-----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, DdgMyFwek1M1oiuP1RnpG046UBC/3A39xv8Ds709IQZxiSdu1VEfpV2LIu7z5KCQ nazS8hbUUoTvEQn4B/4MeA== 0001047469-99-012743.txt : 19990402 0001047469-99-012743.hdr.sgml : 19990402 ACCESSION NUMBER: 0001047469-99-012743 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PC QUOTE INC CENTRAL INDEX KEY: 0000745774 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY & COMMODITY BROKERS, DEALERS, EXCHANGES & SERVICES [6200] IRS NUMBER: 363131704 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-11108 FILM NUMBER: 99581002 BUSINESS ADDRESS: STREET 1: 300 S WACKER DR STREET 2: STE 300 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3129132800 MAIL ADDRESS: STREET 1: 300 S WACKER STREET 2: SUITE 300 CITY: CHICAGO STATE: IL ZIP: 60606 10-K 1 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number 0-13093 PC QUOTE, INC. Incorporated in the State of Delaware FEIN 36-313\1704 Principal Executive Offices: 300 South Wacker Drive, #300, Chicago, Illinois 60606 Telephone Number: (312) 913-2800 Securities registered pursuant to Section 12(b) of the Act: Common Stock, $.001 par Value Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] 1 As of March 8, 1999, the aggregate market value of the Common Stock of the Registrant (based upon the closing price of the Common Stock as reported by the American Stock Exchange) on such date held by non-affiliates of the Registrant was approximately $50,325,000. As of March 8, 1999, there were 14,496,094 shares of Common Stock and 47,866 shares of Preferred Stock of the Registrant outstanding. DOCUMENTS INCORPORATED BY REFERENCE: See Page 3 Portions of the Proxy Statement to be filed with the Securities and Exchange Commission in connection with the Annual Meeting of Stockholders to be held in 1999 are incorporated by reference into Part III hereof. 2 PART OF FORM 10-K DOCUMENT PART I None PART II None PART III ITEM 10 Directors, Executive Officers, Company's Proxy Statement Promoters and Control Persons; to be filed in connection with Compliance with Section 16(a) its Annual Meeting of of the Exchange Act Stockholders ITEM 11 Executive Compensation Company's Proxy Statement to be filed in connection with its Annual Meeting of Stockholders ITEM 12 Security Ownership of Company's Proxy Statement Certain Beneficial Owners to be filed in connection with and Management its Annual Meeting of Stockholders ITEM 13 Certain Relationships and Company's Proxy Statement Related Transactions to be filed in connection with its Annual Meeting of Stockholders PART IV ITEM 14 Exhibits and Reports Exhibits as specified in Item on Form 8-K 14 of this Report 3 PC QUOTE, INC. PART I ITEM 1. BUSINESS RECENT DEVELOPMENTS In December 1998 the Company converted $6.7 million of current debt into preferred equity and raised an additional $1.0 million in capital through a private placement of Common Stock and warrants. Altogether, the Company raised $9.2 million in capital in 1998 through the debt conversion, private placement, exercise of warrants and other sales of Common Stock. These transactions significantly improved the financial condition of the Company. See the LIQUIDITY AND CAPITAL RESOURCES section of PART II - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS of this Report. GENERAL DEVELOPMENT OF BUSINESS PC Quote, Inc. was incorporated in the State of Illinois on June 23, 1980 as On-Line Response, Inc. and was incorporated in Delaware on August 12, 1987. We are a premier provider of securities market data. We collect securities market activity and financial news directly from stock, options and commodities exchanges and other sources. We use the information to create a real-time database of last sale, bid/ask and historical prices of more than 325,000 issues. The database includes all North American equities, the most comprehensive options data, major stock indices, Level 1 NASDAQ-quoted stocks, Level 2 NASDAQ market-maker quotes, mutual funds, money market funds, futures contracts and options on futures contracts. We process the database into a single digital data-feed, "HyperFeed(TM)", at our primary processing plant located at our executive offices in Chicago, Illinois. We disseminate HyperFeed to our customers by satellite, digital data landlines and over the Internet. Software applications on our customers' computers access HyperFeed to allow the user to monitor securities activity on an on-going real-time basis. The applications also create a complete database of trading symbols, continuously updated by the data feed. This database gives our customer instant access to security prices. HyperFeed is used to create an equivalent database on our computers, accessible to our Internet customers. We derive our revenue from license fees charged for access to HyperFeed and from license fees charged for a packaged HyperFeed plus analytical software service. Our customer base consists primarily of professional investors, securities brokers, dealers and traders, portfolio managers, brokerage firms, other financial institutions, Internet web-sites, application developers and redistributors of financial market data. Our Internet service is utilized by individual and professional investors alike. Our Internet division, PCQuote.com, sells advertising space on our web-site, www.pcquote.com, in addition to subscriptions for delayed and real time market data. Its principal customers are financial web-site advertisers, other Internet web-sites, individuals, and businesses. Our customers are located primarily in the United States and North America. The following is a description of the principal services that we provide. 4 PART I-ITEM 1. BUSINESS PRODUCTS AND SERVICES HYPERFEED(TM) HyperFeed, the cornerstone of the services provided by PC Quote, is our digital real-time market data feed. We use multiple redundant, high-speed data circuits to gather information from securities exchanges and other sources. At our production center in Chicago, these feeds are directed into multiple real-time databases from which HyperFeed is generated. Data is broadcast to our customers over dedicated digital data circuits at 1024 kilobytes per second and by satellite at 112 kilobytes per second. HyperFeed contains all North American stock, options, and commodity exchange issues including: - Dynamic Nasdaq Level II market maker quotes; - Dow Jones Composite News Service (up to 90-day retrieval of nine wires "Broadtape", Professional Investor Report, Capital Markets Report, International News Wire, World Equities Report, European Corporate Report, Electronic Wall Street Journal, International Petroleum Reports, Federal Filings); and - Multiple levels of fundamental data. HyperFeed underlies all of our other services, which capitalize on HyperFeed to access, view and utilize data in a variety of ways. An industry standard PC at our customer's site receives HyperFeed data and creates real-time databases of securities activity, financial news and fundamental information. Software applications supplied by us, by third parties, or by our customer utilize our high-performance application program interfaces, or APIs, to access the data. The data can then be used for virtually any purpose, including third-party order execution systems, analytical modeling, internal risk management, order matching or redistribution via the Internet or wide area networks. Our customers pay monthly HyperFeed licensing fees and per-user or per-unit charges. We also provide access to HyperFeed via the Internet. Our Internet services, like our satellite and landline services, support applications developed by us, by third parties or by our customers, using Internet-enabled versions of our APIs. We, and our customers, are able to benefit from the Internet's substantially lower costs for service and communications, its ease of access and its worldwide availability. SOFTWARE APPLICATIONS AND SERVICES MARKETED BY REGISTRANT To complement the HyperFeed database, we have high-end applications and programming tools that we license to HyperFeed subscribers. PC Quote 6.0 for Windows is a comprehensive suite of real-time professional securities trading tools. Running under Microsoft(TM) Windows(TM) 3.1 or Windows(TM) 95, or Windows NT(TM), PC Quote 6.0 offers unlimited quote pages, charting, technical analysis, searchable news, time of sale and quote, Nasdaq Level II market maker screens, options analytical tools, dynamic data exchange into Microsoft(TM) Excel(TM), tickers, alerts, baskets and more. PC Quote 6.0 for Windows is available with our satellite, landline, and Internet services. Our "Quote Tools" are custom applications using robust and easy-to-use APIs. The Quote Tools enable a customer to build anything from real-time trading desktop interfaces to web-sites with portfolio management and the latest in Internet push technology. 5 PART I-ITEM 1. BUSINESS PRODUCTS AND SERVICES, CONTINUED In 1995 we established an Internet web-site, www.pcquote.com, offering free delayed quotes and other information to all visitors. We generate revenue by selling advertising on our web-site's free quote pages, selling subscriptions to real-time quote information, providing market information for other web-sites, and offering development tools for Internet-based applications. Our web-site also offers corporate profiles, financial news and press releases, and information about our services. PC Quote's Internet Business Services provide custom and template web-site services and software development services to software vendors, financial institutions, corporations, and Internet content providers. All of our Internet services, including the web site, advertising, PC Quote 6.0 on the Internet, and Quote Tools, can be wholesaled, private labeled, cloned or customized to meet a customer's specific needs. We are a quote service for the major office applications companies. In Microsoft Excel's new 1997 version, Web Query technology features the ability to access our data. In February 1997 Lotus Development Corporation also featured PC Quote's data as the "in-the-box" feature for its SmartSuite application. PATENTS, TRADEMARKS AND LICENSES We do not have patent protection for our proprietary software. Although applicable software is readily duplicated illegally by anyone having access to appropriate hardware, we attempt to protect our proprietary software through license agreements with our customers and common law trade secret protection and non-disclosure contract provisions in our agreements with our employees. We use security measures, including a hardware key, which restricts access to our services unless proper password identification from a PC Quote user is provided. As an additional safeguard, we provide only the object code on our diskette and retain the source code. HyperFeed(TM) is a service mark of PC Quote. COMPETITION The market for the on-line provision of financial information such as equities, commodities, futures and options quotations and news through services and software applications similar to those we provide includes a large number of competitors and is subject to rapid change. We believe our primary competitors include Bloomberg, Bridge Information Systems, the Comstock unit of Standard & Poors, the ILX unit of Thomson Corporation, Reuters, Quote.com and Data Broadcasting Corporation. Many of these competitors have significantly greater financial, technical and marketing resources and greater name recognition than we do. SEASONALITY We have not experienced any material seasonal fluctuations in our business. Barring any prolonged period of investor inactivity in trading securities, we do not believe that seasonality is material to our business activities. 6 PART I ITEM 1. BUSINESS RESEARCH AND DEVELOPMENT Our systems development personnel expend their time and effort developing new software programs and high-speed data delivery systems and expanding or enhancing existing ones. Development efforts focus on providing a solution to the informational and analytical needs of both the professional and private investors. Development activity has increased with the implementation of high-level design and prototyping tools. Our investment in software development consists primarily of: - enhancements to our existing Windows-based private network and Internet services; - development of new data analysis software and programmer tools; and - application of new technology to increase the data volume and delivery speed of our distribution system. During the fiscal years ended December 31, 1998, 1997 and 1996, we expensed $634,884, $873,579, and $706,618, respectively, for research and development. ENVIRONMENT Compliance with federal, state, and local provisions with respect to the environment has not had a material adverse effect on our capital expenditures, earnings, or competitive position. EMPLOYEES As of December 31, 1998, we employed 119 people, none of whom are represented by a collective bargaining unit. We believe we have a satisfactory relationship with our employees. From time to time we use the services of outside consultants on an hourly basis. GOVERNMENT CONTRACTS We have no material contracts with the Government. BACKLOGS Due to the nature of our business, backlogs are not a typical occurrence in our industry. MAJOR CUSTOMERS We did not have any customers that accounted for 10% or more of total revenue in either 1998 or 1997. For information concerning 1996 major customers, see Note 8 of the Notes to Financial Statements. 7 PART I-ITEM 1. BUSINESS ITEM 2. PROPERTIES Our executive offices and primary data center are located in approximately 15,000 square feet of leased space on the 3rd floor of 300 South Wacker Drive, Chicago, Illinois. The lease for the premises expires on December 31, 2004. Lease payments are subject to escalating base rent as well as adjustment for changes in real estate taxes and other operating expenses. (See Note 6 of the Notes to Financial Statements.) We also lease approximately 5,000 square feet of office space in Aurora, Illinois, through March 2000. The lease for 3,000 square feet of office space in New York City was extended in September 1997 through July 2002. (See Note 6 of the Notes to Financial Statements.) ITEM 3. LEGAL PROCEEDINGS Richard F. Chappetto, a former officer of PC Quote, filed a complaint against us on December 31, 1996. The action entitled RICHARD F. CHAPPETTO VS. P.C. QUOTE, INC., was filed in the Circuit Court of Cook County, Illinois bearing Case No. 96L015250. Mr. Chappetto's employment with PC Quote ceased on November 1, 1996. Mr. Chappetto's complaint alleges that we breached various verbal and written agreements by failing to pay certain commission, bonuses and severance pay and failing to provide him with certain stock options. Mr. Chappetto sought monetary damages of approximately $680,000. We filed a Motion to Dismiss a major portion of the complaint which was granted in 1998. The remaining portion of the complaint seeks monetary damages of approximately $70,000. We are vigorously contesting the remaining matter. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The following matter was submitted to a vote of shareholders and approved at a Special Meeting on December 17, 1998. 1. To consider and vote upon a proposal to approve the conversion of $6.7 million of debt owed to PICO Holdings, Inc. and Physicians Insurance Company of Ohio into equity in the form of convertible preferred stock of PC Quote, Inc. which would be convertible into a minimum of 4.8 million shares of common stock of PC Quote, Inc. and a warrant to purchase a minimum of 3.1 million common shares, which together represent 59% of the current shares outstanding and 37% of the shares outstanding after conversion and exercise, and approve the Securities Purchase Agreement made as of the 23rd day of September, 1998, by and among PC Quote, Inc., PICO Holdings, Inc. and Physicians Insurance Company of Ohio and the transactions contemplated thereunder. The results of the shareholder vote was as follows:
- ------------------ ---------------- ---------------- --------------- ---------------- ---------------- --------------- For Against Abstain Not Voted Total Voted - ------------------ ---------------- ---------------- --------------- ---------------- ---------------- --------------- Proposal #1 Shares 6,717,769 112,907 69,223 6,899,899 Pct of O/S 50.39% 0.85% 0.52% 51.76% Pct of Voted 97.36% 1.64% 1.00% 100.00% - ------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
8 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our shares of common stock are traded on the American Stock Exchange under the symbol "PQT." The following tables show for 1998 and 1997 the high and low sales prices of our Common Stock for the periods indicated, as reported by the American Stock Exchange.
1998 QUARTERLY INFORMATION HIGH LOW - -------------------------- ---- --- First 1-1/8 11/16 Second 4-15/16 11/16 Third 3-1/4 7/8 Fourth 3-3/4 1 1997 QUARTERLY INFORMATION HIGH LOW - -------------------------- ---- --- First 3-11/16 2-1/4 Second 2-1/2 1-1/8 Third 2-9/16 1-1/2 Fourth 2-1/4 7/8
As of February 28, 1999, we had 459 stockholders of record of our Common Stock. DIVIDEND POLICY We have not paid dividends on our Common Stock and do not currently plan to do so in the near future. In December 1998, we issued preferred stock that has a dividend rate of 5%. Preferred dividends are payable if, and when, we declare a dividend payment. We have not, and currently do not plan in the near future, to declare any preferred dividend payments. Preferred dividends are cumulative and the entire accumulated dividend must be paid prior to the payment of any dividends to common stockholders. ITEM 6. SELECTED FINANCIAL DATA
1998 1997 1996 1995 1994 INCOME DATA: Net revenue $ 23,045,533 $ 17,119,372 $ 17,032,164 $ 13,391,982 $ 12,903,645 Operating income (loss) ($ 4,699,426) ($ 8,920,726) ($ 2,957,830) $ 1,559,995 $ 528,769 Income (loss) before income taxes ($ 6,445,595) ($ 11,135,654) ($ 3,091,705) $ 1,376,597 $ 312,410 Net income (loss) ($ 6,449,208) ($ 11,141,416) ($ 3,255,969) $ 1,512,239 $ 305,410 Net income (loss) available for common stockholders ($ 7,468,146) ($ 11,141,416) ($ 3,255,969) $ 1,512,239 $ 305,410 BALANCE SHEET DATA: Total assets $ 10,053,367 $ 10,536,448 $ 11,554,070 $ 10,522,840 $ 9,071,731 Long term obligations $ 921,781 $ 2,833,734 $ 2,291,178 $ 712,904 $ 1,292,989 Stockholders' equity $ 2,915,271 $ 66,329 $ 5,331,577 $ 6,611,278 $ 4,830,369 PER SHARE DATA: Basic net income (loss) ($0.57) ($1.33) ($0.45) $ 0.21 $ 0.04 Diluted net income (loss) ($0.57) ($1.33) ($0.45) $ 0.21 $ 0.04
9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION - SAFE HARBOR DISCLOSURE The following discussion and analysis contains historical information. It also contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, particularly in reference to statements regarding our expectations, plans and objectives. You can generally identify-forward-looking statements by the use of the words "may," "will," "expect," "intend," "estimate," "anticipate," "believe," or "continue," or similar language. Forward-looking statements involve substantial risks and uncertainties. You should give careful consideration to cautionary statements made in this discussion and analysis. We base our statements on our current expectations. Forward-looking statements may be impacted by a number of factors, risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Our filings with the Securities and Exchange Commission identify factors that could cause material differences. Among these factors are our ability to: (i) fund our current and future business strategies as a going-concern either through continuing operations or external financing (see Note 14 of the Notes to Financial Statements); (ii) attract and retain key employees; (iii) compete successfully against competitive products and services; (iv) maintain relationships with key suppliers and providers of market data; and (v) respond to the effect of economic and business conditions generally. RECENT BUSINESS DEVELOPMENTS NEW INTERNET DIVISION. In December, 1998 we formed an internal Internet division, PCQuote.com. An outgrowth of our financial content web site, www.pcquote.com, the new division's objective is to provide a comprehensive array of investment tools to empower the growing sophistication of the individual investor. Continued growth in page views, increasing attractive demographics and subsequent increase in advertising revenue led to our decision to segregate the web site into its own business unit. As a distinct business unit, the new division will afford us more flexibility in considering opportunities that are available solely to the Internet web site business. JB OXFORD. In October, 1998, we entered into an agreement with JB Oxford & Co. (NASDAQ: JBOH) to private-label our PC Quote 6.0 for Windows. With the addition of the private-labeled version of PC Quote 6.0 for Windows, JB Oxford customers will have instant access to a wider variety of investment tools, including real-time streaming quotes, intra-day charting, time and sales and technical analysis. PC Quote will be paid a monthly fee determined by the number of JB Oxford's clients that subscribe to the service. DOUBLECLICK DART. In December, 1998, we selected DoubleClick's DART technology as our new ad serving solution for our web site, www.pcquote.com. DART, or Dynamic Advertising Recording and Targeting, will provide us with drastically increased efficiency in ad inventory management and the ability to dynamically target advertisements to visitors to our website. We believe DoubleClick's DART provides us with the functionality to realize the full value of every page impression not only on our own web site, but also on each page we co-brand for partners. New productivity gained through the implementation of the DART system will allow www.pcquote.com to drastically increase total web site space available for advertising. 10 PART II - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED RESULTS OF OPERATIONS FOR 1998 COMPARED TO 1997 Total revenue increased 34.6% in 1998 to $23.0 million from $17.1 million in 1997. Our HyperFeed and LAN services and Internet services both posted increases in 1998 over 1997. HyperFeed and LAN service revenue increased $700,000, or 5.9%, from $12.1 million in 1997 to $12.8 million in 1998. Revenue growth was experienced through increased service offerings. Revenue from our Internet services increased $5.2 million, or 104%, to $10.2 million in 1998 from $5.0 million in 1997. The growth is principally due to our PC Quote 6.0 Internet service where the number of subscribers grew from 2,500 at the end of 1997 to 4,300 at the end of 1998. Direct costs of services increased approximately 17.6% to $17.0 million in 1998 from $14.5 million in 1997. Principal components of the increase were royalties, leased equipment, communication costs, and compensation directly attributable to Internet services and PC Quote 6.0 subscriber growth, and payments to providers of market data. Amortization of software development costs decreased from $1.9 million in 1997 to $1.8 million in 1998 due to certain 1998 projects not planned for release until 1999. Direct costs associated with HyperFeed and LAN services increased from $9.9 million in 1997 to $10.4 million in 1998. Increases in license and exchange fees and the cost of customer support were offset to a degree by efficiencies in data-feed operations and a decrease in amortization of software development costs. The resulting gross margin increased slightly to $2.4 million in 1998 from $2.2 million in 1997. Direct costs associated with Internet services increased to $6.6 million from $4.6 million in 1997. The significant growth we experienced caused us to incur increases in license and exchange fees, customer support and operations devoted to these services. Software amortization also increased as more resources were diverted to this portion of our business. The gross margin on Internet services increased from $419,000 in 1997 to $3.6 million in 1998, as we were able to leverage our infrastructure and support operations. Total operating expenses declined $840,000, or 7.2%, as a result of the restructuring in 1997 and subsequent cost containment efforts. Decreases from restructuring charges and in general and administrative expenses were offset to a degree by increases in sales expense and product and market development. Sales costs increased 23.1% to $4.5 million in 1998 as compared to $3.7 million in 1997. The increase was due to additional sales personnel added at the end of 1997 and early 1998, increased advertising expenditures and higher total commission expense as a result of increased sales of our PC Quote 6.0 Internet service offering. General and administrative expenses decreased 16.2% to $3.3 million in 1998 from $4.0 million in 1997. The decrease was principally due to reductions in compensation and related employee costs, lower utilization of consultants and external professionals and a decrease in bad debt expense as compared to the prior year. Product and market development costs increased 7.2% to $1.7 million in 1998 from $1.6 million in 1997. The increase was due to an increase in the number of personnel devoted to these efforts, in addition to costs of maintaining and enhancing previously developed products and services. Depreciation and amortization remained unchanged at $1.2 million year to year. There were no restructuring charges recognized in 1998 like the $1.1 million reported for 1997. Interest expense was $1.8 million for 1998, a decrease of 21.6% from the $2.3 million recognized in 1997. The decrease reflects the absence of non-cash amortization of $979,097 recognized in 1997 for the value of common stock purchase warrants that were issued to PICO Holdings, Inc. This was offset by an increase in interest expense amortization to $1,096,402 in 1998 from $674,992 in 1997 for the value of the $2.5 million convertible subordinated debenture's beneficial conversion feature. Also included is interest on our bank term loan, the convertible subordinated debenture and borrowings from PICO Holdings, Inc. (See Note 2 and Note 3 of the Notes to Financial Statements.) 11 PART II - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, RESULTS OF OPERATIONS FOR 1998 COMPARED TO 1997, CONTINUED In December 1998 we converted current debt into convertible preferred stock. The maximum conversion rates for the two series of preferred issued were set at and above the closing market price of our common at the time the conversion was approved by our Board in September 1998. Stockholder approval, obtained in December, was a condition to closing the debt conversion transactions. The market price of our common stock on the closing date was slightly higher than the maximum conversion price agreed to in September. Accounting and SEC pronouncements require this differential to be treated as non-cash preferred dividends. Preferred dividends of $1,018,938 were recognized in 1998 with a corresponding increase in additional paid-in-capital from the preferred issuance. (See Note 3 of the Notes to Financial Statements.) RESULTS OF OPERATIONS FOR 1997 COMPARED TO 1996 Total revenue increased 0.5% in 1997 to $17.1 million from $17.0 million in 1996. The increase is despite the loss of two major customers that used our traditional direct data-feed service. (See Note 8 of the Notes to Financial Statements.) The lost revenue from the two customers, $4.9 million, was offset by an increase of approximately $900,000 in net new data-feed service revenue and a $4.1 million increase in our Internet services revenue. Our Internet services, launched in 1996, grew from $937,000 in 1996 to $5.0 million in 1997, a 435% increase. The increase reflects professional and individual investors' acceptance of the Internet as a medium for receiving delayed and real-time market data. Direct costs of services increased 31.4% to $14.5 million in 1997 from $11.0 million in 1996. Principal components of the increase were royalties, leased equipment, communication costs, and compensation directly attributable to Internet operations and sales of PC Quote 6.0, and payments to providers of market data. Amortization of software development costs increased 53% to $1.9 million in 1997 from $1.2 million in 1996. The increase is the result of our continued investment in our Internet and direct data feed services and delivery mechanisms. Also contributing to the increase was our determination that our 1997 software projects should be amortized over a three-year period. We also assessed the estimated future undiscounted cash flows for software projects capitalized in earlier years with a five-year amortization period. Based on our assessment, no adjustment to their net realizable value was necessary. Direct costs associated with HyperFeed and LAN services increased from $9.7 million in 1996 to $9.9 million in 1997. Increases in license and exchange fees and amortization of software development costs were offset to a degree by decreases in the cost of customer support and data-feed operations related to the two lost customers. Principally due to the lost customers, the resulting gross margin decreased significantly from $6.4 million in 1996 to $2.2 million in 1997. Direct costs associated with Internet services increased to $4.6 million from $1.3 million in 1996. The significant growth we experienced caused us to incur increases in license and exchange fees, customer support and operations devoted to these services. Software amortization also increased as more resources were employed to develop this portion of our business. The resulting gross margin increased from a negative $384,000 to a positive $419,000. Total operating expenses increased $2.6 million, or 28.9%, as a result of the restructuring in 1997 and increases in sales, general and administrative, and product and market development incurred to improve operations and generate replacement revenue growth. Sales costs increased 16.8% to $3.6 million in 1997 as compared to $3.1 million in 1996. The increase was mainly due to higher commission incentives and increased sales of our PC Quote 6.0 Internet service offering. General and administrative expenses increased 13.3% to $4.0 million from $3.5 million in 1996. The increase was principally due to higher utilization of consultants and external professionals as compared to the prior year. The higher utilization resulted from financing alternatives pursued by us during 1997, in addition to professionals employed by us to assist in improving our operations. 12 PART II - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, RESULTS OF OPERATIONS FOR 1997 COMPARED TO 1996, CONTINUED Product and market development costs increased 39.3% to $1.6 million in 1997 from $1.1 million in 1996. We incurred additional personnel and related costs in 1997 in order to develop, market and brand our Internet service offerings. Depreciation and amortization was unchanged at $1.2 million for 1997 and 1996. We had a significant management reorganization and restructuring of operations in June 1997. We wrote off approximately $572,000 of unamortized software development costs related to previously capitalized software projects that were discontinued. The management reorganization resulted in employment related termination costs of $425,000. We also paid $150,000 to terminate a contractual arrangement related to unprofitable operations. As a result, we recognized restructuring expense of $1.1 million. (See Note 12 of the Notes to Financial Statements.) Interest expense was $2.3 million for 1997, an increase of 1,469% over the $144,000 incurred in 1996. The increase reflects the recognition of: - non-cash amortization of $674,992 for the value of the $2.5 million convertible subordinated debenture's beneficial conversion feature, and - amortization of $979,097 for the value of the common stock purchase warrants issued to PICO Holdings, Inc. in connection with a financing arrangement. Also included is interest on the bank term loan, the convertible subordinated debenture and financing arrangement borrowings. (See Note 2 and Note 3 of the Notes to Financial Statements.) LIQUIDITY AND CAPITAL RESOURCES Net cash and cash equivalents were essentially unchanged at $1.1 million at the end of 1998 and 1997. Expenditures for new equipment were 22% less in 1998 versus 1997 as a result of lower prices for computer equipment and increased efficiencies implemented in our operations. Capitalized software costs were 9.9% higher in 1998 than 1997 due to an increase in development resources devoted to coding, testing and quality assurance of new service offerings. In December 1998 we converted $6.7 million of current debt into preferred equity. The converted debt was comprised of: - $2,500,000 convertible subordinated debenture principal balance; - accrued interest on the convertible subordinated debenture in the amount of $480,000; - $3,250,000, including $1,000,000 borrowed in 1998, principal balance on the loan facility with PICO Holdings, Inc.; - $40,000 facility fee on the loan facility; and - accrued interest on loan facility borrowings in the amount of $489,000. We incurred approximately $27,000 in legal and associated costs to affect the debt conversion. Interest expense related to the converted debt accounted for approximately $1.7 million of the loss reported for 1998. In January 1998 we completed a rights offering receiving approximately $3.0 million in gross proceeds from the sale of shares underlying exercised rights. The entire proceeds were used to fulfill our obligation to repurchase shares. 13 PART II - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES, CONTINUED We also received approximately $2.4 million in net proceeds from other sales of common stock through: - the exercise of previously issued warrants; - the exercise of employee options; - purchases under the employee stock purchase plan; - issuance of shares to the Chairman and CEO in lieu of cash salary payments; - and o a $1.0 million private placement of common stock. See Note 3 of the Notes to Financial Statements for additional details regarding the debt conversion and financing transactions. We reported a net loss of approximately $6.4 million and a net loss available to common stockholders of approximately $7.5 million for the year ended December 31, 1998. As of December 31, 1998, we had an accumulated deficit of approximately $27.6 million and deficit working capital of $3.5 million. These conditions raise doubt about our ability to continue as a going concern. We have addressed, and continue to address, this doubt. Total revenue in 1998 increased 34.6% to $23.0 million over 1997, while direct costs of services increased only 17.6% to $17.0 million versus $14.5 million in 1997. The resulting gross margin increased 127% from $2.7 million in 1997 to $6.0 million in 1998. The increase in revenue was principally due to the growth in subscriptions to our Internet version of PC Quote 6.0 and other Internet services. This together with operating cost containment contributed to our gross margin improvement. We expect continued revenue growth and gross margin improvement due to continued increases in subscriptions to our current Internet services, new service offerings planned for release in 1999 and planned reductions in expenses related to leased equipment. We believe the anticipated revenue growth and improved margins will result in our operations turning cash flow positive by the end of 1999. Although we believe our gross margins will continue to improve, there can be no assurances that generated cash flow will be sufficient to fund operations. If generated cash flow is not sufficient to fund operations, we may have to raise additional capital externally. We raised a substantial amount of capital in 1998 through the debt conversion and exercise of warrants and other sales of common stock. These transactions significantly improved our financial condition. In order to minimize dilution to existing stockholders, our objective is to raise the minimal amount of capital for operations, if and when necessary. We believe we have the ability to raise external capital. However, any capital raised could be costly to us and/or dilutive to stockholders. Additionally, we have explored, and continue to explore multiple alternatives that may be available for the purpose of enhancing stockholder value. These alternatives include a merger, a spin-off or sale of part of our business, a strategic relationship or joint venture with another technology or financial services firm and future equity financing to further fund our business. There can be no assurances, however, that we will conclude a transaction. (See Note 14 of the Notes to Financial Statements.) 14 PART II - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED YEAR 2000 ISSUES 1. Overview PC Quote does not have or use mainframe computers in its internal operations. Consequently, we do not have the extent of Y2K issues other companies have that depend on what is commonly known as "legacy" systems. We use PC's and "server class" computers in our operations. Our end-user applications also run on the same type of hardware. These systems still may have Y2K issues. We have implemented a plan to attempt to assess, remediate, and correct any year 2000 critical issues. A "Year 2000" problem will occur where date-sensitive software uses two digit year date fields, sorting the year 2000 ("00") before the year 1999 ("99"). The Year 2000 problem may result in data corruption and processing errors occurring where software, technology equipment, or any other equipment or process uses date-dependent software. Our plan has been structured to address the following areas: A. Processing Plant and Communications Network B. PC Quote Retail Applications C. Operational Infrastructure 2. State of Readiness We have approached each of the above areas in four phases: assessment, remediation, testing, and contingency planning. "Assessment" summarizes the process of issue identification. "Remediation" refers to the process of taking corrective action to best mitigate identified Year 2000 risks. "Testing" is the process of validating a specific PC Quote remediation effort or confirming a third party capability or certification of Year 2000 compliance. "Contingency planning" means the process by which we identify an alternate course of action and/or procedure in the event we cannot or fail to remediate or mitigate a known Year 2000 risk. We may or may not engage in contingency planning for individual subproject components where successful Year 2000 remediation has been validated through the testing process or other methods. PC Quote is preparing to participate in the full "end-to-end" Year 2000 scenario test sponsored by the Financial Information Forum in conjunction with the Securities Industry Association. This is an industry-wide test to provide securities, options and futures exchanges and market data providers with the ability to test their systems under simulated Year 2000 conditions. Time will essentially be moved forward into the Year 2000. We are in preliminary testing that uses test data from participating exchanges to identify non-compliant components that will need to be replaced prior to the full test. This full "end-to-end" test, from the exchanges through market data vendors to the end-user software application, is scheduled for May 1, 1999. The following is a status report on our state of readiness. A. Processing Plant and Communications Network Assessment phase has been completed. A full inventory has been taken of the processing plant, our data-feed input, consolidation and output process, and communications areas. We are currently in the remediation and testing phases. This includes verifying Y2K compliance of outside vendors and suppliers and testing all mission critical items. Testing also includes all PC's, routers, modems, phone lines, Internet service providers (ISP's), and production computers, known as servers, used internally in the communications room. We are also checking our outbound satellite, phone companies and ISP's distribution network, in addition to some ISP's that our customers may use. 15 PART II - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, YEAR 2000 ISSUES, CONTINUED The Testing completion status as of 3/1/99 is as follows.
--------------------------------- ----------------------- -------------------- AREAS EQUIPMENT/SYSTEMS COMPLIANT --------------------------------- ----------------------- -------------------- Processing Plant 301 164 --------------------------------- ----------------------- -------------------- Communications Network 35 14 --------------------------------- ----------------------- --------------------
Testing is scheduled to be completed by 6/30/99. B. PC Quote Retail Applications Our retail applications include proprietary and 3rd party software applications, licensed to our customers for use only with our data-feed. These applications include Internet web-site and browser-based applications, local area network (LAN) based applications, and Windows NT client/server applications. One OS/2 based application will become obsolete in 2000. Customers using this application will be converted to a compliant application.
--------------------------------- ---------------------- --------------------- APPLICATIONS COMPLIANT --------------------------------- ---------------------- --------------------- PC Quote Customer Apps 14 12 --------------------------------- ---------------------- --------------------- 3rd Party Customer Apps 5 3 --------------------------------- ---------------------- ---------------------
C. Operational Infrastructure We are assessing our main facility and field offices for compliance in the security systems, HVAC systems, pagers, phone system, utility providers and other mission critical systems. We have started to upgrade, at minimal cost, non-compliant equipment. Based on our current assessment, we believe we will be able to meet our Y2K compliance goals. 3. Costs As part of the ordinary course of our business, we continually develop major enhancements to our operating systems and applications. For instance, we spent three years developing the first 100% Windows NT-based processing plant that was put into production in 1998. In addition to many other benefits, it is fully Y2K compliant. We have not in the past separately tracked the cost of Y2K remediation, as these efforts were incorporated into our on-going maintenance and equipment replacement program. We have started to track costs in 1999 and have spent approximately $27,000 so far this year on the cost of Year 2000. This includes internal personnel resources, hardware, software and equipment replacement and upgrades necessary to be Y2K compliant. We will be upgrading various administrative systems that use commercial third party software for accounting, billing and customer management. The total remaining cost of software, replacement equipment, and internal resources for remediation and testing to become Y2K compliant is not expected to exceed $500,000. Based upon currently available information, we do not believe that the cost of Y2K compliance will have a material impact on our financial condition, results of operations or liquidity. 16 PART II - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, YEAR 2000 ISSUES, CONTINUED 4. Risks Achieving Y2K compliance depends on many factors. Some factors may be beyond our control because we use services of others. Should our internal systems or the internal system of one of our critical vendors fail to achieve Y2K compliance and fail in the year 2000, our business and results of operations could be adversely affected. For example: A piece of communications equipment has an internal clock that is not Y2K compliant. Although end-to-end testing is done, if for some reason, we or a vendor of ours fail to detect the non-compliance. Y2K comes and the clock shuts down, causing an inability to transmit over that channel. Our customers on that channel do not receive our service. We or our vendor have the cost of finding and fixing the problem. Our customer could make a claim against us for the lost service. Many of our customers have back-up systems in place with us which could mitigate any damage caused by the disruption. In the event that there are claims for damages, our contracts with our customers limit our liability in such instances. However, if there were a large number of customers affected for a prolonged period of time, we could be put in a position of either granting credits or risk losing the customers and our reputation could be adversely effected. We have customers that use our Quote Tools to access our data-feed for software applications. Quote Tools is a set of programmer tools known as application programming interfaces or APIs for short. Our Quote Tools are written and tested to be Y2K compliant. If for some reason Y2K came and our Quote Tools did not function properly because of the date change, we would have to spend money and resources to fix the bug. If the bug could not be fixed, and we had no alternative solution, for our customers using the service, we could lose the customers and related revenue. Our contracts with our customers generally limit our liability to total fees paid over the preceding year, which in 1998 was under $200,000 for Quote Tools' customers. 5. Contingency Plans All testing, including internal infrastructure, is scheduled to be completed by 6/30/99. We have not started extensive contingency planning because we are concentrating our efforts on remediation and testing. We believe effective contingency planning should not begin until after these phases are complete. We expect to begin comprehensive contingency planning at the start of the third quarter of 1999. EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS We will implement the provisions of Statement of Financial Accounting Standards No. 133, ("Statement 133") "Accounting for Derivative Instruments and Hedging Activities" which is required to be adopted for financial statements issued for the fiscal year ending December 31, 2000. Statement 133 standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, by requiring us to recognize those items as assets or liabilities in the statement of financial position and measure them at fair value. We believe that adoption of Statement 133 will not have a material impact on our financial statements. In March 1998 the American Institute of Certified Public Accountants issued Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use (SOP 98-1). SOP 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. The SOP provides guidance on accounting for the costs of computer software developed or obtained for internal use and provides guidance for determining whether computer software is for internal use. We will adopt the provisions of SOP 98-1 effective January 1, 1999. We are currently reviewing our software capitalization policies and evaluating the impact of this Statement on our results of operations and financial position. 17 PART II - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED OTHER We do not believe general inflation materially impacts our sales and operating results. We do not expect that current tax legislation will significantly affect our future financial position, liquidity or operating results. At December 31, 1998, we had federal income tax net operating loss carryforwards of approximately $26,005,000 for federal income tax purposes and approximately $24,843,000 for the alternative minimum tax. The net operating loss carryforwards will expire, if not previously utilized, as follows: 1999: $546,000; 2000: $1,370,000; 2001: $1,539,000; 2002: $560,000; 2003: $79,000; 2004: $576,000; 2005: $1,557,000 and thereafter $19,778,414. (See Note 5 of the Notes to Financial Statements.) ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We have a bank term loan that has an interest rate equal to the bank's prime rate. We are exposed to market risk as the prime rate is subject to fluctuations in the market. We do not believe the market risk is material to our financial statements. At December 31, 1998 we had excess cash invested in a money market account. We do not expect any material loss, if at all, on this investment. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES Pursuant to Rule 12b-23 under the Securities Exchange Act of 1934, the information called for by this Item is incorporated herein by reference to the "Index of Financial Statements" that appears elsewhere in this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE There have been no changes in or disagreements with accountants that would require disclosure in this Report. 18 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT Information about PC Quote directors and executive officers will be included in our proxy statement for our 1999 annual meeting of stockholders. This information is incorporated by reference to that proxy statement. ITEM 11. EXECUTIVE COMPENSATION Information about PC Quote executive compensation will be included in our proxy statement for our 1999 annual meeting of stockholders. This information is incorporated by reference to that proxy statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information about security ownership of certain beneficial owners and management will be included in our proxy statement for our 1999 annual meeting of stockholders. This information is incorporated by reference to that proxy statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information about certain relationships and related transactions will be included in our proxy statement for our 1999 annual meeting of stockholders. This information is incorporated by reference to that proxy statement. 19 PART IV ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K (a) 1. Financial Statements Our financial statements are included in Item 8 of this report. 2. Financial Statement Schedules The financial statement schedule for the valuation and qualifying accounts is included in Item 8 of this report. (b) REPORTS ON FORM 8-K: In the fourth quarter of the period covered by this report, we filed a Report on Form 8-K dated October 6, 1998 reporting, in Item 5. Other Events, the Securities Purchase Agreement between PC Quote and PICO Holdings, Inc. and Physicians Insurance Company of Ohio. (c) EXHIBITS 3(a) Articles of Incorporation of Company, incorporated by reference to Appendix B of Company's Proxy Statement dated July 2, 1987. 3(b) By-laws of the Company, as amended and restated, incorporated by reference to Exhibit 3(b) to Company's Annual Report on Form 10-K for the year ended December 31, 1987. 3(c) Certificate of Amendment, dated as of October 22, 1997, to Company's Certificate of Incorporation, incorporated by reference to Exhibit 4.12 of the Company's Report on Form 10-Q for the quarter ended September 30, 1997. 3(d) Certificate of Amendment, dated as of December 18, 1998, to Company's Certificate of Incorporation, located after the Financial Statements of this report. 4(a) Specimen Common Share Certificate of the Company, incorporated by reference to Exhibit 4.1 of the Company's Registration Statement on Form S-18, Commission File No. 2-90939C. 4(b) $2,500,000 Convertible Subordinated Debenture due 2001 issued by the Company to Physicians Insurance Company of Ohio, Inc., incorporated by reference to Exhibit 4(b) to Company's Annual Report on Form 10-K for the year ended December 31, 1996. 4(c) Form of First Amendment to Convertible Subordinated Debenture and Debenture Agreement, incorporated by reference to Exhibit 10.2 of the Company's Report on Form 10-Q for the quarter ended June 30, 1997. 4(d) Form of Loan and Security Agreement dated as of May 5, 1997 between the Company and PICO Holdings, Inc., incorporated by reference to Exhibit 10.1 of the Company's Report on Form 10-Q for the quarter ended June 30, 1997. 4(e) Form of Promissory Note made by the Company to the order of PICO Holdings, Inc., incorporated by reference to Exhibit 10.4 of the Company's Report on Form 10-Q for the quarter ended June 30, 1997. 4(f) Form of Common Stock Purchase Warrant for 640,000 shares of the Company's Common Stock issued to PICO Holdings, Inc., incorporated by reference to Exhibit 10.3 of the Company's Report on Form 10-Q for the quarter ended June 30, 1997. 4(g) Form of First Amendment to Loan and Security Agreement dated as of August 8, 1997 between the Company and PICO Holdings, Inc., incorporated by reference to Exhibit 10.5 of the Company's Report on Form 10-Q for the quarter ended June 30, 1997. 20 PART IV - ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K, CONTINUED 4(h) Form of Common Stock Purchase Warrant for 500,000 shares of the Company's Common Stock issued to PICO Holdings, Inc., incorporated by reference to Exhibit 10.6 of the Company's Report on Form 10-Q for the quarter ended June 30, 1997. 4(i) Form of Second Amendment to Loan and Security Agreement dated as of September 22, 1997 between the Company and PICO Holdings, Inc., incorporated by reference to Exhibit 10.1 of the Company's Report on Form 10-Q for the quarter ended September 30, 1997. 4(j) Form of Common Stock Purchase Warrant for 129,032 shares of the Company's Common Stock issued to PICO Holdings, Inc., incorporated by reference to Exhibit 4.1 of the Company's Report on Form 10-Q for the quarter ended September 30, 1997. 4(k) Form of Stock And Warrant Purchase Agreement dated as of October 15, 1997 between the Company and Imprimis Investors LLC and Wexford Spectrum Investors LLC, incorporated by reference to Exhibit 10.2 of the Company's Report on Form 10-Q for the quarter ended September 30, 1997. 4(l) Form of Common Stock Purchase Warrant for 350,000 shares of the Company's Common Stock issued to Imprimis Investors LLC, incorporated by reference to Exhibit 4.2 of the Company's Report on Form 10-Q for the quarter ended September 30, 1997. 4(m) Form of Common Stock Purchase Warrant for 150,000 shares of the Company's Common Stock issued to Wexford Spectrum Investors LLC, incorporated by reference to Exhibit 4.3 of the Company's Report on Form 10-Q for the quarter ended September 30, 1997. 4(n) Form of Common Stock Purchase Warrant for 101,500 shares of the Company's Common Stock issued to Imprimis Investors LLC, incorporated by reference to Exhibit 4.4 of the Company's Report on Form 10-Q for the quarter ended September 30, 1997. 4(o) Form of Common Stock Purchase Warrant for 43,500 shares of the Company's Common Stock issued to Wexford Spectrum Investors LLC, incorporated by reference to Exhibit 4.5 of the Company's Report on Form 10-Q for the quarter ended September 30, 1997. 4(p) Form of Common Stock Purchase Warrant for 38,500 shares of the Company's Common Stock issued to Imprimis Investors LLC, incorporated by reference to Exhibit 4.6 of the Company's Report on Form 10-Q for the quarter ended September 30, 1997. 4(q) Form of Common Stock Purchase Warrant for 16,500 shares of the Company's Common Stock issued to Wexford Spectrum Investors LLC, incorporated by reference to Exhibit 4.7 of the Company's Report on Form 10-Q for the quarter ended September 30, 1997. 4(r) Form of Common Stock Purchase Warrant for 175,000 shares of the Company's Common Stock issued to Imprimis Investors LLC, incorporated by reference to Exhibit 4.8 of the Company's Report on Form 10-Q for the quarter ended September 30, 1997. 4(s) Form of Common Stock Purchase Warrant for 75,000 shares of the Company's Common Stock issued to Wexford Spectrum Investors LLC, incorporated by reference to Exhibit 4.9 of the Company's Report on Form 10-Q for the quarter ended September 30, 1997. 4(t) Form of Common Stock Purchase Warrant for 35,000 shares of the Company's Common Stock issued to Imprimis Investors LLC, incorporated by reference to Exhibit 4.10 of the Company's Report on Form 10-Q for the quarter ended September 30, 1997. 21 PART IV - ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K, CONTINUED 4(u) Form of Common Stock Purchase Warrant for 15,000 shares of the Company's Common Stock issued to Wexford Spectrum Investors LLC, incorporated by reference to Exhibit 4.11 of the Company's Report on Form 10-Q for the quarter ended September 30, 1997. 4(v) Form of Third Amendment to Loan and Security Agreement dated as of December 30, 1997 between the Company and PICO Holdings, Inc., incorporated by reference to Exhibit 4(v) to Company's Annual Report on Form 10-K for the year ended December 31, 1997. 4(w) Form of Fourth Amendment to Loan and Security Agreement dated as of February 5, 1998 between the Company and PICO Holdings, Inc., incorporated by reference to Exhibit 4(w) to Company's Annual Report on Form 10-K for the year ended December 31, 1997. 4(x) Form of Fifth Amendment to Loan and Security Agreement dated as of March 10, 1998 between the Company and PICO Holdings, Inc., incorporated by reference to Exhibit 4(x) to Company's Annual Report on Form 10-K for the year ended December 31, 1997. 4(y) Form of First Amendment to the Amendment of the Convertible Subordinated Debenture Agreement, dated as of March 30, 1998, incorporated by reference to Exhibit 4(a) of the Company's Report on Form 10-Q for the quarter ended March 31, 1998. 4(z) Form of Sixth Amendment to Loan and Security Agreement dated as of May 5, 1998 between the Company and PICO Holdings, Inc., incorporated by reference to Exhibit 4(b) of the Company's Report on Form 10-Q for the quarter ended March 31, 1998. 4(aa) Form of Amendment No. 2 to the Amendment of the Convertible Subordinated Debenture Agreement, dated as of May 11, 1998, incorporated by reference to Exhibit 4(c) of the Company's Report on Form 10-Q for the quarter ended March 31, 1998. 4(ab) Form of Seventh Amendment to Loan and Security Agreement dated as of June 1, 1998 between the Company and PICO Holdings, Inc., incorporated by reference to Exhibit 4(a) of the Company's Report on Form 10-Q for the quarter ended June 30, 1998. 4(ac) Form of Amendment No. 3 to the Amendment of the Convertible Subordinated Debenture Agreement, dated as of July 16, 1998, incorporated by reference to Exhibit 4(b) of the Company's Report on Form 10-Q for the quarter ended June 30, 1998. 4(ad) Form of Eighth Amendment to Loan and Security Agreement dated as of July 24, 1998 between the Company and PICO Holdings, Inc., incorporated by reference to Exhibit 4(c) of the Company's Report on Form 10-Q for the quarter ended June 30, 1998. 4(ae) Form of Amendment No. 4 to the Amendment of the Convertible Subordinated Debenture Agreement, dated as of July 24, 1998, incorporated by reference to Exhibit 4(d) of the Company's Report on Form 10-Q for the quarter ended June 30, 1998. 4(af) Form of Ninth Amendment to Loan and Security Agreement dated as of July 31, 1998 between the Company and PICO Holdings, Inc., incorporated by reference to Exhibit 4(e) of the Company's Report on Form 10-Q for the quarter ended June 30, 1998. 4(ag) Securities Purchase Agreement between PC Quote, Inc. and PICO Holdings, Inc. and Physicians Insurance Company of Ohio dated as of September 23, 1998, incorporated by reference to Exhibit 4.1 of the Company's Report on Form 8-K dated October 6, 1998. 22 PART IV - ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K, CONTINUED 4(ah) Form of Registration Rights Agreement between PC Quote, Inc. and PICO Holdings, Inc. and Physicians Insurance Company of Ohio, incorporated by reference to Exhibit 4.3 of the Company's Report on Form 8-K dated October 6, 1998. 4(ai) Form of Common Stock Purchase Warrant issued to PICO Holdings, Inc., incorporated by reference to Exhibit 4.4 of the Company's Report on Form 8-K dated October 6, 1998. 4(aj) Form of First Amendment to Common Stock Purchase Warrant dated May 5, 1997, incorporated by reference to Exhibit 4.5 of the Company's Report on Form 8-K dated October 6, 1998. 4(ak) Form of First Amendment to Common Stock Purchase Warrant dated August 8, 1997, incorporated by reference to Exhibit 4.6 of the Company's Report on Form 8-K dated October 6, 1998. 4(al) Form of First Amendment to Common Stock Purchase Warrant dated September 22, 1997, incorporated by reference to Exhibit 4.7 of the Company's Report on Form 8-K dated October 6, 1998. 4(am) Form of Second Amendment to Convertible Subordinated Debenture dated as of September 23, 1998, incorporated by reference to Exhibit 4(h) of the Company's Report on Form 10-Q for the quarter ended September 30, 1998. 4(an) Form of Stock and Warrant Purchase Agreement between PC Quote, Inc. and Howard Todd Horberg dated December 29, 1998, located after the Financial Statements of this report. 4(ao) Form of Common Stock Purchase Warrant for 120,000 shares issued to Howard Todd Horberg, located after the Financial Statements of this report. 4(ap) Form of Stock and Warrant Purchase Agreement between PC Quote, Inc. and Steve Levy dated December 29, 1998, located after the Financial Statements of this report. 4(aq) Form of Common Stock Purchase Warrant for 120,000 shares issued to Steve Levy, located after the Financial Statements of this report. 4(ar) Form of Stock and Warrant Purchase Agreement between PC Quote, Inc. and Cranshire Capital, LP dated December 29, 1998, located after the Financial Statements of this report. 4(as) Form of Common Stock Purchase Warrant for 80,000 shares issued to Cranshire Capital, LP, located after the Financial Statements of this report. 10(a) Vendor Agreement with the Option Price Reporting Authority, incorporated by reference to Exhibit 10.4 of Company's Registration Statement on Form S-18, Commission File No. 2-90939C. 10(b) Vendor Agreement with the New York Stock Exchange, Inc., incorporated by reference to Exhibit 10.5 of Company's Registration Statement on Form S-18, Commission File No. 2-90939C. 10(c) Vendor Agreements with the National Association of Securities Dealers, Inc. incorporated by reference to Exhibit 10(d) of Company's Annual Report on Form 10-K for the year ended December 31, 1989. 10(d) Form of Employee Non-Disclosure Agreement, incorporated by reference to Exhibit 10.10 of Company's Registration Statement on Form S-18, Commission File No. 2-90939C. 10(e) Amended and Restated PC Quote, Inc. Employees' Combined Incentive and Non-Statutory Stock Option Plan, incorporated by reference to Appendix E to Company's Proxy Statement dated July 2, 1987 and Company's Proxy Statement dated September 15, 1997. 23 PART IV - ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K, CONTINUED 10(f) Lease regarding office space at 50 Broadway, New York City, dated January 31, 1987, as amended by First Amendatory Agreement dated May 18, 1987, by and between Company and 50 Broadway Joint Venture, incorporated by reference to Exhibit 10(y) to Company's Annual Report on Form 10-K for the year ended December 31, 1987. 10(g) Satellite Service Agreement dated June 12, 1991 between Company and Space Com Systems, Inc. incorporated by reference to Exhibit 10(r) to Company's Annual Report on Form 10-K for the year ended December 31, 1991. 10(h) Amendment to satellite service agreement dated September 6, 1991 between Company and SpaceCom Systems, Inc. incorporated by reference to Exhibit 10(s) to Company's Annual Report on Form 10-K for the year ended December 31, 1991. 10(i) Amendment to point-to-multipoint satellite network service agreement dated November 22, 1989 between Company and GTE SpaceNet Satellite Services Corporation incorporated by reference to Exhibit 10(v) to Company's Annual Report on Form 10-KSB for the year ended December 31, 1992. 10(j) Amendment to satellite service agreement dated October 4, 1993 between Company and SpaceCom Systems, Inc. incorporated by reference to Exhibit 10(z) to Company's Annual Report on Form 10-KSB for the year ended December 31, 1993. 10(k) Satellite Service Agreement dated September 15, 1994 between Company and SpaceCom Systems, Inc. incorporated by reference to Exhibit 11(a) to Company's Annual Report on Form 10-K for the year ended December 31, 1994. 10(l) Satellite Service Agreement dated October 15, 1993 between Company and SpaceCom Systems, Inc. incorporated by reference to Exhibit 11(b) to Company's Annual Report on Form 10-K for the year ended December 31, 1994. 10(m) Satellite Service Agreement dated June 1, 1993 between Company and SpaceCom Systems, Inc. incorporated by reference to Exhibit 11(b) to Company's Annual Report on Form 10-K for the year ended December 31, 1994. 10(n) Vendor Agreement with Global Information Systems Inc. incorporated by reference to Exhibit 11(d) of Company's Annual Report on Form 10-K for the year ended December 31, 1994. 10(o) Lease regarding office space at 300 South Wacker Drive, Chicago, Illinois dated June 1, 1994, by and between Company and Markborough 300 WJ Limited Partnership, incorporated by reference to Exhibit 11(e) to Company's Annual Report on Form 10-KSB for the year ended December 31, 1994. 10(p) Agreement dated November 14, 1996 between the Company and Physicians Insurance Company of Ohio, Inc., incorporated by reference to Exhibit 10(p) to Company's Annual Report on Form 10-K for the year ended December 31, 1996. 10(q) Employment agreement dated July 16, 1996 between the Company and Howard Meltzer, incorporated by reference to Exhibit 10(q) to Company's Annual Report on Form 10-K for the year ended December 31, 1996. 10(r) Employment agreement dated December 2, 1996 between the Company and Louis J. Morgan, incorporated by reference to Exhibit 10(r) to Company's Annual Report on Form 10-K for the year ended December 31, 1996. 24 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PC QUOTE, INC. By: /s/ JIM R. PORTER ------------------------------------------- Jim R. Porter, Chairman of the Board and Chief Executive Officer March 30, 1999 By: /s/ JOHN E. JUSKA -------------------------------------------- John E. Juska, Chief Financial Officer and Principal Accounting Officer March, 30, 1999 In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ JIM R. PORTER - --------------------------------------------- Jim R. Porter, Chairman of the Board and Chief Executive Officer March 30, 1999 /s/ JOHN R. HART - --------------------------------------------- John R. Hart, Director March 30, 1999 /s/ TIMOTHY K. KRAUSKOPF - --------------------------------------------- Timothy K. Krauskopf, Director March 30, 1999 /s/ RONALD LANGLEY - --------------------------------------------- Ronald Langley, Director March 30, 1999 /s/ LOUIS J. MORGAN - --------------------------------------------- Louis J. Morgan, Director March 30, 1999 /s/ KENNETH J. SLEPICKA - --------------------------------------------- Kenneth J. Slepicka, Director March 30, 1999 25 CONTENTS - -------------------------------------------------------------------------------- INDEPENDENT AUDITORS' REPORTS F-1-2 - -------------------------------------------------------------------------------- FINANCIAL STATEMENTS Balance sheets F-3-4 Statements of operations F-5 Statements of stockholders' equity F-6 Statements of cash flows F-7-8 Notes to financial statements F-9-24 Auditors' reports on Schedule II F-25-26 Supplemental Schedule II F-27 - --------------------------------------------------------------------------------
26 INDEPENDENT AUDITORS' REPORT To the Board of Directors PC Quote, Inc.: We have audited the accompanying balance sheets of PC Quote, Inc. as of December 31, 1998 and 1997, and the related statements of operations, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the 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 PC Quote, Inc. as of December 31, 1998 and 1997, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that PC Quote, Inc. will continue as a going concern. As more fully described in Note 14, the Company has experienced significant operating losses, which have adversely affected the Company's current results of operations and liquidity. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 14. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ KPMG LLP Chicago, Illinois March 12, 1999 F-1 INDEPENDENT AUDITOR'S REPORT To the Board of Directors PC Quote, Inc. Chicago, Illinois We have audited the accompanying statements of operations, stockholders' equity and cash flows of PC Quote, Inc. for the year ended December 31, 1996. 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 audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of PC Quote, Inc. for the year ended December 31, 1996, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that PC Quote, Inc. will continue as a going concern. As more fully described in Note 14, the Company has experienced significant operating losses, which have adversely affected the Company's current results of operations and liquidity. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 14. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ McGladrey & Pullen, LLP Schaumburg, Illinois March 7, 1997 F-2 PC QUOTE, INC. BALANCE SHEETS DECEMBER 31, 1998 AND 1997
ASSETS 1998 1997 ---- ---- Current Assets Cash and cash equivalents $ 1,139,785 $ 1,113,130 Accounts receivable, less allowance for doubtful accounts of: 1998: $443,037; 1997: $346,000 1,490,139 1,435,450 Prepaid expenses and other current assets 114,011 61,981 ------------ ------------ TOTAL CURRENT ASSETS 2,743,935 2,610,561 ------------ ------------ Property and equipment Satellite receiving equipment 525,730 895,126 Computer equipment 4,260,589 7,266,576 Communication equipment 1,254,010 2,716,415 Furniture and fixtures 252,050 293,240 Leasehold improvements 402,692 366,325 ------------ ------------ 6,695,071 11,537,682 Less: Accumulated depreciation and amortization 4,613,526 9,035,571 ------------ ------------ 2,081,545 2,502,111 ------------ ------------ Software development costs, net of accumulated amortization of: 1998: $4,442,673; 1997: $5,045,080 5,012,971 5,126,473 ------------ ------------ Deposits and other assets 214,916 297,303 ------------ ------------ TOTAL ASSETS $ 10,053,367 $ 10,536,448 ------------ ------------ ------------ ------------
See Notes to Financial Statements. F-3 PC QUOTE, INC. BALANCE SHEETS (CONTINUED) DECEMBER 31, 1998 AND 1997
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997 ---- ---- Current Liabilities Note payable, bank, current $ 300,000 $ 300,000 Note payable, credit facility --- 2,250,000 Accounts payable 4,138,517 2,834,460 Accrued expenses 218,866 604,916 Accrued compensation 313,838 618,289 Accrued interest --- 388,253 Income taxes payable 3,161 5,192 Unearned revenue, current 1,241,933 635,275 ------------ ------------ TOTAL CURRENT LIABILITIES 6,216,315 7,636,385 ------------ ------------ Note payable, bank, noncurrent 499,634 799,634 Convertible subordinated debenture payable, net of unamortized discount of $1,096,402 --- 1,403,598 Unearned revenue, noncurrent 261,027 442,953 Accrued expenses, noncurrent 161,120 187,549 ------------ ------------ TOTAL NONCURRENT LIABILITIES 921,781 2,833,734 ------------ ------------ TOTAL LIABILITIES 7,138,096 10,470,119 ------------ ------------ Stockholders' Equity Preferred Stock, $.001 par value; authorized 5,000,000; issued and outstanding: Series A 5% convertible: 19,075 at December 31, 1998 19 --- Series B 5% convertible: 28,791 at December 31, 1998 29 --- Common stock, $.001 par value; authorized 50,000,000 shares; issued and outstanding 14,183,183 at December 31, 1998 and 12,436,800 at December 31, 1997 14,183 12,437 Additional paid-in capital - Series A 5% convertible preferred stock 3,086,013 --- Additional paid-in capital - Series B 5% convertible preferred stock 4,664,891 --- Additional paid-in capital - common stock 19,950,981 17,386,591 Additional paid-in capital - convertible subordinated debenture and warrants 2,750,491 2,750,491 Accumulated deficit (27,551,336) (20,083,190) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 2,915,271 66,329 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,053,367 $ 10,536,448 ------------ ------------ ------------ ------------
See Notes to Financial Statements. F-4 PC QUOTE, INC. STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- ---------------------------------------------------------------------------------------------------- 1998 1997 1996 - ---------------------------------------------------------------------------------------------------- REVENUE HyperFeed and LAN Services $ 12,826,038 $ 12,110,998 $ 16,095,285 Internet Services 10,219,495 5,008,374 936,879 ------------ ------------ ------------ TOTAL REVENUE 23,045,533 17,119,372 17,032,164 ------------ ------------ ------------ DIRECT COST OF SERVICES HyperFeed and LAN Services 10,413,295 9,865,330 9,680,978 Internet Services 6,586,139 4,589,736 1,320,830 ------------ ------------ ------------ TOTAL DIRECT COST OF SERVICES 16,999,434 14,455,066 11,001,808 ------------ ------------ ------------ GROSS MARGIN 6,046,099 2,664,306 6,030,356 ------------ ------------ ------------ OPERATING EXPENSES Sales 4,500,367 3,655,119 3,128,777 General and administrative 3,310,843 3,951,437 3,488,606 Product and market development 1,703,192 1,588,077 1,139,994 Depreciation and amortization 1,231,123 1,243,722 1,230,809 Restructuring charges --- 1,146,677 --- ------------ ------------ ------------ TOTAL OPERATING EXPENSE 10,745,525 11,585,032 8,988,186 ------------ ------------ ------------ LOSS FROM OPERATIONS (4,699,426) (8,920,726) (2,957,830) ------------ ------------ ------------ INTEREST INCOME (EXPENSE) Interest income 19,279 37,873 9,743 Interest expense (1,765,448) (2,252,801) (143,618) ------------ ------------ ------------ NET INTEREST EXPENSE (1,746,169) (2,214,928) (133,875) ------------ ------------ ------------ LOSS BEFORE INCOME TAXES (6,445,595) (11,135,654) (3,091,705) INCOME TAXES 3,613 5,762 164,264 ------------ ------------ ------------ NET LOSS (6,449,208) (11,141,416) (3,255,969) Preferred dividends 1,018,938 --- --- ------------ ------------ ------------ NET LOSS AVAILABLE FOR COMMON STOCKHOLDERS ($ 7,468,146) ($11,141,416) ($ 3,255,969) ------------ ------------ ------------ ------------ ------------ ------------ Basic net loss per share ($0.57) ($1.33) ($0.45) Diluted net loss per share ($0.57) ($1.33) ($0.45) Weighted-average common shares outstanding 13,001,058 8,353,400 7,248,000 - ---------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------
See Notes to Financial Statements. F-5 PC QUOTE, INC. STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- ------------------------------------------------------------------------------------------------------------------ Series A Series B Series A Series B 5% 5% 5% 5% Convertible Convertible Convertible Convertible Preferred Preferred Preferred Preferred Common Common Stock Stock Stock Stock Stock Stock Shares Shares Amount Amount Shares Amount - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ Balances - ------------------------------------------------------------------------------------------------------------------ 12/31/95 --- --- $ --- $ --- 7,185,732 $ 7,186 - ------------------------------------------------------------------------------------------------------------------ Net loss --- --- --- --- --- --- - ------------------------------------------------------------------------------------------------------------------ Issuance of common stock --- --- --- --- 169,889 170 - ------------------------------------------------------------------------------------------------------------------ Value assigned to conversion feature of convertible debentures --- --- --- --- --- --- - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ 12/31/96 --- --- --- --- 7,355,621 7,356 - ------------------------------------------------------------------------------------------------------------------ Net loss --- --- --- --- --- --- - ------------------------------------------------------------------------------------------------------------------ Issuance of common stock --- --- --- --- 5,081,179 5,081 - ------------------------------------------------------------------------------------------------------------------ Value assigned to amendment of convertible debenture and warrants issued --- --- --- --- --- --- - ------------------------------------------------------------------------------------------------------------------ Value assigned to employee stock options issued --- --- --- --- --- --- - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ 12/31/97 --- --- --- --- 12,436,800 12,437 - ------------------------------------------------------------------------------------------------------------------ Net loss --- --- --- --- --- --- - ------------------------------------------------------------------------------------------------------------------ Issuance of preferred stock 19,075 28,791 19 29 --- --- - ------------------------------------------------------------------------------------------------------------------ Issuance of common stock --- --- --- --- 4,735,332 4,735 - ------------------------------------------------------------------------------------------------------------------ Purchase and retirement of common stock --- --- --- --- (2,988,949) (2,989) - ------------------------------------------------------------------------------------------------------------------ Value assigned to beneficial conversion feature of Series B convertible preferred stock --- --- --- --- --- --- - ------------------------------------------------------------------------------------------------------------------ Value assigned to employee stock options issued --- --- --- --- --- --- - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ 12/31/98 19,075 28,791 $ 19 $ 29 14,183,183 $ 14,183 - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------- Additional Additional Additional Paid-In Paid-In Paid-In Capital Capital Additional Capital Series A Series B Paid-In Convertible Convertible Convertible Capital Debenture Accumulated Preferred Preferred Common and Warrants Deficit Total - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- Balances - ------------------------------------------------------------------------------------------------------------------------- 12/31/95 $ --- $ --- $ 12,289,897 $ --- ($5,685,805) $ 6,611,278 - ------------------------------------------------------------------------------------------------------------------------- Net loss --- --- --- --- (3,255,969) (3,255,969) - ------------------------------------------------------------------------------------------------------------------------- Issuance of common stock --- --- 326,098 --- --- 326,268 - ------------------------------------------------------------------------------------------------------------------------- Value assigned to conversion feature of convertible debentures --- --- --- 1,650,000 --- 1,650,000 - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- 12/31/96 --- --- 12,615,995 1,650,000 (8,941,774) 5,331,577 - ------------------------------------------------------------------------------------------------------------------------- Net loss --- --- --- --- (11,141,416) (11,141,416) - ------------------------------------------------------------------------------------------------------------------------- Issuance of common stock --- --- 4,751,520 --- --- 4,756,601 - ------------------------------------------------------------------------------------------------------------------------- Value assigned to amendment of convertible debenture and warrants issued --- --- --- 1,100,491 --- 1,100,491 - ------------------------------------------------------------------------------------------------------------------------- Value assigned to employee stock options issued --- --- 19,076 --- --- 19,076 - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- 12/31/97 --- --- 17,386,591 2,750,491 (20,083,190) 66,329 - ------------------------------------------------------------------------------------------------------------------------- Net loss --- --- --- --- (6,449,208) (6,449,208) - ------------------------------------------------------------------------------------------------------------------------- Issuance of preferred stock 2,966,794 3,765,172 --- --- --- 6,732,014 - ------------------------------------------------------------------------------------------------------------------------- Issuance of common stock --- --- 5,432,571 --- --- 5,437,306 - ------------------------------------------------------------------------------------------------------------------------ Purchase and retirement of common stock --- --- (2,985,960) --- --- (2,988,949) - ------------------------------------------------------------------------------------------------------------------------- Value assigned to beneficial conversion feature of Series B convertible preferred stock 119,219 899,719 --- --- (1,018,938) --- - ------------------------------------------------------------------------------------------------------------------------- Value assigned to employee stock options issued --- --- 117,779 --- --- 117,779 - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- 12/31/98 $ 3,086,013 $ 4,664,891 $ 19,950,981 $ 2,750,491 ($27,551,336) $ 2,915,271 - ------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements. F-6 PC QUOTE, INC. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996 Cash Flows From Operating Activities: Net loss ($6,449,208) ($11,141,416) ($3,255,969) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization of property and equipment 1,231,123 1,243,722 1,230,809 Provision for doubtful accounts 397,873 683,639 734,346 Amortization of software development costs 1,810,553 1,909,652 1,244,522 Amortization of deferred discount on convertible subordinated debenture 1,096,402 674,992 --- Amortization of deferred debt on warrants --- 979,097 --- Interest on converted debt, net of conversion costs 553,761 --- --- Common stock issued in lieu of cash compensation 91,522 --- --- Common stock issued in lieu of cash payments for professional fees 163,725 --- --- Write-off of capitalized software development costs 300,401 571,647 --- Compensation value assigned to employee stock options granted 117,779 19,076 --- Deferred income taxes --- --- 158,000 (Gain) on disposal of equipment --- --- (52,206) Changes in assets and liabilities: Accounts receivable (452,562) (1,018,836) (514,091) Income tax refunds receivable --- 40,000 --- Prepaid expenses and other current assets (52,030) 123,090 109,465 Deposits and other assets 82,387 55,879 (77,489) Accounts payable 1,304,057 1,060,070 157,986 Accrued expenses (1,105,183) 880,089 345,727 Accrued interest and facility fee on converted debt 428,253 --- --- Unearned revenue 424,732 (52,008) 329,176 Income taxes payable (2,031) (1,072) 6,264 ----------- ----------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (58,446) (3,972,379) 416,540 ----------- ----------- ----------- Cash Flows From Investing Activities: Purchase of property and equipment (810,557) (1,037,569) (914,898) Proceeds from sale of equipment --- 55,943 190,498 Software development costs capitalized (1,997,452) (1,817,927) (2,862,152) ----------- ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (2,808,009) (2,799,553) (3,586,552) ----------- ----------- ----------- Cash Flows From Financing Activities: Proceeds from issuance of common stock 5,182,059 4,756,601 326,268 Purchase and retirement of common stock (2,988,949) --- --- Proceeds from notes payable --- --- 2,500,000 Proceeds from issuance of convertible subordinated debenture --- --- 2,500,000 Borrowings under credit facility 1,000,000 2,250,000 --- Principal payments under capital lease obligations --- (142,685) (578,222) Principal payments on note payable, bank (300,000) (300,366) (1,300,000) ----------- ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 2,983,110 6,563,550 3,448,046 ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents 26,655 (208,382) 278,034 Cash and cash equivalents: Beginning of year 1,113,130 1,321,512 1,043,478 ----------- ----------- ----------- End of year $ 1,139,785 $ 1,113,130 $ 1,321,512 ----------- ----------- ----------- ----------- ----------- -----------
See Notes to Financial Statements. F-7 PC QUOTE, INC STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------------------------------------- 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------- Supplemental Disclosures of Cash Flow Information - -------------------------------------------------------------------------------------------------------------- Interest paid $ 83,925 $ 218,531 $ 143,618 - -------------------------------------------------------------------------------------------------------------- Income taxes paid $ 3,517 $ 6,834 $ 1,000 - -------------------------------------------------------------------------------------------------------------- Supplemental Disclosures of Noncash Investing and Financing Activities - -------------------------------------------------------------------------------------------------------------- Additional paid-in-capital from issuance of convertible subordinated debenture $ 1,650,000 - -------------------------------------------------------------------------------------------------------------- Additional paid-in-capital from amendment of convertible debenture agreement and issuance of warrants $ 1,100,491 - -------------------------------------------------------------------------------------------------------------- Additional paid-in-capital from issuance of employee stock options $ 117,779 $ 19,076 - -------------------------------------------------------------------------------------------------------------- Series A preferred stock issued for converted debt $ 19 - -------------------------------------------------------------------------------------------------------------- Additional paid-in-capital - Series A preferred stock from conversion of convertible subordinated debenture principal, plus accrued interest, net of conversion costs $ 2,966,794 - -------------------------------------------------------------------------------------------------------------- Additional paid-in-capital - Series A preferred stock - value assigned to beneficial conversion feature of preferred stock $ 119,219 - -------------------------------------------------------------------------------------------------------------- Series B preferred stock issued for converted debt $ 29 - -------------------------------------------------------------------------------------------------------------- Additional paid-in-capital - Series B preferred stock - from conversion of credit facility borrowings, plus facility fee and accrued interest, net of conversion costs $ 3,765,172 - -------------------------------------------------------------------------------------------------------------- Additional paid-in-capital - Series B preferred stock - value assigned to beneficial conversion feature of preferred stock $ 899,719 - -------------------------------------------------------------------------------------------------------------- Convertible subordinated debenture principal balance converted into Series A convertible preferred stock ($ 2,500,000) - -------------------------------------------------------------------------------------------------------------- Credit facility borrowings converted into Series B convertible preferred stock ($ 3,250,000) - -------------------------------------------------------------------------------------------------------------- Common stock issued in lieu of cash compensation $ 91,522 - -------------------------------------------------------------------------------------------------------------- Common stock issued in lieu of cash payments for professional fees $ 163,725 - --------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements. F-8 PC QUOTE, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES PC Quote, Inc. (PC Quote or the "Company") is a premier provider of securities market data. We collect securities market activity and financial news directly from stock, options and commodities exchanges and other sources. We use the information to create a real-time database of last sale and bid/ask prices of more than 325,000 issues. The database includes all North American equities, the most comprehensive options data, major stock indices, Level 1 NASDAQ-quoted stocks, Level 2 NASDAQ market-maker quotes, mutual funds, money market funds, futures contracts and options on futures contracts. We then process the database into a single data-feed, "HyperFeed(TM)", at our primary processing plant located at our executive offices in Chicago, Illinois. We disseminate HyperFeed to our customers by satellite, digital data lines or over the Internet. Software applications on our customers' computers access HyperFeed to allow the user to monitor securities activity on an on-going real-time basis. The applications also create a complete database of trading symbols, continuously updated by the data feed. This database gives our customer instant access to security prices. HyperFeed is used to create an equivalent database on our computers, accessible to our Internet customers. Our customer base consists primarily of professional investors, securities brokers, dealers and traders, portfolio managers, brokerage firms, other financial institutions, Internet web-sites, application developers and redistributors of financial market data. Our Internet service is used by individual and professional investors alike. Our Internet division, PCQuote.com, maintains our web-site, www.pcquote.com, which is a premier Internet financial web-site offering financial news and delayed and real-time market data. Its principal customers are financial web-site advertisers, other Internet web-sites, individuals, and businesses. Significant accounting policies are as follows: ACCOUNTING ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS: The Company considers all cash and cash investments with an original maturity of three months or less to be cash equivalents. The Company typically invests excess cash in a money market account at a financial institution which management believes has a strong credit rating. PROPERTY AND EQUIPMENT: Property and equipment are stated at cost. Depreciation on owned assets is provided using the straight-line method over the following estimated useful lives: satellite receiving, computer and communications equipment: 3 to 5 years; furniture, fixtures and leasehold improvements: 5 to 10 years. Leasehold improvements are amortized over the lesser of the estimated useful lives or the terms of the respective leases. Maintenance and repair costs are charged to earnings as incurred. Costs of improvements are capitalized. Upon retirement or disposition, the cost and related accumulated depreciation and amortization are removed from the accounts and any gain or loss is included in the statements of operations. F-9 PC QUOTE, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) SOFTWARE DEVELOPMENT COSTS: The Company's continuing investment in software development consists primarily of enhancements to its existing Windows-based private network and Internet services, development of new data analysis software and programmer tools designed to afford easy access to its data-feed for data retrieval and analysis purposes, and application of new technology to increase the data volume and delivery speed of its distribution system and network. Costs associated with the planning and design phase of software development, including coding and testing activities necessary to establish technological feasibility of computer software products to be licensed or otherwise marketed, are charged to research and development as incurred. Once technological feasibility has been determined, costs incurred in the construction phase of software development including coding, testing, and product quality assurance are capitalized. Amortization commences at the time of capitalization or, in the case of a new service offering, at the time the service becomes available for use. Unamortized capitalized costs determined to be in excess of the net realizable value of the product are expensed at the date of such determination. The accumulated amortization and related software development costs are removed from the respective accounts effective in the year following full amortization. PC Quote, Inc.'s policy is to amortize capitalized software costs by the greater of (a) the ratio that current gross revenue for a product bear to the total of current and anticipated future gross revenue for that product or (b) the straight line method over the remaining estimated economic life of the product including the period being reported on, principally three to five years. The Company assesses the recoverability of its software development costs against estimated future undiscounted cash flows. Given the highly competitive environment and technological changes it is reasonably possible that those estimates of anticipated future gross revenue, the remaining estimated economic life of the product, or both may be reduced significantly. FINANCIAL INSTRUMENTS: The Company has no financial instruments for which the carrying value materially differs from fair value. INCOME TAXES: Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. F-10 PC QUOTE, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) REVENUE RECOGNITION: The Company principally derives its revenue from service contracts for the provision of market data only ("HyperFeed license fees"), service contracts for the provision of market data together with analytical software ("PC Quote 6.0 license fees"), and the sale of advertising on its web-site www.pcquote.com. Revenue from service contracts is recognized using the percentage-of-completion method, ratably over the contract term as the contracted services are rendered. Revenue from the sale of advertising is recognized as the advertising is displayed on the web-site. HyperFeed license fees and PC Quote 6.0 license fees for satellite and landline services are generally billed one month in advance with 30-day payment terms. License fees for PC Quote 6.0 on the Internet are generally paid by credit card within five days prior to the month of service. These and other payments received prior to services being rendered are classified as unearned revenue on the balance sheet. Revenue and the related receivable for advance billings are not reflected in the financial statements. Customers' deposits on service contracts are classified as either current unearned revenue, if the contract expires in one year or less, or non-current unearned revenue, if the contract expiration date is greater than one year. The Company adopted the provisions of Statement of Position (SOP) 97-2, Software Revenue Recognition, on January 1, 1998. SOP 97-2 specifies the following four criteria that must be met prior to recognizing revenue: (1) persuasive evidence of the existence of an arrangement, (2) delivery, (3) fixed or determinable fee, and (4) probable collection. In addition, revenue earned on software arrangements involving multiple elements is allocated to each element based on the relative fair value of the elements. When applicable, revenue allocated to the Company's software products (including specified upgrades/enhancements) is recognized upon delivery of the products. Revenue allocated to post contract customer support is recognized ratably over the term of the support and revenue allocated to service elements (such as training and installation) is recognized as the services are performed. COMPUTATION OF NET INCOME (LOSS) PER SHARE: In the fourth quarter of 1997, the Company adopted SFAS No. 128, "Earnings Per Share," which established new methods for computing and presenting earnings per share ("EPS") and replaced the presentation of primary and fully-diluted EPS with basic ("Basic") and diluted EPS. Basic earnings per share is based on the weighted average number of shares outstanding and excludes the dilutive effect of unexercised common stock equivalents. Diluted earnings per share includes the dilutive effect of unexercised common stock equivalents. The Company has equity securities that, if exercised, would have had a dilutive effect on EPS had the Company generated income during 1998. The dilutive effect of such securities would have been an additional 225,500 average shares outstanding during the year ended December 31, 1998. RECLASSIFICATION: Certain 1997 and 1996 balances have been reclassified to conform to the 1998 presentation. During 1998, the Company examined the components of its direct cost of services and other operating expenses in connection with the establishment of a separate Internet services group. As a result of its review, the Company identified costs which appear to be more appropriately classified in other expense categories within the statements of operations for the years ended December 31, 1997 and 1996. The reclassification related primarily to the inclusion of the amortization of software development costs within direct cost of services, depreciation and amortization expenses being included in operating expenses from direct cost of services, and selling, marketing and administrative costs being included in operating expenses from direct cost of services. The result of the reclassifications did not impact the Company's reported revenue or loss from operations for any period presented. NOTE 2. NOTE PAYABLE The Company has a $1,500,000 term loan with a bank, payable in monthly installments of $25,000 plus interest at prime (prime was 7.75% and 8.5% at December 31, 1998 and 1997, respectively). The loan is collateralized by substantially all assets of the Company. At December 31, 1998 and 1997, the outstanding balance was $799,634 and $1,099,634, respectively. F-11 PC QUOTE, INC. NOTES TO FINANCIAL STATEMENTS NOTE 3. FINANCING AND RELATED PARTY TRANSACTIONS On November 14, 1996, the Company entered into an agreement (the "Debenture Agreement") with Physicians Insurance Company of Ohio, ("Physicians"), a wholly-owned subsidiary of PICO Holdings, Inc. ("PICO"), which then owned approximately 30% of the Company's outstanding shares of Common Stock. Pursuant to the Debenture Agreement, Physicians invested $2.5 million in the Company in exchange for a Subordinated Convertible Debenture (the "Debenture") in the principal amount of $2.5 million with interest at 1% over prime. Interest was payable semiannually, beginning January 1, 1998. Physicians made the investment and the Debenture was issued on December 2, 1996. The Debenture was to mature on December 31, 2001 and was convertible at any time by Physicians into 1.25 million shares of Common Stock of the Company (subject to adjustment in certain cases). Using the Black-Scholes option-pricing model, a value of $1,650,000 was assigned by the Company to the subordinated debenture's beneficial conversion feature and recognized as additional paid in capital and unamortized discount upon issuance in 1996. On May 5, 1997, the Company and PICO entered into a Loan and Security Agreement (the "Loan Agreement"), under which PICO agreed to make a secured loan to the Company in an aggregate principal amount of up to $1.0 million at a fixed rate equal to 14% per annum. Unless otherwise extended, the entire principal balance and all accrued interest due under the Loan Agreement was payable on September 30, 1997. All advances under the Loan Agreement were secured by a pledge of substantially all of the assets of the Company. These liens were subject to the prior lien of the Company's primary lender, Lakeside Bank. PICO was also entitled to be paid a "facility fee" of $40,000 on the maturity date of the loan contemplated by the Loan Agreement. In connection with the Loan Agreement, the Company and Physicians entered into a First Amendment to the Debenture and Debenture Agreement (the "Debenture Amendment"), pursuant to which the terms of the Debenture were restructured as follows: (a) the maturity date of the Debenture was changed to April 30, 1999 instead of December 31, 2001; (b) the Debenture could not be prepaid or redeemed without the consent of Physicians; (c) the conversion rate on the Debenture was changed from $2.00 per share to the lower of (i) the mean of the closing bid price per share for the 20 trading days preceding exercise of the Debenture or (ii) $1.5625 per share (the market price of the Company's Common Stock on the date of the Debenture Amendment); (d) certain negative covenants were added to the Debenture Agreement; and (e) the rights offering contemplated by the Debenture Agreement would be at such time as determined by the Company and at a price as determined by Physicians. Interest under the Debenture would continue to be payable in cash or, at the option of Physicians, in shares of the Company's Common Stock at the market value of such shares at the time of payment. Also on May 5, 1997, in consideration of the loan by PICO to the Company, the Company issued a Common Stock Purchase Warrant (the "Warrant") to PICO entitling PICO to purchase a minimum of 640,000 shares of the Company's Common Stock at a price per share (the "Warrant Price") equal to the lesser of (a) the mean of the closing bid price per share for the 20 trading days preceding exercise of the Warrant or (b) $1.5625 per share (the market value of the Company's Common Stock on the date the Warrant was issued). The Warrant was to expire on April 30, 2000. In lieu of exercising the Warrant for cash, PICO may elect to receive shares of the Company's Common Stock equal to the "value" of the Warrant determined in accordance with a formula specified in the Warrant (the "Conversion Value"). The number of shares of the Company's Common Stock subject to the Warrant and the Warrant Price will be adjusted to reflect stock dividends; reclassifications or changes of outstanding securities of the Company; any consolidation, merger or reorganization of the Company; stock splits; issuances of rights, options or warrants to all holders of shares of the Company's Common Stock exercisable at less than the current market price per share; and other distributions to all holders of shares of the Company's Common Stock. In the event of any sale, license or other disposition of all or substantially all of the assets of the Company or any reorganization, consolidation or merger involving the Company in which the holders of the Company's securities F-12 PC QUOTE, INC. NOTES TO FINANCIAL STATEMENTS NOTE 3. FINANCING AND RELATED PARTY TRANSACTIONS (CONTINUED) before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity (an "Acquisition"), if the successor entity does not assume the obligations of the Warrant and PICO has not fully exercised the Warrant, the unexercised portion of the Warrant will be deemed automatically converted into shares of the Company's Common Stock at the Conversion Value. Alternatively, PICO may elect to cause the Company to purchase the unexercised portion of the Warrant for cash upon the closing of any Acquisition for an amount equal to (a) the fair market value of any consideration that would have been received had PICO exercised the unexercised portion of the Warrant immediately before the record date for determining stockholders entitled to participate in the proceeds of the Acquisition, less (b) the aggregate Warrant Price. The Warrant also provides for certain piggyback registration rights and a one-time demand registration right. In connection with the May 5 transactions, using the Black-Scholes option-pricing model, an aggregate value of $572,192 was assigned to the value of the Debenture Amendment and Warrant and recorded as additional paid-in-capital and discounts on the Debenture and the Loan. In August 1997 the Company and PICO agreed to amend the Loan Agreement and related documents to increase the amount of the secured loan from PICO to the Company from $1.0 million up to $2.0 million. The terms of the Loan Agreement otherwise remained substantially the same, except that the "facility fee" of $40,000 was eliminated for new advances. In connection with the increase of the loan amount pursuant to such amendment, the Company granted PICO an additional Common Stock Purchase Warrant for a minimum of 500,000 shares of the Company's Common Stock. The terms of the additional warrant are substantially the same as those contained in the Warrant, except that the conversion price is the lesser of (a) $2.00 per share or (b) the mean of the closing bid price per share for the 20 trading days preceding exercise of the additional warrant. The additional warrant also provides for certain piggyback registration rights and a one-time demand registration right. Using the Black-Scholes option-pricing model, a value of $428,640 was assigned to the value of the additional warrants issued and recorded as paid-in-capital and discount on the loan. On September 22, 1997 the Company and PICO executed a second amendment to the Loan Agreement to further increase the amount of the secured loan from PICO to the Company from $2.0 million to $2.25 million. The terms of the Loan Agreement otherwise remained substantially the same, except that the maturity date was extended to December 31, 1997. In consideration of the amendment to the Loan Agreement, the Company granted PICO another Common Stock Purchase Warrant for up to 129,032 shares of Common Stock. The terms of such warrant are substantially the same as contained in the Warrant, except that the conversion price is the lesser of (a) $1.9375 per share or (b) the mean of the closing bid price per share for the 20 trading days preceding exercise of this warrant. This warrant also provides for certain piggyback registration rights and a one-time demand registration right. Using the Black-Scholes option-pricing model, a value of $99,659 was assigned to the value of the additional warrants issued and recorded as paid-in-capital and discount on the loan. On December 30, 1997, February 5, 1998, March 10, 1998, May 5, 1998, June 1, 1998, and July 24, 1998, the Company and PICO executed the third, fourth, fifth, sixth, seventh, and eighth amendments to the Loan Agreement, respectively, extending the due date for borrowings by the Company, plus accrued interest, to January 31, 1998, February 28, 1998, April 30, 1998, May 31, 1998, August 31, 1998, and December 31, 1998, respectively. No further warrants were issued in connection with the third, fourth, fifth, sixth, seventh, or eighth amendments to the loan agreement. On May 19, 1998 PICO exercised a portion of one of their warrants and purchased 320,000 shares of Common Stock of the Company for $500,000. F-13 PC QUOTE, INC. NOTES TO FINANCIAL STATEMENTS NOTE 3. FINANCING AND RELATED PARTY TRANSACTIONS (CONTINUED) On July 31, 1998 the Company and PICO executed the ninth amendment to the Loan Agreement to further increase the amount of the secured loan from PICO to the Company from $2.25 million to $3.25 million. No further warrants were issued in connection with the ninth amendment. On September 23, 1998 the Company entered into a Securities Purchase Agreement (the "Securities Agreement"), subject to shareholder approval, with PICO and Physicians. Under the terms of the Securities Agreement, the Company and Physicians, as the holder of the Debenture in the principal amount of $2,500,000, plus accrued interest in the amount of $423,123 as of September 23, 1998, plus interest accruing at the rate of $651 per day thereafter (such principal and all accrued interest through the Closing Date, the "Debenture Balance"), and PICO, to whom the Company was indebted in the principal amount of $3,290,000, plus accrued interest in the amount of $377,742 as of September 23, 1998, plus interest accruing at the rate of $1,262 per day thereafter (such principal and all accrued interest through the Closing Date, the "PICO Indebtedness") provided for the purchase of Series A 5% Convertible Preferred Stock by Physicians through the conversion of the Debenture Balance and for the purchase of Series B 5% Convertible Preferred Stock by PICO in consideration for the cancellation of the PICO Indebtedness. Concurrently with the execution of the Securities Agreement, the Company and Physicians entered into the Second Amendment to the Debenture and Debenture Agreement to revise the conversion language therein in order to make it consistent with the Securities Agreement. Shareholder approval of the terms and conditions of the Securities Agreement for the debt conversion and the transactions contemplated by the Securities Agreement was obtained on December 17, 1998. The closing date for the Securities Agreement transactions was December 18, 1998. Subject to the terms and conditions of the Securities Agreement, Physicians purchased and the Company issued to Physicians 19,075 shares of Series A 5% Convertible Preferred Stock determined by dividing the Debenture Balance by one hundred times $1.5625 (the Debenture conversion rate on the date of the Securities Agreement). The Series A 5% Convertible Preferred Stock was deemed to have a beneficial conversion feature because the fair market value of the Company's common stock was in excess of its per share conversion price at the date of issuance. The value of the beneficial conversion feature of $119,219 was recorded in 1998 as an increase in additional paid in capital Series A preferred stock and a decrease to retained earnings (preferred dividend) Subject to the terms and conditions of the Securities Agreement, PICO purchased and the Company issued to PICO on December 18, 1998, 28,791 shares of Series B 5% Convertible Preferred Stock determined by dividing the PICO Indebtedness by one hundred times $1.3125 (the market price of the Company's Common Stock on September 21, 1998, the date the Securities Agreement was approved by the Company's Board of Directors). The Series B 5% Convertible Preferred Stock was deemed to have a beneficial conversion feature because the fair market value of the Company's common stock was in excess of its per share conversion price at the date of issuance. The value of the beneficial conversion feature of $899,719 was recorded in 1998 as an increase in additional paid in capital Series B preferred stock and a decrease to retained earnings (preferred dividend). A holder of Series A Preferred is entitled to receive cash dividends, when and as declared by the Board out of funds legally available for such purpose, in the annual amount of 5% of the per share purchase price, payable quarterly on the 15th day of September, December, March and June, in each year. A holder of Series B Preferred is entitled to receive cash dividends, when and as declared by the Board out of funds legally available for such purpose, in the annual amount of 5% of the per share purchase price, payable quarterly on the 15th day of September, December, March and June, in each year. Dividends payable for any period less than a full quarter shall be computed on and paid for the actual number of days elapsed. Dividends shall accrue on each share of Preferred Stock from the date of issue of such share of stock (the "Issuance Date"). F-14 PC QUOTE, INC. NOTES TO FINANCIAL STATEMENTS NOTE 3. FINANCING AND RELATED PARTY TRANSACTIONS (CONTINUED) No dividends shall be declared on any other series or class or classes of stock unless there shall be or have been declared on all shares of Preferred Stock then outstanding the dividends for all quarter-yearly periods coinciding with or ending before such quarter-yearly period. Dividends shall be cumulative. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment which is in arrears. If in any quarter-yearly dividend period, dividends in the annual amount have not been declared and paid or set apart for payment for such quarter-yearly dividend period and all preceding such periods from the first day from which dividends are cumulative, then, until the aggregate deficiency is declared and fully paid or set apart for payment, the Company shall not (i) declare or pay or set apart for payment any dividends or make any other distribution on any other capital stock or securities having an equity interest in the Company ranking junior to or on a parity with the Preferred Stock with respect to the payment of dividends or distribution of assets on liquidation, dissolution or winding up of the Company (the "Secondary Stock") (other than dividends or distributions paid in shares of, or options, warrants or rights to subscribe for or purchase Secondary Stock) or (ii) make any payment on account of the purchase, redemption, other retirement or acquisition of any Secondary Stock with respect to the payment of dividends or distribution of assets on liquidation, dissolution or winding up of the Company. At any time or times on or after the Issuance Date, any holder of Preferred Stock shall be entitled to convert any whole number of shares of Preferred Stock into fully paid and nonassessable shares (rounded to the nearest whole share). The number of shares of Common Stock issuable upon conversion of the Preferred Stock shall be determined by multiplying the product of one hundred (100) and the number of shares of Preferred Stock to be converted into Common Stock by: (i) in the case of Series A Preferred, $1.5625 and then adding the amount of any accrued but unpaid dividends attributable to such Preferred Stock, and then dividing by the lower of (X) $1.5625, (Y) the average Closing Sale Price of the Common Stock over the twenty-day period immediately prior to the day the Series A Preferred is to be converted into Common Stock; or (Z) the Closing Sale Price one day prior to the day the Series A Preferred is to be converted into Common Stock (the "Series A Conversion Rate"). (ii) in the case of Series B Preferred, $1.3125 and then adding the amount of any accrued but unpaid dividends attributable to such Preferred Stock, and then dividing by the lower of (X) $1.3125, (Y) the average Closing Sale Price of the Common Stock over the twenty-day period immediately prior to the day the Series B Preferred is to be converted into Common Stock; or (Z) the Closing Sale Price one day prior to the day the Series B Preferred is to be converted into Common Stock (the "Series B Conversion Rate"). In order to prevent dilution of the rights granted, the Series A and Series B Conversion Rates will be subject to adjustment for issuance of additional securities of the Company, including common stock, options or convertible securities, and reclassifications or changes of outstanding securities (by any stock split, reverse stock split, combination, stock dividend, recapitalization or otherwise). If any Preferred Stock remains outstanding on the fifth anniversary after the Issuance Date, then such Preferred Stock shall automatically convert to Common Stock on such fifth anniversary. The holders of Series A or Series B Preferred Stock shall be entitled to notice of any shareholders' meeting and to vote upon any matter submitted to the shareholders for a vote on the following basis. Each Holder of Preferred Stock shall have the number of votes equal to the number of shares of Common Stock into which the Preferred Stock then held by such holder is convertible, as adjusted from time to time. F-15 PC QUOTE, INC. NOTES TO FINANCIAL STATEMENTS NOTE 3. FINANCING AND RELATED PARTY TRANSACTIONS (CONTINUED) Subject to the terms and conditions of the Securities Agreement, the Company issued to PICO a warrant to purchase 3,106,163 shares of Common Stock of the Company at an exercise price of $1.575 per share (120% of the Series B Closing Price), and an expiration date of April 30, 2005. In lieu of exercising the warrant for cash, the holder may elect to receive shares of the Company's Common Stock equal to the "value" of the warrant determined in accordance with a formula specified in the warrant (the "Conversion Value"). The number of shares of the Company's Common Stock subject to the warrant and the exercise price will be adjusted to reflect stock dividends; reclassifications or changes of outstanding securities of the Company; any consolidation, merger or reorganization of the Company; stock splits; issuances of rights, options or warrants to all holders of shares of the Company's Common Stock exercisable at less than the current market price per share; and other distributions to all holders of shares of the Company's Common Stock. In the event of any sale, license or other disposition of all or substantially all of the assets of the Company or any reorganization, consolidation or merger involving the Company in which the holders of the Company's securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity (an "Acquisition"), if the successor entity does not assume the obligations of the warrant and the holder has not fully exercised the warrant, the unexercised portion of the warrant will be deemed automatically converted into shares of the Company's Common Stock at the Conversion Value. Alternatively, the holder may elect to cause the Company to purchase the unexercised portion of the warrant for cash upon the closing of any Acquisition for an amount equal to (a) the fair market value of any consideration that would have been received had the holder exercised the unexercised portion of the warrant immediately before the record date for determining stockholders entitled to participate in the proceeds of the Acquisition, less (b) the aggregate exercise price. Subject to the terms and conditions of the Securities Agreement, the Company and PICO, as the holder of three Common Stock Purchase Warrants to purchase an aggregate of 949,032 shares of Common Stock of the Company (the "Existing Warrants"), each of which was to expire on April 30, 2000, entered into Amendments of the Existing Warrants to extend the term of the Existing Warrants until April 30, 2005. In October 1997 Imprimis Investors LLC and Wexford Spectrum Investors LLC (collectively, the "Wexford Affiliates") purchased five million shares of Common Stock and warrants to purchase five hundred thousand shares of Common Stock at an exercise price of $2.00 per share, exercisable at any time prior to October 15, 2002 (the "Initial Warrants"), in exchange for $5.0 million. The Wexford Affiliates acquired the Common Stock and the Warrants for investment purposes pursuant to a certain Stock and Warrant Purchase Agreement dated October 15, 1997, between PC Quote and the Wexford Affiliates (the "Purchase Agreement"). Up to four million of the shares of Common Stock purchased by the Wexford Affiliates were subject to repurchase by PC Quote at a purchase price of $1.00 per share pursuant to the terms of the Purchase Agreement (the "Repurchase"). Pursuant to the terms of the Purchase Agreement, PC Quote was required to use its best efforts to consummate the Repurchase from the proceeds of a rights offering. In the event that the rights offering was not completed on or prior to January 24, 1998, the Wexford Affiliates would have been entitled to receive, out of escrow, warrants to purchase an additional 250,000 shares of Common Stock with the same terms as the Initial Warrants and, in the event the Rights Offering was not completed on or prior to February 28, 1998, the Wexford Affiliates would have been entitled to receive, out of escrow, warrants to purchase an additional 250,000 shares of Common Stock with the same terms as the Initial Warrants. On October 31, 1997 the Company filed a Form S-2 Registration Statement with the Securities and Exchange Commission for the rights offering. The Registration Statement was amended on November 20, 1997 and became effective on November 21, 1997. The Company distributed 7,402,246 transferable subscription rights to shareholders of record as of the close of business on November 21, 1997, entitling them to purchase one additional share of Common Stock for each right at a price of $1.00 per share. F-16 PC QUOTE, INC. NOTES TO FINANCIAL STATEMENTS NOTE 3. FINANCING AND RELATED PARTY TRANSACTIONS (CONTINUED) On January 23, 1998, the Company completed the rights offering. The Company received approximately $3.0 million in gross proceeds from the sale of shares underlying exercised rights. Pursuant to the Purchase Agreement, the entire proceeds were used to fulfill the Company's obligation to repurchase shares from the Wexford Affiliates, and the additional Warrants reverted back to the Company. During the second quarter of 1998, the Wexford Affiliates exercised a portion of their warrants and purchased 143,300 shares of Common Stock of the Company for $286,600. During the third quarter of 1998, the Wexford Affiliates exercised a portion of their warrants and purchased 89,500 shares of Common Stock of the Company for $179,000. (See Note 15.) On December 29, 1998 the Company entered into Stock and Warrant Purchase Agreements with three third-party investors. On December 30, 1998 the investors purchased 640,000 shares of Common Stock and warrants to purchase 320,000 shares of Common Stock at an exercise price of $1.875 per share, exercisable at any time on or prior to December 30, 2001, in exchange for $1.0 million. The investors acquired the Common Stock and warrants for investment purposes. As a result of the foregoing, in connection with the Company's financing and related party transactions, the Company has the following warrants for purchase of shares of common stock, issued and outstanding at December 31, 1998.
Number of Expiration Exercise Remaining Life in Years at Shares Date Price December 31, 1998 ------ ---- ----- ----------------- 320,000 04/30/2005 (1) 6.33 500,000 04/30/2005 (2) 6.33 129,032 04/30/2005 (3) 6.33 3,106,163 04/30/2005 $1.575 6.33 320,000 12/30/2001 $1.875 3.00 267,200 10/15/2002 $2.00 3.79
(1) lesser of the mean of the closing bid price per share for the 20 trading days preceding exercise of the warrant or $1.5625 per share. (2) lesser of the mean of the closing bid price per share for the 20 trading days preceding exercise of the warrant or $2.00 per share. (3) lesser of the mean of the closing bid price per share for the 20 trading days preceding exercise of the warrant or $1.9375 per share. F-17 PC QUOTE, INC. NOTES TO FINANCIAL STATEMENTS NOTE 4. EMPLOYEE STOCK OPTIONS AND WARRANTS The Company has an Employees' Combined Incentive and Non-Statutory Stock Option Plan (the "Plan"). The Plan provides that at all times optional shares outstanding plus shares available for grant equal 2,000,000 shares. Generally, these options may be granted to key employees of the Company at a purchase price equal to the fair value of the Company's common stock at date of grant and are generally exercisable for a period of up to five years from the date of grant. Other information with respect to the Plan is as follows:
- ----------------------------------- ------------------ -------------------- Number Weighted- of Average Price Shares Per Share --------------- ------------------ - --------------------------------------------------------------------------- Balance, December 31, 1995 459,666 3.70 Granted 130,000 4.94 Exercised (89,663) (1.41) Canceled (60,000) (3.88) --------- Balance, December 31, 1996 440,003 4.51 Granted 636,612 1.61 Exercised (18,833) (0.90) Canceled (283,917) (4.64) -------- Balance, December 31, 1997 773,865 2.16 Granted 1,192,200 1.52 Exercised (95,015) (1.19) Canceled (76,751) (2.39) --------- Balance, December 31, 1998 1,794,299 1.78 --------- - --------------------------------------------------------------------------- Shares Exercisable Available Shares for Grant --------------- ------------------ - --------------------------------------------------------------------------- December 31, 1998 1,457,466 205,701 December 31, 1997 592,113 1,226,135 December 31, 1996 157,338 559,997
Options granted under the Plan generally become exercisable at an annual cumulative rate of one-third of the total number of options granted. The price for options outstanding at December 31, 1998 ranged from $0.9375 to $6.375 per share. F-18 PC QUOTE, INC. NOTES TO FINANCIAL STATEMENTS NOTE 4. EMPLOYEE STOCK OPTIONS AND WARRANTS (CONTINUED) On January 1, 1996, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and provide pro forma net income and pro forma net income per share disclosures as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. Had the Company determined compensation cost based on the fair value at the grant date for its stock-based compensation plans under SFAS No. 123, the Company's net loss and net loss per share would have been for the years ended December 31, 1998, 1997 and 1996 the pro forma amounts indicated below:
- --------------------------------------------------------------------------------------------------------------------- Basic and Basic and Basic and Diluted Diluted Diluted Loss per Loss per Loss per 1998 Share 1997 Share 1996 Share ---- ---- ---- ----- ---- ----- - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- Net loss available for common stockholders ($7,468,146) ($0.57) ($11,141,416) ($ 1.33) ($3,255,969) ($ 0.45) - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- Compensation expense related to stock options granted (1,254,336) ( 0.10) (523,646) ( 0.06) (628,141) (0.09) ----------- ------ ----------- ------- ----------- ------- - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- Pro forma net loss available for common stockholders ($8,722,482) ($0.67) ($11,665,062) ($ 1.39) ($3,884,110) ($ 0.54) ------------ ------ ------------ ------- ----------- ------- ------------ ------ ------------ ------- ----------- ------- - ---------------------------------------------------------------------------------------------------------------------
The fair value of each grant is estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions:
- --------------------------------------------------------------------------------------------------------------------- 1998 1997 1996 ---- ---- ---- - --------------------------------------------------------------------------------------------------------------------- Expected life 7.18 years 6.83 years 3 years - --------------------------------------------------------------------------------------------------------------------- Dividend rate 0% 0% 0% - --------------------------------------------------------------------------------------------------------------------- Risk-free interest rate 5.16% 6.11% 6.0% - --------------------------------------------------------------------------------------------------------------------- Volatility factors 134% 123% 81% - ---------------------------------------------------------------------------------------------------------------------
The weighted-average exercise price and weighted-average fair value of options granted during 1998, 1997 and 1996 where the market price equals, exceeds or is less than the exercise price at the time of grant is as follows:
- --------------------------------------------------------------------------------------------------------------------- Stock Price ______ Exercise Price - ------------------------------------------------------------------------------------- ------------------------------- 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------- Is Less Is Less Is Less Equals Exceeds Than Equals Exceeds Than Equals Exceeds Than ------ ------- ---- ------ ------- ---- ------ ------- ---- - --------------------------------------------------------------------------------------------------------------------- Exercise price $1.29 $1.59 $1.75 $1.53 $1.69 $1.70 $4.94 --- --- - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- Fair value of option $1.09 $2.01 $1.10 $1.29 $2.00 $0.96 $3.39 --- --- - ---------------------------------------------------------------------------------------------------------------------
F-19 PC QUOTE, INC. NOTES TO FINANCIAL STATEMENTS NOTE 4. EMPLOYEE STOCK OPTIONS AND WARRANTS (CONTINUED) Compensation expense from stock-based compensation awards recognized in the Statement of Operations for 1998 and 1997 was $117,779 and $19,076, respectively. A further summary about options outstanding at December 31, 1998, is as follows:
Weighted-Average Remaining Number Contractual Number Exercise Price Outstanding Life Exercisable ----------------- ------------ ----------- ----------- $ 0.9375 25,000 4.11 --- $ 1.0000 34,328 2.09 34,328 $ 1.1250 215,000 4.69 33,333 $ 1.3750 587,902 7.60 521,236 $ 1.4375 301,168 3.85 266,668 $ 1.5000 41,000 3.90 17,000 $ 2.0000 487,901 8.45 487,901 $ 2.9375 5,000 4.38 --- $ 5.3750 25,000 2.58 25,000 $ 6.3750 72,000 1.82 72,000 --------- --------- 1,794,299 6.30 1,457,466 --------- --------- --------- ---------
NOTE 5. INCOME TAXES The deferred tax assets and liabilities consist of the following components as of December 31, 1998 and 1997:
- --------------------------------------------------------------------------------------------------------- 1998 1997 ---- ---- - --------------------------------------------------------------------------------------------------------- Deferred tax assets: - --------------------------------------------------------------------------------------------------------- Unearned revenue $ 526,036 $ 377,380 - --------------------------------------------------------------------------------------------------------- Receivable allowances 155,063 121,100 - --------------------------------------------------------------------------------------------------------- Property and equipment 266,800 196,800 - --------------------------------------------------------------------------------------------------------- Accrued expenses 54,231 40,231 - --------------------------------------------------------------------------------------------------------- Net operating loss carryforwards 9,101,895 8,114,160 - --------------------------------------------------------------------------------------------------------- Research and development credit carryforward 106,000 106,000 ---------- ---------- - --------------------------------------------------------------------------------------------------------- 10,210,025 8,955,671 - --------------------------------------------------------------------------------------------------------- Valuation allowance (8,455,486) (6,753,591) ---------- ---------- - --------------------------------------------------------------------------------------------------------- 1,754,539 2,202,080 - --------------------------------------------------------------------------------------------------------- Deferred tax liabilities: - --------------------------------------------------------------------------------------------------------- Software capitalization (1,754,539) (2,202,080) ---------- ---------- - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- Net current deferred tax asset --- --- ---------- ---------- - --------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------
F-20 PC QUOTE, INC. NOTES TO FINANCIAL STATEMENTS NOTE 5. INCOME TAXES (CONTINUED) 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 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 scheduled reversal of the caplitalized software, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of the existing valuation allowances at December 31, 1998. Income tax expense for the years ended December 31, 1998, 1997, and 1996, consists of the following:
- ------------------------------------------------------------------------------------------------------- 1998 1997 1996 ---- ---- ---- - ------------------------------------------------------------------------------------------------------- Current: - ------------------------------------------------------------------------------------------------------- State and local $ 3,613 $ 5,762 $ 6,264 - ------------------------------------------------------------------------------------------------------- Deferred --- --- 158,000 ------- ------- -------- - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Total income tax expense $ 3,613 $ 5,762 $164,264 ------- ------- -------- - -------------------------------------------------------------------------------------------------------
Reconciliations of income tax expense computed at the statutory federal income tax rate to the Company's income tax expense for the years ended December 31, 1998, 1997 and 1996, are as follows:
- ----------------------------------------------------------------------------------------------------------------- 1998 1997 1996 ---- ---- ---- - ----------------------------------------------------------------------------------------------------------------- Statutory rate provision ($ 2,257,223) ($ 3,899,496) ($1,051,200) - ----------------------------------------------------------------------------------------------------------------- Increase (decrease) resulting from: - ----------------------------------------------------------------------------------------------------------------- Nondeductible expenses 393,613 8,468 26,000 - ----------------------------------------------------------------------------------------------------------------- State income taxes (net of federal benefit) 2,348 3,745 4,100 - ----------------------------------------------------------------------------------------------------------------- Change in valuation allowance 1,701,895 3,907,331 1,200,460 - ----------------------------------------------------------------------------------------------------------------- Other 162,980 (14,286) (15,096) ------------ ------------ ----------- - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- $ 3,613 $ 5,762 $ 164,264 ------------ ------------ ----------- - -----------------------------------------------------------------------------------------------------------------
At December 31, 1998, the Company had federal income tax net operating loss carryforwards of approximately $26,005,000 for federal income tax purposes and approximately $24,843,000 for the alternative minimum tax. Approximately $1,058,000 of these net operating losses relates to exercise of incentive employee stock options and will be credited directly to stockholders' equity when realized. The Company also had research and development credits of $106,000 which will expire in years 2010 to 2011 if not previously utilized. The future utilization of these net operating losses and research and development credits will be limited due to changes in Company ownership. The net operating loss carryforwards will expire, if not previously utilized, as follows: 1999: $546,000; 2000: $1,370,000; 2001: $1,539,000; 2002: $560,000; 2003: $79,000; 2004: $576,000; 2005: $1,557,000 and thereafter $19,778,414. F-21 PC QUOTE, INC. NOTES TO FINANCIAL STATEMENTS NOTE 6. LEASE COMMITMENTS The Company is obligated, as lessee under certain noncancelable operating leases, for lease payments for equipment and office space, as well as insurance, maintenance and other executory costs associated with the leases. On September 1, 1994, the Company entered into a lease agreement in conjunction with the move of its corporate headquarters, which is subject to escalating base rent, as well as adjustments for changes in real estate taxes and other operating expenses. Expense under the lease is recognized on a straight-line basis. Future minimum lease payments for the Company as lessee as of December 31, 1998 are as follows:
Operating Leases ------ Years ending December 31: 1999 $ 1,361,851 2000 321,553 2001 191,653 2002 153,514 2003 94,684 2004 and Thereafter 94,684 -------------- Total minimum lease payments $ 2,217,939 -------------- --------------
Rental expense for operating leases was $3,187,945, $3,314,402 and $2,408,879 for the years ended December 31, 1998, 1997 and 1996, respectively. NOTE 7. OTHER COMMITMENTS Under an agreement for satellite transmission services, including "FM(3)" satellite transmissions, the Company was required to pay a monthly base fee of $52,888, plus related service fees, through the earlier of January 2006, the original estimated end-of-life of the satellite, or the actual end-of-life of the satellite. The Company expensed $679,680, $677,347 and $618,648 for the years ended December 31, 1998, 1997 and 1996, respectively, for these services. Under a Satellite Network Service agreement, which expired in November 1997, the Company was required to pay an annual base fee of approximately $456,000, plus related service fees. The Company expensed $272,950 and $653,083 in 1997 and 1996, respectively, for the base fee plus related service fees. NOTE 8. MAJOR CUSTOMERS The Company did not have any customers that accounted for 10% or more of total revenue in either 1998 or 1997. On January 25, 1995, the Company entered into an agreement with Global Financial Services, (formerly Bridge Information Systems) ("Global"), whereby the Company would provide domestic data to Global for $2,100,000 (1996) and $450,000 through March 31, 1997. For the remainder of the contract term, amounts would be charged on a per-site basis at December 31, 1996. In September 1996, the Company agreed to accelerate the termination date of this agreement to January 1, 1997. For the fiscal year ending December 31, 1996, Global accounted for revenue approximating $3,414,000. In December 1996, the Company discontinued providing services to Charles Schwab and Company that accounted for net revenue of approximately $1,693,000 in 1996. F-22 PC QUOTE, INC. NOTES TO FINANCIAL STATEMENTS NOTE 9. DEFINED CONTRIBUTION PLAN In 1993, the Company established a 401(k) retirement savings plan for employees meeting certain eligibility requirements. Under the plan, the Company is required to match employee contributions at 25% of the first 5% contributed by an employee. The Company recorded expenses related to its matching of contributions of $49,205, $36,200 and $30,000 for the years ended December 31, 1998, 1997 and 1996, respectively. NOTE 10. EMPLOYEE STOCK PURCHASE PLAN In 1995, the Company established an employee stock purchase plan. The plan allows employees to have up to 10% of their annual salary withheld to purchase common stock of PC Quote, Inc. on the final day of each quarter at 85% of the market price on either the first or last day of the quarter, whichever is lower. The Company has reserved 500,000 shares of common stock for issuance pursuant to the terms of the plan. Shares sold to employees totaled 288,513, 60,610 and 30,228 for the years ended December 31, 1998, 1997 and 1996, respectively. NOTE 11. LITIGATION On December 31, 1996, a lawsuit was filed against the Company, by a former officer, alleging breach of various verbal and written agreements by failing to pay certain commissions, bonuses and severance pay and failing to provide him with certain stock options. The lawsuit sought monetary damages of approximately $680,000. The Company filed a Motion to Dismiss a major portion of the complaint which was granted in 1998. The remaining portion of the complaint seeks monetary damages of approximately $70,000. The Company is vigorously contesting the matter, but its legal counsel has indicated that the outcome of the lawsuit cannot be determined at this time. Management believes the claim is without merit; accordingly, no provision has been made in the financial statements for any loss that may result from litigation. NOTE 12. RESTRUCTURING In June 1997, the Board of Directors of the Company approved a plan to restucture the operations of the Company. The plan provided for the exiting of certain activities and the termination of three senior executive's employment agreements. The activities exited by the Company resulted in a write off approximately $572,000 of unamortized software development costs for previously capitalized software projects that were discontinued and a payment of $150,000 for early termination of a contractual arrangement. The management reorganization resulted in the Company incurring employment related termination costs of $425,000. Management classified these costs as "restructuring expense," as the costs at the time of recognition: 1) were not associated with or did not benefit activities that would be continued, 2) were not associated with or incurred to generate future revenue, and 3) represented amounts to be incurred by the Company under a contractual arrangement. Total restructuring costs recognized by the Company in 1997, as a result of its reorganization plan, was $1.1 million. There was $97,195 of restructuring costs included in accrued expenses at December 31, 1997, and subsequently paid in 1998. NOTE 13. RESEARCH AND DEVELOPMENT During the fiscal years ended December 31, 1998,1997 and 1996, we expensed $634,884, $873,579 and $709,618, respectively, for research and development. These expenses are included in product and market development costs in the statements of operations. F-23 PC QUOTE, INC. NOTES TO FINANCIAL STATEMENTS NOTE 14. MANAGEMENT'S PLANS AND INTENTIONS FOR CONTINUING OPERATIONS The Company incurred a net loss of approximately $6.4 million and reported a net loss available to common stockholders of approximately $7.3 million for the year ended December 31, 1998. As of December 31, 1998, the Company had an accumulated deficit of approximately $27.6 million and deficit working capital of $3.5 million. These conditions raise doubt about the Company's ability to continue as a going concern. The Company has addressed, and continues to address, this doubt. The Company has significantly improved its gross margins through a combination of revenue growth and operating cost containment. Management expects this trend to continue in 1999, in part due to new service offerings planned for release in 1999 that they believe will result in additional revenue and increased margins. Although management believes the Company's gross margins will continue to improve, there can be no assurances that generated cash flow will be sufficient to fund operations. If generated cash flow is not sufficient to fund operations, the Company may have to raise additional capital externally. In December 1998 the Company converted $6.7 million of current debt into preferred equity and raised an additional $1.0 million in capital through a private placement of Common Stock. Interest expense related to the converted debt accounted for approximately $1.7 million of the loss reported for 1998. Altogether, the Company raised $9.2 million in capital in 1998 through the debt conversion, private placement, exercise of warrants and other sales of common stock. These transactions significantly improved the financial condition of the Company. Management's objective is to raise, if and when necessary, the minimal amount of capital for operations in order to minimize dilution to existing stockholders. Management believes it has the ability to raise additional capital, if necessary. However, any capital raised could be costly to the Company and/or dilutive to stockholders. The Company has explored, and continues to explore multiple alternatives that may be available to the Company for the purpose of enhancing shareholder value. Such alternatives include a merger, a spin-off or sale of part of the Company's business, a strategic relationship or joint venture with another technology or financial services firm and other financing to further fund the Company's business. There can be no assurances, however, that the Company will be successful in concluding a transaction. NOTE 15. SUBSEQUENT EVENTS In February 1999 the Wexford Affiliates exercised the remaining potion of their warrants and the Company issued 267,200 shares of common stock to them in exchange for $534,400. F-24 PC QUOTE, INC. SUPPLEMENTAL SCHEDULE II OF FINANCIAL STATEMENTS REPORT OF INDEPENDENT ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE To the Board of Directors PC Quote, Inc.: Under date of March 12, 1999, we reported on the balance sheets of PC Quote, Inc. as of December 31, 1998 and 1997 and the related statements of operations, stockholders' equity and cash flows for the years then ended. In connection with our audits of the aforementioned financial statements, we also audited the related financial statement schedule of valuation and qualifying accounts for the years ended December 31, 1998 and 1997. This financial schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the schedule based on our audits. In our opinion, such financial statement schedule for the years ended December 31, 1998 and 1997, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the 1998 and 1997 information set forth therein. KPMG LLP Chicago, Illinois March 12, 1999 F-25 PC QUOTE, INC. SUPPLEMENTAL SCHEDULE II OF FINANCIAL STATEMENTS REPORT OF INDEPENDENT ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE To the Board of Directors PC Quote, Inc. Chicago, Illinois Our audit of the financial statements of PC Quote, Inc. as of and for the year ended December 31, 1996 included the 1996 information on Schedule II contained herein. Such schedule is presented for purposes of complying with the Security and Exchange Commission's rule and is not a required part of the basic financial statements. In our opinion, such schedule presents fairly the 1996 information set forth therein in conformity with generally accepted accounting principles. McGLADREY & PULLEN, LLP Schaumburg, Illinois March 7, 1997 F-26 PC QUOTE, INC. SUPPLEMENTAL SCHEDULE II TO THE FINANCIAL STATEMENTS SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Years Ended December 31, 1998, 1997 and 1996
- ---------------------------------------------------------------------------------------------------- Balance at Beginning of Charged to Deductions Balance at Description Period Operations From Reserves End of Period - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- Allowance for doubtful Accounts/trade Receivable in the Balance sheets - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- 1998 $346,000 $397,873 ($300,836) $443,037 - ---------------------------------------------------------------------------------------------------- 1997 234,000 683,639 (571,639) 346,000 - ---------------------------------------------------------------------------------------------------- 1996 95,000 734,346 (595,346) 234,000 - ----------------------------------------------------------------------------------------------------
F-27 EX-3.(D) 2 EXHIBIT 3(D) EXHIBIT 3(d) CERTIFICATE OF DESIGNATIONS OF SERIES A AND SERIES B PREFERRED STOCK OF PC QUOTE, INC. PC Quote, Inc., a Delaware corporation (the "CORPORATION") hereby certifies that the following resolutions were adopted by the Board of Directors of PC Quote, Inc. (the "BOARD") on December 18, 1998, pursuant to authority conferred upon the Board by the Certificate of Incorporation, as amended, of the Corporation and Section 151(g) of the Delaware General Corporation Law: RESOLVED, that the Board hereby authorizes two series of the Corporation's previously authorized Preferred Stock, par value $.001 per share, and hereby states a designation of each series and number of shares, and fixes the relative rights, preferences, privileges, powers and restrictions thereof as follows: 1. DESIGNATION AND AMOUNT. The Corporation hereby designates 19,075 shares of the Preferred Stock as Series A Preferred Stock (the "SERIES A PREFERRED") and 28,791 shares of the Preferred Stock as Series B Preferred Stock (the "SERIES B PREFERRED," collectively with the Series A Preferred, the "PREFERRED STOCK"). 2. DIVIDENDS. (a) A holder of Series A Preferred shall be entitled to receive cash dividends, when and as declared by the Board out of funds legally available for such purpose, in the annual amount of $7.81 per share, payable quarterly on the 15th day of September, December, March and June, in each year. A holder of Series B Preferred shall be entitled to receive cash dividends, when and as declared by the Board out of funds legally available for such purpose, in the annual amount of $6.56 per share, payable quarterly on the 15th day of September, December, March and June, in each year. If any day described in the preceding two sentences is not a business day, dividends shall be paid on the next business day, commencing on the first such day after issuance. Dividends payable for any period less than a full quarter shall be computed on and paid for the actual number of days elapsed. Dividends shall accrue on each share of Preferred Stock from the date of issue of such share of stock (the "ISSUANCE DATE"). Dividends shall be paid to holders of record on a record date to be determined by the Board in advance of the payment of each dividend. (b) No dividends shall be declared on any other series or class or classes of stock unless there shall be or have been declared on all shares of Preferred Stock then outstanding the dividends for all quarter-yearly periods coinciding with or ending before such quarter-yearly period. Dividends shall be cumulative. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment which is in arrears. If in any quarter-yearly dividend period, dividends in the annual amount have not been declared and paid or set apart for payment for such quarter-yearly dividend period and all preceding such periods from the first day from which dividends are cumulative, then, until the aggregate deficiency is declared and fully paid or set apart for payment, the Corporation shall not (i) declare or pay or set apart for payment any dividends or make any other distribution on any other capital stock or securities having an equity interest in the Corporation ranking junior to or on a parity with the Preferred Stock with respect to the payment of dividends or distribution of assets on liquidation, dissolution or winding up of the Corporation (the "SECONDARY STOCK") (other than dividends or distributions paid in shares of, or options, warrants or rights to subscribe for or purchase Secondary Stock) or (ii) make any payment on account of the -1- purchase, redemption, other retirement or acquisition of any Secondary Stock with respect to the payment of dividends or distribution of assets on liquidation, dissolution or winding up of the Corporation. 3. CONVERSION OF PREFERRED STOCK. A holder of Preferred Stock shall have the right, at such holder's option, to convert the Preferred Stock into shares of the Corporation's common stock, par value $0.001 per share (the "COMMON STOCK"), on the terms and conditions set forth in Sections 3(a) and 3(b). If any Preferred Stock remains outstanding on the fifth anniversary after the Issuance Date, then such Preferred Stock shall automatically convert to Common Stock on such fifth anniversary under the terms of Section 7(f). - CONVERSION RIGHT. At any time or times on or after the Issuance Date, any holder of Preferred Stock shall be entitled to convert any whole number of shares of Preferred Stock into fully paid and nonassessable shares (rounded to the nearest whole share in accordance with Section 7(h)) of Common Stock, at the Applicable Conversion Rate, adjusted in accordance with Section 4, if applicable. - APPLICABLE CONVERSION RATE. The number of shares of Common Stock issuable upon conversion of the Preferred Stock pursuant to Section 3(a) shall be determined by multiplying the product of one hundred (100) and the number of shares of Preferred Stock to be converted into Common Stock by: (i) in the case of Series A Preferred, (A) the Series A Closing Price (as defined in the Securities Purchase Agreement dated as of September 23, 1998, among the Corporation, Pico Holdings, Inc., a California corporation, and Physicians Insurance Corporation of Ohio, Inc., an Ohio corporation (the "PURCHASE AGREEMENT")) AND THEN ADDING TO SUCH PRODUCT (B) the amount of any accrued but unpaid dividends attributable to such Preferred Stock, AND THEN DIVIDED BY the lower of (X) the Series A Closing Price, (Y) the average Closing Sale Price of the Common Stock over the twenty-day period immediately prior to the day the Series A Preferred is to be converted into Common Stock; or (Z) the Closing Sale Price one day prior to the day the Series A Preferred is to be converted into Common Stock (the "SERIES A CONVERSION RATE"). (ii) in the case of Series B Preferred, (A) the Series B Closing Price (as defined in the Purchase Agreement) AND THEN ADDING TO SUCH PRODUCT (B) the amount of any accrued but unpaid dividends attributable to such Preferred Stock, AND THEN DIVIDED BY the lower of (X) the Series B Closing Price, (Y) the average Closing Sale Price of the Common Stock over the twenty-day period immediately prior to the day the Series B Preferred is to be converted into Common Stock; or (Z) the Closing Sale Price one day prior to the day the Series B Preferred is to be converted into Common Stock (the "SERIES B CONVERSION RATE"). 4. ADJUSTMENT TO CONVERSION PRICE -- DILUTION AND OTHER EVENTS. In order to prevent dilution of the rights granted under this Certificate of Designations, the Series A and Series B Conversion Rates will be subject to adjustment from time to time as provided in this Section 4. (a) ADJUSTMENT OF CONVERSION PRICE DUE TO ISSUANCE OF ADDITIONAL SECURITIES. If on or after the Closing Date, the Corporation issues or sells, or is deemed under the terms of Section 4(a)(i) to have issued or sold, any shares of Common Stock (other than the Preferred Stock and shares of Common Stock deemed to have been issued by the Corporation in connection with an Approved Stock Plan (as defined below)) for a consideration per share less than the Applicable Price (as defined below), then after such issue or sale, in addition to multiplying such number of shares by the Series A Conversion Rate or the Series B Conversion Rate, as applicable, the number -2- of shares of Preferred Stock to be converted into Common Stock shall be multiplied by: the product of (i) the Applicable Price and (II) the number of shares of Common Stock Deemed Outstanding (as defined in Section 4(a)(iii)) immediately after such issue or sale, divided by the sum of (a) the product of the Applicable Price and the number of shares of Common Stock Deemed Outstanding immediately prior to such issue or sale, and (b) the consideration, if any, received by the Corporation upon such issue or sale (as determined in Section 4(a)(iv)). The "APPLICABLE PRICE" shall equal (x) the Series A Closing Price if the calculation relates to Series A Preferred, or (y) the Series B Closing Price if the calculation relates to Series B Preferred, or (z) the lesser of the Series A Closing Price or the Series B Closing Price if the calculation does not explicitly relate to either the Series A Preferred or the Series B Preferred. For purposes of determining the number of shares of Common Stock Deemed Outstanding under this Section 4(a), the following shall apply: (i) ISSUANCE OF OPTIONS OR CONVERTIBLE SECURITIES. If the Corporation in any manner grants (A) any rights or options to subscribe for or to purchase Common Stock (other than pursuant to an Approved Stock Plan or upon conversion of the Preferred Stock) or (B) any rights or options to acquire any stock or other securities convertible into or exchangeable for Common Stock (such convertible or exchangeable stock or securities being herein called "CONVERTIBLE SECURITIES") or (C) any rights to subscribe for or to purchase Convertible Securities, and the price per share for which Common Stock is issuable upon the exercise of the rights or options described in Sections 5(a)(i)(A) or (B) (together, the "OPTIONS") or upon conversion or exchange of Convertible Securities is less than the Applicable Price, then the total maximum number of shares of Common Stock issuable upon the (A) exercise of such Options or (B) conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options or (C) conversion or exchange of Convertible Securities, shall increase the number of shares of Common Stock Deemed Outstanding and shall be deemed to have been issued and sold by the Corporation for the price per share specified in Section 4(a)(iv). (ii) CHANGE IN OPTION PRICE OR RATE OF CONVERSION. If the (A) purchase price payable to exercise any Options, (B) additional consideration, if any, payable upon the issue, conversion or exchange of any Convertible Securities, or (C) rate at which any Convertible Securities are convertible into or exchangeable for Common Stock change at any time (including due to a conversion price for Convertible Securities which varies with the market or an index), the fraction to be used thereafter in the calculation described in Section 4(a) shall be the fraction which would have been calculated at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold; provided that no adjustment shall be made if such adjustment would result in an increase to the Series A Conversion Price or the Series B Conversion Price otherwise applicable. (iii) CERTAIN DEFINITIONS. For purposes of determining the additional fraction specified in Section 4(a), the following terms have the meanings set forth below: (A) "APPROVED STOCK PLAN" shall mean any contract, plan or agreement which has been approved by the Board of the Corporation, pursuant to which the Corporation's securities may be issued to any employee, officer, director, consultant or other service provider. -3- (B) "COMMON STOCK DEEMED OUTSTANDING" means, at any given time, the number of shares of Common Stock actually outstanding at such time, plus any additional shares of Common Stock deemed to be outstanding at such time pursuant to Section 4(a)(i) regardless of whether the Options or Convertible Securities are actually exercisable at such time, plus the number of shares of Common Stock issuable upon conversion of the Preferred Stock. Upon the expiration of any Options or any rights of conversion, exercise or exchange under Convertible Securities which shall not have been exercised, converted or exchanged, the Common Stock Deemed Outstanding shall include: only the Common Stock, if any, actually issued upon the exercise of such Options or exercise, conversion or exchange of such Convertible Securities. (C) The "CLOSING SALE PRICE" shall be defined as the last closing sale price of the Common Stock of the Corporation on the American Stock Exchange, or if the American Stock Exchange is not the principal securities exchange for the Common Stock, the last closing sale price of the Common Stock on the principal securities exchange or other trading market where the Common Stock is listed, or if the foregoing do not apply, the last closing sale price of the Common Stock in the over-the-counter market on the electronic bulletin board for the Common Stock as reported by Bloomberg Financial Markets ("BLOOMBERG"), or, if no closing sale price is reported for the Common Stock by Bloomberg, the last closing bid price of the Common Stock as reported by Bloomberg, or, if no last closing bid price is reported for the Common Stock by Bloomberg, the average of the bid prices of any market makers for the Common Stock as reported in the "pink sheets" by the National Quotation Bureau, Inc., or if the last closing sale price cannot be calculated for the Common Stock on any of the foregoing bases, then the fair market value as mutually determined by the Corporation and the holders of a majority of the outstanding Preferred Stock (including for purposes of this determination any Preferred Stock with respect to which the Closing Sale Price is being determined). (iv) ADJUSTMENT TO CONVERSION PRICE. For purposes of determining the fraction to be used in the calculation described in Section 4(a), the following shall apply: (1) CALCULATION OF CONSIDERATION RECEIVED. For purposes of Section 4(a), the price per share for which Common Stock is deemed issued upon exercise of Options or upon conversion or exchange of Convertible Securities shall be determined by dividing (i) the total amount, if any, received or receivable by the Corporation as consideration for the granting of such Options, plus the minimum aggregate amount of additional consideration payable to the Corporation upon the exercise of all such Options, plus in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the issuance or sale of such Convertible Securities and the conversion or exchange thereof, by (II) the total maximum number of shares of Common Stock issuable upon exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options. Subject to Section 4(a)(ii), no additional adjustment to the Series A Conversion Price or the Series B Conversion Price, as applicable, shall be made upon the actual issuance of such Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities. (2) CASH PROCEEDS. If any Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the -4- consideration received therefor will be deemed to be the net amount received by the Corporation therefor. (3) EXPIRATION OF CONVERSION RIGHTS. Upon the expiration of any Options or any rights of conversion, exercise or exchange under Convertible Securities which shall not have been exercised, converted or exchanged, the consideration received therefor shall be deemed to be (i) the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Corporation upon such exercise, or for the issue of all such Convertible Securities which were actually exercised, converted or exchanged, plus any additional consideration, if any, actually received by the Corporation upon such exercise, conversion or exchange, and (ii) in the case of Options for Convertible Securities, only the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Corporation upon the issue of the Convertible Securities with respect to which such Options were actually exercised. (4) NONCASH CONSIDERATION. In case any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Corporation will be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Corporation will be the average of the Closing Sale Prices of such securities for the five consecutive business days immediately preceding the date of receipt (calculated as if the definition of the Closing Sale Price relates to such securities rather than to Common Stock). (5) FAIR VALUE DEFINED. The fair value of any consideration other than cash or securities will be determined jointly by the Corporation and the holders of a majority of the Preferred Stock then outstanding. If such parties are unable to reach agreement within ten (10) business days after the occurrence of an event requiring valuation (the "VALUATION EVENT"), the fair value of such consideration will be determined within five (5) business days after the tenth (10th) business day following the Valuation Event by an independent, reputable appraiser selected by the Corporation. The determination of such appraiser shall be binding upon all parties absent manifest error. (6) INTEGRATED TRANSACTIONS. In case any Option is issued in connection with the issue or sale of other securities of the Corporation, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options will be deemed to have been issued for a consideration of $.01. (7) TREASURY SHARES. The number of shares of Common Stock outstanding at any given time does not include shares owned or held by or for the account of the Corporation, and the disposition of any shares so owned or held will be considered an issue or sale of Common Stock. (8) RECORD DATE. If the Corporation takes a record of the holders of Common Stock for the purpose of entitling them (a) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities, or (b) to subscribe for or purchase -5- Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be, for purposes of determining the voting rights of the holders of Preferred Stock. (b) ADJUSTMENT OF CONVERSION PRICE UPON SUBDIVISION OR COMBINATION OF COMMON STOCK. (i) SUBDIVISIONS. If the Corporation at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, thereafter, when any calculation is to be made of the number of shares of Common Stock to be received for the Preferred Stock, the number of shares of Preferred Stock shall be multiplied by the following fraction (in addition to the Series A Conversion Rate or the Series B Conversion Rate, and any adjustment in Section 4(a) as applicable): the number of shares which one share of Common Stock prior to the subdivision was converted into upon the subdivision, divided by one share of Common Stock. (ii) COMBINATIONS. If the Corporation at any time combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, thereafter,, when any calculation is to be made of the number of shares of Common Stock to be received for the Preferred Stock, the number of shares of Preferred Stock shall be multiplied by the following fraction (in addition to the Series A Conversion Rate or the Series B Conversion Rate, and any adjustment in Section 4(a) as applicable): one share of Common Stock divided by the number of shares which one share of Common Stock prior to the combination was converted into upon the combination. (c) CERTAIN EVENTS. If any event occurs of the type contemplated to trigger an adjustment to the Series A Conversion Price or Series B Conversion Price, as applicable, by the provisions of this Section 4, but which event is not expressly provided for hereunder (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Corporation's Board shall make an appropriate adjustment in the applicable Conversion Price so as to protect the rights of the holders of the Preferred Stock; provided, however, that no such adjustment will increase the Conversion Price as otherwise determined pursuant to this Section 4. 5. NOTICES. Any notice required to be delivered pursuant to the terms of this Certificate of Designations shall be delivered, unless otherwise provided in this Certificate of Designations, in accordance with the terms, and subject to the notice provisions of, the Securities Purchase Agreement. (a) EVENTS. The Corporation will provide written notice to each holder of the Preferred Stock at least twenty (20) days prior to the date on which the Corporation closes its books or takes a record (i) with respect to any dividend or distribution upon the Common Stock, (II) with respect to any pro rata subscription offer to holders of Common Stock, or (III) for determining rights to vote with respect to any Substantive Change, dissolution or liquidation, provided, however that in no event shall such notice be provided to such holder prior to such information being made known to the public. -6- (b) SUBSTANTIVE CHANGES. The Corporation will provide written notice to each holder of the Preferred Stock at least twenty (20) days prior to the date on which any Substantive Change, dissolution or liquidation will take place, provided, however that in no event shall such notice be provided to such holder prior to such information being made known to the public. (c) DOCUMENTS. The Corporation will provide each holder of the Preferred Stock with the following documents: (i) monthly, quarterly and annual reports including variances between planned and actual financial results; and (ii) audited annual financial statements together with an annual report, not later than ninety (90) days after the end of the fiscal year of the Corporation. (d) CONVERSION NOTICE. The holder of Preferred Stock will provide written notice to the Corporation prior to exercising the conversion rights specified in Section 3 hereof, as provided in Section 7 below. 6. PURCHASE RIGHTS. If at any time after the Issuance Date the Corporation grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the "PURCHASE RIGHTS"), then the holders of the Preferred Stock will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder had held the number of shares of Common Stock acquirable upon complete conversion of the Preferred Stock (without taking into account any limitations or restrictions on the timing or amount of conversions) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of the Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. 7. MECHANICS OF CONVERSION. (a) HOLDER'S DELIVERY REQUIREMENTS. To convert Preferred Stock into full shares of Common Stock on any date (the "CONVERSION DATE"), the holder thereof shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m. Eastern Time, on such date, a copy of a fully executed notice of conversion in the form attached hereto as EXHIBIT A (the "CONVERSION NOTICE") to the Corporation and its designated transfer agent (the "TRANSFER AGENT"), and (B) surrender to a common carrier, for delivery to the Corporation or the Transfer Agent as soon as practicable following such date, the original certificate(s) representing the Preferred Stock being converted (or an indemnification undertaking with respect to such shares in the case of their loss, theft or destruction) (the "PREFERRED STOCK CERTIFICATE(S)") and the originally executed Conversion Notice. The Preferred Stock shall be deemed to have been converted to Common Stock on the Conversion Date. (b) CORPORATION'S RESPONSE. Within forty-eight (48) hours of receipt by the Corporation of a facsimile copy of a Conversion Notice, the Corporation shall send, via facsimile, a confirmation of receipt of such Conversion Notice to such holder. Upon receipt by the Corporation or the Transfer Agent of the Preferred Stock Certificate(s) to be converted pursuant to a Conversion -7- Notice, together with the originally executed Conversion Notice, the Corporation or the Transfer Agent (as applicable) shall, within the later of one (1) business day after receipt of the Preferred Stock Certificates and two (2) days after receipt of the Conversion Notice, (i) issue and surrender to a common carrier for overnight delivery to the address specified in the Conversion Notice, a certificate, registered in the name of the holder or its designee, for the number of shares of Common Stock to which the holder shall be entitled, or (II) credit such aggregate number of shares of Common Stock to which the holder shall be entitled to the holder's or its designee's balance account with The Depository Trust Corporation. If the number of shares of Preferred Stock represented by the Preferred Stock Certificate(s) submitted for conversion is greater than the number of Preferred Stock being converted, then the Corporation or Transfer Agent, as the case may be, shall, as soon as practicable and in no event later than three business days after receipt of the Preferred Stock Certificate(s) and at its own expense, issue and deliver to the holder a new Preferred Stock Certificate representing the number of Preferred Stock not converted. (c) DISPUTE RESOLUTION. In the case of a dispute as to the determination of the arithmetic calculation of the Series A Conversion Rate or the Series B Conversion Rate, the Corporation shall promptly issue to the holder the number of shares of Common Stock that is not disputed and shall submit the disputed determinations or arithmetic calculations to the holder via facsimile within two (2) business days of receipt of such holder's Conversion Notice. If such holder and the Corporation are unable to agree upon the determination of the Closing Sale Price or applicable Conversion Rate within one (1) business day of such disputed determination or arithmetic calculation being submitted to the holder, then the Corporation shall within one (1) business day submit via facsimile the disputed arithmetic calculation of such Closing Sale Price or Conversion Rate to an independent, outside accountant mutually agreed upon by the Corporation and a majority of the holders of the Preferred Stock. If the Corporation cannot agree with the holders of the Preferred Stock upon one accountant, then an accountant chosen by the Corporation and an accountant chosen by the holders of the Preferred Stock shall choose a third, independent, outside accountant who shall make the disputed determinations or calculation and notify the Corporation and the holder of the results no later than forty-eight (48) hours from the time it receives the disputed determinations or calculations. Such investment bank's or accountant's determination or calculation, as the case may be, shall be binding upon all parties absent manifest error. (d) RECORD HOLDER. The person or persons entitled to receive the shares of Common Stock issuable upon a conversion of Preferred Stock shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date. (e) CORPORATION'S FAILURE TO CONVERT. If within five (5) business days after the Corporation's or the Transfer Agent's receipt of the Preferred Stock Certificates to be converted and the Conversion Notice the Corporation shall fail (1) to issue a certificate for the number of shares of Common Stock to which a holder is entitled or to credit the holder's balance account with The Depository Trust Corporation for such number of shares of Common Stock to which the holder is entitled upon such holder's conversion of the Preferred Stock, or (2) to issue a new Preferred Stock Certificate representing the number of shares of Preferred Stock to which such holder is entitled, pursuant to Section 7(b) in addition to all other available remedies which such holder may pursue hereunder and under the Purchase Agreement, the Corporation shall pay additional damages to such holder on each date after such fifth (5th) business day that such conversion or delivery of such -8- Preferred Stock Certificates, as the case may be, is not timely effected in an amount equal to 0.5% of the product of (x) the sum of the number of shares of Common Stock not issued to the holder on a timely basis pursuant to Section 7(b) and to which such holder is entitled and, in the event the Corporation has failed to deliver a Preferred Stock Certificate to the holder on a timely basis pursuant to Section 7(b) the number of shares of Common Stock issuable upon conversion of the Preferred Stock represented by such Preferred Stock Certificate as of the last possible date which the Corporation could have issued such Preferred Stock Certificate to such holder without violating Section 7(b); and (y) the Closing Sale Price of the Common Stock on the last possible date which the Corporation could have issued such Common Stock and the Preferred Stock Certificate, as the case may be, to such holder without violating Section 7(b). (f) MANDATORY CONVERSION. If any Preferred Stock remain outstanding on the fifth (5th) anniversary after the Issuance Date, then all such Preferred Stock shall be automatically converted as of such date as if the holders of such Preferred Stock had given a Conversion Notice under Section 3 and in accordance with this Section 7 on such fifth (5th) anniversary. All holders of Preferred Stock shall thereupon surrender all Preferred Stock Certificates, duly endorsed for cancellation, to the Corporation or the Transfer Agent, provided that the Corporation has complied with its obligations under this Section 7. (g) PRO-RATA CONVERSION. In the event the Corporation receives a Conversion Notice from more than one holder of Preferred Stock on the same day and the Corporation is able to convert some, but not all, of the Preferred Stock pursuant to this Section 7, the Corporation shall convert from each holder of Preferred Stock electing to have Preferred Stock converted at such time an amount equal to such holder's pro-rata amount (based on the number of Preferred Stock held by such holder relative to the number of Preferred Stock outstanding) of all Preferred Stock being converted at such time. (h) FRACTIONAL SHARES. The Corporation shall not issue any fraction of a share of Common Stock upon any conversion. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one Preferred Share by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of a fraction of a share of Common Stock. If, after the aforementioned aggregation, the issuance would result in the issuance of a fraction of a share of Common Stock, the Corporation shall round such fraction of a share of Common Stock up or down to the nearest whole share. (i) TAXES. The Corporation shall pay any and all taxes which may be imposed upon it with respect to the issuance and delivery of shares of Common Stock upon the conversion of the Preferred Stock. (j) RESERVATION OF SHARES. The Corporation shall, so long as any of the shares of Preferred Stock are outstanding, reserve and keep available out of its authorized and unused Common Stock, solely for the purpose of effecting the conversion of the Preferred Stock, such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all of the Preferred Stock then outstanding (without regard to any limitations on conversions); provided that the number of shares of Common Stock so reserved shall at no time be less than 150% of the number of shares of Common Stock for which the shares of Preferred Stock are at any time convertible. The initial number of shares of Common Stock reserved for conversions of the Preferred Stock and each increase in the number of shares so reserved shall be allocated pro rata among the holders of the Preferred Stock based on the number of Preferred Stock held by each holder at the time of issuance of the Preferred Stock or increase in the number of reserved shares, as the case may be. In the event a holder shall sell or otherwise transfer any of such holder's Preferred Stock, each -9- transferee shall be allocated a pro rata portion of the number of reserved shares of Common Stock reserved for such transferor. Any shares of Common Stock reserved and which remain allocated to any person or entity which does not hold any Preferred Stock shall be allocated to the remaining holders of Preferred Stock, pro rata based on the number of shares of Preferred Stock then held by such holder. (k) LIMITATION ON NUMBER OF CONVERSION SHARES. Notwithstanding any other provision herein, the Corporation shall not be obligated to issue any shares of Common Stock upon conversion of the Preferred Stock if the issuance of such shares of Common Stock would exceed that number of shares of Common Stock which the Corporation may issue upon Conversion of the Preferred Stock (the "EXCHANGE CAP") without breaching the Company's obligations under the rules or regulations of the American Stock Exchange, except that such limitation shall not apply in the event that the Company (a) obtains the approval of its stockholders as required by applicable rules and regulations of the American Stock Exchange (or if the American Stock Exchange is not the principal securities exchange for the Common Stock, then the principal securities exchange) for issuances of Common Stock in excess of such amount or (ii) obtains a written opinion from outside counsel to the Company that such approval is not required, which opinion shall be reasonably satisfactory to the holders of a majority of the Preferred Stock then outstanding. Until such approval or written opinion is obtained, no holder of Preferred Stock pursuant to the Purchase Agreement shall be issued, upon conversion of Preferred Stock, shares of Common Stock in an amount greater than the product of (i) the Exchange Cap amount multiplied by (ii) a fraction, the numerator of which is the number of shares of Preferred Stock issued to such holder pursuant to the Purchase Agreement and the denominator of which is the aggregate amount of all the Preferred Stock issued to the holders pursuant to the Purchase Agreement (the "CAP ALLOCATION AMOUNT"). In the event that any holder shall sell or otherwise transfer any of such holder's Preferred Stock, the transferee shall be allocated a pro rata portion of such holder's Cap Allocation Amount. In the event that any holder of Preferred Stock shall convert all of such holder's Preferred Stock into a number of shares of Common Stock which, in the aggregate, is less than such holder's Cap Allocation Amount, then the difference between such holder's Cap Allocation Amount and the number of shares of Common Stock actually issued to such holder shall be allocated to the respective Cap Allocation Amounts of the remaining holders of Preferred Stock on a pro rata basis in proportion to the number of shares of Preferred Stock then held by each such holder. 8. VOTING RIGHTS. Except as otherwise required by law or as otherwise explicitly provided herein, the holders of Preferred Stock and the holders of Common Stock shall be entitled to notice of any shareholders' meeting and to vote together as a single class upon any matter submitted to the shareholders for a vote on the following basis: (a) COMMON STOCK. Each share of Common Stock issued and outstanding shall have one vote. (b) PREFERRED STOCK. Each holder of Preferred Stock shall have the number of votes equal to the number of shares of Common Stock into which the Preferred Stock then held by such holder is convertible, as adjusted from time to time under Section 4 hereof. (c) DIRECTORS. Holders of Preferred Stock shall have the exclusive right to elect two (2) of the five (5) directors to the Board, and shall have such other voting rights as are expressly provided in this Certificate of Designations. The Corporation shall provide the members of the Board elected hereunder with (a) all written accounts prepared by management; (b) the annual budget of the Corporation prepared for the next succeeding fiscal year; (c) notification of any -10- litigation or claim that may materially adversely affect the financial affairs or business prospects of the Corporation; and (d) written or electronic copies of all filings the Corporation makes with the Securities and Exchange Commission or the American Stock Exchange (or if the American Stock Exchange is not the principal securities exchange for the Common Stock, then such principal securities exchange). 9. LIQUIDATION, DISSOLUTION, WINDING-UP. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of the Preferred Stock shall be entitled to receive in cash out of the assets of the Corporation, whether from capital or from earnings available for distribution to its stockholders (the "PREFERRED FUNDS"), before any amount shall be paid to the holders of any of the capital stock of the Corporation of any class junior in rank to the Preferred Stock in respect of the preferences as to the distributions and payments on the liquidation, dissolution and winding up of the Corporation, an amount per share of Preferred Share equal to the Applicable Price plus all accrued but unpaid dividends (such sum being referred to as the "LIQUIDATION VALUE"); provided that, if the Preferred Funds are insufficient to pay the full amount due to the holders of Preferred Stock and holders of shares of other classes or series of preferred stock of the Corporation that are of equal rank with the Preferred Stock as to payments of Preferred Funds (the "PARI PASSU SHARES"), then each holder of Preferred Stock and Pari Passu Shares shall receive a percentage of the Preferred Funds equal to the full amount of Preferred Funds payable to such holder as a liquidation preference, in accordance with their respective Certificate of Designations, Preferences and Rights, as a percentage of the full amount of Preferred Funds payable to all holders of Preferred Stock and Pari Passu Shares. The following events shall be deemed voluntary liquidation events for purpose of this Section 9: (a) the purchase or redemption by the Corporation of stock of any class, in any manner permitted by law, (b) the consolidation or merger of the Corporation with or into any other Person, or where more than 50% of the securities of the Corporation then outstanding do not remain outstanding after such transaction, (c) the sale or transfer by the Corporation of more than 50% of its assets, or (d) the sale or transfer other than by the holders of Preferred Stock of more than 50% of the voting power of the Corporation. 10. PREFERRED RANK; PARTICIPATION. (a) RANK. All shares of Common Stock shall be of junior rank to all Preferred Stock in respect to the preferences as to distributions and payments upon the liquidation, dissolution and winding up of the Corporation. The rights of the shares of Common Stock shall be subject to the preferences and relative rights of the Preferred Stock. (b) CHANGES TO PREFERENCES. Without the prior express written consent of the holders of not less than two-thirds (2/3) of the then outstanding Preferred Stock, the Corporation shall not hereafter authorize or issue additional or other capital stock that is of senior rank to the Preferred Stock in respect of the preferences as to distributions and payments upon the liquidation, dissolution and winding up of the Corporation. Without the prior express written consent of the holders of not less than two-thirds (2/3) of the then outstanding Preferred Stock, the Corporation shall not hereafter authorize or make any amendment to the Corporation's Certificate of Incorporation or bylaws, or file any resolution of the Board with the Secretary of State of the State of Delaware containing any provisions, which would adversely affect or otherwise impair the rights -11- or relative priority of the holders of the Preferred Stock relative to the holders of the Common Stock or the holders of any other class of capital stock (including, but not limited to any increase in the number of authorized shares of the Corporation or in the number of shares issuable under any plan to grant stock to employees, officers or directors of the Corporation). (c) PAYMENTS. Subject to the rights of the holders, if any, of the Pari Passu Shares, the holders of the Preferred Stock shall, as holders of Preferred Stock, be entitled to such dividends paid and distributions made to the holders of Common Stock to the same extent as if such holders of Preferred Stock had converted the Preferred Stock into Common Stock (without regard to any limitations on conversion herein or elsewhere) and had held such shares of Common Stock on the record date for such dividends and distributions. Payments under the preceding sentence shall be made concurrently with the dividend or distribution to the holders of Common Stock. 11. VOTE TO CHANGE THE TERMS OF OR ISSUE PREFERRED STOCK. So long as any of the Preferred Stock remains outstanding, the Corporation, and any subsidiary of the Corporation, shall not, without first obtaining the affirmative vote at a meeting duly called for such purpose or the written consent without a meeting, of the holders of not less than two-thirds (2/3) of the then outstanding Preferred Stock: (a) change this Certificate of Designations or the Corporation's Certificate of Incorporation to amend, alter, change or repeal any of the powers, designations, preferences and rights of the Preferred Stock; (b) issue Preferred Stock other than pursuant to the Securities Purchase Agreement; (c) approve the merger of the Corporation with and into another legal entity, or any reorganization of the Corporation or the sale of substantially all of the stock or assets of the Corporation, or acquire all or substantially all of the capital stock or property or another entity; (d) pay any dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock; (e) make any change in the size or number of members of the Board (currently five (5)) or the rights to elect members of the Board; or (f) incur any debt of greater than $50,000, aggregating the principal and interest due under the terms of such debt. 12. LOST OR STOLEN CERTIFICATES. Upon receipt by the Corporation of evidence satisfactory to the Corporation of the loss, theft, destruction or mutilation of any Preferred Stock Certificates representing the Preferred Stock, and, in the case of loss, theft or destruction, of any indemnification undertaking by the holder to the Corporation and, in the case of mutilation, upon surrender and cancellation of the Preferred Stock Certificate(s), the Corporation shall execute and deliver new preferred stock certificate(s) of like tenor and date; provided, however, the Corporation shall not be obligated to re-issue preferred stock certificates if the holder contemporaneously requests the Corporation to convert such Preferred Stock into Common Stock. -12- 13. REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Certificate of Designations shall be cumulative and in addition to all other remedies available under this Certificate of Designations, at law or in equity (including a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit a holder's right to pursue actual damages for any failure by the Corporation to comply with the terms of this Certificate of Designations. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the holder thereof and shall not, except as expressly provided herein, be subject to any other obligation of the Corporation (or the performance thereof). The Corporation acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the holders of the Preferred Stock and that the remedy at law for any such breach may be inadequate. The Corporation therefore agrees that, in the event of any such breach or threatened breach, the holders of the Preferred Stock shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required. 14. SPECIFIC SHALL NOT LIMIT GENERAL; CONSTRUCTION. No specific provision contained in this Certificate of Designations shall limit or modify any more general provision contained herein. This Certificate of Designations shall be deemed to be jointly drafted by the Corporation and all holders of Preferred Stock notwithstanding its adoption by the Board and shall not be construed against any person as the drafter hereof. 15. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of a holder of Preferred Stock in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf of the Corporation this 18th day of December, 1998. PC QUOTE, INC. By:_____________________________________________ Name:___________________________________________ Title:__________________________________________ -13- EXHIBIT A P.C. QUOTE, INC. CONVERSION NOTICE Reference is made to the Certificate of Designations, Preferences and Rights of Series A and Series B Convertible Preferred Stock (the "CERTIFICATE OF DESIGNATIONS"). In accordance with and pursuant to the Certificate of Designations, the undersigned hereby elects to convert the number of shares of Series __ Convertible Preferred Stock, par value $0.001 per share (the "PREFERRED STOCK"), of P.C. Quote, Inc., a Delaware corporation (the "CORPORATION"), as indicated below into shares of Common Stock, par value $0.001 per share (the "COMMON STOCK"), of the Corporation, by tendering the stock certificate(s) representing the share(s) of Preferred Stock specified below as of the date specified below. Date of Conversion: _____________________________________________________ Number of Preferred Stock to be converted: _____________________________ Series of Preferred Stock to be converted: _____________________________ Stock certificate no(s). of Preferred Stock to be converted: ____________ Please confirm the following information: Conversion Price: _______________________________________________________ Number of shares of Common Stock to be issued: ___________________________________________________________ Please issue the Common Stock into which the Preferred Stock are being converted and, if applicable, any check drawn on an account of the Corporation in the following name and to the following address: Issue to: ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ Facsimile Number: ________________________________________________ Authorization: ________________________________________________ By:_____________________________________________ Name:___________________________________________ Title:__________________________________________ Dated: ________________________________________________ Account Number: (if electronic book entry transfer):___________________________________ Transaction Code Number (if electronic book entry transfer):___________________________________ THIS NOTICE MUST BE DELIVERED TO CORPORATION AND TRANSFER AGENT i EX-4.(AN) 3 EXHIBIT 4(AN) Exhibit 4(an) STOCK AND WARRANT PURCHASE AGREEMENT BETWEEN PC QUOTE, INC. AND HOWARD TODD HORBERG DECEMBER 29, 1998
TABLE OF CONTENTS 1. Definitions 2. Purchase and Sale of Shares and Warrant 3. Representations and Warranties of Buyer (a) Buyer's Qualifications (b) Authorization of Transaction (c) Noncontravention (d) Broker's Fees (e) Investment 4. Representations and Warranties of Seller (a) Authorization of Transaction (b) Organization, Qualification, and Corporate Power (c) Capitalization (d) Noncontravention (e) Brokers' Fees (f) Title to Tangible Assets (g) Financial Statements (h) Tax Matters (i) Real Property (j) Intellectual Property (k) Powers of Attorney (l) Litigation (m) Employee Benefits (n) Absence of Certain Changes (o) Patents, Trade Names, Trademarks, Etc. (p) Insurance (q) Environmental Protection 5. Pre-Closing Covenants (a) General (b) Notices and Consents (c) Operation of Business (d) Full Access (e) Notice of Developments 6. Post-Closing Covenants (a) General (b) Litigation Support (c) Registration Rights (d) Negative Covenants 7. Additional Conditions Precedent i (a) Conditions to Obligation of Buyer (b) Conditions to Obligation of Sellers 8. Remedies for Breaches of This Agreement (a) Survival of Representations and Warranties (b) Indemnification Provisions for Benefit of Buyer (c) Indemnification Provisions for Benefit of Seller (d) Matters Involving Third Parties (e) Determination of Adverse Consequences 9. Termination (a) Termination of Agreement (b) Effect of Termination 10. Miscellaneous (a) Press Releases and Public Announcements (b) No Third Party Beneficiaries (c) Entire Agreement (d) Succession and Assignment (e) Counterparts (f) Headings (g) Notices (h) Governing Law (i) Amendments and Waivers (j) Severability (k) Expenses (l) Construction (m) Incorporation of Exhibits, Annexes, and Schedules (n) The Closing
ii STOCK AND WARRANT PURCHASE AGREEMENT Agreement entered into as of December 29, 1998, by and between Howard Todd Horberg (the "Buyer") and PC Quote, Inc., a Delaware corporation (the "Seller"). Buyer and Seller are referred to collectively herein as the "Parties." This Agreement contemplates a transaction in which Buyer will purchase from Seller, and Seller will sell to Buyer, an aggregate of 240,000 shares of Seller's common stock, par value $0.001 per share (the "Common Stock"), for an aggregate purchase price of Three Hundred Seventy-five Thousand Dollars ($375,000). Now, therefore, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties and covenants herein contained, the Parties agree as follows: 1. DEFINITIONS. "ACCREDITED INVESTOR" has the meaning set forth in Regulation D promulgated under the Securities Act. "ADVERSE CONSEQUENCES" means all actions, suits, proceedings, hearings, investigations, charges, complaints, claims, demands, injunctions, judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs, reasonable amounts paid in settlement, liabilities, obligations, taxes, liens, losses, expenses and fees, including court costs and reasonable attorneys' fees and expenses. "AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act. "AFFILIATED GROUP" means any affiliated group within the meaning of Code Section 1504. "BUYER" has the meaning set forth in the preface above. "CLOSING DATE" shall mean December 30, 1998 or such other time as the parties may mutually agree. "CODE" means the Internal Revenue Code of 1986, as amended. "CONFIDENTIAL INFORMATION" means any information concerning the businesses and affairs of Seller that is not already generally available to the public. "EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred compensation or retirement plan or arrangement which is an Employee Pension Benefit Plan, (b) qualified defined contribution retirement plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or arrangement which is an Employee Pension Benefit Plan (including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe benefit plan or program. "EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA Section 3. "EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA Section 3. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "FINANCIAL STATEMENTS" has the meaning set forth in Section 4g below. "GAAP" means United States generally accepted accounting principles as in effect from time to time. "INCOME TAX" means any federal, state, local, or foreign income tax, including any interest, penalty, or addition thereto, whether disputed or not. "INCOME TAX RETURN" means any return, declaration, report, claim for refund, or information return or statement relating to Income Taxes, including any schedule or attachment thereto. "INDEMNIFIED PARTY" has the meaning set forth in Section 8 below. "INDEMNIFYING PARTY" has the meaning set forth in Section 8 below. "KNOWLEDGE" means actual knowledge without independent investigation. "MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Section 3(37). "ORDINARY COURSE OF BUSINESS" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency). "PARTY" has the meaning set forth in the preface above. "PBGC" means the Pension Benefit Guaranty Corporation. "PERSON" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, a governmental entity (or any department, agency, or political subdivision thereof) or any entity similar to any of the foregoing. "PURCHASE PRICE" has the meaning set forth in Section 2 below. "REPORTABLE EVENT" has the meaning set forth in ERISA Section 4043. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance, charge, or other security interest, other than (a) mechanic's, materialmen's, and similar liens, (b) liens for taxes not yet due and payable or for taxes that the taxpayer is contesting in good faith through appropriate proceedings, (c) purchase money liens and liens securing rental payments under capital lease arrangements, and (d) other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money. "SELLER" has the meaning set forth in the preface above. "SHARES" means Seller's shares of Common Stock. "THIRD PARTY CLAIM" has the meaning set forth in Section 8 below. 2. PURCHASE AND SALE OF SHARES AND Warrant 2.1 PURCHASE AND SALE OF SHARES. On the Closing Date, in the manner set forth in this Section 2, upon the terms set forth in this Agreement, Seller will sell, transfer and deliver to Buyer, and Buyer will purchase from Seller, 240,000 Shares for an aggregate purchase price of Three Hundred Seventy-five Thousand Dollars ($375,000) (the "Purchase Price"), in all cases free and clear of all interests, liens, charges, encumbrances, equities, claims, assessments and options of whatever nature. 2 (a) On the Closing Date, as a condition precedent to such closing, Seller shall deliver to Buyer stock certificates representing an aggregate of 240,000 Shares in such names and denominations as buyer shall instruct Seller. (b) Buyer shall deliver to Seller a certified check or wire transfer in the amount of $375,000. 2.2 Purchase and Sale of Warrant. Subject to the terms and conditions of this Agreement, the Company shall issue to Buyer a warrant (the "Warrant") to purchase 120,000 Shares at an exercise price of $1.875 per Share, which Warrant shall be substantially in the form attached hereto as EXHIBIT A. 3. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to Seller that the statements contained in this Section 3 are true, correct and complete as of the date of this Agreement and will be true, correct and complete as of the Closing Date (as though made on and as of such Closing Date as if such Closing Date were substituted for the date of this Agreement throughout this Section 3). (a) BUYER'S QUALIFICATIONS. Buyer (a) has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its investment in Seller and (b) has had the opportunity to ask questions of, and receive answers from, Seller and its management concerning the terms and conditions of the offering of the Shares hereunder and to obtain additional information; and (c) is an Accredited Investor. (b) AUTHORIZATION OF TRANSACTION. Buyer has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of Buyer, enforceable in accordance with its terms. Buyer is not required to give any notice to, make any filing with, or obtain any authorization, consent or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement. (c) NONCONTRAVENTION. Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (A) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which Buyer is subject or (B) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which Buyer is a party or by which it is bound or to which any of its assets is subject. (d) BROKERS' FEES. Buyer does not have any liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which Seller could become liable or obligated. (e) INVESTMENT. Buyer is acquiring the Shares for investment purposes and not with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act. 4. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and warrants to Buyer that the statements contained in this Section 4 are true, correct and complete as of the date of this Agreement and will be true, correct and complete as of the Closing Date (as though made on and as of such Closing Date as if such Closing Date were substituted for the date of this Agreement throughout this Section 4). (a) AUTHORIZATION OF TRANSACTION. Seller has full corporate power and authority to execute and deliver this Agreement and the other documents and instruments to be executed and delivered by Seller pursuant to this Agreement and the transactions contemplated hereby and to perform its obligations hereunder and thereunder. This Agreement and the other documents and instruments to be executed and delivered by Seller 3 pursuant to this Agreement and the transactions contemplated hereby constitute the valid and legally binding obligations of Seller enforceable in accordance with their respective terms. (b) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Seller is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware. Seller is duly authorized to conduct business and is in good standing under the laws of each jurisdiction where such qualification is required, except where the lack of such qualification would not have a material adverse effect on the condition (financial or otherwise) of Seller. Seller has full corporate power and authority to carry on the businesses in which it is engaged and to own and use the properties and assets owned and used by it. Seller has no subsidiaries. (c) CAPITALIZATION. The entire authorized capital stock of Seller consists of 50,000,000 Shares, of which 13,477,462 Shares are issued and outstanding and no Shares are held in treasury; and 5,000,000 Shares of undesignated Preferred Stock, of which 19,075 and 28,791 shares designated as Series A and Series B, respectively, Convertible Preferred Stock are outstanding. All of the issued and outstanding Shares and Preferred Stock have been duly authorized, are validly issued, fully paid, and nonassessable. Except as set forth in Schedule 4(c) hereto, there are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require Seller to issue, sell, or otherwise cause to become outstanding any of its capital stock. All such options, warrants, purchase rights, subscription rights, conversion rights, exchange rights or other contracts or commitments and the Shares issuable upon exercise thereof have been duly authorized, and when issued in accordance with their terms will be validly issued, fully paid and non-assessable. There are no preemptive or first refusal or similar rights binding on Seller to subscribe for or purchase from Seller any Shares pursuant to any provisions of law, the Certificate of Incorporation or By-laws of Seller or by agreement or otherwise. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to the Shares. (d) NONCONTRAVENTION. Except as set forth in Schedule 4(d) hereto, to the Knowledge of Seller, neither the execution and delivery of this Agreement, nor consummation of the transactions contemplated hereby, will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which Seller is subject or any provision of the Certificate of Incorporation or By-laws of Seller or (ii) conflict with, result in breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which Seller is a party or by which Seller is bound or to which Seller or its assets is subject (or result in the imposition of any Security Interest upon any of its assets), except where the violation, conflict, breach, default, acceleration, termination, modification, cancellation, failure to give notice, or Security Interest would not have a material adverse effect on the condition (financial or otherwise) of Seller or on the ability of the Parties to consummate the transactions contemplated by this Agreement. Except as set forth in Schedule 4(d) hereto, Seller does not need to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order for the Parties to consummate the transactions contemplated by this Agreement, except where the failure to give notice, to file, or to obtain any authorization, consent, or approval would not have a material adverse effect on the condition (financial or otherwise) of Seller or on the ability of the Parties to consummate the transactions contemplated by this Agreement. (e) BROKERS' FEES. Seller does not have any liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement. (f) TITLE TO TANGIBLE ASSETS. Seller has good title to, or a valid leasehold interest in, the tangible assets it uses regularly in the conduct of its businesses. (g) FINANCIAL STATEMENTS. Attached hereto are copies of Seller's annual report on Form 10-K for the year ended December 31, 1997 and its Quarterly Report on Form 10-Q for each of the quarters ended March 31, 1998, June 30, 1998 and September 30, 1998. Included in such reports are the following financial statements (collectively the "Financial Statements"): (i) audited consolidated balance sheets for the years ending December 31, 1997 and 1996 and statements of income, changes in stockholders' equity, and cash flow as of and 4 for the years ended December 31, 1997, 1996 and 1995 for the Company; and (ii) unaudited balance sheets and statements of income, changes in stockholders' equity, and cash flow as of and for the quarters ended March 31, 1998, June 30, 1998 and September 30, 1998 (the "QUARTERLY FINANCIAL STATEMENTS"). The Financial Statements (including the notes thereto) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby and present fairly the financial condition of Seller as of such dates and the results of operations of Seller for such periods; PROVIDED, HOWEVER, that the Quarterly Financial Statements are subject to normal year-end adjustments and lack footnotes and other presentation items. (h) TAX MATTERS. (i) Seller has filed all Income Tax Returns that it was required to file, and has paid all Income Taxes shown thereon as owing, except where the failure to file Income Tax Returns or to pay Income Taxes would not have a material adverse effect on the condition (financial or otherwise) of Seller. (ii) Seller has not waived any statute of limitations in respect of Income Taxes or agreed to any extension of time with respect to an Income Tax assessment or deficiency. (iii) Seller is not a party to any Income Tax allocation or sharing agreement. (i) REAL PROPERTY Seller does not own any real property. (j) INTELLECTUAL PROPERTY. Except as set forth in Schedule 4(j), the Company owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and proprietary rights necessary for its business as now conducted without any conflict with, or infringement of, the rights of others. The Company has not received any communication alleging that the Company has violated or, by conducting its business, would violate any of the patents, trademarks, service marks, trade names, copyrights, trade secrets or other proprietary rights of any other person or entity. The Company is not aware that any of its employees are obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of such employee's best efforts to promote the interest of the Company or that would conflict with the Company's business. Neither the execution or delivery of this Agreement, nor the carrying on of the Company's business as now conducted by the employees of the Company, will, to the Company's knowledge, conflict with or result in a breach of the terms, conditions, or provisions of, or constitute a default under, any contract, covenant or instrument under which any such employee is now obligated. The Company does not believe it is or will be necessary to use any inventions of any of its employees (or persons it currently intends to hire) made prior to their employment by the Company. To the Company's knowledge, its officers and employees are not making improper use of any confidential information or trade secrets of others, including those of any former employer. (k) POWERS OF ATTORNEY. Except as set forth in Schedule 4(k), there are no outstanding powers of attorney executed on behalf of Seller. (l) LITIGATION. Schedule 4(l) hereto sets forth each instance in which Seller (i) is subject to any outstanding injunction, judgment, order, decree, ruling, or charge or (ii) is a party to any action, suit, proceeding, hearing, or investigation of, in, or before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction, except where the injunction, judgment, order, decree, ruling, action, suit, proceeding, hearing, or investigation would not have a material adverse effect on the condition (financial or otherwise), assets, liabilities, earnings or business of Seller. 5 (m) Employee Benefits. (i) Schedule 4(m) hereto lists each Employee Benefit Plan that is sponsored, maintained or contributed to or required to be contributed to by the Seller or by any trade or business, whether or not incorporated (an "ERISA Affiliate"), that together with the Seller would be deemed a "single employer" within the meaning of Section 4001(b) of ERISA. (A) Each such Employee Benefit Plan (and each related trust, insurance contract, or fund) complies in form and in operation in all respects with the applicable requirements of ERISA and the Code, except where the failure to comply would not have a material adverse effect on the condition (financial or otherwise) of Seller. (B) All contributions (including all employer contributions and employee salary reduction contributions) which are due have been paid to each such Employee Benefit Plan which is an Employee Pension Benefit Plan. (C) Each such Employee Benefit Plan which is an Employee Pension Benefit Plan has received a determination letter from the Internal Revenue Service to the effect that it meets the requirements of Code Section 401(a). (D) Seller has made available to Buyer correct and complete copies of the plan documents and summary plan descriptions, the most recent determination letter received from the Internal Revenue Service, the most recent Form 5500 Annual Report, and all related trust agreements, insurance contracts, and other funding agreements which implement each such Employee Benefit Plan. (E) No such Employee Benefit Plan which is an Employee Pension Benefit Plan (other than any Multiemployer Plan) has been completely or partially terminated or been the subject of a Reportable Event as to which notices would be required to be filed with the PBGC. No proceeding by the PBGC to terminate any such Employee Pension Benefit Plan (other than any Multiemployer Plan) has been instituted. (F) No action, suit, proceeding, hearing, or investigation with respect to the administration or the investment of the assets of any such Employee Benefit Plan (other than routine claims for benefits) is pending, except where the action, suit, proceeding, hearing, or investigation would not have a material adverse effect on the condition (financial or otherwise) of Seller. (G) Neither Seller nor any ERISA Affiliate has incurred any liability to the PBGC (other than PBGC premium payments) or otherwise under Title IV of ERISA (including any withdrawal liability) with respect to any such Employee Benefit Plan which is an Employee Pension Benefit Plan. (H) The aggregate withdrawal liability of Seller and any and all ERISA Affiliates, computed as if a complete withdrawal by Seller and such ERISA Affiliates had occurred under each Multiemployer Plan on the date hereof, would not exceed $10,000. (n) ABSENCE OF CERTAIN CHANGES. With respect to the business of Seller, except as and to the extent set forth in the Company's reports on Form 10-Q for the quarters ended March 31, 1998, June 30, 1998 and September 30, 1998, since December 31, 1997, Seller has not: (i) suffered any material adverse change in its condition (financial or otherwise), assets, liabilities (absolute, accrued, contingent or otherwise), business, prospects or operations, or experienced any labor difficulty, or suffered any casualty loss (whether or not insured); 6 (ii) paid, discharged or satisfied any claim, lien, encumbrance or liability (whether absolute, accrued, contingent or otherwise and whether due or to become due), other than claims, liens, encumbrances or liabilities (i) which are reflected or reserved against in the Financial Statements, and which were paid, discharged or satisfied since the date of the most recent Financial Statements in the ordinary course of business and consistent with past practice, or (ii) which were incurred and paid, discharged or satisfied since the date of the most recent Financial Statements in the ordinary course of business and consistent with past practice; (iii) permitted or allowed any of the properties or assets, real, principal or mixed, tangible or intangible, of or used by Seller, to be mortgaged, pledged or subjected to any lien or encumbrance; (iv) written down or written up the value of any inventory, or written off as uncollectible any notes or accounts receivable or any portion thereof, except for write-downs, write-ups and write-offs in the ordinary course of business consistent with past practice; (v) cancelled any other debts or claims, or waived any rights of substantial value, or sold, transferred or otherwise disposed of any of the properties or assets, real, personal or mixed, tangible or intangible, except in the ordinary course of business and consistent with past practice; (vi) disposed of or permitted to lapse any patent, trademark, assumed name, service mark, trade name or copyright application or license or under which Seller has any right or license, or disposed of or disclosed to any person any trade secret, formula, process or know-how of Seller or under which Seller has any right or license; (vii) granted any general uniform increase in the compensation of employees (including, without limitation, any increase or change pursuant to any bonus, pension, profit-sharing, retirement or other plan or commitment); (viii) made any change in any method of accounting or accounting practice or policy; made any loan or advance (other than advances to employees in the ordinary course of business or travel and expenses disbursement in accordance with the past practice, but not in excess of $10,000 at any one time outstanding) to any person who is an officer, director or employee of Seller; (ix) declared or paid any dividend or purchased any of its outstanding shares of capital stock; (x) agreed, whether in writing or otherwise, to take any of the actions set forth in this Section 4(n); (o) INSURANCE. The Company holds and maintains valid policies covering such casualties and contingencies and of such types and amounts as is customary for companies similarly situated. The Company has no reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a material adverse effect. (q) ENVIRONMENTAL PROTECTION. In connection with its business operations, Seller has obtained all permits, licenses and other authorizations which are required under federal, state and local laws relating to pollution or protection of the environment, including laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, or hazardous or toxic materials or wastes into ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants or hazardous or toxic materials or wastes; to the best of its knowledge after 7 due investigation, Seller is in compliance in all material respects with all terms and conditions of the required permits, licenses and authorizations, and is also in compliance in all material respects with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in those laws or contained in any regulation, code, plan, order, decree, judgment, notice or demand latter issued, entered, promulgated or approved thereunder. Seller is not aware of, and has not received notice of, past, present or future events, conditions, circumstances, activities, practices, incidents, actions or plans which may interfere with or prevent continued compliance, or which may give rise to any common law or legal liability, or otherwise form the basis of any claim, action, suit, proceeding, hearing or investigation, based on or related to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling, or the omission, discharge, release or threatened release into the environment, of any pollutant, contaminant, or hazardous or toxic material or waste. 5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to the period between the execution of this Agreement and the Closing Date or (ii) termination of this Agreement. (a) GENERAL. Each of the Parties will use his or its reasonable best efforts to take any action and to do all things reasonably necessary in order to consummate and make effective the transactions contemplated by this Agreement (including satisfaction, but not waiver, of the conditions precedent to closing. (b) NOTICES AND CONSENTS. Each party will give any notices to third parties, and will use its reasonable best efforts to obtain any third party consents, that Buyer reasonably may request in connection with the matters referred to in Sections 3 and 4 above. (c) OPERATION OF BUSINESS. Except for transactions contemplated hereby, Seller will not engage in, take any action, or enter into any transaction outside the Ordinary Course of Business. (d) FULL ACCESS. Seller will permit representatives of Buyer to have full access at all reasonable times, and in a manner so as not to interfere with the normal business operations of Seller, to all premises, properties, personnel, books, records (including tax records), contracts, and documents of or pertaining to Seller. Buyer will treat and hold as such any Confidential Information received from Seller in the course of the reviews contemplated by this Section 5(d), will not use any of the Confidential Information except in connection with this Agreement, and, if this Agreement is terminated for any reason whatsoever, will return to Seller all tangible embodiments (and all copies) of the Confidential Information which are in its possession. (e) NOTICE OF DEVELOPMENTS. Seller shall notify Buyer of any development causing a breach of any of the representations and warranties in Section 4 above. Unless Buyer have the right to terminate this Agreement pursuant to Section 9(a)(ii) below by reason of the development and exercise that right within the period referred to in Section 9(a)(ii) below, the written notice pursuant to this Section 5(e)(i) will be deemed to have amended the relevant Schedule, if any, to have qualified the representations and warranties contained in Section 4 above, and to have cured any misrepresentation or breach of warranty that otherwise might have existed hereunder by reason of the development. 6. POST-CLOSING COVENANTS. The Parties agree as follows with respect to the period following the Closing. (a) GENERAL. In case at any time after any Closing Date any further action is necessary to carry out the purposes of this Agreement, each of the Parties will take such further action (including the execution and delivery of such further instruments and documents) as any other Party reasonably may request, all at the sole cost and expense of the requesting party (unless the requesting Party is entitled to indemnification therefor under Section 8 below). (b) LITIGATION SUPPORT. In the event and for so long as any Party actively is contesting or defending against any action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand in connection with (i) any transaction contemplated under this Agreement or (ii) any fact, situation, circumstance, status, 8 condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to any Closing Date involving Seller, each of the other Parties shall cooperate with him or it and his or its counsel in the defense or contest, make available their personnel, and provide such testimony and access to their books and records as shall be necessary in connection with the defense or contest (unless the contesting or defending Party is entitled to indemnification therefor under Section 8 below). (c) REGISTRATION RIGHTS. Buyer shall be afforded such registration rights as are set forth in the Registration Rights Agreement, substantially in the form attached hereto as EXHIBIT B. (d) NEGATIVE COVENANTS. Seller covenants and agrees that, until the Closing Date, Seller will not do any of the following without the prior written consent of Buyer, which shall not be unreasonably withheld: (i) DISPOSITIONS. Convey, sell, lease, transfer or otherwise dispose of (each of the foregoing, a "Transfer"), all or any part of its business or property, other than: (i) Transfers of non-exclusive licenses and similar arrangements for the use of Seller's services; or (ii) Transfers of worn-out or obsolete equipment. (ii) MERGERS OR ACQUISITIONS. Merge or consolidate with or into any other business organization, or acquire all or substantially all of the capital stock or property of another Person. (iii) DISTRIBUTIONS. Pay any dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock except with respect to any obligations in existence as of the date hereof and set forth on Schedule 6(h) hereto. (iv) TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Seller except for transactions involving agreements that are in place at the date hereof or that are in the ordinary course of Seller's business, upon fair and reasonable terms that are no less favorable to Seller than would be obtained in an arm's length transaction with a nonaffiliated Person. 7. ADDITIONAL CONDITIONS PRECEDENT. (a) CONDITIONS TO OBLIGATION OF BUYER. The obligation of Buyer to consummate the transactions contemplated by this Agreement is subject to satisfaction of the following conditions: (i) the representations and warranties of Seller set forth in Section 4 above shall be true and correct in all material respects at and as of the Closing Date; (ii) Seller shall have performed and complied with all of its covenants hereunder in all material respects through the Closing Date ; (iii) there shall not be any injunction, judgment, order, or decree enjoining the transactions contemplated by this Agreement; (iv) all actions to be taken by Seller in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be satisfactory in form and substance to Buyer. Buyer may waive any condition specified in this Section 7(a) upon execution of a writing so stating at or prior to the Closing Date. (b) CONDITIONS TO OBLIGATION OF SELLER. The obligation of Seller to consummate the transactions contemplated by this Agreement is subject to satisfaction of the following conditions: 9 (i) the representations and warranties of Buyer set forth in Section 3 above shall be true and correct in all material respects at and as of the Closing Date; (ii) Buyer shall have performed and complied with all of its covenants hereunder in all material respects through the Closing Date; (iii) there shall not be any injunction, judgment, order, decree, ruling, or charge in effect preventing consummation of any of the transactions contemplated by this Agreement; (iv) all actions to be taken by Buyer in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to Seller. Seller may waive any condition specified in this Section 7(b) if it executes a writing so stating at or prior to the Closing Date. 8. REMEDIES FOR BREACHES OF THIS AGREEMENT. (a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the representations and warranties of Buyer and Seller contained in Section 3 and Section 4, respectively above, shall survive this Agreement and continue in full force and effect for a period of one year thereafter. (b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF BUYER. In the event Seller breaches any of its representations, warranties, or covenants contained herein, it shall so notify Buyer and provided that Buyer makes a written claim for indemnification against Seller pursuant to Section 10 below within such survival period, then Seller agrees to indemnify Buyer from and against the entirety of any Adverse Consequences Buyer shall suffer through and after the date of the claim for indemnification caused by the breach. (c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF SELLER. In the event Buyer breaches any of its representations, warranties, or covenants contained herein, it shall so notify Seller and provided that Seller makes a written claim for indemnification against Buyer pursuant to Section 10 below within such survival period, then buyer agrees to indemnify Seller from and against the entirety of any Adverse Consequences Seller shall suffer through and after the date of the claim for indemnification caused by the breach. (d) MATTERS INVOLVING THIRD PARTIES. (i) If any third party shall notify any Party (the "INDEMNIFIED PARTY") with respect to any matter (a "THIRD PARTY CLAIM") which may give rise to a claim for indemnification against any other Party (the "INDEMNIFYING PARTY") under this Section 8, then the Indemnified Party shall promptly (and in any event within [five business days] after receiving notice of the Third Party Claim) notify each Indemnifying Party thereof in writing. (ii) Any Indemnifying Party will have the right to assume and thereafter conduct the defense of the Third Party Claim with counsel of his or its choice reasonably satisfactory to the Indemnified Party; provided, HOWEVER, that the Indemnifying Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnified Party (not to be withheld unreasonably) unless the judgment or proposed settlement involves only the payment of money damages and does not impose an injunction or other equitable relief upon the Indemnified Party. (iii) Unless and until an Indemnifying Party assumes the defense of the Third Party Claim as provided in Section 8(c)(ii) above, however, the Indemnified Party may defend against the Third Party Claim in any manner he or it reasonably may deem appropriate. 10 (iv) In no event will the Indemnified Party consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of each of the Indemnifying Parties, not to be unreasonably withheld. (e) DETERMINATION OF ADVERSE CONSEQUENCES. The Parties shall make appropriate adjustments for tax benefits and insurance coverage in determining Adverse Consequences for purposes of this Section 8. All indemnification payments under this Section 8 shall be deemed adjustments to the Purchase Price. 9. TERMINATION. (a) TERMINATION OF AGREEMENT. The Parties may terminate this Agreement as provided below (i) Buyer and Seller may terminate this Agreement by mutual written consent at any time prior to the Closing Date; (ii) Buyer may terminate this Agreement by giving written notice to Seller at any time prior to the Closing Date in the event (A) Seller has given Buyer any notice pursuant to Section 5(e) above and (B) the development that is the subject of the notice has had, or reasonably believes will have, a material adverse effect upon the condition (financial or otherwise) of Seller; (iii) Buyer may terminate this Agreement by giving written notice to Seller at any time prior to the Closing Date (A) in the event Seller has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, Buyer have notified Seller of the breach, and the breach has continued without cure for a period of 10 days after the notice of breach or (B) if the Closing shall not have occurred on or before December 30, 1998, by reason of the failure of any condition precedent Section 7 hereof (unless the failure results primarily from any breach by Buyer of any material representation, warranty, or covenant contained in this Agreement); and (iv) Seller may terminate this Agreement by giving written notice to Buyer at any time prior to the Closing Date (A) in the event either Buyer has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, Seller has notified each Buyer of the breach, and the breach has continued without cure for a period of 10 days after the notice of breach or (B) if the Closing shall not have occurred on or before December 30, 1998, by reason of the failure of any condition precedent Section 7 hereof (unless the failure results primarily from Seller breaching any material representation, warranty, or covenant contained in this Agreement). (b) EFFECT OF TERMINATION. If any Party terminates this Agreement pursuant to Section 9(a) above, all rights and obligations of the Parties hereunder shall terminate without any liability of any Party to any other Party (except for any liability of any Party then in breach); PROVIDED, HOWEVER, that the confidentiality provisions contained in Section 5(d) above shall survive termination. 10. MISCELLANEOUS. (a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue any press release or make any public announcement relating to the subject matter of this Agreement prior to the Closing Date, without the prior written approval of Buyer and Seller; PROVIDED, HOWEVER, that any Party may make any public disclosure it believes in good faith is required by applicable law or any listing or trading agreement concerning its publicly-traded securities (in which case the disclosing Party will use its reasonable best efforts to advise the other Parties prior to making the disclosure). (b) NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns. 11 (c) ENTIRE AGREEMENT. This Agreement (including the documents referred to herein) constitutes the entire agreement among the Parties and supersedes any prior understandings, agreements, or representations by or among the Parties, written or oral, to the extent they have related in any way to the subject matter hereof. (d) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of his or its rights, interests, or obligations hereunder without the prior written approval of the other. (e) COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. (f) HEADINGS. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. (g) NOTICES. All notices, requests, demands, claims, and other communications hereunder will be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given if (and then two business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forth below: If to Seller: P.C. Quote, Inc. 300 South Wacker, Suite 300 Chicago, Illinois 60606 Attn: Jim Porter If to Buyer: Howard Todd Horberg 100 Sheridan Road Highland Park, Illinois 60035 Any Party may send any notice, request, demand, claim, or other communication hereunder to the intended recipient at the address set forth above using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient. Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Parties notice in the manner herein set forth. (h) GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. (i) AMENDMENTS AND WAIVERS. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by the Parties. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. (j) SEVERABILITY. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions 12 hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. (k) EXPENSES. Each Party bears its own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby. (l) CONSTRUCTION. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word "including" shall mean including without limitation. (m) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof. (n) THE CLOSING. The closing of the transactions contemplated by this Agreement shall take place at the offices of the Company in Chicago, Illinois, commencing at 3:00 p.m. local time on the Closing Date or on such other time, date and location mutually agreed by the Parties. * * * * * 13 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written. PC QUOTE, INC. By:__________________________ By:_______________________________ Name: John E. Juska Name: Howard Todd Horberg Title: Chief Financial Officer Seller Buyer 14 EX-4.(AO) 4 EXHIBIT 4(AO) EXHIBIT (ao) Common Stock Purchase Warrant 120,000 Shares (subject to adjustment) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. Void after December 30, 2001 COMMON STOCK PURCHASE WARRANT THIS CERTIFIES THAT, for value received, Howard Todd Horberg (herein after referred to as "Purchaser") is entitled to purchase up to One Hundred Twenty Thousand (120,000) Shares of Common Stock of PC QUOTE, INC., a Delaware corporation, at a price of $1.875 per Share (the "Warrant Price"), subject to adjustments and all other terms and conditions set forth in this Warrant. 1. DEFINITIONS. As used herein, the following terms, unless the context otherwise requires, shall have the following meanings: (a) "Act" shall mean the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. (b) "Acquisition" shall mean any sale, license, or other disposition of all or substantially all of the assets of the Company, or any reorganization, consolidation, or merger of the Company where the holders of the Company's securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity after the transaction. (c) "Commission" shall mean the Securities and Exchange Commission, or any other Federal agency at the time administering the Act. (d) "Common Stock" shall mean shares of the Company's presently or subsequently authorized common stock, par value $0.001, and any stock for which such common stock may hereafter be exchanged. (e) "Company" shall mean PC QUOTE, INC., a Delaware corporation, and any corporation which shall succeed to or assume the obligations of PC QUOTE, INC., under this Warrant. (f) "Date of Grant" shall mean December 30, 1998. (g) "Exercise Date" shall mean the effective date of the delivery of the Notice of Exercise pursuant to Section 4 below. (h) "Holder" shall mean any person who shall at the time be the registered holder of this Warrant. (i) "Shares" shall mean shares of Common Stock. 2. ISSUANCE OF WARRANT AND CONSIDERATION THEREFOR. This Warrant is issued in consideration of the purchase price paid by Purchaser to the Company as set forth in that certain Stock and Warrant Purchase Agreement dated as of the date hereof and made and entered into by and between the Company and Purchaser. 3. TERM. The purchase right represented by this Warrant is exercisable only during the period commencing upon the Date of Grant and ending on December 30, 2001. 4. METHOD OF EXERCISE AND PAYMENT. (a) METHOD OF EXERCISE. Subject to Section 3 hereof and compliance with all applicable Federal and state securities laws, the purchase right represented by this Warrant may be exercised, in whole or in part and from time to time, by the Holder by (i) surrender of this Warrant and delivery of the Notice of Exercise (the form of which is attached hereto as Exhibit A), duly executed, at the principal office of the Company and (ii) payment to the Company of an amount equal to the product of the then applicable Warrant Price multiplied by the number of Shares then being purchased pursuant to one of the payment methods permitted under Section 4(b) below. (b) METHOD OF PAYMENT. Payment shall be made either (1) by cashier's or certified check drawn on a United States bank and for United States funds made payable to the Company, or (2) by wire transfer of United States funds for the account of the Company. (c) DELIVERY OF CERTIFICATE. In the event of any exercise of the purchase right represented by this Warrant, certificates for the Shares so purchased shall be delivered to the Holder within five days of delivery of the Notice of Exercise and, unless this Warrant has been fully exercised or has expired, a new warrant representing the portion of the Shares with respect to which this Warrant shall not then have been exercised shall also be issued to the Holder within such ten day period. (d) NO FRACTIONAL SHARES. No fractional shares shall be issued in connection with any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the fair market value per Share as of the date of exercise. (e) COMPANY'S REPRESENTATIONS. (i) All Shares which may be issued upon the exercise of the purchase right represented by this Warrant shall, upon issuance, be duly authorized, validly issued, fully paid and non-assessable, and free of any liens and encumbrances except for restrictions on transfer under applicable federal and state securities laws. During the period within which the purchase right represented by this Warrant may be exercised, the Company shall at all times use its best efforts to have authorized, and reserved for the purpose of issuance upon exercise of the purchase right represented by this Warrant, a sufficient number of Shares to provide for the exercise of the purchase right represented by this Warrant; (ii) This Warrant has been duly authorized and executed by the Company and is a valid and binding obligation of the Company enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting the enforcement of creditors' rights; (iii) The execution and delivery of this Warrant are not, and the issuance of the Shares upon exercise of this Warrant in accordance with the terms hereof will not be, inconsistent with the Company's Certificate of Incorporation or Bylaws, do not and will not contravene any law, governmental rule or regulation, judgment or order applicable to the Company, and do not and will not conflict with or contravene any provision of, or constitute a default under, any material indenture, mortgage, contract or other instrument of which the Company is a party or by which it is bound, or require the registration or filing with or the taking of any action in respect of or by, any federal, state or local government authority or agency (other than such consents, approvals, notices, actions, or filings as have already been obtained or made, as the case may be). 2 5. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The number of Shares issuable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows: (a) ADJUSTMENT FOR DIVIDENDS IN STOCK. In case at any time or from time to time on or after the date hereof the holders of the Common Stock of the Company (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or, on or after the record date fixed for the determination of eligible stockholders, shall have become entitled to receive, without payment therefor, other or additional stock of the Company by way of dividend then, and in each case, the Holder of this Warrant shall, upon the exercise hereof, be entitled to receive, in addition to the number of shares of Common Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of such other or additional stock of the Company which such Holder would hold on the date of such exercise had it been the holder of record of such Common Stock on the date hereof and had thereafter, during the period from the date hereof to and including the date of such exercise, retained such shares and/or all other additional stock receivable by it as aforesaid during such period, giving effect to all adjustments called for during such period by paragraphs (b) and (c) of this Section 5. (b) ADJUSTMENT FOR RECLASSIFICATION OR REORGANIZATION. In case of any reclassification or change of the outstanding securities of the Company or of any consolidation, merger or reorganization of the Company on or after the date hereof, then and in each such case the Holder of this Warrant, upon the exercise hereof at any time after the consummation of such reclassification, change, consolidation, merger or reorganization, shall be entitled to receive, in lieu of or in addition to the stock or other securities and property receivable upon the exercise hereof prior to such consummation, the stock or other securities to which such Holder would have been entitled upon such consummation if such Holder had exercised this Warrant immediately prior thereto, all subject to further adjustment as provided in subparagraphs (a) and (c); in each such case, the terms of this Paragraph 5 shall be applicable to the shares of stock or other securities property receivable upon the exercise of this Warrant after such consummation. (c) STOCK SPLITS AND REVERSE STOCK SPLITS. If, at any time on or after the date hereof, the Company shall subdivide its outstanding shares of Common Stock into a greater number of shares, the Warrant Price in effect immediately prior to such subdivision shall thereby be proportionately reduced and the number of shares receivable upon exercise of this Warrant shall thereby be proportionately increased; and, conversely, if at any time on or after the date hereof the outstanding number of shares of Common Stock shall be combined into a smaller number of shares, the Warrant Price in effect immediately prior to such combination shall thereby be proportionately increased and the number of shares receivable upon exercise of the Warrant shall be proportionately decreased. (d) ADJUSTMENTS TO WARRANT PRICE. Whenever the number of Shares purchasable upon exercise of this Warrant is adjusted, as herein provided, the Warrant Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to such adjustment by a fraction, of which the numerator shall be the number of Shares purchasable upon the exercise of each Warrant immediately prior to such adjustment, and of which the denominator shall be the number of Shares so purchasable immediately thereafter. (e) CERTIFICATES AS TO ADJUSTMENTS. Upon each adjustment of the Warrant Price, the Company at its expense shall promptly compute such adjustment, and furnish the Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based. The Company shall, upon written request, furnish the Holder a certificate setting forth the Warrant Price in effect upon the date thereof and the series of adjustments leading to such Warrant Price. 6. ACQUISITIONS. (a) ASSUMPTION OF WARRANT. If upon the closing of any Acquisition the successor entity assumes the obligations of this Warrant, then this Warrant shall be exercisable for the same securities, cash, and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing. 3 (b) NONASSUMPTION. If upon the closing of any Acquisition the successor entity does not assume the obligations of this Warrant and the Holder has not otherwise exercised this Warrant in full, then the unexercised portion of this Warrant shall be deemed to have been automatically converted pursuant to Section 4(c) and thereafter the Holder shall participate in the acquisition on the same terms as other holders of the same class of securities of the Company. 7. NOTICES; INFORMATION; REGISTRATION. (a) NOTICE OF CERTAIN EVENTS. If the Company proposes at any time (a) to effect any reclassification or recapitalization of Common Stock; (b) to merge or consolidate with or into any other corporation, or sell, lease, license, or convey all or substantially all of its assets, or to liquidate, dissolve or wind up; or (c) offer holders of registration rights the opportunity to participate in an underwritten public offering of the company's securities for cash, then, in connection with each such event, the Company shall give the Holder at least 14 days prior written notice of the date on which a record will be taken for such action. (b) INFORMATION RIGHTS. So long as the Holder holds this Warrant and/or any of the Shares, the Company shall deliver to the Holder (a) promptly after mailing, copies of all notices or other written communications to the stockholders of the Company, (b) within ninety days after the end of each fiscal year of the Company, the annual audited financial statements of the Company audited by independent public accountants of recognized standing and (c) within forty-five days after the end of each of the first three quarters of each fiscal year, the Company's quarterly, unaudited financial statements. (c) REGISTRATION UNDER SECURITIES ACT OF 1933. The Company agrees that the Shares shall be subject to the registration rights set forth on Exhibit B. 8. COMPLIANCE WITH ACT; TRANSFERABILITY AND NEGOTIABILITY OF WARRANT; DISPOSITION OF SHARES. (a) COMPLIANCE WITH ACT. The Holder, by acceptance hereof, agrees that this Warrant and the Shares to be issued upon the exercise hereof are being acquired solely for its own account and not as a nominee for any other party and not with a view toward the resale or distribution thereof and that it will not offer, sell or otherwise dispose of this Warrant or any Shares to be issued upon the exercise hereof except under circumstances which will not result in a violation of the Act. This Warrant and the Shares to be issued upon the exercise hereof (unless registered under the Act) shall be imprinted with a legend in substantially the following form: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. In addition, this Warrant and the Shares to be issued upon the exercise hereof shall bear any legends required by the securities laws of any applicable states. (b) TRANSFERABILITY AND NEGOTIABILITY OF WARRANT. This Warrant may not be transferred or assigned in whole or in part without compliance with all applicable federal and state securities laws by the transferor and the transferee (including the delivery of investment representation letters and legal opinions satisfactory to the Company, if requested by the Company and the transfer is to a person other than a general partner or affiliate of the initial Holder). Subject to the provisions of this Warrant with respect to compliance with the Act, title to this Warrant may be transferred by endorsement and delivery in the same manner as a negotiable instrument transferable by endorsement and delivery. The Company shall act promptly to record transfers of this Warrant on its 4 books, but the Company may treat the registered holder of this Warrant as the absolute owner of this Warrant for all purposes, notwithstanding any notice to the contrary. (c) DISPOSITION OF SHARES. With respect to any offer, sale, transfer or other disposition of any Shares acquired pursuant to the exercise of this Warrant prior to registration of such Shares, except for any such offer, sale, transfer or other disposition of Shares to an affiliate of the initial Holder, the Holder and each subsequent holder of this Warrant agrees to give written notice to the Company prior thereto, describing briefly the manner thereof, and if such transfer is not pursuant to Rule 144, a written opinion of legal counsel for such holder, if requested by the Company, to the effect that such offer, sale or other disposition may be effected without registration or qualification of such Shares. Notwithstanding the foregoing, such Shares may be offered, sold or otherwise disposed of in accordance with Rule 144, provided that the Company shall have been furnished with such information as the Company may reasonably request to provide a reasonable assurance that the provisions of Rule 144 have been satisfied. Each certificate representing the Shares thus transferred (except a transfer pursuant to Rule 144) shall bear a restrictive legend as to the applicable restrictions on transferability in order to insure compliance with the Act, unless in the aforesaid opinion of legal counsel for the holder, such legend is not required in order to insure compliance with the Act. 9. RIGHTS OF STOCKHOLDERS. No Holder shall be entitled to vote or receive dividends or be deemed the holder of Shares or any other securities of the Company which may at any time be issuable on the exercise of this Warrant for any purpose, nor shall anything contained herein be construed to confer upon the Holder, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, consolidation, merger, transfer of assets or otherwise) or, except as expressly required herein, to receive notice of meetings, or to receive dividends or subscription rights or otherwise until this Warrant shall have been exercised and the Shares issuable upon exercise hereof shall have become deliverable, as provided herein. 10. REPLACEMENT OF WARRANTS. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company at its expense shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor. 11. EXCHANGE OF WARRANT. Subject to the other provisions of this Warrant, on surrender of this Warrant for exchange, and subject to the provisions of this Warrant with respect to compliance with the Act, the Company at its expense shall issue to or on the order of the Holder a new warrant or warrants of like tenor, in the name of the Holder or as the Holder (on payment by the Holder of any applicable transfer taxes) may direct, for the number of Shares issuable upon exercise thereof. 12. NOTICES. All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company or the Holder, as the case may be, in writing by the Company or such Holder from time to time. 13. WAIVER. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. 14. GOVERNING LAW. This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware. 15. TITLES AND SUBTITLES; FORMS OF PRONOUNS. The titles of the Sections and Subsections of this Warrant are for convenience only and are not to be considered in construing this Warrant. All pronouns used in this Warrant shall be deemed to include masculine, feminine and neuter forms. 5 16. ATTORNEYS' FEES. In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys' fees. Dated: December 30, 1998. PC QUOTE, INC., a Delaware corporation By:________________________________________ John E. Juska, Chief Financial Officer By:________________________________________ Alicia VanDeVeer, Assistant Secretary 6 EXHIBIT A NOTICE OF EXERCISE TO: PC QUOTE, INC. 1. The undersigned Holder of the attached Common Stock Purchase Warrant hereby elects to exercise its purchase right under such Warrant with respect to ________________ Shares, as defined in the Warrant. 2. The undersigned Holder elects to pay the aggregate Warrant Price for such Shares (the "Exercise Shares") in the following manner: [ ] by the enclosed cashier's or certified check drawn on a United States bank and for United States funds made payable to the Company in the amount of $_____________; or [ ] by wire transfer of United States funds to the account of the Company in the amount of $___________, which transfer has been made before or simultaneously with the delivery of this Notice pursuant to the instructions of the Company. 3. Please issue a stock certificate or certificates representing the appropriate number of Shares in the name of the undersigned or in such other names as is specified below: Name:________________________________________ Address:_____________________________________ _____________________________________ Tax ID No.:_____________________ HOLDER: ________________________________________________ By:________________________________________ Date: _____________________ Title:___________________________ EXHIBIT B STATEMENT OF REGISTRATION RIGHTS 1. DEFINITIONS. For purposes of the Stock and Warrant Purchase Agreement to which this Statement of Registration Rights is attached as Exhibit B: (a) The terms "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act of 1933, as amended (the "Act"), and the declaration or ordering of effectiveness of such registration statement or document; (b) The term "Registrable Securities" means the shares of Common Stock issued in connection with the Agreement and shares issued or issuable upon exercise of the Warrant; (c) The term "Holder" means the original holder of the Shares and Warrant and any transferee of the Warrant; and (d) The term "Warrant" means the original Warrant issued in connection with the Stock and Warrant Purchase Agreement, dated as of December 29, 1998, between the Company, as Seller, and Howard Todd Horberg, as Buyer, and all Warrants issued as a result of the transfer of such original Warrant. 2. COMPANY REGISTRATION. If (but without any obligation to do so) the Company proposes at any time before December 30, 2001 to register (including for this purpose a registration effected by the Company for stockholders other than Holder) any of its stock or other securities under the Act in connection with the public offering for its own account of such securities solely for cash (other than a registration relating solely to the sale of securities to participants in a Company stock plan, or a registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities), the Company shall, at such time, promptly give Holder written notice of such registration. Upon the written request of Holder given within twenty days after mailing of such notice by the Company, the Company shall, subject to the provisions of Section 8 hereof and Section 5 of the Warrant, cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered. 3. DEMAND REGISTRATION. In case the Company shall, at any time before December 30, 2001, receive from Holders holding 40% or more of the outstanding Registrable Securities a written request (to be exercised only once) that the Company effect a registration and any related qualification or compliance with respect to all or a part of the Registrable Securities (which registration shall at the election of Holder either be for a registration for a primary issuance of the Shares upon the exercise of the Warrant or the resale of the Shares previously issued upon exercise of the Warrant at the election of Holder) owned by such Holder, the Company will promptly notify each other Holder (if any) of such request and will: (a) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of a Holder's Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other holder of registration rights joining in such request as are specified in a written request given within 20 days after receipt of such written notice from the Company; PROVIDED, HOWEVER, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 3: (1) if the Company has effected a registration of Registrable Securities pursuant to this Section 3 within the preceding 12 months; (2) if the Company shall furnish to Holder a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such registration to be effected at such time, in which event the Company shall have the right to defer the filing of the registration statement for a period of not more than 60 days after receipt of the request of Holder under this Section 3; PROVIDED, HOWEVER, that the Company shall not i utilize this right more than once in any twelve-month period; or (3) in any jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance; and, (b) subject to the foregoing, file a registration statement covering the Registrable Securities and other securities so requested to be registered promptly after receipt of the request or requests of Holder, and in any event within 30 days of receipt of such request. 4. OBLIGATION OF THE COMPANY. Subject to the terms of the Warrant, in the event that the Company is to effect the registration of any Registrable Securities pursuant to Section 2 or 3 hereof, the Company shall promptly: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the holders of a majority of the securities registered thereunder, keep such registration statement effective for up to one hundred twenty (120) days, or such shorter period as is required to dispose of all securities covered by such registration statement. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement. (c) Furnish to Holder such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as Holder may reasonably request in order to facilitate the disposition of Registrable Securities owned by Holder. (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by Holder, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions or to agree to any restrictions as to the conduct of its business in the ordinary course thereof. (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Holder shall also enter into and perform its obligations under such underwriting agreement. (f) Notify Holder at any time when a prospectus relating to Registrable Securities of Holder covered by such registration statement is required to be delivered under the Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made. (g) Furnish, at the request of Holder, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to the Warrant, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated such date, of counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to Holder and (ii) a letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to Holder. 5. AVAILABILITY OF RULE 144. Notwithstanding anything in the Warrant or this Statement of Registration Rights to the contrary, the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to Section 2 or 3, if application of Rule 144 would allow Holder requesting a registration ii under Section 2 or 3 to dispose of the Registrable Securities for which a registration is demanded within a single 90-day period. 6. FURNISH INFORMATION. It shall be a condition precedent to the obligations of the Company to take any action pursuant to the Warrant that the selling Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by Holder, and the intended method of disposition of such securities as shall be required to effect the registration of their Registrable Securities. 7. EXPENSES. The Company shall bear and pay all expenses (other than underwriting discounts and commissions) incurred in connection with any registration, filing or qualification of Registrable Securities, including (without limitation) all registration, filing, and qualification fees, legal, printers and accounting fees relating thereto. 8. UNDERWRITING REQUIREMENTS. In connection with any registrations in which Registrable Securities have a right to be included pursuant to Section 2 hereof and which involves an underwriting of securities being issued by the Company, the Company shall not be required, under Section 2 hereof, to include any of Holder's securities in such underwriting unless Holder accepts the terms of the underwriting as agreed upon between the Company and the underwriters selected by it, and then only in such quantity as will not, in the opinion of the underwriters, jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters reasonably believe compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters believe will not jeopardize the success of the offering, the securities so included to be apportioned pro rata among the selling Holder and other shareholders holding contractual registration rights according to the total amount of securities entitled to be included herein owned by each selling stockholder or in such other proportions as shall mutually be agreed to by Holder and each other selling stockholder. 9. INDEMNIFICATION. In the event any Registrable Securities are included n a registration statement filed by the Company: (a) The Company will indemnify and holder harmless Holder, its officers, directors, and agents, any underwriter (as defined in the Act) for Holder and each person, if any, who controls Holder or underwriter within the meaning of the Act or the Securities Exchange Act of 1934, as amended (the "1934 Act"), against any losses, claims, damages, or liabilities (joint or several) asserted by a third party to which they may become subject under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation of the Company of the Act, the 1934 Act, any state securities law or any rule or regulation promulgated under the Act, the 1934 Act or any state securities law; and the Company will reimburse Holder, any of its officers or directors, underwriter or controlling person for any legal or other expenses reasonably incurred by them, as incurred, in connection with investigating or defending any such loss, claim, damage, liability, or action; PROVIDED, HOWEVER, that the indemnity agreement contained in this Section 9(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, underwriter or controlling person. (b) Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the registration statement, each person, if any, who controls the Company with the meaning of the Act, any underwriter and any other shareholder selling securities in such registration statement or any of its directors or officers or any person who controls such shareholder, against any losses, claims, damages, or iii liabilities (joint or several) asserted by a third party to which the Company or any such director, officer, controlling person, or underwriter or controlling person, or other such shareholder or director, officer or controlling person may become subject, under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by Holder expressly for use in connection with such registration; and Holder will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter or controlling person, other shareholder, officer, director, or controlling person, as incurred, in connection with investigating or defending any such loss, claim, damage, liability, or action; PROVIDED, HOWEVER, that the obligations of Holder hereunder shall be limited to an amount equal to the net proceeds (equal to the offering price less the exercise price, expenses and underwriting commissions and discounts) to such Holder of Shares sold as contemplated herein. Notwithstanding the foregoing, the indemnity agreement contained in this Section 9(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of Holder, which consent shall not be unreasonably withheld. (c) Promptly after receipt by an indemnified party under this Section 9 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying part under this Section 9, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; PROVIDED, HOWEVER, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 9, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 9. 10. REPORTS UNDER THE 1934 ACT. With a view to making available to Holder the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the SEC that may at any time permit Holder to sell securities of the Company to the public without registration the Company will endeavor to: (a) make and keep public information available, as those terms are understood and defined in SEC Rule 144; (b) take such action as is necessary to enable Holder to utilize an abbreviated registration statement for the sale of its Registrable Securities; (c) file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; and (d) furnish to Holder, so long as Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144, the Act and the 1934 Act, or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form. 11. ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to register Registrable Securities pursuant to the Warrant may be assigned by Holder to a permitted transferee or assignee of the Warrant of at least 120,000 Shares, provided the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; and provided, further, that such assignment shall be effective iv only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Act. v EX-4.(AP) 5 EXHIBIT 4(AP) EXHIBIT (ap) STOCK AND WARRANT PURCHASE AGREEMENT BETWEEN PC QUOTE, INC. AND STEVE LEVY DECEMBER 29, 1998
TABLE OF CONTENTS 1. Definitions 2. Purchase and Sale of Shares and Warrant 3. Representations and Warranties of Buyer (a) Buyer's Qualifications (b) Authorization of Transaction (c) Noncontravention (d) Broker's Fees (e) Investment 4. Representations and Warranties of Seller (a) Authorization of Transaction (b) Organization, Qualification, and Corporate Power (c) Capitalization (d) Noncontravention (e) Brokers' Fees (f) Title to Tangible Assets (g) Financial Statements (h) Tax Matters (i) Real Property (j) Intellectual Property (k) Powers of Attorney (l) Litigation (m) Employee Benefits (n) Absence of Certain Changes (o) Patents, Trade Names, Trademarks, Etc. (p) Insurance (q) Environmental Protection 5. Pre-Closing Covenants (a) General (b) Notices and Consents (c) Operation of Business (d) Full Access (e) Notice of Developments 6. Post-Closing Covenants (a) General (b) Litigation Support (c) Registration Rights (d) Negative Covenants i 7. Additional Conditions Precedent (a) Conditions to Obligation of Buyer (b) Conditions to Obligation of Sellers 8. Remedies for Breaches of This Agreement (a) Survival of Representations and Warranties (b) Indemnification Provisions for Benefit of Buyer (c) Indemnification Provisions for Benefit of Seller (d) Matters Involving Third Parties (e) Determination of Adverse Consequences 9. Termination (a) Termination of Agreement (b) Effect of Termination 10. Miscellaneous (a) Press Releases and Public Announcements (b) No Third Party Beneficiaries (c) Entire Agreement (d) Succession and Assignment (e) Counterparts (f) Headings (g) Notices (h) Governing Law (i) Amendments and Waivers (j) Severability (k) Expenses (l) Construction (m) Incorporation of Exhibits, Annexes, and Schedules (n) The Closing
ii STOCK AND WARRANT PURCHASE AGREEMENT Agreement entered into as of December 29, 1998, by and between Steve Levy (the "Buyer") and PC Quote, Inc., a Delaware corporation (the "Seller"). Buyer and Seller are referred to collectively herein as the "Parties." This Agreement contemplates a transaction in which Buyer will purchase from Seller, and Seller will sell to Buyer, an aggregate of 240,000 shares of Seller's common stock, par value $0.001 per share (the "Common Stock"), for an aggregate purchase price of Three Hundred Seventy-five Thousand Dollars ($375,000). Now, therefore, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties and covenants herein contained, the Parties agree as follows: 1. DEFINITIONS. "ACCREDITED INVESTOR" has the meaning set forth in Regulation D promulgated under the Securities Act. "ADVERSE CONSEQUENCES" means all actions, suits, proceedings, hearings, investigations, charges, complaints, claims, demands, injunctions, judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs, reasonable amounts paid in settlement, liabilities, obligations, taxes, liens, losses, expenses and fees, including court costs and reasonable attorneys' fees and expenses. "AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act. "AFFILIATED GROUP" means any affiliated group within the meaning of Code Section 1504. "BUYER" has the meaning set forth in the preface above. "CLOSING DATE" shall mean December 30, 1998 or such other time as the parties may mutually agree. "CODE" means the Internal Revenue Code of 1986, as amended. "CONFIDENTIAL INFORMATION" means any information concerning the businesses and affairs of Seller that is not already generally available to the public. "EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred compensation or retirement plan or arrangement which is an Employee Pension Benefit Plan, (b) qualified defined contribution retirement plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or arrangement which is an Employee Pension Benefit Plan (including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe benefit plan or program. "EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA Section 3. "EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA Section 3. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "FINANCIAL STATEMENTS" has the meaning set forth in Section 4g below. "GAAP" means United States generally accepted accounting principles as in effect from time to time. "INCOME TAX" means any federal, state, local, or foreign income tax, including any interest, penalty, or addition thereto, whether disputed or not. "INCOME TAX RETURN" means any return, declaration, report, claim for refund, or information return or statement relating to Income Taxes, including any schedule or attachment thereto. "INDEMNIFIED PARTY" has the meaning set forth in Section 8 below. "INDEMNIFYING PARTY" has the meaning set forth in Section 8 below. "KNOWLEDGE" means actual knowledge without independent investigation. "MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Section 3(37). "ORDINARY COURSE OF BUSINESS" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency). "PARTY" has the meaning set forth in the preface above. "PBGC" means the Pension Benefit Guaranty Corporation. "PERSON" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, a governmental entity (or any department, agency, or political subdivision thereof) or any entity similar to any of the foregoing. "PURCHASE PRICE" has the meaning set forth in Section 2 below. "REPORTABLE EVENT" has the meaning set forth in ERISA Section 4043. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance, charge, or other security interest, other than (a) mechanic's, materialmen's, and similar liens, (b) liens for taxes not yet due and payable or for taxes that the taxpayer is contesting in good faith through appropriate proceedings, (c) purchase money liens and liens securing rental payments under capital lease arrangements, and (d) other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money. "SELLER" has the meaning set forth in the preface above. "SHARES" means Seller's shares of Common Stock. "THIRD PARTY CLAIM" has the meaning set forth in Section 8 below. 3. PURCHASE AND SALE OF SHARES AND Warrant 3.1 PURCHASE AND SALE OF SHARES. On the Closing Date, in the manner set forth in this Section 2, upon the terms set forth in this Agreement, Seller will sell, transfer and deliver to Buyer, and Buyer will purchase from Seller, 240,000 Shares for an aggregate purchase price of Three Hundred Seventy-five Thousand Dollars ($375,000) (the "Purchase Price"), in all cases free and clear of all interests, liens, charges, encumbrances, equities, claims, assessments and options of whatever nature. 2 (a) On the Closing Date, as a condition precedent to such closing, Seller shall deliver to Buyer stock certificates representing an aggregate of 240,000 Shares in such names and denominations as buyer shall instruct Seller. (b) Buyer shall deliver to Seller a certified check or wire transfer in the amount of $375,000. 2.2 Purchase and Sale of Warrant. Subject to the terms and conditions of this Agreement, the Company shall issue to Buyer a warrant (the "Warrant") to purchase 120,000 Shares at an exercise price of $1.875 per Share, which Warrant shall be substantially in the form attached hereto as EXHIBIT A. 3. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to Seller that the statements contained in this Section 3 are true, correct and complete as of the date of this Agreement and will be true, correct and complete as of the Closing Date (as though made on and as of such Closing Date as if such Closing Date were substituted for the date of this Agreement throughout this Section 3). (a) BUYER'S QUALIFICATIONS. Buyer (a) has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its investment in Seller and (b) has had the opportunity to ask questions of, and receive answers from, Seller and its management concerning the terms and conditions of the offering of the Shares hereunder and to obtain additional information; and (c) is an Accredited Investor. (b) AUTHORIZATION OF TRANSACTION. Buyer has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of Buyer, enforceable in accordance with its terms. Buyer is not required to give any notice to, make any filing with, or obtain any authorization, consent or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement. (c) NONCONTRAVENTION. Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (A) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which Buyer is subject or (B) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which Buyer is a party or by which it is bound or to which any of its assets is subject. (d) BROKERS' FEES. Buyer does not have any liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which Seller could become liable or obligated. (e) INVESTMENT. Buyer is acquiring the Shares for investment purposes and not with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act. 4. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and warrants to Buyer that the statements contained in this Section 4 are true, correct and complete as of the date of this Agreement and will be true, correct and complete as of the Closing Date (as though made on and as of such Closing Date as if such Closing Date were substituted for the date of this Agreement throughout this Section 4). (a) AUTHORIZATION OF TRANSACTION. Seller has full corporate power and authority to execute and deliver this Agreement and the other documents and instruments to be executed and delivered by Seller pursuant to this Agreement and the transactions contemplated hereby and to perform its obligations hereunder and thereunder. This Agreement and the other documents and instruments to be executed and delivered by Seller 3 pursuant to this Agreement and the transactions contemplated hereby constitute the valid and legally binding obligations of Seller enforceable in accordance with their respective terms. (b) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Seller is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware. Seller is duly authorized to conduct business and is in good standing under the laws of each jurisdiction where such qualification is required, except where the lack of such qualification would not have a material adverse effect on the condition (financial or otherwise) of Seller. Seller has full corporate power and authority to carry on the businesses in which it is engaged and to own and use the properties and assets owned and used by it. Seller has no subsidiaries. (c) CAPITALIZATION. The entire authorized capital stock of Seller consists of 50,000,000 Shares, of which 13,477,462 Shares are issued and outstanding and no Shares are held in treasury; and 5,000,000 Shares of undesignated Preferred Stock, of which 19,075 and 28,791 shares designated as Series A and Series B, respectively, Convertible Preferred Stock are outstanding. All of the issued and outstanding Shares and Preferred Stock have been duly authorized, are validly issued, fully paid, and nonassessable. Except as set forth in Schedule 4(c) hereto, there are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require Seller to issue, sell, or otherwise cause to become outstanding any of its capital stock. All such options, warrants, purchase rights, subscription rights, conversion rights, exchange rights or other contracts or commitments and the Shares issuable upon exercise thereof have been duly authorized, and when issued in accordance with their terms will be validly issued, fully paid and non-assessable. There are no preemptive or first refusal or similar rights binding on Seller to subscribe for or purchase from Seller any Shares pursuant to any provisions of law, the Certificate of Incorporation or By-laws of Seller or by agreement or otherwise. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to the Shares. (d) NONCONTRAVENTION. Except as set forth in Schedule 4(d) hereto, to the Knowledge of Seller, neither the execution and delivery of this Agreement, nor consummation of the transactions contemplated hereby, will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which Seller is subject or any provision of the Certificate of Incorporation or By-laws of Seller or (ii) conflict with, result in breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which Seller is a party or by which Seller is bound or to which Seller or its assets is subject (or result in the imposition of any Security Interest upon any of its assets), except where the violation, conflict, breach, default, acceleration, termination, modification, cancellation, failure to give notice, or Security Interest would not have a material adverse effect on the condition (financial or otherwise) of Seller or on the ability of the Parties to consummate the transactions contemplated by this Agreement. Except as set forth in Schedule 4(d) hereto, Seller does not need to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order for the Parties to consummate the transactions contemplated by this Agreement, except where the failure to give notice, to file, or to obtain any authorization, consent, or approval would not have a material adverse effect on the condition (financial or otherwise) of Seller or on the ability of the Parties to consummate the transactions contemplated by this Agreement. (e) BROKERS' FEES. Seller does not have any liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement. (f) TITLE TO TANGIBLE ASSETS. Seller has good title to, or a valid leasehold interest in, the tangible assets it uses regularly in the conduct of its businesses. (g) FINANCIAL STATEMENTS. Attached hereto are copies of Seller's annual report on Form 10-K for the year ended December 31, 1997 and its Quarterly Report on Form 10-Q for each of the quarters ended March 31, 1998, June 30, 1998 and September 30, 1998. Included in such reports are the following financial statements (collectively the "Financial Statements"): (i) audited consolidated balance sheets for the years ending December 31, 1997 and 1996 and statements of income, changes in stockholders' equity, and cash flow as of and for the years ended December 31, 1997, 1996 and 1995 for the Company; and (ii) unaudited balance sheets and statements of income, changes in stockholders' equity, and cash flow as of and 4 for the quarters ended March 31, 1998, June 30, 1998 and September 30, 1998 (the "QUARTERLY FINANCIAL STATEMENTS"). The Financial Statements (including the notes thereto) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby and present fairly the financial condition of Seller as of such dates and the results of operations of Seller for such periods; PROVIDED, HOWEVER, that the Quarterly Financial Statements are subject to normal year-end adjustments and lack footnotes and other presentation items. (h) TAX MATTERS. (i) Seller has filed all Income Tax Returns that it was required to file, and has paid all Income Taxes shown thereon as owing, except where the failure to file Income Tax Returns or to pay Income Taxes would not have a material adverse effect on the condition (financial or otherwise) of Seller. (ii) Seller has not waived any statute of limitations in respect of Income Taxes or agreed to any extension of time with respect to an Income Tax assessment or deficiency. (iii) Seller is not a party to any Income Tax allocation or sharing agreement. (i) REAL PROPERTY Seller does not own any real property. (j) INTELLECTUAL PROPERTY. Except as set forth in Schedule 4(j), the Company owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and proprietary rights necessary for its business as now conducted without any conflict with, or infringement of, the rights of others. The Company has not received any communication alleging that the Company has violated or, by conducting its business, would violate any of the patents, trademarks, service marks, trade names, copyrights, trade secrets or other proprietary rights of any other person or entity. The Company is not aware that any of its employees are obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of such employee's best efforts to promote the interest of the Company or that would conflict with the Company's business. Neither the execution or delivery of this Agreement, nor the carrying on of the Company's business as now conducted by the employees of the Company, will, to the Company's knowledge, conflict with or result in a breach of the terms, conditions, or provisions of, or constitute a default under, any contract, covenant or instrument under which any such employee is now obligated. The Company does not believe it is or will be necessary to use any inventions of any of its employees (or persons it currently intends to hire) made prior to their employment by the Company. To the Company's knowledge, its officers and employees are not making improper use of any confidential information or trade secrets of others, including those of any former employer. (k) POWERS OF ATTORNEY. Except as set forth in Schedule 4(k), there are no outstanding powers of attorney executed on behalf of Seller. (l) LITIGATION. Schedule 4(l) hereto sets forth each instance in which Seller (i) is subject to any outstanding injunction, judgment, order, decree, ruling, or charge or (ii) is a party to any action, suit, proceeding, hearing, or investigation of, in, or before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction, except where the injunction, judgment, order, decree, ruling, action, suit, proceeding, hearing, or investigation would not have a material adverse effect on the condition (financial or otherwise), assets, liabilities, earnings or business of Seller. 5 (m) Employee Benefits. (i) Schedule 4(m) hereto lists each Employee Benefit Plan that is sponsored, maintained or contributed to or required to be contributed to by the Seller or by any trade or business, whether or not incorporated (an "ERISA Affiliate"), that together with the Seller would be deemed a "single employer" within the meaning of Section 4001(b) of ERISA. (A) Each such Employee Benefit Plan (and each related trust, insurance contract, or fund) complies in form and in operation in all respects with the applicable requirements of ERISA and the Code, except where the failure to comply would not have a material adverse effect on the condition (financial or otherwise) of Seller. (B) All contributions (including all employer contributions and employee salary reduction contributions) which are due have been paid to each such Employee Benefit Plan which is an Employee Pension Benefit Plan. (C) Each such Employee Benefit Plan which is an Employee Pension Benefit Plan has received a determination letter from the Internal Revenue Service to the effect that it meets the requirements of Code Section 401(a). (D) Seller has made available to Buyer correct and complete copies of the plan documents and summary plan descriptions, the most recent determination letter received from the Internal Revenue Service, the most recent Form 5500 Annual Report, and all related trust agreements, insurance contracts, and other funding agreements which implement each such Employee Benefit Plan. (E) No such Employee Benefit Plan which is an Employee Pension Benefit Plan (other than any Multiemployer Plan) has been completely or partially terminated or been the subject of a Reportable Event as to which notices would be required to be filed with the PBGC. No proceeding by the PBGC to terminate any such Employee Pension Benefit Plan (other than any Multiemployer Plan) has been instituted. (F) No action, suit, proceeding, hearing, or investigation with respect to the administration or the investment of the assets of any such Employee Benefit Plan (other than routine claims for benefits) is pending, except where the action, suit, proceeding, hearing, or investigation would not have a material adverse effect on the condition (financial or otherwise) of Seller. (G) Neither Seller nor any ERISA Affiliate has incurred any liability to the PBGC (other than PBGC premium payments) or otherwise under Title IV of ERISA (including any withdrawal liability) with respect to any such Employee Benefit Plan which is an Employee Pension Benefit Plan. (H) The aggregate withdrawal liability of Seller and any and all ERISA Affiliates, computed as if a complete withdrawal by Seller and such ERISA Affiliates had occurred under each Multiemployer Plan on the date hereof, would not exceed $10,000. (n) ABSENCE OF CERTAIN CHANGES. With respect to the business of Seller, except as and to the extent set forth in the Company's reports on Form 10-Q for the quarters ended March 31, 1998, June 30, 1998 and September 30, 1998, since December 31, 1997, Seller has not: (i) suffered any material adverse change in its condition (financial or otherwise), assets, liabilities (absolute, accrued, contingent or otherwise), business, prospects or operations, or experienced any labor difficulty, or suffered any casualty loss (whether or not insured); 6 (ii) paid, discharged or satisfied any claim, lien, encumbrance or liability (whether absolute, accrued, contingent or otherwise and whether due or to become due), other than claims, liens, encumbrances or liabilities (i) which are reflected or reserved against in the Financial Statements, and which were paid, discharged or satisfied since the date of the most recent Financial Statements in the ordinary course of business and consistent with past practice, or (ii) which were incurred and paid, discharged or satisfied since the date of the most recent Financial Statements in the ordinary course of business and consistent with past practice; (iii) permitted or allowed any of the properties or assets, real, principal or mixed, tangible or intangible, of or used by Seller, to be mortgaged, pledged or subjected to any lien or encumbrance; (iv) written down or written up the value of any inventory, or written off as uncollectible any notes or accounts receivable or any portion thereof, except for write-downs, write-ups and write-offs in the ordinary course of business consistent with past practice; (v) cancelled any other debts or claims, or waived any rights of substantial value, or sold, transferred or otherwise disposed of any of the properties or assets, real, personal or mixed, tangible or intangible, except in the ordinary course of business and consistent with past practice; (vi) disposed of or permitted to lapse any patent, trademark, assumed name, service mark, trade name or copyright application or license or under which Seller has any right or license, or disposed of or disclosed to any person any trade secret, formula, process or know-how of Seller or under which Seller has any right or license; (vii) granted any general uniform increase in the compensation of employees (including, without limitation, any increase or change pursuant to any bonus, pension, profit-sharing, retirement or other plan or commitment); (viii) made any change in any method of accounting or accounting practice or policy; made any loan or advance (other than advances to employees in the ordinary course of business or travel and expenses disbursement in accordance with the past practice, but not in excess of $10,000 at any one time outstanding) to any person who is an officer, director or employee of Seller; (ix) declared or paid any dividend or purchased any of its outstanding shares of capital stock; (x) agreed, whether in writing or otherwise, to take any of the actions set forth in this Section 4(n); (o) INSURANCE. The Company holds and maintains valid policies covering such casualties and contingencies and of such types and amounts as is customary for companies similarly situated. The Company has no reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a material adverse effect. (q) ENVIRONMENTAL PROTECTION. In connection with its business operations, Seller has obtained all permits, licenses and other authorizations which are required under federal, state and local laws relating to pollution or protection of the environment, including laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, or hazardous or toxic materials or wastes into ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants or hazardous or toxic materials or wastes; to the best of its knowledge after 7 due investigation, Seller is in compliance in all material respects with all terms and conditions of the required permits, licenses and authorizations, and is also in compliance in all material respects with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in those laws or contained in any regulation, code, plan, order, decree, judgment, notice or demand latter issued, entered, promulgated or approved thereunder. Seller is not aware of, and has not received notice of, past, present or future events, conditions, circumstances, activities, practices, incidents, actions or plans which may interfere with or prevent continued compliance, or which may give rise to any common law or legal liability, or otherwise form the basis of any claim, action, suit, proceeding, hearing or investigation, based on or related to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling, or the omission, discharge, release or threatened release into the environment, of any pollutant, contaminant, or hazardous or toxic material or waste. 5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to the period between the execution of this Agreement and the Closing Date or (ii) termination of this Agreement. (a) GENERAL. Each of the Parties will use his or its reasonable best efforts to take any action and to do all things reasonably necessary in order to consummate and make effective the transactions contemplated by this Agreement (including satisfaction, but not waiver, of the conditions precedent to closing. (b) NOTICES AND CONSENTS. Each party will give any notices to third parties, and will use its reasonable best efforts to obtain any third party consents, that Buyer reasonably may request in connection with the matters referred to in Sections 3 and 4 above. (c) OPERATION OF BUSINESS. Except for transactions contemplated hereby, Seller will not engage in, take any action, or enter into any transaction outside the Ordinary Course of Business. (d) FULL ACCESS. Seller will permit representatives of Buyer to have full access at all reasonable times, and in a manner so as not to interfere with the normal business operations of Seller, to all premises, properties, personnel, books, records (including tax records), contracts, and documents of or pertaining to Seller. Buyer will treat and hold as such any Confidential Information received from Seller in the course of the reviews contemplated by this Section 5(d), will not use any of the Confidential Information except in connection with this Agreement, and, if this Agreement is terminated for any reason whatsoever, will return to Seller all tangible embodiments (and all copies) of the Confidential Information which are in its possession. (e) NOTICE OF DEVELOPMENTS. Seller shall notify Buyer of any development causing a breach of any of the representations and warranties in Section 4 above. Unless Buyer have the right to terminate this Agreement pursuant to Section 9(a)(ii) below by reason of the development and exercise that right within the period referred to in Section 9(a)(ii) below, the written notice pursuant to this Section 5(e)(i) will be deemed to have amended the relevant Schedule, if any, to have qualified the representations and warranties contained in Section 4 above, and to have cured any misrepresentation or breach of warranty that otherwise might have existed hereunder by reason of the development. 6. POST-CLOSING COVENANTS. The Parties agree as follows with respect to the period following the Closing. (a) GENERAL. In case at any time after any Closing Date any further action is necessary to carry out the purposes of this Agreement, each of the Parties will take such further action (including the execution and delivery of such further instruments and documents) as any other Party reasonably may request, all at the sole cost and expense of the requesting party (unless the requesting Party is entitled to indemnification therefor under Section 8 below). (b) LITIGATION SUPPORT. In the event and for so long as any Party actively is contesting or defending against any action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand in connection with (i) any transaction contemplated under this Agreement or (ii) any fact, situation, circumstance, status, 8 condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to any Closing Date involving Seller, each of the other Parties shall cooperate with him or it and his or its counsel in the defense or contest, make available their personnel, and provide such testimony and access to their books and records as shall be necessary in connection with the defense or contest (unless the contesting or defending Party is entitled to indemnification therefor under Section 8 below). (c) REGISTRATION RIGHTS. Buyer shall be afforded such registration rights as are set forth in the Registration Rights Agreement, substantially in the form attached hereto as EXHIBIT B. (d) NEGATIVE COVENANTS. Seller covenants and agrees that, until the Closing Date, Seller will not do any of the following without the prior written consent of Buyer, which shall not be unreasonably withheld: (i) DISPOSITIONS. Convey, sell, lease, transfer or otherwise dispose of (each of the foregoing, a "Transfer"), all or any part of its business or property, other than: (i) Transfers of non-exclusive licenses and similar arrangements for the use of Seller's services; or (ii) Transfers of worn-out or obsolete equipment. (ii) MERGERS OR ACQUISITIONS. Merge or consolidate with or into any other business organization, or acquire all or substantially all of the capital stock or property of another Person. (iii) DISTRIBUTIONS. Pay any dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock except with respect to any obligations in existence as of the date hereof and set forth on Schedule 6(h) hereto. (iv) TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Seller except for transactions involving agreements that are in place at the date hereof or that are in the ordinary course of Seller's business, upon fair and reasonable terms that are no less favorable to Seller than would be obtained in an arm's length transaction with a nonaffiliated Person. 7. ADDITIONAL CONDITIONS PRECEDENT. (a) CONDITIONS TO OBLIGATION OF BUYER. The obligation of Buyer to consummate the transactions contemplated by this Agreement is subject to satisfaction of the following conditions: (i) the representations and warranties of Seller set forth in Section 4 above shall be true and correct in all material respects at and as of the Closing Date; (ii) Seller shall have performed and complied with all of its covenants hereunder in all material respects through the Closing Date ; (iii) there shall not be any injunction, judgment, order, or decree enjoining the transactions contemplated by this Agreement; (iv) all actions to be taken by Seller in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be satisfactory in form and substance to Buyer. Buyer may waive any condition specified in this Section 7(a) upon execution of a writing so stating at or prior to the Closing Date. (b) CONDITIONS TO OBLIGATION OF SELLER. The obligation of Seller to consummate the transactions contemplated by this Agreement is subject to satisfaction of the following conditions: 9 (i) the representations and warranties of Buyer set forth in Section 3 above shall be true and correct in all material respects at and as of the Closing Date; (ii) Buyer shall have performed and complied with all of its covenants hereunder in all material respects through the Closing Date; (iii) there shall not be any injunction, judgment, order, decree, ruling, or charge in effect preventing consummation of any of the transactions contemplated by this Agreement; (iv) all actions to be taken by Buyer in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to Seller. Seller may waive any condition specified in this Section 7(b) if it executes a writing so stating at or prior to the Closing Date. 8. REMEDIES FOR BREACHES OF THIS AGREEMENT. (a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the representations and warranties of Buyer and Seller contained in Section 3 and Section 4, respectively above, shall survive this Agreement and continue in full force and effect for a period of one year thereafter. (b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF BUYER. In the event Seller breaches any of its representations, warranties, or covenants contained herein, it shall so notify Buyer and provided that Buyer makes a written claim for indemnification against Seller pursuant to Section 10 below within such survival period, then Seller agrees to indemnify Buyer from and against the entirety of any Adverse Consequences Buyer shall suffer through and after the date of the claim for indemnification caused by the breach. (c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF SELLER. In the event Buyer breaches any of its representations, warranties, or covenants contained herein, it shall so notify Seller and provided that Seller makes a written claim for indemnification against Buyer pursuant to Section 10 below within such survival period, then buyer agrees to indemnify Seller from and against the entirety of any Adverse Consequences Seller shall suffer through and after the date of the claim for indemnification caused by the breach. (d) MATTERS INVOLVING THIRD PARTIES. (i) If any third party shall notify any Party (the "INDEMNIFIED PARTY") with respect to any matter (a "THIRD PARTY CLAIM") which may give rise to a claim for indemnification against any other Party (the "INDEMNIFYING PARTY") under this Section 8, then the Indemnified Party shall promptly (and in any event within [five business days] after receiving notice of the Third Party Claim) notify each Indemnifying Party thereof in writing. (ii) Any Indemnifying Party will have the right to assume and thereafter conduct the defense of the Third Party Claim with counsel of his or its choice reasonably satisfactory to the Indemnified Party; provided, HOWEVER, that the Indemnifying Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnified Party (not to be withheld unreasonably) unless the judgment or proposed settlement involves only the payment of money damages and does not impose an injunction or other equitable relief upon the Indemnified Party. (iii) Unless and until an Indemnifying Party assumes the defense of the Third Party Claim as provided in Section 8(c)(ii) above, however, the Indemnified Party may defend against the Third Party Claim in any manner he or it reasonably may deem appropriate. 10 (iv) In no event will the Indemnified Party consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of each of the Indemnifying Parties, not to be unreasonably withheld. (e) DETERMINATION OF ADVERSE CONSEQUENCES. The Parties shall make appropriate adjustments for tax benefits and insurance coverage in determining Adverse Consequences for purposes of this Section 8. All indemnification payments under this Section 8 shall be deemed adjustments to the Purchase Price. 9. TERMINATION. (a) TERMINATION OF AGREEMENT. The Parties may terminate this Agreement as provided below (i) Buyer and Seller may terminate this Agreement by mutual written consent at any time prior to the Closing Date; (ii) Buyer may terminate this Agreement by giving written notice to Seller at any time prior to the Closing Date in the event (A) Seller has given Buyer any notice pursuant to Section 5(e) above and (B) the development that is the subject of the notice has had, or reasonably believes will have, a material adverse effect upon the condition (financial or otherwise) of Seller; (iii) Buyer may terminate this Agreement by giving written notice to Seller at any time prior to the Closing Date (A) in the event Seller has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, Buyer have notified Seller of the breach, and the breach has continued without cure for a period of 10 days after the notice of breach or (B) if the Closing shall not have occurred on or before December 30, 1998, by reason of the failure of any condition precedent Section 7 hereof (unless the failure results primarily from any breach by Buyer of any material representation, warranty, or covenant contained in this Agreement); and (iv) Seller may terminate this Agreement by giving written notice to Buyer at any time prior to the Closing Date (A) in the event either Buyer has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, Seller has notified each Buyer of the breach, and the breach has continued without cure for a period of 10 days after the notice of breach or (B) if the Closing shall not have occurred on or before December 30, 1998, by reason of the failure of any condition precedent Section 7 hereof (unless the failure results primarily from Seller breaching any material representation, warranty, or covenant contained in this Agreement). (b) EFFECT OF TERMINATION. If any Party terminates this Agreement pursuant to Section 9(a) above, all rights and obligations of the Parties hereunder shall terminate without any liability of any Party to any other Party (except for any liability of any Party then in breach); PROVIDED, HOWEVER, that the confidentiality provisions contained in Section 5(d) above shall survive termination. 10. MISCELLANEOUS. (a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue any press release or make any public announcement relating to the subject matter of this Agreement prior to the Closing Date, without the prior written approval of Buyer and Seller; PROVIDED, HOWEVER, that any Party may make any public disclosure it believes in good faith is required by applicable law or any listing or trading agreement concerning its publicly-traded securities (in which case the disclosing Party will use its reasonable best efforts to advise the other Parties prior to making the disclosure). (b) NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns. 11 (c) ENTIRE AGREEMENT. This Agreement (including the documents referred to herein) constitutes the entire agreement among the Parties and supersedes any prior understandings, agreements, or representations by or among the Parties, written or oral, to the extent they have related in any way to the subject matter hereof. (d) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of his or its rights, interests, or obligations hereunder without the prior written approval of the other. (e) COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. (f) HEADINGS. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. (g) NOTICES. All notices, requests, demands, claims, and other communications hereunder will be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given if (and then two business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forth below: If to Seller: P.C. Quote, Inc. 300 South Wacker, Suite 300 Chicago, Illinois 60606 Attn: Jim Porter If to Buyer: Steve Levy 1776 Clendenin Lane Riverwoods, Illinois 60015 Any Party may send any notice, request, demand, claim, or other communication hereunder to the intended recipient at the address set forth above using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient. Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Parties notice in the manner herein set forth. (h) GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. (i) AMENDMENTS AND WAIVERS. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by the Parties. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. (j) SEVERABILITY. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions 12 hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. (k) EXPENSES. Each Party bears its own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby. (l) CONSTRUCTION. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word "including" shall mean including without limitation. (m) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof. (n) THE CLOSING. The closing of the transactions contemplated by this Agreement shall take place at the offices of the Company in Chicago, Illinois, commencing at 3:00 p.m. local time on the Closing Date or on such other time, date and location mutually agreed by the Parties. * * * * * 13 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written. PC QUOTE, INC. By: __________________________ By: _____________________________ Name: John E. Juska Name: Steve Levy Title: Chief Financial Officer Seller Buyer 14 EX-4.(AQ) 6 EXHIBIT 4(AQ) EXHIBIT (aq) Common Stock Purchase Warrant 120,000 Shares (subject to adjustment) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. Void after December 30, 2001 COMMON STOCK PURCHASE WARRANT THIS CERTIFIES THAT, for value received, Steve Levy (herein after referred to as "Purchaser") is entitled to purchase up to One Hundred Twenty Thousand (120,000) Shares of Common Stock of PC QUOTE, INC., a Delaware corporation, at a price of $1.875 per Share (the "Warrant Price"), subject to adjustments and all other terms and conditions set forth in this Warrant. 1. DEFINITIONS. As used herein, the following terms, unless the context otherwise requires, shall have the following meanings: (a) "Act" shall mean the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. (b) "Acquisition" shall mean any sale, license, or other disposition of all or substantially all of the assets of the Company, or any reorganization, consolidation, or merger of the Company where the holders of the Company's securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity after the transaction. (c) "Commission" shall mean the Securities and Exchange Commission, or any other Federal agency at the time administering the Act. (d) "Common Stock" shall mean shares of the Company's presently or subsequently authorized common stock, par value $0.001, and any stock for which such common stock may hereafter be exchanged. (e) "Company" shall mean PC QUOTE, INC., a Delaware corporation, and any corporation which shall succeed to or assume the obligations of PC QUOTE, INC., under this Warrant. (f) "Date of Grant" shall mean December 30, 1998. (g) "Exercise Date" shall mean the effective date of the delivery of the Notice of Exercise pursuant to Section 4 below. (h) "Holder" shall mean any person who shall at the time be the registered holder of this Warrant. (i) "Shares" shall mean shares of Common Stock. 2. ISSUANCE OF WARRANT AND CONSIDERATION THEREFOR. This Warrant is issued in consideration of the purchase price paid by Purchaser to the Company as set forth in that certain Stock and Warrant Purchase Agreement dated as of the date hereof and made and entered into by and between the Company and Purchaser. 3. TERM. The purchase right represented by this Warrant is exercisable only during the period commencing upon the Date of Grant and ending on December 30, 2001. 4. METHOD OF EXERCISE AND PAYMENT. (a) METHOD OF EXERCISE. Subject to Section 3 hereof and compliance with all applicable Federal and state securities laws, the purchase right represented by this Warrant may be exercised, in whole or in part and from time to time, by the Holder by (i) surrender of this Warrant and delivery of the Notice of Exercise (the form of which is attached hereto as Exhibit A), duly executed, at the principal office of the Company and (ii) payment to the Company of an amount equal to the product of the then applicable Warrant Price multiplied by the number of Shares then being purchased pursuant to one of the payment methods permitted under Section 4(b) below. (b) METHOD OF PAYMENT. Payment shall be made either (1) by cashier's or certified check drawn on a United States bank and for United States funds made payable to the Company, or (2) by wire transfer of United States funds for the account of the Company. (c) DELIVERY OF CERTIFICATE. In the event of any exercise of the purchase right represented by this Warrant, certificates for the Shares so purchased shall be delivered to the Holder within five days of delivery of the Notice of Exercise and, unless this Warrant has been fully exercised or has expired, a new warrant representing the portion of the Shares with respect to which this Warrant shall not then have been exercised shall also be issued to the Holder within such ten day period. (d) NO FRACTIONAL SHARES. No fractional shares shall be issued in connection with any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the fair market value per Share as of the date of exercise. (e) COMPANY'S REPRESENTATIONS. (i) All Shares which may be issued upon the exercise of the purchase right represented by this Warrant shall, upon issuance, be duly authorized, validly issued, fully paid and non-assessable, and free of any liens and encumbrances except for restrictions on transfer under applicable federal and state securities laws. During the period within which the purchase right represented by this Warrant may be exercised, the Company shall at all times use its best efforts to have authorized, and reserved for the purpose of issuance upon exercise of the purchase right represented by this Warrant, a sufficient number of Shares to provide for the exercise of the purchase right represented by this Warrant; (ii) This Warrant has been duly authorized and executed by the Company and is a valid and binding obligation of the Company enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting the enforcement of creditors' rights; (iii) The execution and delivery of this Warrant are not, and the issuance of the Shares upon exercise of this Warrant in accordance with the terms hereof will not be, inconsistent with the Company's Certificate of Incorporation or Bylaws, do not and will not contravene any law, governmental rule or regulation, judgment or order applicable to the Company, and do not and will not conflict with or contravene any provision of, or constitute a default under, any material indenture, mortgage, contract or other instrument of which the Company is a party or by which it is bound, or require the registration or filing with or the taking of any action in respect of or by, any federal, state or local government authority or agency (other than such consents, approvals, notices, actions, or filings as have already been obtained or made, as the case may be). 2 5. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The number of Shares issuable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows: (a) ADJUSTMENT FOR DIVIDENDS IN STOCK. In case at any time or from time to time on or after the date hereof the holders of the Common Stock of the Company (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or, on or after the record date fixed for the determination of eligible stockholders, shall have become entitled to receive, without payment therefor, other or additional stock of the Company by way of dividend then, and in each case, the Holder of this Warrant shall, upon the exercise hereof, be entitled to receive, in addition to the number of shares of Common Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of such other or additional stock of the Company which such Holder would hold on the date of such exercise had it been the holder of record of such Common Stock on the date hereof and had thereafter, during the period from the date hereof to and including the date of such exercise, retained such shares and/or all other additional stock receivable by it as aforesaid during such period, giving effect to all adjustments called for during such period by paragraphs (b) and (c) of this Section 5. (b) ADJUSTMENT FOR RECLASSIFICATION OR REORGANIZATION. In case of any reclassification or change of the outstanding securities of the Company or of any consolidation, merger or reorganization of the Company on or after the date hereof, then and in each such case the Holder of this Warrant, upon the exercise hereof at any time after the consummation of such reclassification, change, consolidation, merger or reorganization, shall be entitled to receive, in lieu of or in addition to the stock or other securities and property receivable upon the exercise hereof prior to such consummation, the stock or other securities to which such Holder would have been entitled upon such consummation if such Holder had exercised this Warrant immediately prior thereto, all subject to further adjustment as provided in subparagraphs (a) and (c); in each such case, the terms of this Paragraph 5 shall be applicable to the shares of stock or other securities property receivable upon the exercise of this Warrant after such consummation. (c) STOCK SPLITS AND REVERSE STOCK SPLITS. If, at any time on or after the date hereof, the Company shall subdivide its outstanding shares of Common Stock into a greater number of shares, the Warrant Price in effect immediately prior to such subdivision shall thereby be proportionately reduced and the number of shares receivable upon exercise of this Warrant shall thereby be proportionately increased; and, conversely, if at any time on or after the date hereof the outstanding number of shares of Common Stock shall be combined into a smaller number of shares, the Warrant Price in effect immediately prior to such combination shall thereby be proportionately increased and the number of shares receivable upon exercise of the Warrant shall be proportionately decreased. (d) ADJUSTMENTS TO WARRANT PRICE. Whenever the number of Shares purchasable upon exercise of this Warrant is adjusted, as herein provided, the Warrant Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to such adjustment by a fraction, of which the numerator shall be the number of Shares purchasable upon the exercise of each Warrant immediately prior to such adjustment, and of which the denominator shall be the number of Shares so purchasable immediately thereafter. (e) CERTIFICATES AS TO ADJUSTMENTS. Upon each adjustment of the Warrant Price, the Company at its expense shall promptly compute such adjustment, and furnish the Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based. The Company shall, upon written request, furnish the Holder a certificate setting forth the Warrant Price in effect upon the date thereof and the series of adjustments leading to such Warrant Price. 6. ACQUISITIONS. (a) ASSUMPTION OF WARRANT. If upon the closing of any Acquisition the successor entity assumes the obligations of this Warrant, then this Warrant shall be exercisable for the same securities, cash, and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing. 3 (b) NONASSUMPTION. If upon the closing of any Acquisition the successor entity does not assume the obligations of this Warrant and the Holder has not otherwise exercised this Warrant in full, then the unexercised portion of this Warrant shall be deemed to have been automatically converted pursuant to Section 4(c) and thereafter the Holder shall participate in the acquisition on the same terms as other holders of the same class of securities of the Company. 7. NOTICES; INFORMATION; REGISTRATION. (a) NOTICE OF CERTAIN EVENTS. If the Company proposes at any time (a) to effect any reclassification or recapitalization of Common Stock; (b) to merge or consolidate with or into any other corporation, or sell, lease, license, or convey all or substantially all of its assets, or to liquidate, dissolve or wind up; or (c) offer holders of registration rights the opportunity to participate in an underwritten public offering of the company's securities for cash, then, in connection with each such event, the Company shall give the Holder at least 14 days prior written notice of the date on which a record will be taken for such action. (b) INFORMATION RIGHTS. So long as the Holder holds this Warrant and/or any of the Shares, the Company shall deliver to the Holder (a) promptly after mailing, copies of all notices or other written communications to the stockholders of the Company, (b) within ninety days after the end of each fiscal year of the Company, the annual audited financial statements of the Company audited by independent public accountants of recognized standing and (c) within forty-five days after the end of each of the first three quarters of each fiscal year, the Company's quarterly, unaudited financial statements. (c) REGISTRATION UNDER SECURITIES ACT OF 1933. The Company agrees that the Shares shall be subject to the registration rights set forth on Exhibit B. 8. COMPLIANCE WITH ACT; TRANSFERABILITY AND NEGOTIABILITY OF WARRANT; DISPOSITION OF SHARES. (a) COMPLIANCE WITH ACT. The Holder, by acceptance hereof, agrees that this Warrant and the Shares to be issued upon the exercise hereof are being acquired solely for its own account and not as a nominee for any other party and not with a view toward the resale or distribution thereof and that it will not offer, sell or otherwise dispose of this Warrant or any Shares to be issued upon the exercise hereof except under circumstances which will not result in a violation of the Act. This Warrant and the Shares to be issued upon the exercise hereof (unless registered under the Act) shall be imprinted with a legend in substantially the following form: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. In addition, this Warrant and the Shares to be issued upon the exercise hereof shall bear any legends required by the securities laws of any applicable states. (b) TRANSFERABILITY AND NEGOTIABILITY OF WARRANT. This Warrant may not be transferred or assigned in whole or in part without compliance with all applicable federal and state securities laws by the transferor and the transferee (including the delivery of investment representation letters and legal opinions satisfactory to the Company, if requested by the Company and the transfer is to a person other than a general partner or affiliate of the initial Holder). Subject to the provisions of this Warrant with respect to compliance with the Act, title to this Warrant may be transferred by endorsement and delivery in the same manner as a negotiable instrument transferable by endorsement and delivery. The Company shall act promptly to record transfers of this Warrant on its 4 books, but the Company may treat the registered holder of this Warrant as the absolute owner of this Warrant for all purposes, notwithstanding any notice to the contrary. (c) DISPOSITION OF SHARES. With respect to any offer, sale, transfer or other disposition of any Shares acquired pursuant to the exercise of this Warrant prior to registration of such Shares, except for any such offer, sale, transfer or other disposition of Shares to an affiliate of the initial Holder, the Holder and each subsequent holder of this Warrant agrees to give written notice to the Company prior thereto, describing briefly the manner thereof, and if such transfer is not pursuant to Rule 144, a written opinion of legal counsel for such holder, if requested by the Company, to the effect that such offer, sale or other disposition may be effected without registration or qualification of such Shares. Notwithstanding the foregoing, such Shares may be offered, sold or otherwise disposed of in accordance with Rule 144, provided that the Company shall have been furnished with such information as the Company may reasonably request to provide a reasonable assurance that the provisions of Rule 144 have been satisfied. Each certificate representing the Shares thus transferred (except a transfer pursuant to Rule 144) shall bear a restrictive legend as to the applicable restrictions on transferability in order to insure compliance with the Act, unless in the aforesaid opinion of legal counsel for the holder, such legend is not required in order to insure compliance with the Act. 9. RIGHTS OF STOCKHOLDERS. No Holder shall be entitled to vote or receive dividends or be deemed the holder of Shares or any other securities of the Company which may at any time be issuable on the exercise of this Warrant for any purpose, nor shall anything contained herein be construed to confer upon the Holder, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, consolidation, merger, transfer of assets or otherwise) or, except as expressly required herein, to receive notice of meetings, or to receive dividends or subscription rights or otherwise until this Warrant shall have been exercised and the Shares issuable upon exercise hereof shall have become deliverable, as provided herein. 10. REPLACEMENT OF WARRANTS. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company at its expense shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor. 11. EXCHANGE OF WARRANT. Subject to the other provisions of this Warrant, on surrender of this Warrant for exchange, and subject to the provisions of this Warrant with respect to compliance with the Act, the Company at its expense shall issue to or on the order of the Holder a new warrant or warrants of like tenor, in the name of the Holder or as the Holder (on payment by the Holder of any applicable transfer taxes) may direct, for the number of Shares issuable upon exercise thereof. 12. NOTICES. All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company or the Holder, as the case may be, in writing by the Company or such Holder from time to time. 13. WAIVER. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. 14. GOVERNING LAW. This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware. 15. TITLES AND SUBTITLES; FORMS OF PRONOUNS. The titles of the Sections and Subsections of this Warrant are for convenience only and are not to be considered in construing this Warrant. All pronouns used in this Warrant shall be deemed to include masculine, feminine and neuter forms. 5 16. ATTORNEYS' FEES. In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys' fees. Dated: December 30, 1998. PC QUOTE, INC., a Delaware corporation By: _________________________________ John E. Juska, Chief Financial Officer By: _________________________________ Alicia VanDeVeer, Assistant Secretary 6 EXHIBIT A NOTICE OF EXERCISE TO: PC QUOTE, INC. 1. The undersigned Holder of the attached Common Stock Purchase Warrant hereby elects to exercise its purchase right under such Warrant with respect to ________________ Shares, as defined in the Warrant. 2. The undersigned Holder elects to pay the aggregate Warrant Price for such Shares (the "Exercise Shares") in the following manner: [ ] by the enclosed cashier's or certified check drawn on a United States bank and for United States funds made payable to the Company in the amount of $_____________; or [ ] by wire transfer of United States funds to the account of the Company in the amount of $___________, which transfer has been made before or simultaneously with the delivery of this Notice pursuant to the instructions of the Company. 3. Please issue a stock certificate or certificates representing the appropriate number of Shares in the name of the undersigned or in such other names as is specified below: Name: _______________________________________ Address: _______________________________________ _______________________________________ Tax ID No.: ___________________ HOLDER: _______________________________________ By: ___________________________ Date: _________________________ Title: ________________________ EXHIBIT B STATEMENT OF REGISTRATION RIGHTS 1. DEFINITIONS. For purposes of the Stock and Warrant Purchase Agreement to which this Statement of Registration Rights is attached as Exhibit B: (a) The terms "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act of 1933, as amended (the "Act"), and the declaration or ordering of effectiveness of such registration statement or document; (b) The term "Registrable Securities" means the shares of Common Stock issued in connection with the Agreement and shares issued or issuable upon exercise of the Warrant; (c) The term "Holder" means the original holder of the Shares and Warrant and any transferee of the Warrant; and (d) The term "Warrant" means the original Warrant issued in connection with the Stock and Warrant Purchase Agreement, dated as of December 29, 1998, between the Company, as Seller, and Steve Levy, as Buyer, and all Warrants issued as a result of the transfer of such original Warrant. 2. COMPANY REGISTRATION. If (but without any obligation to do so) the Company proposes at any time before December 30, 2001 to register (including for this purpose a registration effected by the Company for stockholders other than Holder) any of its stock or other securities under the Act in connection with the public offering for its own account of such securities solely for cash (other than a registration relating solely to the sale of securities to participants in a Company stock plan, or a registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities), the Company shall, at such time, promptly give Holder written notice of such registration. Upon the written request of Holder given within twenty days after mailing of such notice by the Company, the Company shall, subject to the provisions of Section 8 hereof and Section 5 of the Warrant, cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered. 3. DEMAND REGISTRATION. In case the Company shall, at any time before December 30, 2001, receive from Holders holding 40% or more of the outstanding Registrable Securities a written request (to be exercised only once) that the Company effect a registration and any related qualification or compliance with respect to all or a part of the Registrable Securities (which registration shall at the election of Holder either be for a registration for a primary issuance of the Shares upon the exercise of the Warrant or the resale of the Shares previously issued upon exercise of the Warrant at the election of Holder) owned by such Holder, the Company will promptly notify each other Holder (if any) of such request and will: (a) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of a Holder's Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other holder of registration rights joining in such request as are specified in a written request given within 20 days after receipt of such written notice from the Company; PROVIDED, HOWEVER, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 3: (1) if the Company has effected a registration of Registrable Securities pursuant to this Section 3 within the preceding 12 months; (2) if the Company shall furnish to Holder a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such registration to be effected at such time, in which event the Company shall have the right to defer the filing of the registration statement for a period of not more than 60 days after receipt of the request of Holder under this Section 3; PROVIDED, HOWEVER, that the Company shall not i utilize this right more than once in any twelve-month period; or (3) in any jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance; and, (b) subject to the foregoing, file a registration statement covering the Registrable Securities and other securities so requested to be registered promptly after receipt of the request or requests of Holder, and in any event within 30 days of receipt of such request. 4. OBLIGATION OF THE COMPANY. Subject to the terms of the Warrant, in the event that the Company is to effect the registration of any Registrable Securities pursuant to Section 2 or 3 hereof, the Company shall promptly: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the holders of a majority of the securities registered thereunder, keep such registration statement effective for up to one hundred twenty (120) days, or such shorter period as is required to dispose of all securities covered by such registration statement. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement. (c) Furnish to Holder such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as Holder may reasonably request in order to facilitate the disposition of Registrable Securities owned by Holder. (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by Holder, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions or to agree to any restrictions as to the conduct of its business in the ordinary course thereof. (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Holder shall also enter into and perform its obligations under such underwriting agreement. (f) Notify Holder at any time when a prospectus relating to Registrable Securities of Holder covered by such registration statement is required to be delivered under the Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made. (g) Furnish, at the request of Holder, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to the Warrant, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated such date, of counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to Holder and (ii) a letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to Holder. 5. AVAILABILITY OF RULE 144. Notwithstanding anything in the Warrant or this Statement of Registration Rights to the contrary, the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to Section 2 or 3, if application of Rule 144 would allow Holder requesting a registration ii under Section 2 or 3 to dispose of the Registrable Securities for which a registration is demanded within a single 90-day period. 6. FURNISH INFORMATION. It shall be a condition precedent to the obligations of the Company to take any action pursuant to the Warrant that the selling Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by Holder, and the intended method of disposition of such securities as shall be required to effect the registration of their Registrable Securities. 7. EXPENSES. The Company shall bear and pay all expenses (other than underwriting discounts and commissions) incurred in connection with any registration, filing or qualification of Registrable Securities, including (without limitation) all registration, filing, and qualification fees, legal, printers and accounting fees relating thereto. 8. UNDERWRITING REQUIREMENTS. In connection with any registrations in which Registrable Securities have a right to be included pursuant to Section 2 hereof and which involves an underwriting of securities being issued by the Company, the Company shall not be required, under Section 2 hereof, to include any of Holder's securities in such underwriting unless Holder accepts the terms of the underwriting as agreed upon between the Company and the underwriters selected by it, and then only in such quantity as will not, in the opinion of the underwriters, jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters reasonably believe compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters believe will not jeopardize the success of the offering, the securities so included to be apportioned pro rata among the selling Holder and other shareholders holding contractual registration rights according to the total amount of securities entitled to be included herein owned by each selling stockholder or in such other proportions as shall mutually be agreed to by Holder and each other selling stockholder. 9. INDEMNIFICATION. In the event any Registrable Securities are included n a registration statement filed by the Company: (a) The Company will indemnify and holder harmless Holder, its officers, directors, and agents, any underwriter (as defined in the Act) for Holder and each person, if any, who controls Holder or underwriter within the meaning of the Act or the Securities Exchange Act of 1934, as amended (the "1934 Act"), against any losses, claims, damages, or liabilities (joint or several) asserted by a third party to which they may become subject under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation of the Company of the Act, the 1934 Act, any state securities law or any rule or regulation promulgated under the Act, the 1934 Act or any state securities law; and the Company will reimburse Holder, any of its officers or directors, underwriter or controlling person for any legal or other expenses reasonably incurred by them, as incurred, in connection with investigating or defending any such loss, claim, damage, liability, or action; PROVIDED, HOWEVER, that the indemnity agreement contained in this Section 9(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, underwriter or controlling person. (b) Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the registration statement, each person, if any, who controls the Company with the meaning of the Act, any underwriter and any other shareholder selling securities in such registration statement or any of its directors or officers or any person who controls such shareholder, against any losses, claims, damages, or iii liabilities (joint or several) asserted by a third party to which the Company or any such director, officer, controlling person, or underwriter or controlling person, or other such shareholder or director, officer or controlling person may become subject, under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by Holder expressly for use in connection with such registration; and Holder will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter or controlling person, other shareholder, officer, director, or controlling person, as incurred, in connection with investigating or defending any such loss, claim, damage, liability, or action; PROVIDED, HOWEVER, that the obligations of Holder hereunder shall be limited to an amount equal to the net proceeds (equal to the offering price less the exercise price, expenses and underwriting commissions and discounts) to such Holder of Shares sold as contemplated herein. Notwithstanding the foregoing, the indemnity agreement contained in this Section 9(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of Holder, which consent shall not be unreasonably withheld. (c) Promptly after receipt by an indemnified party under this Section 9 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying part under this Section 9, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; PROVIDED, HOWEVER, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 9, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 9. 10. REPORTS UNDER THE 1934 ACT. With a view to making available to Holder the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the SEC that may at any time permit Holder to sell securities of the Company to the public without registration the Company will endeavor to: (a) make and keep public information available, as those terms are understood and defined in SEC Rule 144; (b) take such action as is necessary to enable Holder to utilize an abbreviated registration statement for the sale of its Registrable Securities; (c) file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; and (d) furnish to Holder, so long as Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144, the Act and the 1934 Act, or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form. 11. ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to register Registrable Securities pursuant to the Warrant may be assigned by Holder to a permitted transferee or assignee of the Warrant of at least 120,000 Shares, provided the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; and provided, further, that such assignment shall be effective iv only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Act. v EX-4.(AR) 7 EXHIBIT 4(AR) EXHIBIT (ar) STOCK AND WARRANT PURCHASE AGREEMENT BETWEEN PC QUOTE, INC. AND CRANSHIRE CAPITAL, LP DECEMBER 29, 1998
TABLE OF CONTENTS 1. Definitions 2. Purchase and Sale of Shares and Warrant 3. Representations and Warranties of Buyer (a) Buyer's Qualifications (b) Authorization of Transaction (c) Noncontravention (d) Broker's Fees (e) Investment 4. Representations and Warranties of Seller (a) Authorization of Transaction (b) Organization, Qualification, and Corporate Power (c) Capitalization (d) Noncontravention (e) Brokers' Fees (f) Title to Tangible Assets (g) Financial Statements (h) Tax Matters (i) Real Property (j) Intellectual Property (k) Powers of Attorney (l) Litigation (m) Employee Benefits (n) Absence of Certain Changes (o) Patents, Trade Names, Trademarks, Etc. (p) Insurance (q) Environmental Protection 5. Pre-Closing Covenants (a) General (b) Notices and Consents (c) Operation of Business (d) Full Access (e) Notice of Developments 6. Post-Closing Covenants (a) General (b) Litigation Support (c) Registration Rights (d) Negative Covenants 7. Additional Conditions Precedent i (a) Conditions to Obligation of Buyer (b) Conditions to Obligation of Sellers 8. Remedies for Breaches of This Agreement (a) Survival of Representations and Warranties (b) Indemnification Provisions for Benefit of Buyer (c) Indemnification Provisions for Benefit of Seller (d) Matters Involving Third Parties (e) Determination of Adverse Consequences 9. Termination (a) Termination of Agreement (b) Effect of Termination 10. Miscellaneous (a) Press Releases and Public Announcements (b) No Third Party Beneficiaries (c) Entire Agreement (d) Succession and Assignment (e) Counterparts (f) Headings (g) Notices (h) Governing Law (i) Amendments and Waivers (j) Severability (k) Expenses (l) Construction (m) Incorporation of Exhibits, Annexes, and Schedules (n) The Closing
ii STOCK AND WARRANT PURCHASE AGREEMENT Agreement entered into as of December 29, 1998, by and between Cranshire Capital, LP, an Illinois Limited Partnership, (the "Buyer") and PC Quote, Inc., a Delaware corporation (the "Seller"). Buyer and Seller are referred to collectively herein as the "Parties." This Agreement contemplates a transaction in which Buyer will purchase from Seller, and Seller will sell to Buyer, an aggregate of 160,000 shares of Seller's common stock, par value $0.001 per share (the "Common Stock"), for an aggregate purchase price of Two Hundred Fifty Thousand Dollars ($250,000). Now, therefore, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties and covenants herein contained, the Parties agree as follows: 1. DEFINITIONS. "ACCREDITED INVESTOR" has the meaning set forth in Regulation D promulgated under the Securities Act. "ADVERSE CONSEQUENCES" means all actions, suits, proceedings, hearings, investigations, charges, complaints, claims, demands, injunctions, judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs, reasonable amounts paid in settlement, liabilities, obligations, taxes, liens, losses, expenses and fees, including court costs and reasonable attorneys' fees and expenses. "AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act. "AFFILIATED GROUP" means any affiliated group within the meaning of Code Section 1504. "BUYER" has the meaning set forth in the preface above. "CLOSING DATE" shall mean December 30, 1998 or such other time as the parties may mutually agree. "CODE" means the Internal Revenue Code of 1986, as amended. "CONFIDENTIAL INFORMATION" means any information concerning the businesses and affairs of Seller that is not already generally available to the public. "EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred compensation or retirement plan or arrangement which is an Employee Pension Benefit Plan, (b) qualified defined contribution retirement plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or arrangement which is an Employee Pension Benefit Plan (including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe benefit plan or program. "EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA Section 3. "EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA Section 3. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "FINANCIAL STATEMENTS" has the meaning set forth in Section 4g below. "GAAP" means United States generally accepted accounting principles as in effect from time to time. "INCOME TAX" means any federal, state, local, or foreign income tax, including any interest, penalty, or addition thereto, whether disputed or not. "INCOME TAX RETURN" means any return, declaration, report, claim for refund, or information return or statement relating to Income Taxes, including any schedule or attachment thereto. "INDEMNIFIED PARTY" has the meaning set forth in Section 8 below. "INDEMNIFYING PARTY" has the meaning set forth in Section 8 below. "KNOWLEDGE" means actual knowledge without independent investigation. "MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Section 3(37). "ORDINARY COURSE OF BUSINESS" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency). "PARTY" has the meaning set forth in the preface above. "PBGC" means the Pension Benefit Guaranty Corporation. "PERSON" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, a governmental entity (or any department, agency, or political subdivision thereof) or any entity similar to any of the foregoing. "PURCHASE PRICE" has the meaning set forth in Section 2 below. "REPORTABLE EVENT" has the meaning set forth in ERISA Section 4043. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance, charge, or other security interest, other than (a) mechanic's, materialmen's, and similar liens, (b) liens for taxes not yet due and payable or for taxes that the taxpayer is contesting in good faith through appropriate proceedings, (c) purchase money liens and liens securing rental payments under capital lease arrangements, and (d) other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money. "SELLER" has the meaning set forth in the preface above. "SHARES" means Seller's shares of Common Stock. "THIRD PARTY CLAIM" has the meaning set forth in Section 8 below. 4. PURCHASE AND SALE OF SHARES AND Warrant 4.1 PURCHASE AND SALE OF SHARES. On the Closing Date, in the manner set forth in this Section 2, upon the terms set forth in this Agreement, Seller will sell, transfer and deliver to Buyer, and Buyer will purchase from Seller, 160,000 Shares for an aggregate purchase price of Two Hundred Fifty Thousand Dollars ($250,000) (the "Purchase Price"), in all cases free and clear of all interests, liens, charges, encumbrances, equities, claims, assessments and options of whatever nature. 2 (a) On the Closing Date, as a condition precedent to such closing, Seller shall deliver to Buyer stock certificates representing an aggregate of 160,000 Shares in such names and denominations as buyer shall instruct Seller. (b) Buyer shall deliver to Seller a certified check or wire transfer in the amount of $250,000. 2.2 Purchase and Sale of Warrant. Subject to the terms and conditions of this Agreement, the Company shall issue to Buyer a warrant (the "Warrant") to purchase 80,000 Shares at an exercise price of $1.875 per Share, which Warrant shall be substantially in the form attached hereto as EXHIBIT A. 3. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to Seller that the statements contained in this Section 3 are true, correct and complete as of the date of this Agreement and will be true, correct and complete as of the Closing Date (as though made on and as of such Closing Date as if such Closing Date were substituted for the date of this Agreement throughout this Section 3). (a) BUYER'S QUALIFICATIONS. Buyer (a) has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its investment in Seller and (b) has had the opportunity to ask questions of, and receive answers from, Seller and its management concerning the terms and conditions of the offering of the Shares hereunder and to obtain additional information; and (c) is an Accredited Investor. (b) AUTHORIZATION OF TRANSACTION. Buyer has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of Buyer, enforceable in accordance with its terms. Buyer is not required to give any notice to, make any filing with, or obtain any authorization, consent or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement. (c) NONCONTRAVENTION. Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (A) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which Buyer is subject or (B) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which Buyer is a party or by which it is bound or to which any of its assets is subject. (d) BROKERS' FEES. Buyer does not have any liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which Seller could become liable or obligated. (e) INVESTMENT. Buyer is acquiring the Shares for investment purposes and not with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act. 4. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and warrants to Buyer that the statements contained in this Section 4 are true, correct and complete as of the date of this Agreement and will be true, correct and complete as of the Closing Date (as though made on and as of such Closing Date as if such Closing Date were substituted for the date of this Agreement throughout this Section 4). (a) AUTHORIZATION OF TRANSACTION. Seller has full corporate power and authority to execute and deliver this Agreement and the other documents and instruments to be executed and delivered by Seller pursuant to this Agreement and the transactions contemplated hereby and to perform its obligations hereunder and thereunder. This Agreement and the other documents and instruments to be executed and delivered by Seller 3 pursuant to this Agreement and the transactions contemplated hereby constitute the valid and legally binding obligations of Seller enforceable in accordance with their respective terms. (b) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Seller is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware. Seller is duly authorized to conduct business and is in good standing under the laws of each jurisdiction where such qualification is required, except where the lack of such qualification would not have a material adverse effect on the condition (financial or otherwise) of Seller. Seller has full corporate power and authority to carry on the businesses in which it is engaged and to own and use the properties and assets owned and used by it. Seller has no subsidiaries. (c) CAPITALIZATION. The entire authorized capital stock of Seller consists of 50,000,000 Shares, of which 13,477,462 Shares are issued and outstanding and no Shares are held in treasury; and 5,000,000 Shares of undesignated Preferred Stock, of which 19,075 and 28,791 shares designated as Series A and Series B, respectively, Convertible Preferred Stock are outstanding. All of the issued and outstanding Shares and Preferred Stock have been duly authorized, are validly issued, fully paid, and nonassessable. Except as set forth in Schedule 4(c) hereto, there are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require Seller to issue, sell, or otherwise cause to become outstanding any of its capital stock. All such options, warrants, purchase rights, subscription rights, conversion rights, exchange rights or other contracts or commitments and the Shares issuable upon exercise thereof have been duly authorized, and when issued in accordance with their terms will be validly issued, fully paid and non-assessable. There are no preemptive or first refusal or similar rights binding on Seller to subscribe for or purchase from Seller any Shares pursuant to any provisions of law, the Certificate of Incorporation or By-laws of Seller or by agreement or otherwise. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to the Shares. (d) NONCONTRAVENTION. Except as set forth in Schedule 4(d) hereto, to the Knowledge of Seller, neither the execution and delivery of this Agreement, nor consummation of the transactions contemplated hereby, will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which Seller is subject or any provision of the Certificate of Incorporation or By-laws of Seller or (ii) conflict with, result in breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which Seller is a party or by which Seller is bound or to which Seller or its assets is subject (or result in the imposition of any Security Interest upon any of its assets), except where the violation, conflict, breach, default, acceleration, termination, modification, cancellation, failure to give notice, or Security Interest would not have a material adverse effect on the condition (financial or otherwise) of Seller or on the ability of the Parties to consummate the transactions contemplated by this Agreement. Except as set forth in Schedule 4(d) hereto, Seller does not need to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order for the Parties to consummate the transactions contemplated by this Agreement, except where the failure to give notice, to file, or to obtain any authorization, consent, or approval would not have a material adverse effect on the condition (financial or otherwise) of Seller or on the ability of the Parties to consummate the transactions contemplated by this Agreement. (e) BROKERS' FEES. Seller does not have any liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement. (f) TITLE TO TANGIBLE ASSETS. Seller has good title to, or a valid leasehold interest in, the tangible assets it uses regularly in the conduct of its businesses. (g) FINANCIAL STATEMENTS. Attached hereto are copies of Seller's annual report on Form 10-K for the year ended December 31, 1997 and its Quarterly Report on Form 10-Q for each of the quarters ended March 31, 1998, June 30, 1998 and September 30, 1998. Included in such reports are the following financial statements (collectively the "Financial Statements"): (i) audited consolidated balance sheets for the years ending December 31, 1997 and 1996 and statements of income, changes in stockholders' equity, and cash flow as of and 4 for the years ended December 31, 1997, 1996 and 1995 for the Company; and (ii) unaudited balance sheets and statements of income, changes in stockholders' equity, and cash flow as of and for the quarters ended March 31, 1998, June 30, 1998 and September 30, 1998 (the "QUARTERLY FINANCIAL STATEMENTS"). The Financial Statements (including the notes thereto) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby and present fairly the financial condition of Seller as of such dates and the results of operations of Seller for such periods; PROVIDED, HOWEVER, that the Quarterly Financial Statements are subject to normal year-end adjustments and lack footnotes and other presentation items. (h) TAX MATTERS. (i) Seller has filed all Income Tax Returns that it was required to file, and has paid all Income Taxes shown thereon as owing, except where the failure to file Income Tax Returns or to pay Income Taxes would not have a material adverse effect on the condition (financial or otherwise) of Seller. (ii) Seller has not waived any statute of limitations in respect of Income Taxes or agreed to any extension of time with respect to an Income Tax assessment or deficiency. (iii) Seller is not a party to any Income Tax allocation or sharing agreement. (i) REAL PROPERTY Seller does not own any real property. (j) INTELLECTUAL PROPERTY. Except as set forth in Schedule 4(j), the Company owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and proprietary rights necessary for its business as now conducted without any conflict with, or infringement of, the rights of others. The Company has not received any communication alleging that the Company has violated or, by conducting its business, would violate any of the patents, trademarks, service marks, trade names, copyrights, trade secrets or other proprietary rights of any other person or entity. The Company is not aware that any of its employees are obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of such employee's best efforts to promote the interest of the Company or that would conflict with the Company's business. Neither the execution or delivery of this Agreement, nor the carrying on of the Company's business as now conducted by the employees of the Company, will, to the Company's knowledge, conflict with or result in a breach of the terms, conditions, or provisions of, or constitute a default under, any contract, covenant or instrument under which any such employee is now obligated. The Company does not believe it is or will be necessary to use any inventions of any of its employees (or persons it currently intends to hire) made prior to their employment by the Company. To the Company's knowledge, its officers and employees are not making improper use of any confidential information or trade secrets of others, including those of any former employer. (k) POWERS OF ATTORNEY. Except as set forth in Schedule 4(k), there are no outstanding powers of attorney executed on behalf of Seller. (l) LITIGATION. Schedule 4(l) hereto sets forth each instance in which Seller (i) is subject to any outstanding injunction, judgment, order, decree, ruling, or charge or (ii) is a party to any action, suit, proceeding, hearing, or investigation of, in, or before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction, except where the injunction, judgment, order, decree, ruling, action, suit, proceeding, hearing, or investigation would not have a material adverse effect on the condition (financial or otherwise), assets, liabilities, earnings or business of Seller. 5 (m) Employee Benefits. (i) Schedule 4(m) hereto lists each Employee Benefit Plan that is sponsored, maintained or contributed to or required to be contributed to by the Seller or by any trade or business, whether or not incorporated (an "ERISA Affiliate"), that together with the Seller would be deemed a "single employer" within the meaning of Section 4001(b) of ERISA. (A) Each such Employee Benefit Plan (and each related trust, insurance contract, or fund) complies in form and in operation in all respects with the applicable requirements of ERISA and the Code, except where the failure to comply would not have a material adverse effect on the condition (financial or otherwise) of Seller. (B) All contributions (including all employer contributions and employee salary reduction contributions) which are due have been paid to each such Employee Benefit Plan which is an Employee Pension Benefit Plan. (C) Each such Employee Benefit Plan which is an Employee Pension Benefit Plan has received a determination letter from the Internal Revenue Service to the effect that it meets the requirements of Code Section 401(a). (D) Seller has made available to Buyer correct and complete copies of the plan documents and summary plan descriptions, the most recent determination letter received from the Internal Revenue Service, the most recent Form 5500 Annual Report, and all related trust agreements, insurance contracts, and other funding agreements which implement each such Employee Benefit Plan. (E) No such Employee Benefit Plan which is an Employee Pension Benefit Plan (other than any Multiemployer Plan) has been completely or partially terminated or been the subject of a Reportable Event as to which notices would be required to be filed with the PBGC. No proceeding by the PBGC to terminate any such Employee Pension Benefit Plan (other than any Multiemployer Plan) has been instituted. (F) No action, suit, proceeding, hearing, or investigation with respect to the administration or the investment of the assets of any such Employee Benefit Plan (other than routine claims for benefits) is pending, except where the action, suit, proceeding, hearing, or investigation would not have a material adverse effect on the condition (financial or otherwise) of Seller. (G) Neither Seller nor any ERISA Affiliate has incurred any liability to the PBGC (other than PBGC premium payments) or otherwise under Title IV of ERISA (including any withdrawal liability) with respect to any such Employee Benefit Plan which is an Employee Pension Benefit Plan. (H) The aggregate withdrawal liability of Seller and any and all ERISA Affiliates, computed as if a complete withdrawal by Seller and such ERISA Affiliates had occurred under each Multiemployer Plan on the date hereof, would not exceed $10,000. (n) ABSENCE OF CERTAIN CHANGES. With respect to the business of Seller, except as and to the extent set forth in the Company's reports on Form 10-Q for the quarters ended March 31, 1998, June 30, 1998 and September 30, 1998, since December 31, 1997, Seller has not: (i) suffered any material adverse change in its condition (financial or otherwise), assets, liabilities (absolute, accrued, contingent or otherwise), business, prospects or operations, or experienced any labor difficulty, or suffered any casualty loss (whether or not insured); 6 (ii) paid, discharged or satisfied any claim, lien, encumbrance or liability (whether absolute, accrued, contingent or otherwise and whether due or to become due), other than claims, liens, encumbrances or liabilities (i) which are reflected or reserved against in the Financial Statements, and which were paid, discharged or satisfied since the date of the most recent Financial Statements in the ordinary course of business and consistent with past practice, or (ii) which were incurred and paid, discharged or satisfied since the date of the most recent Financial Statements in the ordinary course of business and consistent with past practice; (iii) permitted or allowed any of the properties or assets, real, principal or mixed, tangible or intangible, of or used by Seller, to be mortgaged, pledged or subjected to any lien or encumbrance; (iv) written down or written up the value of any inventory, or written off as uncollectible any notes or accounts receivable or any portion thereof, except for write-downs, write-ups and write-offs in the ordinary course of business consistent with past practice; (v) cancelled any other debts or claims, or waived any rights of substantial value, or sold, transferred or otherwise disposed of any of the properties or assets, real, personal or mixed, tangible or intangible, except in the ordinary course of business and consistent with past practice; (vi) disposed of or permitted to lapse any patent, trademark, assumed name, service mark, trade name or copyright application or license or under which Seller has any right or license, or disposed of or disclosed to any person any trade secret, formula, process or know-how of Seller or under which Seller has any right or license; (vii) granted any general uniform increase in the compensation of employees (including, without limitation, any increase or change pursuant to any bonus, pension, profit-sharing, retirement or other plan or commitment); (viii) made any change in any method of accounting or accounting practice or policy; made any loan or advance (other than advances to employees in the ordinary course of business or travel and expenses disbursement in accordance with the past practice, but not in excess of $10,000 at any one time outstanding) to any person who is an officer, director or employee of Seller; (ix) declared or paid any dividend or purchased any of its outstanding shares of capital stock; (x) agreed, whether in writing or otherwise, to take any of the actions set forth in this Section 4(n); (o) INSURANCE. The Company holds and maintains valid policies covering such casualties and contingencies and of such types and amounts as is customary for companies similarly situated. The Company has no reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a material adverse effect. (q) ENVIRONMENTAL PROTECTION. In connection with its business operations, Seller has obtained all permits, licenses and other authorizations which are required under federal, state and local laws relating to pollution or protection of the environment, including laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, or hazardous or toxic materials or wastes into ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants or hazardous or toxic materials or wastes; to the best of its knowledge after 7 due investigation, Seller is in compliance in all material respects with all terms and conditions of the required permits, licenses and authorizations, and is also in compliance in all material respects with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in those laws or contained in any regulation, code, plan, order, decree, judgment, notice or demand latter issued, entered, promulgated or approved thereunder. Seller is not aware of, and has not received notice of, past, present or future events, conditions, circumstances, activities, practices, incidents, actions or plans which may interfere with or prevent continued compliance, or which may give rise to any common law or legal liability, or otherwise form the basis of any claim, action, suit, proceeding, hearing or investigation, based on or related to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling, or the omission, discharge, release or threatened release into the environment, of any pollutant, contaminant, or hazardous or toxic material or waste. 5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to the period between the execution of this Agreement and the Closing Date or (ii) termination of this Agreement. (a) GENERAL. Each of the Parties will use his or its reasonable best efforts to take any action and to do all things reasonably necessary in order to consummate and make effective the transactions contemplated by this Agreement (including satisfaction, but not waiver, of the conditions precedent to closing. (b) NOTICES AND CONSENTS. Each party will give any notices to third parties, and will use its reasonable best efforts to obtain any third party consents, that Buyer reasonably may request in connection with the matters referred to in Sections 3 and 4 above. (c) OPERATION OF BUSINESS. Except for transactions contemplated hereby, Seller will not engage in, take any action, or enter into any transaction outside the Ordinary Course of Business. (d) FULL ACCESS. Seller will permit representatives of Buyer to have full access at all reasonable times, and in a manner so as not to interfere with the normal business operations of Seller, to all premises, properties, personnel, books, records (including tax records), contracts, and documents of or pertaining to Seller. Buyer will treat and hold as such any Confidential Information received from Seller in the course of the reviews contemplated by this Section 5(d), will not use any of the Confidential Information except in connection with this Agreement, and, if this Agreement is terminated for any reason whatsoever, will return to Seller all tangible embodiments (and all copies) of the Confidential Information which are in its possession. (e) NOTICE OF DEVELOPMENTS. Seller shall notify Buyer of any development causing a breach of any of the representations and warranties in Section 4 above. Unless Buyer have the right to terminate this Agreement pursuant to Section 9(a)(ii) below by reason of the development and exercise that right within the period referred to in Section 9(a)(ii) below, the written notice pursuant to this Section 5(e)(i) will be deemed to have amended the relevant Schedule, if any, to have qualified the representations and warranties contained in Section 4 above, and to have cured any misrepresentation or breach of warranty that otherwise might have existed hereunder by reason of the development. 6. POST-CLOSING COVENANTS. The Parties agree as follows with respect to the period following the Closing. (a) GENERAL. In case at any time after any Closing Date any further action is necessary to carry out the purposes of this Agreement, each of the Parties will take such further action (including the execution and delivery of such further instruments and documents) as any other Party reasonably may request, all at the sole cost and expense of the requesting party (unless the requesting Party is entitled to indemnification therefor under Section 8 below). (b) LITIGATION SUPPORT. In the event and for so long as any Party actively is contesting or defending against any action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand in connection with (i) any transaction contemplated under this Agreement or (ii) any fact, situation, circumstance, status, 8 condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to any Closing Date involving Seller, each of the other Parties shall cooperate with him or it and his or its counsel in the defense or contest, make available their personnel, and provide such testimony and access to their books and records as shall be necessary in connection with the defense or contest (unless the contesting or defending Party is entitled to indemnification therefor under Section 8 below). (c) REGISTRATION RIGHTS. Buyer shall be afforded such registration rights as are set forth in the Registration Rights Agreement, substantially in the form attached hereto as EXHIBIT B. (d) NEGATIVE COVENANTS. Seller covenants and agrees that, until the Closing Date, Seller will not do any of the following without the prior written consent of Buyer, which shall not be unreasonably withheld: (i) DISPOSITIONS. Convey, sell, lease, transfer or otherwise dispose of (each of the foregoing, a "Transfer"), all or any part of its business or property, other than: (i) Transfers of non-exclusive licenses and similar arrangements for the use of Seller's services; or (ii) Transfers of worn-out or obsolete equipment. (ii) MERGERS OR ACQUISITIONS. Merge or consolidate with or into any other business organization, or acquire all or substantially all of the capital stock or property of another Person. (iii) DISTRIBUTIONS. Pay any dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock except with respect to any obligations in existence as of the date hereof and set forth on Schedule 6(h) hereto. (iv) TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Seller except for transactions involving agreements that are in place at the date hereof or that are in the ordinary course of Seller's business, upon fair and reasonable terms that are no less favorable to Seller than would be obtained in an arm's length transaction with a nonaffiliated Person. 7. ADDITIONAL CONDITIONS PRECEDENT. (a) CONDITIONS TO OBLIGATION OF BUYER. The obligation of Buyer to consummate the transactions contemplated by this Agreement is subject to satisfaction of the following conditions: (i) the representations and warranties of Seller set forth in Section 4 above shall be true and correct in all material respects at and as of the Closing Date; (ii) Seller shall have performed and complied with all of its covenants hereunder in all material respects through the Closing Date ; (iii) there shall not be any injunction, judgment, order, or decree enjoining the transactions contemplated by this Agreement; (iv) all actions to be taken by Seller in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be satisfactory in form and substance to Buyer. Buyer may waive any condition specified in this Section 7(a) upon execution of a writing so stating at or prior to the Closing Date. (b) CONDITIONS TO OBLIGATION OF SELLER. The obligation of Seller to consummate the transactions contemplated by this Agreement is subject to satisfaction of the following conditions: 9 (i) the representations and warranties of Buyer set forth in Section 3 above shall be true and correct in all material respects at and as of the Closing Date; (ii) Buyer shall have performed and complied with all of its covenants hereunder in all material respects through the Closing Date; (iii) there shall not be any injunction, judgment, order, decree, ruling, or charge in effect preventing consummation of any of the transactions contemplated by this Agreement; (iv) all actions to be taken by Buyer in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to Seller. Seller may waive any condition specified in this Section 7(b) if it executes a writing so stating at or prior to the Closing Date. 8. REMEDIES FOR BREACHES OF THIS AGREEMENT. (a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the representations and warranties of Buyer and Seller contained in Section 3 and Section 4, respectively above, shall survive this Agreement and continue in full force and effect for a period of one year thereafter. (b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF BUYER. In the event Seller breaches any of its representations, warranties, or covenants contained herein, it shall so notify Buyer and provided that Buyer makes a written claim for indemnification against Seller pursuant to Section 10 below within such survival period, then Seller agrees to indemnify Buyer from and against the entirety of any Adverse Consequences Buyer shall suffer through and after the date of the claim for indemnification caused by the breach. (c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF SELLER. In the event Buyer breaches any of its representations, warranties, or covenants contained herein, it shall so notify Seller and provided that Seller makes a written claim for indemnification against Buyer pursuant to Section 10 below within such survival period, then buyer agrees to indemnify Seller from and against the entirety of any Adverse Consequences Seller shall suffer through and after the date of the claim for indemnification caused by the breach. (d) MATTERS INVOLVING THIRD PARTIES. (i) If any third party shall notify any Party (the "INDEMNIFIED PARTY") with respect to any matter (a "THIRD PARTY CLAIM") which may give rise to a claim for indemnification against any other Party (the "INDEMNIFYING PARTY") under this Section 8, then the Indemnified Party shall promptly (and in any event within [five business days] after receiving notice of the Third Party Claim) notify each Indemnifying Party thereof in writing. (ii) Any Indemnifying Party will have the right to assume and thereafter conduct the defense of the Third Party Claim with counsel of his or its choice reasonably satisfactory to the Indemnified Party; provided, HOWEVER, that the Indemnifying Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnified Party (not to be withheld unreasonably) unless the judgment or proposed settlement involves only the payment of money damages and does not impose an injunction or other equitable relief upon the Indemnified Party. (iii) Unless and until an Indemnifying Party assumes the defense of the Third Party Claim as provided in Section 8(c)(ii) above, however, the Indemnified Party may defend against the Third Party Claim in any manner he or it reasonably may deem appropriate. 10 (iv) In no event will the Indemnified Party consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of each of the Indemnifying Parties, not to be unreasonably withheld. (e) DETERMINATION OF ADVERSE CONSEQUENCES. The Parties shall make appropriate adjustments for tax benefits and insurance coverage in determining Adverse Consequences for purposes of this Section 8. All indemnification payments under this Section 8 shall be deemed adjustments to the Purchase Price. 9. TERMINATION. (a) TERMINATION OF AGREEMENT. The Parties may terminate this Agreement as provided below (i) Buyer and Seller may terminate this Agreement by mutual written consent at any time prior to the Closing Date; (ii) Buyer may terminate this Agreement by giving written notice to Seller at any time prior to the Closing Date in the event (A) Seller has given Buyer any notice pursuant to Section 5(e) above and (B) the development that is the subject of the notice has had, or reasonably believes will have, a material adverse effect upon the condition (financial or otherwise) of Seller; (iii) Buyer may terminate this Agreement by giving written notice to Seller at any time prior to the Closing Date (A) in the event Seller has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, Buyer have notified Seller of the breach, and the breach has continued without cure for a period of 10 days after the notice of breach or (B) if the Closing shall not have occurred on or before December 30, 1998, by reason of the failure of any condition precedent Section 7 hereof (unless the failure results primarily from any breach by Buyer of any material representation, warranty, or covenant contained in this Agreement); and (iv) Seller may terminate this Agreement by giving written notice to Buyer at any time prior to the Closing Date (A) in the event either Buyer has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, Seller has notified each Buyer of the breach, and the breach has continued without cure for a period of 10 days after the notice of breach or (B) if the Closing shall not have occurred on or before December 30, 1998, by reason of the failure of any condition precedent Section 7 hereof (unless the failure results primarily from Seller breaching any material representation, warranty, or covenant contained in this Agreement). (b) EFFECT OF TERMINATION. If any Party terminates this Agreement pursuant to Section 9(a) above, all rights and obligations of the Parties hereunder shall terminate without any liability of any Party to any other Party (except for any liability of any Party then in breach); PROVIDED, HOWEVER, that the confidentiality provisions contained in Section 5(d) above shall survive termination. 10. MISCELLANEOUS. (a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue any press release or make any public announcement relating to the subject matter of this Agreement prior to the Closing Date, without the prior written approval of Buyer and Seller; PROVIDED, HOWEVER, that any Party may make any public disclosure it believes in good faith is required by applicable law or any listing or trading agreement concerning its publicly-traded securities (in which case the disclosing Party will use its reasonable best efforts to advise the other Parties prior to making the disclosure). (b) NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns. 11 (c) ENTIRE AGREEMENT. This Agreement (including the documents referred to herein) constitutes the entire agreement among the Parties and supersedes any prior understandings, agreements, or representations by or among the Parties, written or oral, to the extent they have related in any way to the subject matter hereof. (d) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of his or its rights, interests, or obligations hereunder without the prior written approval of the other. (e) COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. (f) HEADINGS. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. (g) NOTICES. All notices, requests, demands, claims, and other communications hereunder will be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given if (and then two business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forth below: If to Seller: P.C. Quote, Inc. 300 South Wacker, Suite 300 Chicago, Illinois 60606 Attn: Jim Porter If to Buyer: Cranshire Capital, LP 770 Frontage Road Suite 134 Northfield, Illinois 60093 Any Party may send any notice, request, demand, claim, or other communication hereunder to the intended recipient at the address set forth above using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient. Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Parties notice in the manner herein set forth. (h) GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. (i) AMENDMENTS AND WAIVERS. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by the Parties. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. (j) SEVERABILITY. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions 12 h hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. (k) EXPENSES. Each Party bears its own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby. (l) CONSTRUCTION. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word "including" shall mean including without limitation. (m) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof. (n) THE CLOSING. The closing of the transactions contemplated by this Agreement shall take place at the offices of the Company in Chicago, Illinois, commencing at 3:00 p.m. local time on the Closing Date or on such other time, date and location mutually agreed by the Parties. * * * * * 13 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written. PC QUOTE, INC. CRANSHIRE CAPITAL, LP By:__________________________ By: ________________________ Name: John E. Juska Name: Title: Chief Financial Officer Title: Seller Buyer 14 EX-4.(AS) 8 EXHIBIT 4(AS) EXHIBIT (as) Common Stock Purchase Warrant 80,000 Shares (subject to adjustment) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. Void after December 30, 2001 COMMON STOCK PURCHASE WARRANT THIS CERTIFIES THAT, for value received, Cranshire Capital, LP, an Illinois Limited Partnership, (herein after referred to as "Purchaser") is entitled to purchase up to Eighty Thousand (80,000) Shares of Common Stock of PC QUOTE, INC., a Delaware corporation, at a price of $1.875 per Share (the "Warrant Price"), subject to adjustments and all other terms and conditions set forth in this Warrant. 1. DEFINITIONS. As used herein, the following terms, unless the context otherwise requires, shall have the following meanings: (a) "Act" shall mean the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. (b) "Acquisition" shall mean any sale, license, or other disposition of all or substantially all of the assets of the Company, or any reorganization, consolidation, or merger of the Company where the holders of the Company's securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity after the transaction. (c) "Commission" shall mean the Securities and Exchange Commission, or any other Federal agency at the time administering the Act. (d) "Common Stock" shall mean shares of the Company's presently or subsequently authorized common stock, par value $0.001, and any stock for which such common stock may hereafter be exchanged. (e) "Company" shall mean PC QUOTE, INC., a Delaware corporation, and any corporation which shall succeed to or assume the obligations of PC QUOTE, INC., under this Warrant. (f) "Date of Grant" shall mean December 30, 1998. (g) "Exercise Date" shall mean the effective date of the delivery of the Notice of Exercise pursuant to Section 4 below. (h) "Holder" shall mean any person who shall at the time be the registered holder of this Warrant. (i) "Shares" shall mean shares of Common Stock. 2. ISSUANCE OF WARRANT AND CONSIDERATION THEREFOR. This Warrant is issued in consideration of the purchase price paid by Purchaser to the Company as set forth in that certain Stock and Warrant Purchase Agreement dated as of the date hereof and made and entered into by and between the Company and Purchaser. 3. TERM. The purchase right represented by this Warrant is exercisable only during the period commencing upon the Date of Grant and ending on December 30, 2001. 4. METHOD OF EXERCISE AND PAYMENT. (a) METHOD OF EXERCISE. Subject to Section 3 hereof and compliance with all applicable Federal and state securities laws, the purchase right represented by this Warrant may be exercised, in whole or in part and from time to time, by the Holder by (i) surrender of this Warrant and delivery of the Notice of Exercise (the form of which is attached hereto as Exhibit A), duly executed, at the principal office of the Company and (ii) payment to the Company of an amount equal to the product of the then applicable Warrant Price multiplied by the number of Shares then being purchased pursuant to one of the payment methods permitted under Section 4(b) below. (b) METHOD OF PAYMENT. Payment shall be made either (1) by cashier's or certified check drawn on a United States bank and for United States funds made payable to the Company, or (2) by wire transfer of United States funds for the account of the Company. (c) DELIVERY OF CERTIFICATE. In the event of any exercise of the purchase right represented by this Warrant, certificates for the Shares so purchased shall be delivered to the Holder within five days of delivery of the Notice of Exercise and, unless this Warrant has been fully exercised or has expired, a new warrant representing the portion of the Shares with respect to which this Warrant shall not then have been exercised shall also be issued to the Holder within such ten day period. (d) NO FRACTIONAL SHARES. No fractional shares shall be issued in connection with any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the fair market value per Share as of the date of exercise. (e) COMPANY'S REPRESENTATIONS. (i) All Shares which may be issued upon the exercise of the purchase right represented by this Warrant shall, upon issuance, be duly authorized, validly issued, fully paid and non-assessable, and free of any liens and encumbrances except for restrictions on transfer under applicable federal and state securities laws. During the period within which the purchase right represented by this Warrant may be exercised, the Company shall at all times use its best efforts to have authorized, and reserved for the purpose of issuance upon exercise of the purchase right represented by this Warrant, a sufficient number of Shares to provide for the exercise of the purchase right represented by this Warrant; (ii) This Warrant has been duly authorized and executed by the Company and is a valid and binding obligation of the Company enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting the enforcement of creditors' rights; (iii) The execution and delivery of this Warrant are not, and the issuance of the Shares upon exercise of this Warrant in accordance with the terms hereof will not be, inconsistent with the Company's Certificate of Incorporation or Bylaws, do not and will not contravene any law, governmental rule or regulation, judgment or order applicable to the Company, and do not and will not conflict with or contravene any provision of, or constitute a default under, any material indenture, mortgage, contract or other instrument of which the Company is a party or by which it is bound, or require the registration or filing with or the taking of any action in respect of or by, any federal, state or local government authority or agency (other than such consents, approvals, notices, actions, or filings as have already been obtained or made, as the case may be). 2 5. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The number of Shares issuable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows: (a) ADJUSTMENT FOR DIVIDENDS IN STOCK. In case at any time or from time to time on or after the date hereof the holders of the Common Stock of the Company (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or, on or after the record date fixed for the determination of eligible stockholders, shall have become entitled to receive, without payment therefor, other or additional stock of the Company by way of dividend then, and in each case, the Holder of this Warrant shall, upon the exercise hereof, be entitled to receive, in addition to the number of shares of Common Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of such other or additional stock of the Company which such Holder would hold on the date of such exercise had it been the holder of record of such Common Stock on the date hereof and had thereafter, during the period from the date hereof to and including the date of such exercise, retained such shares and/or all other additional stock receivable by it as aforesaid during such period, giving effect to all adjustments called for during such period by paragraphs (b) and (c) of this Section 5. (b) ADJUSTMENT FOR RECLASSIFICATION OR REORGANIZATION. In case of any reclassification or change of the outstanding securities of the Company or of any consolidation, merger or reorganization of the Company on or after the date hereof, then and in each such case the Holder of this Warrant, upon the exercise hereof at any time after the consummation of such reclassification, change, consolidation, merger or reorganization, shall be entitled to receive, in lieu of or in addition to the stock or other securities and property receivable upon the exercise hereof prior to such consummation, the stock or other securities to which such Holder would have been entitled upon such consummation if such Holder had exercised this Warrant immediately prior thereto, all subject to further adjustment as provided in subparagraphs (a) and (c); in each such case, the terms of this Paragraph 5 shall be applicable to the shares of stock or other securities property receivable upon the exercise of this Warrant after such consummation. (c) STOCK SPLITS AND REVERSE STOCK SPLITS. If, at any time on or after the date hereof, the Company shall subdivide its outstanding shares of Common Stock into a greater number of shares, the Warrant Price in effect immediately prior to such subdivision shall thereby be proportionately reduced and the number of shares receivable upon exercise of this Warrant shall thereby be proportionately increased; and, conversely, if at any time on or after the date hereof the outstanding number of shares of Common Stock shall be combined into a smaller number of shares, the Warrant Price in effect immediately prior to such combination shall thereby be proportionately increased and the number of shares receivable upon exercise of the Warrant shall be proportionately decreased. (d) ADJUSTMENTS TO WARRANT PRICE. Whenever the number of Shares purchasable upon exercise of this Warrant is adjusted, as herein provided, the Warrant Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to such adjustment by a fraction, of which the numerator shall be the number of Shares purchasable upon the exercise of each Warrant immediately prior to such adjustment, and of which the denominator shall be the number of Shares so purchasable immediately thereafter. (e) CERTIFICATES AS TO ADJUSTMENTS. Upon each adjustment of the Warrant Price, the Company at its expense shall promptly compute such adjustment, and furnish the Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based. The Company shall, upon written request, furnish the Holder a certificate setting forth the Warrant Price in effect upon the date thereof and the series of adjustments leading to such Warrant Price. 6. ACQUISITIONS. (a) ASSUMPTION OF WARRANT. If upon the closing of any Acquisition the successor entity assumes the obligations of this Warrant, then this Warrant shall be exercisable for the same securities, cash, and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing. 3 (b) NONASSUMPTION. If upon the closing of any Acquisition the successor entity does not assume the obligations of this Warrant and the Holder has not otherwise exercised this Warrant in full, then the unexercised portion of this Warrant shall be deemed to have been automatically converted pursuant to Section 4(c) and thereafter the Holder shall participate in the acquisition on the same terms as other holders of the same class of securities of the Company. 7. NOTICES; INFORMATION; REGISTRATION. (a) NOTICE OF CERTAIN EVENTS. If the Company proposes at any time (a) to effect any reclassification or recapitalization of Common Stock; (b) to merge or consolidate with or into any other corporation, or sell, lease, license, or convey all or substantially all of its assets, or to liquidate, dissolve or wind up; or (c) offer holders of registration rights the opportunity to participate in an underwritten public offering of the company's securities for cash, then, in connection with each such event, the Company shall give the Holder at least 14 days prior written notice of the date on which a record will be taken for such action. (b) INFORMATION RIGHTS. So long as the Holder holds this Warrant and/or any of the Shares, the Company shall deliver to the Holder (a) promptly after mailing, copies of all notices or other written communications to the stockholders of the Company, (b) within ninety days after the end of each fiscal year of the Company, the annual audited financial statements of the Company audited by independent public accountants of recognized standing and (c) within forty-five days after the end of each of the first three quarters of each fiscal year, the Company's quarterly, unaudited financial statements. (c) REGISTRATION UNDER SECURITIES ACT OF 1933. The Company agrees that the Shares shall be subject to the registration rights set forth on Exhibit B. 8. COMPLIANCE WITH ACT; TRANSFERABILITY AND NEGOTIABILITY OF WARRANT; DISPOSITION OF SHARES. (a) COMPLIANCE WITH ACT. The Holder, by acceptance hereof, agrees that this Warrant and the Shares to be issued upon the exercise hereof are being acquired solely for its own account and not as a nominee for any other party and not with a view toward the resale or distribution thereof and that it will not offer, sell or otherwise dispose of this Warrant or any Shares to be issued upon the exercise hereof except under circumstances which will not result in a violation of the Act. This Warrant and the Shares to be issued upon the exercise hereof (unless registered under the Act) shall be imprinted with a legend in substantially the following form: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. In addition, this Warrant and the Shares to be issued upon the exercise hereof shall bear any legends required by the securities laws of any applicable states. (b) TRANSFERABILITY AND NEGOTIABILITY OF WARRANT. This Warrant may not be transferred or assigned in whole or in part without compliance with all applicable federal and state securities laws by the transferor and the transferee (including the delivery of investment representation letters and legal opinions satisfactory to the Company, if requested by the Company and the transfer is to a person other than a general partner or affiliate of the initial Holder). Subject to the provisions of this Warrant with respect to compliance with the Act, title to this Warrant may be transferred by endorsement and delivery in the same manner as a negotiable instrument transferable by endorsement and delivery. The Company shall act promptly to record transfers of this Warrant on its 4 books, but the Company may treat the registered holder of this Warrant as the absolute owner of this Warrant for all purposes, notwithstanding any notice to the contrary. (c) DISPOSITION OF SHARES. With respect to any offer, sale, transfer or other disposition of any Shares acquired pursuant to the exercise of this Warrant prior to registration of such Shares, except for any such offer, sale, transfer or other disposition of Shares to an affiliate of the initial Holder, the Holder and each subsequent holder of this Warrant agrees to give written notice to the Company prior thereto, describing briefly the manner thereof, and if such transfer is not pursuant to Rule 144, a written opinion of legal counsel for such holder, if requested by the Company, to the effect that such offer, sale or other disposition may be effected without registration or qualification of such Shares. Notwithstanding the foregoing, such Shares may be offered, sold or otherwise disposed of in accordance with Rule 144, provided that the Company shall have been furnished with such information as the Company may reasonably request to provide a reasonable assurance that the provisions of Rule 144 have been satisfied. Each certificate representing the Shares thus transferred (except a transfer pursuant to Rule 144) shall bear a restrictive legend as to the applicable restrictions on transferability in order to insure compliance with the Act, unless in the aforesaid opinion of legal counsel for the holder, such legend is not required in order to insure compliance with the Act. 9. RIGHTS OF STOCKHOLDERS. No Holder shall be entitled to vote or receive dividends or be deemed the holder of Shares or any other securities of the Company which may at any time be issuable on the exercise of this Warrant for any purpose, nor shall anything contained herein be construed to confer upon the Holder, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, consolidation, merger, transfer of assets or otherwise) or, except as expressly required herein, to receive notice of meetings, or to receive dividends or subscription rights or otherwise until this Warrant shall have been exercised and the Shares issuable upon exercise hereof shall have become deliverable, as provided herein. 10. REPLACEMENT OF WARRANTS. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company at its expense shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor. 11. EXCHANGE OF WARRANT. Subject to the other provisions of this Warrant, on surrender of this Warrant for exchange, and subject to the provisions of this Warrant with respect to compliance with the Act, the Company at its expense shall issue to or on the order of the Holder a new warrant or warrants of like tenor, in the name of the Holder or as the Holder (on payment by the Holder of any applicable transfer taxes) may direct, for the number of Shares issuable upon exercise thereof. 12. NOTICES. All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company or the Holder, as the case may be, in writing by the Company or such Holder from time to time. 13. WAIVER. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. 14. GOVERNING LAW. This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware. 15. TITLES AND SUBTITLES; FORMS OF PRONOUNS. The titles of the Sections and Subsections of this Warrant are for convenience only and are not to be considered in construing this Warrant. All pronouns used in this Warrant shall be deemed to include masculine, feminine and neuter forms. 5 16. ATTORNEYS' FEES. In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys' fees. Dated: December 30, 1998. PC QUOTE, INC., a Delaware corporation By: ________________________ John E. Juska, Chief Financial Officer By: _________________________ Alicia VanDeVeer, Assistant Secretary 6 EXHIBIT A NOTICE OF EXERCISE TO: PC QUOTE, INC. 1. The undersigned Holder of the attached Common Stock Purchase Warrant hereby elects to exercise its purchase right under such Warrant with respect to ________________ Shares, as defined in the Warrant. 2. The undersigned Holder elects to pay the aggregate Warrant Price for such Shares (the "Exercise Shares") in the following manner: [ ] by the enclosed cashier's or certified check drawn on a United States bank and for United States funds made payable to the Company in the amount of $_____________; or [ ] by wire transfer of United States funds to the account of the Company in the amount of $___________, which transfer has been made before or simultaneously with the delivery of this Notice pursuant to the instructions of the Company. 3. Please issue a stock certificate or certificates representing the appropriate number of Shares in the name of the undersigned or in such other names as is specified below: Name: _______________________________________ Address: _______________________________________ _______________________________________ Tax ID No.: ______________ HOLDER: ________________________________ By: _______________________ Date: _____________________ Title: ________________ EXHIBIT B STATEMENT OF REGISTRATION RIGHTS 1. DEFINITIONS. For purposes of the Stock and Warrant Purchase Agreement to which this Statement of Registration Rights is attached as Exhibit B: (a) The terms "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act of 1933, as amended (the "Act"), and the declaration or ordering of effectiveness of such registration statement or document; (b) The term "Registrable Securities" means the shares of Common Stock issued in connection with the Agreement and shares issued or issuable upon exercise of the Warrant; (c) The term "Holder" means the original holder of the Shares and Warrant and any transferee of the Warrant; and (d) The term "Warrant" means the original Warrant issued in connection with the Stock and Warrant Purchase Agreement, dated as of December 29, 1998, between the Company, as Seller, and Cranshire Capital, LP, as Buyer, and all Warrants issued as a result of the transfer of such original Warrant. 2. COMPANY REGISTRATION. If (but without any obligation to do so) the Company proposes at any time before December 30, 2001 to register (including for this purpose a registration effected by the Company for stockholders other than Holder) any of its stock or other securities under the Act in connection with the public offering for its own account of such securities solely for cash (other than a registration relating solely to the sale of securities to participants in a Company stock plan, or a registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities), the Company shall, at such time, promptly give Holder written notice of such registration. Upon the written request of Holder given within twenty days after mailing of such notice by the Company, the Company shall, subject to the provisions of Section 8 hereof and Section 5 of the Warrant, cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered. 3. DEMAND REGISTRATION. In case the Company shall, at any time before December 30, 2001, receive from Holders holding 40% or more of the outstanding Registrable Securities a written request (to be exercised only once) that the Company effect a registration and any related qualification or compliance with respect to all or a part of the Registrable Securities (which registration shall at the election of Holder either be for a registration for a primary issuance of the Shares upon the exercise of the Warrant or the resale of the Shares previously issued upon exercise of the Warrant at the election of Holder) owned by such Holder, the Company will promptly notify each other Holder (if any) of such request and will: (a) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of a Holder's Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other holder of registration rights joining in such request as are specified in a written request given within 20 days after receipt of such written notice from the Company; PROVIDED, HOWEVER, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 3: (1) if the Company has effected a registration of Registrable Securities pursuant to this Section 3 within the preceding 12 months; (2) if the Company shall furnish to Holder a certificate signed by the President of the Company stating that in the good faith 2 judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such registration to be effected at such time, in which event the Company shall have the right to defer the filing of the registration statement for a period of not more than 60 days after receipt of the request of Holder under this Section 3; PROVIDED, HOWEVER, that the Company shall not utilize this right more than once in any twelve-month period; or (3) in any jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance; and, (b) subject to the foregoing, file a registration statement covering the Registrable Securities and other securities so requested to be registered promptly after receipt of the request or requests of Holder, and in any event within 30 days of receipt of such request. 4. OBLIGATION OF THE COMPANY. Subject to the terms of the Warrant, in the event that the Company is to effect the registration of any Registrable Securities pursuant to Section 2 or 3 hereof, the Company shall promptly: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the holders of a majority of the securities registered thereunder, keep such registration statement effective for up to one hundred twenty (120) days, or such shorter period as is required to dispose of all securities covered by such registration statement. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement. (c) Furnish to Holder such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as Holder may reasonably request in order to facilitate the disposition of Registrable Securities owned by Holder. (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by Holder, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions or to agree to any restrictions as to the conduct of its business in the ordinary course thereof. (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Holder shall also enter into and perform its obligations under such underwriting agreement. (f) Notify Holder at any time when a prospectus relating to Registrable Securities of Holder covered by such registration statement is required to be delivered under the Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made. (g) Furnish, at the request of Holder, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to the Warrant, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated such date, of counsel representing the Company for the purposes of such registration, in form 3 and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to Holder and (ii) a letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to Holder. 5. AVAILABILITY OF RULE 144. Notwithstanding anything in the Warrant or this Statement of Registration Rights to the contrary, the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to Section 2 or 3, if application of Rule 144 would allow Holder requesting a registration under Section 2 or 3 to dispose of the Registrable Securities for which a registration is demanded within a single 90-day period. 6. FURNISH INFORMATION. It shall be a condition precedent to the obligations of the Company to take any action pursuant to the Warrant that the selling Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by Holder, and the intended method of disposition of such securities as shall be required to effect the registration of their Registrable Securities. 7. EXPENSES. The Company shall bear and pay all expenses (other than underwriting discounts and commissions) incurred in connection with any registration, filing or qualification of Registrable Securities, including (without limitation) all registration, filing, and qualification fees, legal, printers and accounting fees relating thereto. 8. UNDERWRITING REQUIREMENTS. In connection with any registrations in which Registrable Securities have a right to be included pursuant to Section 2 hereof and which involves an underwriting of securities being issued by the Company, the Company shall not be required, under Section 2 hereof, to include any of Holder's securities in such underwriting unless Holder accepts the terms of the underwriting as agreed upon between the Company and the underwriters selected by it, and then only in such quantity as will not, in the opinion of the underwriters, jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters reasonably believe compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters believe will not jeopardize the success of the offering, the securities so included to be apportioned pro rata among the selling Holder and other shareholders holding contractual registration rights according to the total amount of securities entitled to be included herein owned by each selling stockholder or in such other proportions as shall mutually be agreed to by Holder and each other selling stockholder. 9. INDEMNIFICATION. In the event any Registrable Securities are included n a registration statement filed by the Company: (a) The Company will indemnify and holder harmless Holder, its officers, directors, and agents, any underwriter (as defined in the Act) for Holder and each person, if any, who controls Holder or underwriter within the meaning of the Act or the Securities Exchange Act of 1934, as amended (the "1934 Act"), against any losses, claims, damages, or liabilities (joint or several) asserted by a third party to which they may become subject under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation of the Company of the Act, the 1934 Act, any state securities law or any rule or regulation promulgated under the Act, the 1934 Act or any state securities law; and the Company will reimburse Holder, any of its officers or directors, underwriter or controlling person for any legal or other expenses reasonably incurred by them, as incurred, in connection with investigating or defending any such loss, claim, damage, liability, or action; 4 PROVIDED, HOWEVER, that the indemnity agreement contained in this Section 9(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, underwriter or controlling person. (b) Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the registration statement, each person, if any, who controls the Company with the meaning of the Act, any underwriter and any other shareholder selling securities in such registration statement or any of its directors or officers or any person who controls such shareholder, against any losses, claims, damages, or liabilities (joint or several) asserted by a third party to which the Company or any such director, officer, controlling person, or underwriter or controlling person, or other such shareholder or director, officer or controlling person may become subject, under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by Holder expressly for use in connection with such registration; and Holder will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter or controlling person, other shareholder, officer, director, or controlling person, as incurred, in connection with investigating or defending any such loss, claim, damage, liability, or action; PROVIDED, HOWEVER, that the obligations of Holder hereunder shall be limited to an amount equal to the net proceeds (equal to the offering price less the exercise price, expenses and underwriting commissions and discounts) to such Holder of Shares sold as contemplated herein. Notwithstanding the foregoing, the indemnity agreement contained in this Section 9(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of Holder, which consent shall not be unreasonably withheld. (c) Promptly after receipt by an indemnified party under this Section 9 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying part under this Section 9, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; PROVIDED, HOWEVER, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 9, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 9. 10. REPORTS UNDER THE 1934 ACT. With a view to making available to Holder the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the SEC that may at any time permit Holder to sell securities of the Company to the public without registration the Company will endeavor to: (a) make and keep public information available, as those terms are understood and defined in SEC Rule 144; (b) take such action as is necessary to enable Holder to utilize an abbreviated registration statement for the sale of its Registrable Securities; 5 (c) file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; and (d) furnish to Holder, so long as Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144, the Act and the 1934 Act, or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form. 11. ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to register Registrable Securities pursuant to the Warrant may be assigned by Holder to a permitted transferee or assignee of the Warrant of at least 80,000 Shares, provided the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; and provided, further, that such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Act. 6 EX-27 9 EXHIBIT 27
5 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 1,139,785 0 1,490,139 443,037 0 2,743,935 6,695,071 4,613,526 10,053,367 6,216,315 0 0 48 14,183 2,901,040 10,053,367 23,045,533 23,045,533 16,999,434 16,999,434 10,745,525 397,873 1,765,448 (6,445,595) 3,613 (7,468,146) 0 0 0 (7,468,146) 0.57 0.57
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