, representations, statements, or understandings, whether written or oral, concerning such services or the rights and obligations relating to such services. In the event of any inconsistency between the terms of this Form (including its addenda, if any) and the CT or Applicable Tariffs, the terms of the Applicable Tariffs and CT shall prevail. In the event of any inconsistency between the terms of the CT and the Applicable Tariffs, the terms of the CT shall prevail. Except for changes to rates (to the extent permitted under the CT ) and changes to the Applicable Tariffs, no change, modification or waiver of any of the terms of this Agreement shall be binding unless reduced to writing and signed by authorized representatives of both parties and, to the extent required by law, filed with the FCC. 3. Except to the extent that federal law applies, the construction, interpretation and performance of this Agreement shall be governed by the substantive law of the State of New York, excluding its choice of law rules. 4. EXCEPT FOR ANY WARRANTIES EXPRESSLY MADE IN THIS AGREEMENT, AT&T EXCLUDES ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. AT&T DOES NOT AUTHORIZE ANYONE TO MAKE A WARRANTY OF ANY KIND ON ITS BEHALF AND CUSTOMER SHOULD NOT RELY ON ANYONE MAKING SUCH STATEMENTS. 5. As to new CTs, Customer may, as its sole remedy, cancel this order for the CT without liability before the CT becomes effective if, without Customer's consent: (a) AT&T fails to file the CT with the FCC within 30 days after the date this Form is signed by both parties; (b) the CT as filed is not consistent with the attached illustrative copy; or (c) the CT does not go into effect within 30 days after filing. 6. Orders for existing CTs will be accepted and implemented by AT&T only if the specified CT is available when ordered and Customer is eligible for the CT. The CUSTOMER'S Initial Service Date (CISD) referenced in the CT shall be one (1) calendar day after the execution of this Agreement, unless it is a weekend or holiday, in which event the CISD shall be the following business day. 7. Customer shall provide installation instructions and other information as required by AT&T. - -------------------------------------------------------------------------------- YOUR SIGNATURE ACKNOWLEDGES THAT YOU HAVE READ, UNDERSTAND AND AGREE TO THE PROVISIONS OF THIS AGREEMENT AND THAT YOU ARE DULY AUTHORIZED TO SIGN THIS AGREEMENT, - -------------------------------------------------------------------------------- Customer AT&T Corp. Full Legal Name: ______________________ By: /s/ Kyle Parker By: /s/ Yolanda Wilson ---------------------------------- -------------------------------- (Authorized Customer Signature) Authorized AT&T Signature) Kyle Parker - CEO Yolanda Wilson, Contract Manager ----------------------- ------------------------------------- (Typed or Printed Name and Title) (Typed or Printed Name and Title) Date: 2/17/99 Date: 4/6/99 -------------------------------- ------------------------------ AT&T COMMUNICATIONS CONTRACT TARIFF NO. 10358 Adm. Rates and Tariffs Original Title Page Bridgewater, NJ 08807 Issued: September 21, 1998 Effective: September 22, 1998 ** All material on this page is new. ** CONTRACT TARIFF NO. 10358 TITLE PAGE This Contract Tariff applies to AT&T Private Line Services consisting of: Domestic ACCUNET T1.5 Service Access Connections, M24-Multiplexing Office Functions, Domestic ACCUNET T45 Service Access Connections, Domestic 56/64 kbps ACCUNET Spectrum of Digital Services Access Connections, AT&T Terrestrial 1.544 Mbps Local Channels and associated Access Coordination Functions, AT&T Terrestrial 45 Mbps Local Channels and associated Access Coordination Functions and 56/64 kbps ACCUNET Generic Digital Access Local Channels and associated Access Coordination Functions for interstate or foreign communications in accordance with the Communications Act of 1934, as amended. Telecommunication services provided under this Contract Tariff are furnished by means of wire, radio, satellite, fiber optics or any suitable technology or combination of technologies. AT&T COMMUNICATIONS CONTRACT TARIFF NO. 10358 Adm. Rates and Tariffs Original Page 1 Bridgewater, NJ 08807 Issued: September 21, 1998 Effective: September 22, 1998 ** All material on this page is new. ** CONTRACT TARIFF No. 10358 CHECK SHEET The Title Page and Pages 1 through 6 inclusive of this tariff are effective as of the date shown. TABLE OF CONTENTS
Page ---- Check Sheet................................................................................ 1 List of Concurring, Connecting and Other Participating Carriers............................ 1 Explanation of Symbols - Coding of Tariff Revisions........................................ 1 Trademarks and Service Marks............................................................... 2 Explanation of Abbreviations............................................................... 2 Contract Summary........................................................................... 3
LIST OF CONCURRING, CONNECTING AND OTHER PARTICIPATING CARRIERS Concurring Carriers - NONE Connecting Carriers - NONE Other Participating Carriers - NONE EXPLANATION OF SYMBOLS - Coding of Tariff Revisions Revisions to this tariff are coded through the use of symbols. These symbols appear in the. right margin of the page, The symbols and their meanings are: R - to signify reduction. I - to signify increase. C - to signify changed regulation. T - to signify a change in text but no change in rate or regulation. S - to signify reissued matter. M - to signify matter relocated without change. N - to signify new rate or regulation. D - to signify discontinued rate or regulation. Z - to signify a correction. Other marginal codes are used to direct the tariff reader to a footnote for specific information. Codes used for this purpose are lower case letters of the alphabet, c.g., x, y and z. These codes may appear beside the page revision number in the page header or in the right margin opposite specific text. AT&T COMMUNICATIONS CONTRACT TARIFF NO. 10358 Adm. Rates and Tariffs Original Page 2 Bridgewater, NJ 08807 Issued: September 21, 1998 Effective: September 22, 1998 ** All material on this page is new. ** TRADEMARKS AND SERVICE MARKS -The following marks, to the extent, if any, used throughout this tariff, are trademarks and service marks of AT&T Corp. Trademarks Service Marks ---------- ------------- None ACCUNET EXPLANATION OF ABBREVIATIONS Adm. - Administrator IOCs- Inter Office Channels kbps - kilobits per second Mbps - Megabits per second AT&T COMMUNICATIONS CONTRACT TARIFF NO. 10358 Adm. Rates and Tariffs Original Page 3 Bridgewater, NJ 08807 Issued: September 21, 1998 Effective: September 22, 1998 ** All material on this page is new. ** CONTRACT TARIFF No. 10358 1. Services Provided: A. AT&T Private Line Services (AT&T Tariff F.C.C. No. 9) consisting of: 1. Domestic ACCUNET T1.5 Service Access Connections 2. M-24 Multiplexing Office Functions 3. Domestic 56/64 kbps ACCUNET Spectrum of Digital Services Access Connections (ASDS) 4. Domestic ACCUNET T45 Service Access Connections 5. M-28 Multiplexing Office Functions B. AT&T Local Channel Services (AT&T Tariff F.C.C. No. 11) 1. AT&T Terrestrial 1.544 Mbps Local Channels and Access Coordination Functions 2. 56/64 kbps ACCUNET Generic Digital Access Local Channels and Coordination Functions (GDA) 3. AT&T Terrestrial 45 Mbps Local Channels and Access Coordination Functions 1.1. Initial Quantities - The Customer has 3 months from the Customer's Initial Service Date (CISD) to achieve the following Initial Quantities of AT&T Private Line and Local Channel Service components: A. AT&T Private Line Services 1 ACCUNET T1.5 Service Access Connection or 1 56/64 kbps ACCUNET Spectrum of Digital Service Access Connection or 1 ACCUNET T45 Service Access Connection. B. AT&T Local Channels and associated service components 1 AT&T Terrestrial 1.544 Mbps Local Channel Access Coordination Function or 1 ACCUNET Generic Digital Access Local Channel Access Coordination Function or 1 AT&T Terrestrial 45 Mbps Local Channel Access Coordination Function. 2. Contract Term; Renewal Options - The term of this Contract Tariff is 18, 24 or 36 months beginning with the CISD. No renewal option is available for this Contract Tariff. 3. Volume Commitments - The Minimum Monthly Volume Commitment (MMVC) for the AT&T Private Line and Local Channel Services provided under this Contract Tariff is a minimum of one Access Connection and one Access Coordination Function. 4. Contract Price A. AT&T Private Line and Local Channel Services 1. The Contract Price for the AT&T Private Line and Local Channel. Services provided under this Contract Tariff is the same as the undiscounted Recurring and Nonrecurring Rates and Charges specified in AT&T Tariff F.C.C. Nos. 9 and 11, as amended from time to time. Adm. Rates and Tariffs Original Page 4 Bridgewater, NJ 08807 Issued: September 21, 1998 Effective: September 22, 1998 5. Discounts - The following discounts are the only discounts for the Services Provided under this Contract Tariff. No other discounts apply. Unless modified below, the Base Discounts listed in this section are the same discounts as specified in the AT&T Tariffs referenced in Section 1., preceding, as amended from time to time. A. AT&T Local Channel Services 1. Based on the Contract Tariff term commitment, the Customer will receive one of the following discounts which will be applied to the AT&T Terrestrial 1.544 Mbps, Terrestrial 45 Mbps and 56/64 kbps GDA l Channels provided under this Contract Tariff when they are not used exclusively for AT&T Switched Services as specified in AT&T Tariff F.C.C. Nos. 1, 2, 4, or International Satellite Services as specified in AT&T Tariff F.C.C. No. 7, or AT&T Private Line Service IOCs as specified in AT&T Tariff F.C.C. No. 9, as amended from time to time. These discounts do not apply to Terrestrial 1.544 Mbps Local Channels under an AVA and/or AVP.
Contract Tariff Monthly Monthly Monthly Term 1.5 Mbps Local 56/64 kbps GDA Local 45 Mbps Local Commitment Channel Discount Local Discount Channel Discount ---------- ---------------- -------------- ----------------- 18 months 5% 5% 5% 24 months 29% 15% 12% 36 months 34% 20% 15%
6. Classifications, Practices and Regulations A. Except as otherwise provided in this Contract Tariff, the rates 'and regulations that apply to the Services Provided specified in Section 1., preceding, are as set forth in the AT&T tariffs that are referenced in Section 1., preceding, as such tariffs are amended from time to time. B. Promotions, Credits and Waivers The Customer is ineligible for any promotions or credits for the Services Provided under this Contract Tariff, which are filed or which may be filed in the AT&T tariffs specified in Section 1., preceding. The following credits and waivers will be applied to the Customer's bill. If at the end of the Contract Tariff Term the Customer has not fully used any or ail of the waiver(s) specified in this Section, the residual value of any such waiver (s) will he set to zero and will not be applied to any other AT&T services. AT&T COMMUNICATIONS CONTRACT TARIFF NO. 10358 Adm. Rates and Tariffs Original Page 5 Bridgewater, NJ 08807 Issued: September 21, 1998 Effective: September 22, 1998 ** All material on this page is new. ** 6.B.1. AT&T Private Line and Local Channel Services (a) AT&T will waive the nonrecurring Installation Charges as specified in AT&T Tariff F.C.C. Nos. 9 and 11, as amended from time to time, for the installation of new MSVPP-eligible 56/64 kbps ASDS, ACCUNET T45 and ACCUNET T1.5 Access Connections, ACCUNET T45 --28 and ACCUNET T1.5 --24 Multiplexing Office Functions, and associated 56/64 kbps GDA Local Channels and Access Coordination Functions, AT&T Terrestrial 1.544 Mbps Local provided: (1) the Access Connections, M-24 and M-28 Multiplexing Office Functions and Access Coordination Functions are associated directly with AT&T 56/64 kbps GDA Local Channel or AT&T Terrestrial 1.544 Mpbs Local Channel or AT&T Terrestrial 45 Mbps Local Channel Services not used exclusively for AT&T Switched Services as specified in AT&T Tariff F.C.C. Nos. 1, 2, 4, or International Satellite Services as specified in AT&T Tariff F.C.C. No. 7, or AT&T Private Line Service IOCs as specified in AT&T Tariff F.C.C. No. 9, as amended from time to time; (2) are ordered and installed on or after the CISD and (3) remain in service for at least 12 months. Except for upgrades to higher speeds, if the Access Connections, M-24 and M-28 Multiplexing Office Functions, Local Channels and Access Coordination Functions are disconnected for any reason prior to the 12 months, the waived nonrecurring charges for the installation of the Access Connections, M-24 and M-28 Multiplexing Office Functions, Local Channels and Access Coordination Functions will be billed to the Customer at the time of disconnect. If a service component has not been in service for the minimum period of 12 months prior to the expiration of the Contract Tariff Term, the Customer may elect to be billed the waived nonrecurring charges at the end of the Contract Tariff Term or elect to continue the services in another AT&T Contract Tariff or include the services in either a new or existing term plan for AT&T Tariff F.C.C. Nos. 9 and 11, services applicable to Contract Tariffs. (b) AT&T will waive the discounted recurring charges for MSVPP-eligible ACCUNET T1.5 Service Access Connections, M-24 Multiplexing Office Functions, ACCUNET T45 Access Connections and 56/64 kbps ASDS Access Connections (excluding Access Connections to AT&T Switched Services) as specified in AT&T Tariff F.C.C. No. 9, as amended from time to time and associated 56/64 kbps GDA, AT&T Terrestrial 45 Mbps and AT&T Terrestrial 1.544 Mbps Local Channel Access Coordination Functions as specified in AT&T Tariff F.C.C. No. 11, as amended from time to time, provided: (1) the Access Connections, M-24 Multiplexing Office Functions and Access Coordination Functions are associated directly with AT&T 56/64 kbps GDA Local Channels or AT&T Terrestrial 45 Mbps Local Channels or AT&T Terrestrial 1.544 Mbps Local Channels not used exclusively for AT&T Switched Services as specified in AT&T Tariff F.C.C. Nos. 1, 2 and 4, or International Satellite Services as specified in AT&T Tariff F.C.C. No. 7, or AT&T Private Line Service IOCs as specified in AT&T Tariff F.C.C. No. 9, as amended from time to time and (2) remain in service for at least 12 months. Except for upgrades to higher speeds and migration to an Access Value Plan, if a service component is disconnected for any reason prior to the 12 months, the waived recurring charges will be billed at the time of disconnect. If a service component has not been in service for the minimum period of 12 months prior to the expiration of the Contract Tariff Term, the Customer may elect to be billed the waived recurring charges at the end of the Contract Tariff Term, elect to continue the services in another AT&T Contract Tariff or include the services in either a new or existing term plan for AT&T Tariff F.C.C. Nos. 9 and 11 services applicable to Contract Tariffs. C. Discontinuance - In lieu of any Discontinuance Without Liability provisions that are specified in the AT&T Tariffs referenced in Section 1., preceding, the following provisions shall apply. The customer may discontinue this Contract Tariff prior to the end of the contract Tariff Term, provided that the Customer replaces this Contract Tariff with another AT&T Contract Tariff for AT&T F.C.C. Nos. 9 and 11 Services, with equal or greater volume or revenue commitments and term commitments. D. Availability - This Contract Tariff has been developed for Customers who: (1) have received an offer for substantially similar services from another provider at an equal or lower price in which the nonrecurring installation charges have been waived; (2) will order this Contract Tariff only once, either by the Customer or any Affiliate of the Customer, which is any entity that owns a controlling interest in either the Customer or an Affiliate of the Customer, or any entity in which a controlling interest is owned by either the Customer or an Affiliate of the Customer. This Contract Tariff is available to any similarly situated Customer who orders service within 270 days after the effective date of this Contract Tariff for initial installation of the Services Provided under this Contract Tariff within 60 days after the date ordered. - -------------------------------------------------------------------------------- Page 1 of 4 CONTRACT TARIFF AUTHORITY TO QUOTE [Logo] AT&T CT10358 Discounted Access to Worldnet MIS ================================================================================ SECTION 1: GENERAL INFORMATION - -------------------------------------------------------------------------------- Marketing Objective: - ------------------- This CT is for purchasing access for use with AT&T WorldNet services (i.e. services other than Tariff 1, Tariff 2, Tariff 4, Tariff 7, Tariff 12, Tariff 16 and Tariff 9 IOC's). This offer waives the AC, M24 and ACF charges for T1.5 Local Channels, AC and ACF charges for T45 Local Channels and AC and ACF charges for 56/64 GDA Local Channels connected to AT&T WorldNet services. It also ---- provides recurring discounts on 56/64k GDA Local Channels, T1.5 Local Channels - ------------------------------------------------------------------------------ and T45 Local Channels. - ----------------------- General: - ------- Deal Offer Manager Information: Steven Boyce, Strategic Pricing - --------------------------------------------------------------- Requester: Rosemarie Egan Requester Phone: - --------- --------------- Requester Org: WorldNet MIS Requester Fax: - ------------- ------------- - -------------------------------------------------------------------------------- Instructions to Account Team: - ---------------------------- . Non-Disclosure: This offer requires a current Non-Disclosure Agreement to be -------------- executed before presentation as per AT&T form AIS-3057. The following offer provides a platform for use in the negotiations by the account team. The initial offer to the customer should allow room to concede to the maximum price discounts authorized in this ATQ. . Disclaimers: This offer is contingent upon the expressed understanding that ----------- additional terms and conditions including, but not limited to billing, provisioning, maintenance, shortfall charges, termination liabilities, and minimum service requirements will apply to a Contract Tariff arrangement. Any changes, additions to or deletions of these products and services may result in a change to the rates and/or discounts quoted. . Alterations: The prices described in this offer require successful ----------- application and approval of a contract tariff with the appropriate regulating agencies and are subject to the regulations of the F.C.C. and/or P.U.C. . Billing Effective Dates: Each service will be billed using their respective -------------- vertical billers. . Tariff filing: Maximum of 30 days from AT&T contract signature and -------------- acceptance. . Tariff Approval: Maximum of 1 day from filing (subject to F.C.C. review) -------------- Type of Offer: SSA - ------------- Offer Expiration Date: 6/21/99 - --------------------- Revisions or extensions of ATQ must be authorized by the deal offer manager listed above. Term Term (Months) Renewal (Yes/No) Extension Period - --- ------------- ---------------- ---------------- . DCS 18, 24 or 36 No N/A - -------------------------------------------------------------------------------- Page 2 of 4 CONTRACT TARIFF AUTHORITY TO QUOTE [Logo] AT&T CT10358 Discounted Access to Worldnet MIS ================================================================================ SECTION 2: DCS SERVICE SPECIFIC MODULE - ----------------------------------------------------------- 2.2 SERVICES PROVIDED - ----------------------------------------------------------- T9 Domestic ACCUNET T45 IOCs, mT1.5 IOCs and 56/64K IOCs - ----------------------------------------------------------- T9 Domestic ACCUNET T1.5 M24 - ----------------------------------------------------------- T9 Domestic ACCUNET T45 aCs, T1.5 aCs and ASDS aCs - ----------------------------------------------------------- T11 Domestic T45 Mbps, T1.5 Mbps and GDA 56/64K GDA ACF - ----------------------------------------------------------- T11 Domestic T45 Mbps, T1.5 Mbps and GDA 56/64K GDA Local Channel Service - ----------------------------------------------------------- - -------------------------------------------------------------------------------- DCS BILLING: The effective billing date for DCS service components will be the Customer's Initial Service Date (CISD) unless otherwise negotiated. - -------------------------------------------------------------------------------- DCS COMMITMENTS: - --------------- None. This is a circuit-specific, service component-specific CT. - -------------------------------------------------------------------------------- Revenue Shortfall Charges: - ------------------------- Not applicable. DCS CONTRACT PRICE (e.g. Undiscounted Monthly Rate): - --------------------------------------------------- The AT&T regulations and rates for the services and term plans as specified in AT&T's Tariffs F.C.C. Nos. 9 and 11 as amended from time to time are applicable to this CT unless modified by this ATQ and filed in the Contract Tariff.
- ------------------------------------------------------------------------------------------------------------------------- Term Commitment 56/64 Kbps GDA Local Channel T1.5 Local Channel Discount % T45 Local Channel Discount % (months) Base Discount % - ------------------------------------------------------------------------------------------------------------------------- 18 5% 5% 5% - ------------------------------------------------------------------------------------------------------------------------- 24 15% 29% 12% - ------------------------------------------------------------------------------------------------------------------------- 36 20% 34% 15% - -------------------------------------------------------------------------------------------------------------------------
DCS SUPPLEMENTAL DISCOUNTS (e.g., incremental discounts to BAT): - --------------------------------------------------------------- None. DCS CREDITS: - ----------- None. WAIVERS: - ------- Non-Recurring Charge Waivers: - ---------------------------- Waive T9 and T11 non-recurring Installation charges for new 56/64 Kbps GDA AC and ACF, T1.5 M24, Access Connection and ACF, and T45 Access Connection and ACF MSVPP-eligible service components and associated new 56/64 Kbps GDA, T1.5 and T45 Local Channels, including function connections, subject to the following conditions: 1. Service components must be associated exclusively with AT&T WorldNet MIS 2. Service components must be ordered and installed on or after CISD. ---------------- - -------------------------------------------------------------------------------- Page 3 of 4 CONTRACT TARIFF AUTHORITY TO QUOTE [Logo] AT&T CT10358 Discounted Access to Worldnet MIS ================================================================================ 3. Customer must subscribe to the service components receiving waiver for at least 12 months. Excluding upgrades to higher speed services, if the Customer discontinues any of these service components prior to the 12 month period, the customer will be liable for the non-recurring charges that would otherwise have applied to the installation of these service components at time of discontinuance. 4. This waiver does not apply to non-recurring charges that are incurred for cancellation charges, overtime, rearrangements, and any other non-recurring charge not directly associated with the installation of service components or services not specified in the tariff. Recurring Charge Waivers: - ------------------------ Waiver of 56/64 Kbps GDA AC and ACF, T1.5 AC, M24 and T45 AC and ACF discounted recurring charges associated with new 56/64 Kbps GDA, T1.5 and T45 Local Channels subject to the following conditions: 1. Service components must be associated exclusively with AT&T WorldNet MIS. 2. Customer must subscribe to the service components receiving waiver for at least 12 months. Excluding upgrades to higher speed services, if the Customer discontinues any of these service components prior to the 12 month period, the customer will be liable for the non-recurring charges that would otherwise have applied to the installation of these service components at time of discontinuance. - -------------------------------------------------------------------------------- DCS PROMOTIONS: - -------------- The customer is EXCLUDED from using other generally available promotions for Private Line and Local Channel Services in lieu of waivers and/or credits in this Contract Tariff. - -------------------------------------------------------------------------------- DCS MONITORING CONDITIONS: - ------------------------- Minimum service retention period must be met per service component. SECTION 3: DEAL INFORMATION SECTION - -------------------------------------------------------------------------------- AVAILABILITY REQUIREMENTS: - ------------------------- 1. Access purchased outside of this CT is only for use with AT&T Services Other Than Tariff 1, Tariff 2, and Tariff 9 IOC's, i.e. AT&T WorldNet MIS. 2. Customer can order a minimum of one 56 Kpbs GDA Local Channel and/or T1.5 and/or T45 Local Channel per this contract tariff. 3. This Contract Tariff Offer has been developed for Customers that have received an offer from another carrier that offered to provide services comparable in nature and quantity to the Initial Service Quantities provided under this Contract at prices that are equal to or lower than prices offered by AT&T . 4. This Offer Cannot be combined with any Contract Tariffs. ------------------------------------------------------- 5. Customer must sign a contract for AT&T Worldnet Services concurrent with this Contract tariff or have an existing agreement in place on CISD. - ------------------------------------------------------------------------------- Availability Window: 270 days (September 22, 1998 - June 21, 1999) - ------------------------------------------------------------------------------- DISCONTINUANCE WITHOUT LIABILITY: - -------------------------------- - -------------------------------------------------------------------------------- Page 4 of 4 CONTRACT TARIFF AUTHORITY TO QUOTE [Logo] AT&T CT10358 Discounted Access to Worldnet MIS ================================================================================ The customer may terminate this contract in its entirety prior to the end of the term, if the customer enters into a replacement Contract Tariff for AT&T Tariff 9 and 11 services applicable to Contract Tariffs, with an equal or greater term commitment and a greater volume and/or revenue commitment. AT&T will confirm that the customer is in compliance with their current Contract Tariff and whether any penalties or repayment of credits are applicable before migration to a new Contract Tariff is authorized. SECTION 4: ATQ APPROVAL SECTION CONCURRED BY: _______________________________________ DATE: 8/4/98 ----------------------------------- EX-10.21 23 AT&T WORLDNET SERVICES AGREEMENT EXHIBIT 10.21 AT&T WORLDNET(SM) SERVICES AGREEMENT This Agreement ("Agreement") is between AT&T Corp., a New York corporation with an office at 55 Corporate Drive, Bridgewater, NJ 08807 ("AT&T"), and Law Office Information Systems, Inc., with offices at 105 N. 28th Street, Van Buren, Arkansas 72956 ("Customer"). AT&T and Customer agree that the following terms and conditions apply to the provision and use, within the United States, of the AT&t WorldNet(SM) services and related products ("Services") referenced in any Attachments to this Agreement signed by Customer and accepted in writing by AT&T. Such attachments are an integral part of this Agreement. 1. CONTRACT PERIOD This Agreement is effective when signed by Customer and accepted in writing by AT&T ("Effective Date"). The Contract Period commences on the Effective Date and, unless terminated in accordance with the provisions herein, will continue in effect for as long as any Service period as defined in an Attachment to this Agreement remains in effect. 2. BILLING AND PAYMENT A. Customer shall pay AT&T all charges due under this Agreement, without deduction or setoff. All payments shall be mailed to the address stated on the bill. Bills will be issued monthly and are payable within thirty (30) days from the date shown on the invoice. B. Customer agrees to pay any taxes due on the services, however designated (excluding taxes on AT&T's net income), unless Customer provides a valid tax exemption certificate. 3. TERMINATION A. If Customer fails to pay any outstanding charges within ten (10) days after receipt of written notice from AT&T of delinquency, or if Customer fails to perform or observe any other material term or condition of this Agreement within thirty (30) days after receipt of written notice from AT&T of such failure, AT&T may terminate this Agreement. Customer shall then be liable for all charges incurred as of the date of termination and, if applicable, any termination charges associated with termination of the Attachments. All such charges that are not previously due and payable shall be payable within thirty (30) days from the date shown on AT&T's invoice. B. If AT&T fails to perform or observe any material term or condition of this Agreement within thirty (30) days after receipt of written notice from Customer of such failure, Customer may terminate the Attachments materially affected by the breach. Except for charges incurred as of the date of termination, Customer shall have no further financial obligations to AT&T for such terminated Attachments. 4. CUSTOMER RESPONSIBILITIES A. customer shall ensure that all Customer-provided equipment on its premises that connects to the Services will perform according to published technical specifications for such equipment and AT&T's interface specifications and otherwise complies with AT&T's specifications for the Services. Page 1 B. In cases in which Customer and AT&T agree to have AT&T act as Customer's authorized agent for ordering and coordinating local access circuits for a Service outside of this Agreement, a separate Agency Agreement will be executed. C. Customer is solely responsible for the content of any transmissions using the Services, or any other use of the services, by Customer or by any person or entity Customer permits to access the Services (a "User"). Customer agrees that it and any User will not use the Services for illegal purposes, or to interfere with or disrupt other network users, network services or network equipment. Disruptions include, but are not limited to, distribution of unsolicited advertising or chain letters, propagation of computer worms and viruses, and using the network to make unauthorized entry to any other machine accessible via the network. Customer shall defend, indemnify, and hold harmless AT&T (as defined in Paragraph 7.A.) from and against all liabilities and costs (including reasonable attorneys' fees) arising from any and all claims by any person based upon the content of any transmissions by Customer or any User using the services or any other use of the Services by Customer or any User. D. Customer shall limit access to and use of the Services to its employees (and, in the case of a Customer that is a nonprofit educational institution, to employees and students), shall not authorize any person to use the Services other than for Customer's business purposes, and shall not resell or otherwise generate income by providing access to the Services to any User. If Customer permits Users to access the Services, Customer shall defend, indemnify, and hold harmless AT&T (as defined in Paragraph 7.A.) from and against all liabilities and costs (including reasonable attorneys' fees) arising from any and all claims by any such Users in connection with the Services, regardless of the form of action, whether in contract, tort (including AT&T's active or passive negligence), warranty, or strict liability. However, Customer shall have no obligation to indemnify and defend AT&T against claims for direct damages to real or tangible personal property, or for bodily injury or death, proximately caused by AT&T's negligence. E. To the extent deemed necessary by Customer, customer shall implement security procedures necessary to limit access to the Services to Customer's authorized users and shall maintain a procedure external to the Services for reconstruction of lost or altered files, data or programs. F. Customer is responsible for establishing designated points of contact to interface with AT&T. G. Customer agrees to comply, and to cause any User to comply, with United States law with regard to the transmission of technical data which is exported from the United States using the Services. H. Customer understands that Services provided under this Agreement (including Internet use) may require registrations and related administrative reports that are public in nature. In addition, Customer agrees that AT&T may include its name; IP, electronic mail, street, and other addresses; and telephone information in directories. 5. AT&T RESPONSIBILITIES AT&T will provide the Services as described in the Attachments. However, AT&T's policy is to continually improve its products and services, and so may from time to time change the Services as provided to Customer under this Agreement. In the event that AT&T changes the Services in any way that materially decreases the level of the Services available to customer, customer shall have a one time right to terminate this Agreement within the thirty (30) day period following receipt of notice of such change by giving AT&T seven (7) days' written notice of termination and payment of all charges incurred as of the termination date, but without any termination liability to AT&T. Page 2 6. LICENSES AT&T hereby grants to Customer a personal, nonexclusive, nontransferable license during the term of this Agreement to use, in object code form, all software and documentation ("Licensed Material") which may be furnished to Customer under this Agreement. Customer agrees to use its best efforts to ensure that its employees and users of all Licensed Material hereunder comply with the terms and conditions set out in this Agreement. Customer also agrees to refrain from taking any steps, such as reverse assembly or reverse compilation, to derive a source code equivalent to the software. All Licensed Material furnished to Customer under this Agreement shall be used by Customer only to support Customer's use of the Services, shall not be reproduced or copied in whole or in part, shall not be removed from the United States, and shall be returned to AT&T at the conclusion of the term of this Agreement. In addition, to the extent Licensed Material includes software or documentation provided by any third party pursuant to a sublicense from AT&T ("Third Party Material"), Customer agrees, as a condition to the right to use such Third Party Material, to abide by the terms and conditions of such sublicense (including such additional end user terms and conditions as shall be required by such sublicense), and Customer shall be bound by such terms and conditions by virtue of its use of such Third Party Material following notice of such terms and conditions. 7. WARRANTY AND LIMITATION OF LIABILITY A. FOR PURPOSES OF THIS PARAGRAPH 7, "AT&T" INCLUDES AT&T, ANY AFFILIATED AND SUBSIDIARY COMPANIES OF AT&T, ANY SUBCONTRACTORS AND SUPPLIERS OF THE FOREGOING, AND THE DIRECTORS, EMPLOYEES, OFFICERS, AGENTS, SUBCONTRACTORS AND SUPPLIERS OF ALL OF THEM. B. NO TARIFFED SERVICES ARE PROVIDED UNDER THIS AGREEMENT. PRODUCTS OR SERVICES SOLD OR PROVIDED UNDER ANOTHER CONTRACT OR UNDER TARIFF ARE GOVERNED SOLELY BY THE TERMS OF THAT CONTRACT OR TARIFF, INCLUDING ANY WARRANTIES, GUARANTEES, OR OTHER OBLIGATIONS OF AT&T UNDER THAT CONTRACT OR TARIFF. AT&T MAKES NO WARRANTY OR GUARANTEE, EXPRESS OR IMPLIED, WITH RESPECT TO ANY SERVICES OR PRODUCTS PROVIDED UNDER THIS AGREEMENT, AND AT&T EXPRESSLY DISCLAIMS ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. C. AT&T'S LIABILITY TO CUSTOMER ON ACCOUNT OF ANY ACTS OR OMISSIONS RELATING TO THIS AGREEMENT SHALL BE LIMITED TO PROVEN DIRECT DAMAGES IN AN AGGREGATE AMOUNT NOT TO EXCEED THE GREATER OF (A) $25,000 FOR EACH SITE PROVISIONED FOR SERVICES UNDER THIS AGREEMENT OR (B) THE AMOUNTS PAID BY CUSTOMER FOR SERVICES DURING THE TWELVE (12) MONTH PERIOD PRECEDING THE INCIDENT GIVEN RISE TO THE CLAIM FOR DAMAGES, IN NO EVENT TO EXCEED AN AGGREGATE OF $50,000 IN THE CASE OF (A) OR (B). HOWEVER, NOTHING IN THIS SUBPARAGRAPH 7.C. LIMITS AT&T'S LIABILITY FOR DIRECT DAMAGES TO REAL OR TANGIBLE PERSONAL PROPERTY, OR FOR BODILY INJURY OR DEATH, PROXIMATELY CAUSED BY AT&T'S NEGLIGENCE. D. AT&T SHALL NOT BE LIABLE FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, RELIANCE OR SPECIAL DAMAGES, INCLUDING WITHOUT LIMITATION DAMAGES FOR HARM TO BUSINESS, LOST PROFITS, LOST SAVINGS OR LOST REVENUES, WHETHER OR NOT AT&T HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. AT&T SHALL NOT BE LIABLE FOR ANY DAMAGE THAT CUSTOMER MAY SUFFER ARISING OUT OF USE, OR INABILITY TO USE, THE SERVICES OR PRODUCTS PROVIDED HEREUNDER UNLESS SUCH DAMAGE IS CAUSED BY AN INTENTIONAL ACT OF AT&T. AT&T SHALL NOT BE LIABLE FOR UNAUTHORIZED ACCESS BY THIRD PARTIES TO CUSTOMER'S TRANSMISSION FACILITIES OR PREMISE EQUIPMENT OR FOR UNAUTHORIZED Page 3 ACCESS TO OR ALTERATION, THEFT, LOSS OR DESTRUCTION OF CUSTOMER'S NETWORK, SYSTEMS, APPLICATIONS, DATA FILES, PROGRAMS, PROCEDURES OR INFORMATION THROUGH ACCIDENT, FRAUDULENT MEANS OR DEVICES, OR ANY OTHER METHOD. EXCEPT AS EXPRESSLY SET FORTH IN OR CONTEMPLATED BY THIS AGREEMENT, IN ANY INSTANCE INVOLVING PERFORMANCE OR NONPERFORMANCE BY AT&T WITH RESPECT TO SERVICES OR PRODUCTS PROVIDED HEREUNDER, CUSTOMER'S SOLE REMEDY SHALL BE (A) IN THE CASE OF SERVICES, REFUND OF A PRO RATA PORTION OF THE PRICE PAID FOR SERVICES WHICH WERE NOT PROVIDED, OR (B) IN THE CASE OF PRODUCTS, REPAIR OR RETURN OF THE DEFECTIVE PRODUCT TO AT&T FOR REFUND. AT THE OPTION OF AT&T, EXCEPT AS EXPRESSLY SET FORTH IN OR CONTEMPLATED BY THIS AGREEMENT, IN THE CASE OF REFUND FOR LOST SERVICES, CREDIT WILL BE ISSUED ONLY FOR PERIODS OF LOST SERVICE GREATER THAN TWENTY-FOUR (24) HOURS. E. THESE LIMITATIONS OR LIABILITY SHALL APPLY REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, WARRANTY, STRICT LIABILITY OR TORT, INCLUDING WITHOUT LIMITATION NEGLIGENCE OF ANY KIND, WHETHER ACTIVE OR PASSIVE, AND SHALL SURVIVE FAILURE OF AN EXCLUSIVE REMEDY. F. AT&T SHALL NOT BE RESPONSIBLE FOR (1) SERVICE IMPAIRMENTS CAUSED BY ACTS WITHIN THE CONTROL OF CUSTOMER, ITS EMPLOYEES, AGENTS, SUBCONTRACTORS, SUPPLIERS OR LICENSEES, (2) INTEROPERABILITY OF SPECIFIC CUSTOMER APPLICATIONS, (3) INABILITY OF CUSTOMER TO ACCESS OR INTERACT WITH ANY OTHER SERVICE PROVIDER THROUGH THE INTERNET, OTHER NETWORKS OR USERS THAT COMPRISE THE INTERNET OR THE INFORMATIONAL OR COMPUTING RESOURCES AVAILABLE THROUGH THE INTERNET, (4) INTERACTION WITH OTHER SERVICE PROVIDERS, NETWORKS, USERS OR INFORMATIONAL OR COMPUTING RESOURCES THROUGH THE INTERNET, (5) SERVICES PROVIDED BY OTHER SERVICE PROVIDERS, OR (6) PERFORMANCE IMPAIRMENTS CAUSED ELSEWHERE ON THE INTERNET. 8. CONFIDENTIALITY A. All tangible technical or business information disclosed by one party to the other party and marked as proprietary shall be deemed the property of the disclosing party and shall be returned upon request. The receiving party shall: (1) hold such information in confidence for three (3) years after any termination of this Agreement; (2) restrict disclosure of such information solely to its employees and employees of its affiliated companies with a need to know; (3) and use a reasonable degree of care (in no event less than the same degree of care as it uses for its own proprietary information) to prevent the unauthorized disclosure, use or publication of such proprietary information. B. The receiving party shall have no obligation to preserve the confidentiality of any information which: (1) was previously known to the receiving party or any of its affiliated companies free of any confidentiality obligation; (2) is disclosed to third parties by the disclosing party without restrictions; (3) becomes publicly available by other than unauthorized disclosure; (4) was not identified as confidential or proprietary; or (5) is independently developed by the receiving party. C. The pricing, terms and conditions of this Agreement are proprietary information and shall be treated in confidence. Page 4 9. GENERAL A. IF A DISPUTE ARISES WITH RESPECT TO THIS AGREEMENT, OR ANY SERVICES PROVIDED OR WORK PERFORMED HEREUNDER, EITHER PARTY MAY SUBMIT THE DISPUTE TO A SOLE MEDIATOR SELECTED BY THE PARTIES OR, AT ANY TIME, TO MEDIATION BY THE AMERICAN ARBITRATION ASSOCIATION ("AAA"). IF NOT THUS RESOLVED, IT MAY BE REFERRED BY EITHER PARTY TO A SOLE ARBITRATOR SELECTED BY THE PARTIES OR TO AAA ARBITRATION. THE ARBITRATION SHALL BE GOVERNED BY THE UNITED STATES ARBITRATION ACT AND JUDGMENT ON THE AWARD MAY BE ENTERED BY ANY COURT HAVING JURISDICTION. THE PARTIES SHALL AGREE ON WHAT, IF ANY, DISCOVERY SHALL BE MADE AVAILABLE; IF THE PARTIES FAIL TO AGREE ON THE FORM OF DISCOVERY WITHIN 30 DAYS AFTER THE APPOINTMENT OF THE ARBITRATOR, THERE SHALL BE NO DISCOVERY OR ISSUANCE OF ANY SUBPOENAS. THE ARBITRATOR SHALL NOT LIMIT, EXPAND, OR MODIFY THE TERMS OF THIS AGREEMENT NOR AWARD DAMAGES IN EXCESS OF COMPENSATORY DAMAGES PERMITTED UNDER THIS AGREEMENT, AND EACH PARTY WAIVES ANY CLAIM TO SUCH EXCESS DAMAGES. THE ARBITRATOR SHALL NOT HAVE ANY ABILITY TO AWARD ANY EQUITABLE REMEDIES, AND SHALL BE LIMITED TO REMEDIES AVAILABLE AT LAW. THE ARBITRATOR SHALL NOT HAVE THE RIGHT TO AWARD ANY DAMAGES IN EXCESS OF DAMAGES THAT COULD LAWFULLY BE AWARDED BY A COURT OF COMPETENT JURISDICTION. THE ARBITRATOR SHALL ISSUE A WRITTEN DECISION CONTAINING FINDINGS AND CONCLUSIONS ON ALL SIGNIFICANT ISSUES. A REQUEST BY A PARTY TO A COURT FOR INTERIM PROTECTION SHALL NOT AFFECT EITHER PARTY'S OBLIGATION HEREUNDER TO MEDIATE AND ARBITRATE. EACH PARTY SHALL BEAR ITS OWN EXPENSES AND AN EQUAL SHARE OF ALL COSTS AND FEES OF THE MEDIATION AND/OR ARBITRATION. ANY MEDIATOR OR ARBITRATOR SELECTED SHALL BE COMPETENT IN THE LEGAL AND TECHNICAL ASPECTS OF THE SUBJECT MATTER OF THIS AGREEMENT. THE CONTENT AND RESULT OF MEDIATION AND/OR ARBITRATION SHALL BE HELD IN CONFIDENCE BY ALL PARTICIPANTS. EACH OF WHOM WILL BE BOUND BY AN APPROPRIATE CONFIDENTIALITY AGREEMENT. B. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ITS CONFLICTS OF LAW PRINCIPLES. EXCEPT THAT PARAGRAPH 9.A. SHALL BE INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE UNITED STATES ARBITRATION ACT. C. Any legal action arising from or in connection with this Agreement, or any Services provided or work performed hereunder, must be brought within two (2) years after the cause of action arises. D. Neither party shall publish or use any advertising, sales promotions, press releases or other publicity which use the other party's name, logo, trademarks or service marks without the prior written approval of the other party. E. Nothing in this Agreement shall create or vest in Customer any right, title, or interest in the Services, other than the right to use the Services under the terms and conditions of this Agreement. F. If any portion of this Agreement is found to be invalid or unenforceable, the remaining portions shall remain in effect and the parties will begin negotiations for a replacement of the invalid or unenforceable portion. G. This Agreement may not be assigned by either party without the prior written consent of the other. However, AT&T may, without Customer's consent, assign this Agreement or its right to receive payments Page 5 hereunder to an affiliate or subsidiary. AT&T may subcontract any or all of the work to be performed by it under this Agreement, but shall retain responsibility for the work that is subcontracted. H. AT&T's performance obligations under this Agreement shall be solely to Customer and not to any third party. Other than as expressly set forth herein, this Agreement shall not be deemed to provide third parties with any remedy, claim, right of action, or other right. I. AT&T SHALL NOT HAVE ANY LIABILITY FOR DAMAGES OR DELAYS DUE TO FIRE, EXPLOSION, LIGHTNING, POWER SURGES OR FAILURES, STRIKES OR LABOR DISPUTES, WATER, ACTS OF GOD, THE ELEMENTS, WAR, CIVIL DISTURBANCES, ACTS OF CIVIL OR MILITARY AUTHORITIES OR THE PUBLIC ENEMY, INABILITY TO SECURE PRODUCTS OR TRANSPORTATION FACILITIES, FUEL OR ENERGY SHORTAGES, ACTS OR OMISSIONS OF COMMUNICATIONS CARRIERS OR SUPPLIERS, OR OTHER CAUSES BEYOND ITS CONTROL WHETHER OR NOT SIMILAR TO THE FOREGOING. J. All formal notices, requests, demands and other communications required or permitted under this Agreement shall be in writing unless otherwise specified in this Agreement and shall be deemed to have been duly made and received when personally served, or when mailed by first class mail, postage prepaid, to the addresses indicated on Page 1 of this Agreement. The parties may change the addresses on ten (10) days' prior written notice. In addition, the parties may provide other notices in connection with the provision of the Services under this Agreement (such as notices relating to service outages and maintenance) by other means, including by telephone, facsimile or electronic mail. K. THIS IS THE ENTIRE AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SERVICES PROVIDED HEREUNDER AND IT SUPERSEDES ALL PRIOR AGREEMENTS, PROPOSALS, REPRESENTATIONS, STATEMENTS, OR UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, CONCERNING SUCH SERVICES. No change, modification, or waiver of any of the terms of this Agreement shall be binding unless included in a written agreement and signed by both parties. ================================================================================ CUSTOMER'S SIGNATURE BELOW ACKNOWLEDGES THAT CUSTOMER HAS READ AND UNDERSTANDS EACH OF THE TERMS AND CONDITIONS OF THIS AGREEMENT AND AGREES TO BE BOUND BY THEM. ================================================================================ LAW OFFICE INFORMATION SYSTEMS, INC. AT&T CORP. By: /s/ Kyle D. Parker By:_____________________________________ --------------------------------- (Authorized Signature) (Authorized Signature) Kyle D. Parker - ------------------------------------ ________________________________________ (Typed or Printed Name) (Typed or Printed Name) President - ------------------------------------ ________________________________________ (Title) (Title) 9/28/95 - ------------------------------------ ________________________________________ (Date) (Date) Page 6 AT&T WorldNet(SM) Managed Internet Service (Plus) Attachment Cover Sheet Page 1 This Attachment to the AT&T WorldNet(SM) Services Agreement between Customer and AT&T Corp. ("Agreement") covers AT&T WorldNet(SM) Managed Internet Service (Plus) ("MIS Plus") and is an integral part of the Agreement. This Attachment consists of: . Cover Sheet . Appendix 1 MIS Plus Service Description . Appendix 2 MIS Plus Pricing . Appendix 3 MIS Plus Additional Terms and Conditions . Appendix 4 (If Applicable) Agency Agreement authorizing AT&T to act as Customer's agent to order access circuits for connection to MIS Plus Service Period This Attachment is effective when signed by Customer and accepted in writing by AT&T ("Attachment Effective Date"). The Service Period will commence on the Attachment Effective Date and, unless terminated in accordance with the provisions in the Agreement, will continue in effect for a period of Thirty-six (36) months. At the end of the Service Period, this Attachment will continue in effect on a month-to-month basis until terminated by either party giving the other party at least thirty (30) days prior written notice. Check all options that apply to this Attachment [X] Customer elects Option A -Premises Equipment Package (up to 15 zones/150 Kbytes) [_] Customer elects Option B - Primary Domain Name Service Administration [X] Customer elects Option C - Network News Feed Service [_] Customer Elects Option D - Packet Filtering [X] Customer Elects Option E - Usage Reports [_] Customer elects Option F -Additional secondary DNS (up to 30 zones/100 Kbytes) - -------------------------------------------------------------------------------- CUSTOMER'S SIGNATURE BELOW ACKNOWLEDGES THAT CUSTOMER HAS READ AND UNDERSTANDS EACH OF THE TERMS AND CONDITIONS IN THIS ATTACHMENT AND AGREES TO BE BOUND BY THEM. - -------------------------------------------------------------------------------- LAW OFFICE INFORMATION SYSTEMS, INC. AT&T CORP. By: /s/ Kyle D. Parker Accepted:_______________________________ --------------------------------- (Authorized Signature) (Authorized Signature) Kyle D. Parker --------------------------------- ________________________________________ (Typed or Printed Name) (Typed or Printed Name) President --------------------------------- ________________________________________ (Title) (Title) 9/28/95 --------------------------------- ________________________________________ (Date) (Date) AT&T WorldNet(SM) Managed Internet Service (Plus) Attachment Appendix 1 MIS Plus Service Description Page 1-1 1. Service Description AT&T WorldNet(SM) Managed Internet Service (Plus) ("MIS Plus") is an enhanced service providing managed connectivity to the Internet and other value-added features. MIS Plus is provided in conjunction with BBN Planet. MIS Plus provides managed Internet access, along with the following optional advanced services: . Premises Equipment Package . Primary Domain Name Service ("DNS") Administration (up to 15 zones/150 Kbytes) . Network News Feed . Packet Filtering . Usage Reports . Additional Secondary DNS (up to 30 zones/300 Kbytes) The Service Description includes Implementation Support, Network Operations and Services, Technical Services and Support, and Advanced Services. MIS Plus is available at port sizes ranging from 56 kbps to 45 Mpbs. and will be provisioned to ensure adequate throughput for MIS Plus on a shared-facilities basis consistent with the selected port size. Access options include Digital Private Line (Accunet(R) Digital Services) and Frame Relay (AT&T InterSpan(R) Frame Relay Service). Under this Attachment, MIS Plus is available only within the 50 states of the United States. 2. Implementation Support MIS Plus is a complete set of Internet access services and support. MIS Plus includes everything necessary to assure that a business customer will establish and maintain a successful connection to the Internet. MIS Plus includes expert implementation support, pro-active monitoring of service levels, and problem diagnosis and resolution. Implementation support, including Option "A" for customer premises equipment, is described below. 2.1 Site Planning and Preparation AT&T will provide site planning information to Customer's designated point of contact in order to assist Customer in preparing for installation of MIS Plus. Customer will be responsible for providing space and power for a dedicated router and other premises equipment, an attachment to Customer's internal network, and at least one computer with TCP/IP support. MIS Plus includes the registration and propagation of network numbers, domain names, and routing information as required for Customer's environment. 2.2 Communications Circuit Ordering AT&T will (on behalf of Customer) order and arrange for installation of the Digital Private Line or other circuit necessary to connect Customer's location to the designated AT&T Point of Presence ("Access Facilities"). AT&T arranged for termination of the circuit in proximity to the planned location of the premises equipment. Any inside wiring charges shall be the responsibility of Customer. 2.3 Equipment Provisioning and Staging Customer may purchase and own premises equipment used in connection with MIS Plus, but shall assign full management and operational control of that equipment to AT&T. MIS Plus customers must maintain the premises equipment to current hardware and software revision levels to make sure that AT&T continues to be able to exercise operational control. An MIS Implementation Engineer will work with Customer's implementation coordinator to assure that the proper equipment is used and configured correctly. With or without Option "A", customers may select remote installation, referred to as Tele-Install (via telephone), of premises equipment, or, for an additional charge, on-site installation. Tele-install is included in MIS Plus and entails having MIS technicians remotely assist Customer's technical liaison in the configuration of the premises equipment as necessary to ensure that the premises equipment is configured properly to work with MIS Plus and validate the integration of Customer's existing internal network with MIS Plus. In the case of the on-site implementation option, an MIS technician is dispatched to Customer's premises to perform the installation. 2.4 Acceptance Testing The MIS Network Operations Center ("NOC") conducts tests to Customer's site to ensure that the on-site router can successfully communicate over MIS Plus. The acceptance test verifies the proper operation of the on-site equipment package, the local access facility, and the AT&T access infrastructure. 2.5 Initial Integration Service MIS Plus includes Internet integration support. This includes consultation and assistance towards performance of the following initial configuration and orientation tasks on Customer's fully-installed Internet host: . TCP/IP software configuration . SMTP mail host configuration Such activities will be undertaken on AT&T-approved computing systems with suitable TCP/IP software. The integration phase of implementation is considered complete when the criteria defined in Section 2.6 are met. AT&T WorldNet(SM) Managed Internet Service (Plus) Attachment Appendix 1 MIS Plus Service Description Page 1-2 2.6 Acceptance Criteria Project implementation for Customer shall be considered complete and service billing will be initiated when the following criteria have been met. 1. The access router and associated premises equipment is correctly configured and installed at Customer site, and IP connectivity to the Internet (including routing outside the MIS network) exists. MIS technical staff verifies IP connectivity through a test which sends repeated pings through the Internet to Customer site and verifies that the pings were received. In cases when the premises equipment configuration supports it, technical staff verifies IP routing through a trace route test. 2. If Customer has its own domain, Customer's domain is registered with InterNIC (a process which is managed by AT&T) and any AT&T-supplied primary and secondary DNS servers are operational for Customer's domain. 3. Any required packet filtering, if Option "D" is selected, has been installed in the MIS router. 2.7 New Customer Training Installation includes classroom training on networking topics such as establishing domain name servers, configuring gateways, implementing subnetting schemes and processing electronic mail addresses. The two days of training for two people will be offered at a designated MIS Training Facility. 3. Network Operations and Services MIS network operations and technical support staff is dedicated to providing high network availability and performance. MIS is monitored 24 hours per day, 365 days a year by experienced operators and technicians. The NOC will coordinate operations with Customer's designated points of contact, hardware vendors and operators of other networks. The NOC will perform proactive operations support and trouble shooting of network and service infrastructure and provide pro-active monitoring of service levels and problem diagnosis and resolution. In addition, AT&T will regularly generate and store premises router performance information in the NOC for Customer's retrieval and use. 3.1 Network Monitoring The NOC uses SNMP-based software to monitor the network. This software is coupled with additional tools to monitor non-SNMP equipment, domain name servers, NNTP news feeds, and other network services. The monitoring software reports the status of the network to a display that is monitored throughout the day. Changes in the network status are logged to provide the NOC with the ability to evaluate staff responsiveness and network availability. 3.2 Communication Link Maintenance The NOC is responsible for maintaining the communications link between Customer and the MIS network. This includes problem diagnosis, and any necessary vendor interaction for dispatch and repair. 3.3 Premises Equipment Maintenance MIS Plus includes maintenance for dedicated premises equipment for MIS Plus customers. The MIS operations staff shall diagnose failures with the assistance of Customer's designated point of contact designated by Customer at the site, and determine whether equipment replacement is required. Customer's designated point of contact shall perform the actual replacement with telephone assistance (as necessary) from the NOC. If Customer has selected Option "A" (Premises Equipment Package), Customer shall receive replacement equipment via next-business-day courier. 4. Technical Services and Support 4.1 Software and Configuration Support MIS technical staff will coordinate software updates and configuration changes as required for the router and CSU/DSU. AT&T will notify the Customer's designated point of contact of software changes, and will seek where feasible to perform maintenance during off-hours. 4.2 24-hour Hotline All hotline calls will be answered by a touch-tone menu system. The hotline will be staffed on a 24-hour basis. 4.3 Trouble Ticket System The Network Operations Trouble Ticket System allows the NOC to track problems from initial report through satisfactory resolution. As the MIS staff works to resolve problems, the current status is always entered in the Trouble Ticket System. The system's electronic mail and fax interfaces allow these entries to be provided automatically to interested customer technical contacts. 4.4 Fault Isolation and Problem Resolution Fault isolation involves coordination among network operators and technicians, staff at the affected site and other vendors. Depending on the specific technologies used, the process may involve testing equipment, reconfiguring routers, or diagnosing communications link problems. The MIS operations staff will also seek to keep AT&T customers informed of any widespread outages on connection networks. AT&T WorldNet(SM) Managed Internet Service (Plus) Attachment Appendix 1 MIS Plus Service Description Page 1-3 4.5 Security Procedures MIS security procedures include keeping customers informed of known and suspected security breaches. Information about security problems will be reviewed and may be distributed to customer sites by the MIS operations staff. Fax, phone calls and E-Mail will be employed, based on the urgency and nature of the problem. MIS Plus customers may designate a list of up to 5 contacts who will be authorized to request site disconnection or reconnection as necessary. The security procedures employed with MIS Plus constitute only part of a comprehensive security plan for any user of Internet services, and do not guarantee network security or prevent security incidents. Customer is responsible for implementing security measures to protect its network, systems, applications, data files, programs, procedures and information from unauthorized access, alteration, theft, loss or destruction. 4.6 Secondary Domain Name Service (DNS) AT&T provides MIS Plus customers with secondary domain name service as necessary for successful presence on the network (up to 10 zones and 100 Kbytes of zone file data). Secondary DNS service is maintained on multiple servers which are physically diverse and connected to the MIS network at different points. DNS administration is performed during normal business hours and changes are limited to an average of one per week. 5. Optional Services MIS Plus customers may subscribe to the following optional advanced services. Option "A" - Premises Equipment Package MIS Plus customers may choose to obtain pre-configured customer premises equipment from AT&T as part of the service for an additional monthly fee, or on a purchase basis at a one-time cost. AT&T will replace equipment in need of repair under this Option as provided in Section 3.3 of Appendix 1, Service Description. The premises equipment package consists of a TCP/IP router, CSU/DSU, loopback connector, transceiver, and associated cables. Customers may choose between AUI or 10BASE-T an 10BASE-2 transceiver types. Where a different type of transceiver is required, Customer is responsible for providing it. The package of service equipment utilized by each customer is pre-assembled and subjected to a hardware quality acceptance test by MIS technical staff before delivery to Customer site. To ease installation, equipment is either pre-configured before delivery to Customer or remotely configured by MIS technical stall after it is connected to the network. Option "B" - Primary Domain Name Service (DNS) Administration (up to 15 zones/150 Kbytes) The translation of domain names (e.g., xxx.com) to underlying Internet addresses is performed by primary domain name servers. Therefore, establishment of a Primary DNS is a prerequisite for each Internet presence. Secondary DNS backup is part of MIS Plus (up to 10 zones and 100 Kbytes of associated zone file data). By purchasing Option "B", Customers may have MIS provide primary DNS service rather than incurring the cost of setting up and managing a primary DNS system in-house. This option provides Primary DNS for up to 15 zones and 150 Kbytes of associated zone file data. MIS engineers work with Customer to develop and implement a DNS strategy. This includes working with InterNIC to register Customer's domain name. Once in place, changes to the DNS data base are performed during normal business hours and limited to an average of one request per week. Option "C" - Network News Feed Service Network News is a forum of groups that conduct national and international dialogues on thousands of topics. Hundreds of thousands of people throughout the world participate in this "bulletin board." The forum allows people to post and read about new findings, products, services, or commentary within a special interest group or a wider audience. Under Option "C," MIS Plus offers comprehensive or selective access to these news groups, as chosen by the Customer. AT&T IS NOT RESPONSIBLE IN ANY WAY FOR THE CONTENT OF ANY NEWS GROUPS THAT MAY BE ACCESSED BY CUSTOMER THROUGH THIS FEATURE. As a prerequisite to Network News Feed Service, Customer must install a news server provided by Customer. Once the server is in place and the service is established, MIS Plus feeds selected news information from the MIS central news server to Customer's server via NNTP (network news transfer protocol) making it available to all authorized users on Customer's private network. MIS staff will track evolving use of news feed service and make recommendations on upgrading access line speed to keep pace with news feed requirements. Customers may request changes to the list of news groups fed from the MIS server during normal business hours at a frequency averaging up to one change request per week. Option "D" - Packet Filtering Packet Filtering is a useful component of a comprehensive security plan. Under Option "D," AT&T oversees implementation and ongoing management of packet filtering tables resident in the premises router. These filters help control which outside addresses can enter a customer's internal network and help screen internal users from connecting with predesignated outside destinations via the Internet. The MIS engineering staff works with Customer to develop a customized packet filtering plan. Once this design phase is complete, AT&T builds the filtering tables in the router and maintains the filtering tables as Customer's environment evolves. Routine changes to filters are limited to an average of one request per week. AT&T WorldNet(SM) Managed Internet Service (Plus) Attachment Appendix 1 MIS Plus Service Description Page 1-4 Option "E" - Usage Reports Network Usage Reports are a traffic summary that allows customers to track access line utilization and peak activity periods. With this information, customers can proactively plan access line bandwidth upgrades as overall utilization grows. The usage report is provided weekly and details utilization as a percentage of available bandwidth across the week. This information is collected from Customer premises equipment using SNMP (Simple Network Management Protocol) tools. Option "F" - Additional Secondary DNS (up to 30 zones/300 Kbytes) Secondary DNS, as back-up to the Primary DNS, is included as part of MIS Basic for up to 10 zones and 100 Kbytes of associated zone file data. By selecting this option, Customer can choose to increase that coverage to up to 30 zones and 300 Kbytes of associated zone file data. AT&T WorldNet(SM) Managed Internet Service (Plus) Attachment Appendix 2 MIS Plus Pricing Page 2-1 Pricing The prices specified in this Appendix 2 apply to each location provisioned for MIS Plus and, other than Access Facilities Charges under Section IV, are guaranteed for the Service Period only and only for services initially purchased under this Attachment. At the end of the Service Period, all discounts and discount plans will cease, and AT&T may amend the prices from time-to-time provided that AT&T gives Customers at least sixty (60) days prior written notice. Different prices may also apply to services, features, options and locations selected after the Attachment Effective Date. Schedule I: Implementation Support Fees Service Level - ------------- Tele-Install $1000 - ------------------ Notes: (1) Implementation support fees are a one-time charge due within 30 days of service commencement. (2) Travel expenses also apply to on-site installations more than 125 miles from any MIS service center: Dallas, Chicago, Atlanta, Cambridge, New York City, Palo Alto and Washington, D.C. (**) 45 Mbps installation costs will be provided to the customer on a case by case basis. Schedule II: AT&T WorldNet(SM) Managed Internet Service (Plus) Port Rate and Monthly service fee --------------------------------- 768 Kbps (15% discount) - $1955 Notes: (**) 45 Mbps Service costs will be quoted on a case by case basis. Additional charges may apply for services or features not specified herein, including location changes and professional services. Schedule III: Optional Services Options - ------- Option "A" Premises Equipment Package 128 Kbps - T1 Outright Purchase - $5000 Notes: (**) 45 Mbps prices will be quoted on a case by case basis.
Installation Monthly (One-Time) ------- ------------ Option "B" Primary DNS Administration (Up to 15 Zones/150 Kbytes) -NA- -NA-
Notes: (1) Secondary DNS Administration included in MIS Plus includes up to 10 zones and 100 Kbytes of associated zone file data. Primary DNS Administration includes up to 15 zones and 150 Kbytes of associated zone file data. AT&T WorldNet(SM) Managed Internet Service (Plus) Attachment Appendix 2 MIS Plus Pricing Page 2-2
Installation Monthly (One-Time) ------- ------------- Option "C" Network News Feed Service -NA- -NA- Option "D" Packet Filtering -NA- -NA- Option "E" Usage Reports $50 -NA- Option "F" Additional Secondary DNS (up to 30 Zones/300 Kbytes) -NA- -NA-
Schedule IV: Access Facilities Charges Access Facilities will be priced on an individual case basis by your AT&T Representative from Customer location to the point where service availability has been defined. The following access types will be supported: Digital Private Line (ACCUNET(R) Digital Services) Frame Relay (AT&T InterSpan(R) Frame Relay Service) Others (including Integrated Access) as approved by AT&T on a case-by-case basis. Service will be available at all AT&T InterSpan and ACCUNET Points of Presence within the 50 states of the United States. Schedule V: Special Options Special Options include Redundant Configurations. With this Special Option, available to MIS Plus customers that select Option "A," Premises Equipment Package, dual premises equipment is provided to the customer, and each router and CSU/DSU pair is homed into a different AT&T POP. This Special Option does not include loadsharing of outbound traffic across the Access Facilities (which is the responsibility of the customer's host) or inbound traffic balancing across the Access Facilities (which cannot be assured in this configuration). Special Options also include the following services offered by BBN Planet: Web Advantage(SM) Service and Site Patrol(SM) Service. See you AT&T Representative for descriptions and terms and conditions relating to these services. Special Options will be priced out of an individual basis by your AT&T Representative. The total monthly price is the sum of applicable portions of Schedules II, III and IV. AT&T WorldNet(SM) Managed Internet Service (Plus) Attachment Appendix 3 MIS Plus Additional Terms and Conditions Page 3-1 1. Implementation Customer and AT&T will mutually agree upon a Scheduled Network Activation Date ("SNA") for each location site. AT&T will use all reasonable efforts to ensure that service is provided by that date. 2. Billing Billing for each location shall begin on the earlier of (i) the Actual Network Activation Date ("ANAD") for that location or (ii) if implementation is postponed beyond the SNAD at the request of Customer, due to Customer's failure to meet its obligations under this agreement, or otherwise due to circumstances within Customer's control, the SNAD as set forth in Section 1, Implementation. The ANAD for a Customer location is when Customer is notified by AT&T that MIS Plus is being provided to that location. 3. Access Facilities The following provisions shall apply to Access Facilities provided by AT&T under this Attachment. A. Customer understands and agrees that AT&T, in order to provision MIS Plus, will be obtaining the required access facilities necessary to connect Customer's locations to the designated AT&T Point of Presence ("Access Facilities"). AT&T will obtain Access Facilities from interexchange carriers, local exchange carriers, alternate access vendors and/or others ("Access Suppliers"). AT&T shall use reasonable efforts to work with the Access Suppliers to resolve problems with Access Facilities, but AT&T shall not be responsible for interruptions to MIS Plus caused by Access Facilities or installation delays caused by Access Suppliers. B. Access Facilities provided by AT&T under this Attachment shall be governed by this Attachment and not by tariff. Under this Attachment, AT&T will only provide Access Facilities to be used solely for the provision of MIS Plus. If Customer wishes to use integrated access facilities, i.e., facilities used for the provision of MIS Plus and tariffed services, Customer must obtain directly out of tariff or under a separate agreement such facilities and the network multiplexing functionality required to support the MIS Plus configuration. C. If Customer, with approval from AT&T, subsequently wishes to obtain Access Facilities directly out of tariff or under a separate agreement (and not through AT&T under this Attachment), Customer shall give AT&T ninety (90) days' advance written notice and pay all Access Facilities related charges incurred under this Attachment as of the effective date of such change. D. In cases where Access Facilities are purchased outside of this Attachment, arrangements shall be made for AT&T to be given operational control over such Access Facilities as necessary in connection with AT&T's provision of MIS Plus. 4. Termination If a 12-month Service Period is selected, the following applies: Customer may terminate this Attachment by thirty (30) days' prior written notice to AT&T and payment of all charges incurred as of the termination ate and a Termination Charge. The Termination Charge will consist of 100% of the scheduled payments for each of the months remaining through month 12 of the Service Period. If a 36-month Service Period is selected, the following applies: Customer may terminate this Attachment by thirty (30) days' prior written notice to AT&T and payment of all charges incurred as of the termination date and a Termination Charge. The Termination Charge will consist of (1) 100% of the scheduled payments for each of the months remaining through month 12 of the then-current annual period at the time the termination becomes effective, plus (2) all multi-year discounts (if any) received by Customer and an additional charge of five percent (5%) of the value of any canceled portion of the Service Period, and (3) any Access Facilities cancellation charges or other charges incurred by AT&T as a result of such termination. Thirty (30) days after the ANAD of the first location, Customer shall have a one time right to terminate this Attachment within the ten (10) day period thereafter by giving AT&T seven (7) days' written notice of termination and payment of all charges incurred as of the termination date, but without payment of any Termination Charges other than as provided under item (3) in the preceding paragraph. AT&T WorldNet(SM) Managed Internet Service (Plus) Attachment Appendix 3 MIS Plus Additional Terms and Conditions Page 3-2 Customer may terminate this Attachment at any time during the Service Period without liability, provided that Customer replaces this Attachment with a new Attachment or Agreement with AT&T for MIS of equal or greater term and revenue commitment at the same locations. 5. AT&T-Provided Equipment on Customer's Premises The following applies to any AT&T provided equipment located on Customer's premises. AT&T will deliver, install, and maintain the equipment, as more specifically described in Appendix 1, Service Description. Customer, at its own expense, will provide (i) an equipment room environmentally compliant with local laws of each country and other environmental conditions as specified by AT&T; (ii) reasonable access to the equipment at times specified by AT&T; and (iii) adequate work space, heat, light, ventilation and electrical outlets. Customer is responsible for removal of any hazardous material (e.g., asbestos) or correction of any hazardous condition on Customer's premises that affects AT&T's performance. The equipment shall not be removed, relocated, modified, or attached to non-AT&T equipment by Customer without prior written authorization from AT&T, which shall not be unreasonably withheld. Except for equipment subject to the Purchase Option under Option "A" (Premises Equipment Package), title to the equipment will remain with AT&T. Customer will, however, be liable for repair charges or the replacement cost of the equipment if it is damaged or lost due to theft, negligence, intentional acts, unauthorized acts or other causes within the reasonable control of Customer, its agents or employees. Customer will bear all risk of loss to equipment subject to the Purchase Option under Option "A" (Premises Equipment Package). Except for equipment subject to the Purchase Option under Option "A" (Premises Equipment Package), upon termination of this Agreement, or earlier termination of the applicable AT&T provided equipment option, Customer will make the equipment available for removal or return it in the same condition as originally installed, ordinary wear and tear excepted or Customer will pay for restoration of the equipment to such condition. AT&T shall not be obligated to restore thepremises to its original condition. If Customer does not return the equipment or make it available for removal by AT&T, then Customer shall be liable for its then-current market value. EQUIPMENT PROVIDED TO CUSTOMER SUBJECT TO THE PURCHASE OPTION UNDER OPTION "A" IS PROVIDED BY AT&T "AS IS," WITH NO EXPRESS OR IMPLIED REPRESEN TATIONS OR WARRANTIES OF ANY KIND (SUCH AS MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE). AT&T'S SOLE OBLIGATION WITH RESPECT TO SUCH EQUIPMENT SHALL BE AS PROVIDED UNDER SECTION 3.3 OF APPENDIX 1, SERVICE DESCRIPTION. AT&T WorldNet(SM) Managed Internet Service (Plus) Attachment Appendix 4 MIS Plus Additional Terms and Conditions Page 4-1 This Agency Agreement is between AT&T Corp. ("AT&T") and Customer. 1. EFFECTIVE DATE This Agreement is effective upon execution of the AT&T WorldNet(SM) Managed Internet Service (Plus) Attachment and shall continue in effect as long as the MIS Attachment is in effect. 2. SERVICES Customer authorizes AT&T to arrange for and coordinate installation and disconnection of tariffed and other communications services as required by Customer for its MIS Plus configuration. 3. PAYMENT OF CHARGES All recurring and non-recurring charges made by vendors for service ordered on Customer's behalf shall be paid by Customer directly and are not the responsibility of AT&T. 4. LIMITATION OF LIABILITY Customer's sole and exclusive remedies shall be: (a) in the event of breach of this Agency Agreement by AT&T, Customer's right to terminate this Agency Agreement; (b) Customer's right to direct damages for damage to real or tangible personal property or damages for bodily injury or death, proximately caused by AT&T's negligence; and (c) Customers right to receive a credit for charges billed to Customer by vendors solely as a result of negligence by AT&T. Except as provided in subparagraphs (b) and (c) above, AT&T shall have no liability for either direct, indirect, incidental or consequential damages (including lost profits) resulting from or arising in connection with this Agency Agreement. AT&T shall not be responsible for non-performance by any vendor from which AT&T orders service or equipment on Customer's behalf. 5. COVERAGE This Agency Agreement is in effect for all of Customer's MIS Plus locations unless otherwise specified by Customer in writing. THIS IS THE ENTIRE AGENCY AGREEMENT BETWEEN CUSTOMER AND AT&T WITH RESPECT TO MIS PLUS. ANY AMENDMENTS, MODIFICATIONS OR CHANGES MUST BE IN WRITING AND SIGNED BY CUSTOMER AND AT&T. LAW OFFICE INFORMATION SYSTEMS, INC. AT&T By: /s/ Kyle D. Parker By:_____________________________________ -------------------------------- (Authorized Signature) (Authorized Signature) Kyle D. Parker -------------------------------- _____________________________________ (Typed or Printed Name) (Typed or Printed Name) President -------------------------------- _____________________________________ (Title) (Title) 9/28/95 -------------------------------- _____________________________________ (Date) (Date) EX-10.22 24 FORM OF CUSTOMER SUBSCRIPTION AGREEMENT
EXHIBIT 10.22 LOIS INC. SUBSCRIPTION LICENSE AGREEMENT ---------------------------------------------------------------------------------------------------------------------------------- | | | CUSTOMER | [ ] | | | | ACCOUNT | NEW | | | COMPANY | NUMBER | | | | NAME ______________________________________________________________________________________ |-------------|-----------| | | | ORDER | | | S | | DATE | | | O | CUSTOMER | | | | L | CONTACT ______________________________________________________________________________________ |-------------|-----------| | D | | BAR | | | | | MEMBER | | | T | | NUMBER | | | O | |-------------|-----------| | | | LOIS | | | | ADDRESS ______________________________________________________________________________________ | SALES | | | | | REP. | | | | CITY, |-------------|-----------| | | STATE | | | | | ZIP ______________________________________________________________________________________ | TERRITORY | | | | | | | ---------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------------- | WORK PHONE | HOME PHONE | FAX | E MAIL | |------------------------------------|----------------------------------|---------------------------|------------------------------| | | | | | ---------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------------- | PRODUCT CODE | DESCRIPTION | QUANTITY | PRICE | EXT. PRICE | |-----------------|--------------------------------------------------------------------------|----------|-------------|------------| |(OFFICE USE ONLY)| | | | | | | | | | | |-----------------|--------------------------------------------------------------------------|----------|-------------|------------| | | | | | | | | | | | | |-----------------|--------------------------------------------------------------------------|----------|-------------|------------| | | | | | | | | | | | | |-----------------|--------------------------------------------------------------------------|----------|-------------|------------| | | | | | | | | | | | | -------------------------------------------------------------------------------------------------------|-------------|------------| ---------------------------------------------------------------------------------------------------- | | | | INITIAL SUBSCRIPTION TERM | | SUBTOTAL | | |--------------------------------------------------------------------------------------------------- | | | | | [ ] 1 YEAR [ ] 2 YEAR [ ] OTHER ______________ | |-------------|------------| |--------------------------------------------------------------------------------------------------- | | | | | INTERNET SUBSCRIBER INFORMATION | | DISCOUNT | | |--------------------------------------------------------------------------------------------------- | | | | | E MAIL ADDRESS | USER I.D. | PASSWORD | |-------------|------------| |--------------------------------|---------------------------------|-------------------------------- | | | | | | | | | ADJUSTMENTS | | | | | | | | | |--------------------------------|------------------------------------------------------------------ | |-------------|------------| | OFFICE USE - CREDIT CARD | [ ] VISA [ ] MASTERCARD [ ] AMERICAN EXPRESS | | | | | APPROVAL | | | S & H | | | | | | | | | | CARD | |-------------|------------| | | NO. ________________________________________________________ | | UPFRONT | | | | | | PAYMENT | | | | | | TOTAL | | | | | |-------------|------------| | | EXP. | | | | | | DATE ________________________________________________________ | | MONTHLY | | | | | | EFT PAYMENT | | ---------------------------------------------------------------------------------------------------- -------------------------- ---------------------------------------------------------------------------------------------------------------------------------- | NOTES | FOR OFFICE USE | |----------------------------------------------------------------------------------------------------------------------------------| | | | | ___________________________________________________________________________________________________ | Invoice # ______________ | |-------------------------------------------------------------------------------------------------------|------------------------- | | | | | ___________________________________________________________________________________________________ | Amt. $ _________________ | --------------------------------------------------------------------------------------------------------------------------------- I understand that this LOIS Subscription License Agreement (SLA) comes with a 30-day money-back guarantee and that I can cancel my SLA and receive a full refund of any monies that I have paid upon: (1) returning the products to LOIS, and; (2) informing LOIS in writing within 30 days of the order date shown on this SLA of my intent to cancel. After the expiration of the 30-day period, I hereby agree that I will pay LOIS the full amount of monies due under this SLA in a manner consistent with the terms herein. At the end of the initial subscription term of this SLA, LOIS will automatically invoice me in an amount of the then existing subscription pricing. I understand that if I do not wish to extend the automatic SLA I will provide LOIS written notice of my intent not to automatically renew within 30 days of the invoice date. In the event that I fail to make payment in full within 30 days of the receipt of the initial Invoice, or of any automatic SLA Invoice, I agree that LOIS may accelerate the total amount due and payable under any SLA and declare the total amount due and owing. Thereafter LOIS may collect said total amount and also charge me reasonable collection fees including a reasonable attorney's fee. I understand that this and any automatic SLA contains the entire rights, duties, and understanding of the parties, and that no oral communications that I may have had with any LOIS employee, agent, or representative shall alter its terms. I have read the foregoing SLA. I agree that this SLA will become binding on both LOIS and myself only upon acceptance by LOIS, Inc., at its corporate headquarters. In the event of a dispute as to the terms, conditions, or meaning of this SLA, I agree that the validity and enforceability of this SLA shall be determined under the laws of Arkansas, and I also agree that the venue of Crawford County, Arkansas is proper. ---------------------- Signature: __________________________________________________________ Date ______________ | Send Product | (Your signature is necessary to activate your subscription) | | | [ ] Yes | LOIS, Inc. . 105 North 28th Street . Van Buren, Arkansas 72956 | [ ] No | Phone: 501-471-5581 Ext. 159 . Fax: 501-471-9224 . Email: orders@pita.com ----------------------
EX-21.1 25 SUBSIDIARIES OF LOISLAW.COM EXHIBIT 21 SUBSIDIARIES OF LOISLAW.COM None. EX-23.2 26 CONSENT OF KPMG LLP Exhibit 23.2 When the transactions referred to in Note 7(c) of the Notes to the Financial Statements have been consummated, we will then be in a position to render the following report. KPMG LLP Little Rock, Arkansas June 18, 1999 Independent Auditors' Consent The audits referred to in our report dated May 29, 1999, except as to note 7(c) which is as of June , 1999, included the related financial statement schedule for each of the years in the three-year period ended December 31, 1998, included in the registration statement. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We consent to the use of our reports included herein and to the reference to our firm under the heading "Experts" in the prospectus. Little Rock, Arkansas June 18, 1999 EX-27.1 27 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31,1998 AND THE UNAUDITED FINANCIAL STATEMENTS AS OF AND FOR THE PERIOD ENDED MARCH 31, 1999 OF LOISLAW.COM, INC. YEAR 3-MOS DEC-31-1998 DEC-31-1999 JAN-01-1998 JAN-01-1999 DEC-31-1998 MAR-31-1999 99,042 20,031 0 0 2,153,633 2,169,323 124,974 115,440 0 0 2,186,257 2,850,855 2,312,719 3,173,151 866,260 939,979 17,012,244 22,016,652 6,937,140 9,192,293 12,262,524 17,589,598 0 0 0 0 1,642,658 1,642,658 (15,742,957) (18,707,554) 17,012,244 22,016,652 5,024,179 1,335,881 5,024,179 1,335,881 0 0 5,920,088 1,065,503 6,399,817 2,477,384 0 0 1,339,803 534,411 (8,593,576) (2,739,914) 0 0 (8,593,576) (2,739,914) 0 0 0 0 0 0 (8,593,576) (2,739,914) (2.52) (0,75) (2.52) (0.75)
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