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PREFERRED STOCK PURCHASE AGREEMENT
BETWEEN
DLB SYSTEMS, INC.
AND
PREMIER RESEARCH WORLDWIDE LIMITED
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TABLE OF CONTENTS
Page
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ARTICLE I
PURCHASE, SALE AND TERMS OF SHARES
1.01. The Preferred Shares........................................... 1
1.02. The Conversion Shares.......................................... 1
1.03. Purchase Price and Closing .................................... 1
1.04. Use of Proceeds................................................ 2
1.05. Representations by the Purchaser............................... 2
1.06. Brokers or Finders............................................. 4
ARTICLE II
CONDITIONS TO PURCHASER'S OBLIGATIONS
2.01. Representations and Warranties ................................ 4
2.02. Documentation at Closing ...................................... 4
2.03. License from Purchaser ........................................ 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.01. Organization and Standing of the Company....................... 6
3.02. Corporate Action .............................................. 6
3.03. Governmental Approvals ........................................ 7
3.04. Litigation .................................................... 7
3.05. Certain Agreements of Officers and Employees .................. 8
3.06. Compliance with Other Instruments ............................. 8
3.07. Title to Assets, Patents ...................................... 9
3.08. Financial Information ......................................... 10
3.09. Taxes ......................................................... 11
3.10. ERISA ......................................................... 11
3.11. Transactions with Affiliates .................................. 11
3.12. Assumptions or Guaranties of Indebtedness of
Other Persons ................................................ 12
3.13. Investments in Other Persons .................................. 12
3.14. Securities Act of 1933 ........................................ 12
3.15. Disclosure .................................................... 12
3.16. Brokers or Finders............................................. 13
3.17. Capitalization; Status of Capital Stock ....................... 13
3.18. Registration Rights............................................ 14
3.19. Insurance ..................................................... 14
3.20. Books and Records ............................................. 14
3.21. Material Agreements ........................................... 14
3.22. Absence of Certain Developments ............................... 15
3.23. Environmental and Safety Laws.................................. 16
3.24. U.S. Real Property Holding Corporation......................... 16
3.25. Business Plan ................................................. 16
3.26. Safeguard ..................................................... 17
3.27. Safeguard Warrants ............................................ 17
(i)
ARTICLE IV
COVENANTS OF THE COMPANY
4.01. Affirmative Covenants of the Company Other Than
Reporting Requirements........................................ 17
4.02. Negative Covenants of the Company.............................. 20
4.03. Reporting Requirements ........................................ 23
ARTICLE V
REGISTRATION RIGHTS
5.01. General ....................................................... 24
ARTICLE VI
RIGHT OF FIRST REFUSAL; OPTION TO PURCHASE
6.01. Right of First Refusal......................................... 24
6.02. Exercise of Right of First Refusal............................. 25
6.03. Evidence of Termination Right of First Refusal................. 26
6.04. Termination of Right of First Refusal.......................... 26
6.05. Option to Purchase ............................................ 26
6.06. Option Price .................................................. 26
6.07. Special Conditions of Option Purchase ......................... 27
6.08. Termination of Option.......................................... 27
6.09. Joinder by Shareholders ....................................... 27
ARTICLE VII
DEFINITIONS AND ACCOUNTING TERMS
7.01. Certain Defined Terms.......................................... 28
7.02. Accounting Terms .............................................. 33
ARTICLE VIII
MISCELLANEOUS
8.01. No Waiver; Cumulative Remedies ................................ 33
8.02. Amendments, Waivers and Consents .............................. 33
8.03. Addresses for Notices ......................................... 33
8.04. Costs and Expenses ............................................ 34
8.05. Binding Effect; Assignment .................................... 34
8.06. Survival of Representations and Warranties .................... 34
8.07. Prior Agreements .............................................. 34
8.08. Severability .................................................. 34
8.09. Confidentiality ............................................... 35
8.10. Governing Law ................................................. 35
8.11. Headings....................................................... 35
8.12. Counterparts .................................................. 35
8.13. Further Assurances............................................. 35
(ii)
PREFERRED STOCK PURCHASE AGREEMENT
This Preferred Stock Purchase Agreement made and entered into this 30th day
of June, 1997, by and between DLB SYSTEMS, INC. (the "Company") a Delaware
corporation, and PREMIER RESEARCH WORLDWIDE LIMITED (the "Purchaser"), a
Delaware corporation.
BACKGROUND:
On the terms and subject to the conditions of this Agreement, the Company
has agreed to issue and the Purchaser has agreed to purchase certain shares of
the Company's capital stock.
NOW, THEREFORE, in consideration of the mutual promises contained herein
and intending to be legally bound, the Company and the Purchaser covenant,
agree, represent, and warrant, as appropriate, as follows.
ARTICLE I
PURCHASE, SALE AND TERMS OF SHARES
1.01. The Preferred Shares. The Company has authorized the issuance,
sale and exchange of 210,000 shares (the "Series B Shares") of its authorized
but unissued shares of Series B Convertible Preferred Stock, $.01 par value (the
"Series B Preferred Stock"), at a purchase price of $4.7619 per share and
$1,000,000 in the aggregate for all of the Series B Shares being acquired by
Purchaser hereunder (the "Purchase Price"). The Series B Preferred Stock is
sometimes hereinafter collectively referred to as the "Preferred Stock"; and the
Series B Shares are sometimes hereinafter collectively referred to as the
"Preferred Shares." The designation, rights, preferences and other terms and
provisions of the Preferred Stock are set forth in Exhibit 2.02(a) hereto.
1.02. The Conversion Shares. The Company has authorized and has
reserved and covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of shareholders, a sufficient number of its
authorized but unissued shares of Common Stock to satisfy the rights of
conversion under the Preferred Shares. Any shares of Common Stock issuable upon
conversion of the Preferred Shares (and such shares when issued) are herein
referred to as the "Conversion Shares." The Preferred Shares and Conversion
Shares are sometimes collectively referred to as the "Shares."
1.03. Purchase Price and Closing. At the Closing (as defined
hereinafter), the Company agrees to issue, sell and exchange to the Purchaser
and, in consideration of and in express reliance upon the representations,
warranties, covenants, terms and conditions of this Agreement, the Purchaser
agrees to purchase the Preferred Shares. The closing of the purchase, sale and
exchange of the Preferred Shares to be acquired by the Purchaser from the
Company under this Agreement shall take place
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at the offices of ▇▇▇▇▇▇▇ & ▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ at
10:00 a.m. on June 30, 1997, or at such time and date thereafter as the
Purchaser and the Company may agree (the "Closing"). At the Closing, the
Company will deliver to the Purchaser a certificate for the Preferred Shares
registered in the Purchaser's name, against delivery of a certified or bank
cashier's check payable to the order of the Company, or a transfer of funds to
the account of the Company by wire transfer, in an amount equal to the Purchase
Price.
1.04. Use of Proceeds. The Company shall use the Purchase Price
proceeds solely (i) to repay the outstanding principal balance of, and all
accrued interest on, the Safeguard Loan, and (ii) for working capital and
general corporate purposes; provided, however, in no event shall the Purchase
Price proceeds be used by the Company: (i) to reduce outstanding Indebtedness of
the Company other than (a) in the normal course of business as such Indebtedness
becomes due in normal course or (b) the Safeguard Loan; or (ii) make any
payments or distributions to or repay any Indebtedness (whether the same
constitutes a payment in the normal course or a prepayment) owed to, any
Shareholders or other affiliates of the Company, except for payments and
distributions used to repay the Safeguard Loan.
1.05. Representations by the Purchaser.
(a) Investment Representations. Purchaser represents that it
is its present intention to acquire the Shares to be acquired by it for its own
account (and it will be the sole beneficial owner thereof) and that the Shares
are being and will be acquired by it for the purpose of investment and not with
a view to distribution or resale thereof except pursuant to registration under
the Securities Act or exemption therefrom. Purchaser further represents that it
understands and agrees that, until registered under the Securities Act or
transferred pursuant to the provisions of Rule 144 or Rule 144A as promulgated
by the Commission, all certificates evidencing any of the Shares, whether upon
initial issuance or upon any transfer thereof, shall bear a legend, prominently
stamped or printed thereon, reading substantially as follows:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 or applicable state
securities laws. These securities have been acquired for investment
and not with a view to distribution or resale. These securities may
not be offered for sale, sold, delivered after sale,
transferred, pledged or hypothecated in the absence of an effective
registration statement covering such shares under the Act and any
applicable state securities laws, or the availability, in the
opinion of counsel, of an exemption from registration thereunder."
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(b) Access to Information. Purchaser or its
representatives during the course of this transaction, and prior to the purchase
of the Preferred Shares, has had the opportunity to ask questions of and receive
answers from management of the Company concerning the terms and conditions of
the offering of the Preferred Shares and the additional information, documents,
records and books relative to its business, assets, financial condition, results
of operations and liabilities (contingent or otherwise) of the Company.
(c) General Access. Purchaser or its representatives has
received and read or reviewed, and is familiar with, this Agreement and the
other agreements executed or delivered herewith, including the terms of the
Preferred Stock, and confirms that all documents, records and books pertaining
to Purchaser's investment in the Company and requested by Purchaser or its
representatives have been made available or delivered to it.
(d) Sophistication and Knowledge. Purchaser or its
representative has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of the purchase of
the Preferred Shares. Purchaser can bear the economic risks of this investment
and can afford a complete loss of its investment.
(e) Transfer Restrictions Imposed by Securities Laws.
Purchaser understands that: the Shares have not been registered under the
Securities Act and applicable state securities laws, and, therefore, cannot be
resold unless they are subsequently registered under the Securities Act and
applicable state securities laws or unless an exemption from such registration
is available; Purchaser is and must be purchasing the Preferred Shares for
investment for its account and not for the account or benefit of others, and not
with any present view toward resale or other distribution thereof. Purchaser
agrees not to resell or otherwise dispose of all or any part of the Shares
purchased by it, except as permitted by law, including, without limitation, any
regulations under the Securities Act and applicable state securities laws; the
Company does not have any present intention and is under no obligation to
register the Shares under the Securities Act and applicable state securities
laws, except as provided in Article V hereof; and Rule 144 or Rule 144A under
the Securities Act may not be available as a basis for exemption from
registration of the Shares thereunder.
(f) Lack of Liquidity. Purchaser has no present need for
liquidity in connection with its purchase of the Preferred Shares.
(g) Suitability and Investment Objectives. The purchase of
the Preferred Shares by Purchaser is consistent with the general investment
objectives of the Purchaser. The Purchaser understands that the purchase of the
Preferred Shares
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involves a high degree of risk in view of the fact that, among other things, the
Company is an early-stage enterprise, and there may be no established market for
the Company's capital stock.
(h) Accredited Investor Status. Purchaser is an "Accredited
Investor" as that term is defined in Rule 501 of Regulation D promulgated under
the Securities Act.
(i) Restrictions on Future Investments. Purchaser is not
subject to any provisions in any limited partnership agreement or other
governing instrument that may operate to restrict or limit its ability to make
investments on or after the date hereof in capital stock of the Company.
1.06. Brokers or Finders. Purchaser represents that no Person has or
will have, as a result of the transactions contemplated by this Agreement, any
right, interest or valid claim against or upon the Company for any commission,
fee or other compensation as a finder or broker because of any act or omission
by Purchaser or its respective agents.
ARTICLE II
CONDITIONS TO PURCHASER'S OBLIGATIONS
Purchaser's obligation to purchase and pay for the Preferred Shares is
subject to the following conditions (all of which shall be deemed satisfied or
waived by the Purchaser at or prior to the Closing in the event all of the
transactions contemplated to be effected at the Closing are consummated):
2.01. Representations and Warranties. Each of the representations and
warranties of the Company set forth in Article III hereof shall be true,
accurate and correct, in all material respects, on the date of the Closing.
2.02. Documentation at Closing. The Purchaser shall have received
prior to or at the Closing all of the following materials, each in form and
substance reasonably satisfactory to the Purchaser and its counsel, and each of
the following events shall have occurred, or each of the following documents
shall have been delivered, prior to or simultaneous with the Closing:
(a) A copy of the Certificate of Incorporation of the
Company, as amended and restated in connection herewith (the "Restated
Certificate of Incorporation") to date, together with such evidence as may be
available of the filing thereof; a copy of the resolutions of the Board of
Directors providing for the approval of the Restated Certificate of
Incorporation in the form attached as Exhibit 2.02(a), the approval of this
Agreement, the issuance of the Preferred Shares, and all other agreements or
matters contemplated hereby or executed in connection herewith; a copy of a
consent of stockholders of the Company approving the Restated Certificate of
Incorporation; and a copy of the By-laws of the Company, all of
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which have been certified by the Secretary or an Assistant Secretary of the
Company to be true, complete and correct in every particular; and certified
copies of all documents evidencing other necessary corporate or other action and
governmental approvals, if any, required to be obtained at or prior to the
Closing with respect to this Agreement and the issuance of the Preferred Shares.
(b) A certificate of the Secretary or an Assistant Secretary
of the Company which shall certify the names of the officers of the Company
authorized to sign this Agreement, the certificates for the Preferred Shares and
the other documents, instruments or certificates to be delivered pursuant to
this Agreement by the Company or any of its officers, together with the true
signatures of such officers.
(c) A certificate of the President or Chairman and the
Treasurer of the Company stating that the representations and warranties of the
Company contained in Article III hereof are true, accurate and correct, in all
material respects, as of the time of the Closing and that all conditions
required to be performed by the Company prior to or at the Closing have been
performed as of the Closing.
(d) The Company shall have obtained any consents or waivers
necessary to be obtained at or prior to the Closing to execute and deliver this
Agreement, the Preferred Shares and the other agreements and instruments
executed and delivered by the Company in connection herewith and to carry out
the transactions contemplated hereby and thereby, and such consents and waivers
shall be in full force and effect at the Closing. All corporate and other action
and governmental filings necessary to effectuate the terms of this Agreement,
the Preferred Shares and the other agreements and instruments executed and
delivered by the Company in connection herewith shall have been made or taken.
(e) The Restated Certificate of Incorporation shall have
been filed with the Secretary of State of the State of Delaware.
(f) A Certificate of the Secretary of State of the State of
Delaware as to the due incorporation and good standing of the Company shall have
been provided to the Purchaser.
(g) The DLB License Agreement shall have been executed by
the Company in the form of Exhibit 2.02(g) hereto.
(h) A Voting and Stock Restriction Agreement shall have been
executed in the form attached as Exhibit 2.02(h) hereto, pursuant to which,
among other things, the right of Purchaser (as holder of the Preferred Stock) to
elect and
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designate one (1) member of the Board of Directors shall be evidenced.
(i) The Marketing Agreement shall have been executed by the
Company in the form of Exhibit 2.02(i) hereto.
(j) An opinion letter issued by counsel to the Company, in
form and substance reasonably satisfactory to the Purchaser, shall have been
delivered to the Purchaser.
(k) The Registration Rights Agreement shall have been
executed by the Company in the form of Exhibit 2.02(k) hereto.
(1) A copy of the financial statements of the Company for
the year ended December 31, 1996, certified without exception or qualification
by the Company's independent auditors, shall have been delivered to the
Purchaser.
2.03. License from Purchaser. As a material inducement for the Company
to enter into this Agreement, the Purchaser covenants and agrees, concurrently
with the Closing hereunder, to enter into the Purchaser License Agreement with
the Company in the form of Exhibit 2.03 hereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants as of the Closing as follows:
3.01. Organization and Standing of the Company. The Company is a duly
organized and validly existing corporation in good standing under the laws of
the State of Delaware and has all requisite corporate power and authority for
the ownership and operation of its properties and for the carrying on of its
business as now conducted and as now proposed to be conducted and to execute and
deliver the Operative Agreements, to issue, sell and deliver the Preferred
Shares and to issue and deliver the Conversion Shares and to perform its other
obligations pursuant hereto and thereto. The Company is duly licensed or
qualified and in good standing as a foreign corporation authorized to do
business in all jurisdictions wherein the character of the property owned or
leased or the nature of the activities conducted by it makes such licensing or
qualification necessary, except where the failure to be so licensed or qualified
would not have a material adverse effect on the business, operations or
financial condition of the Company.
3.02. Corporate Action. The Operative Agreements and the other
agreements executed in connection herewith have been duly authorized, executed
and delivered by the Company and constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their
6
respective terms. The Voting and Stock Restriction Agreement has been duly
authorized, executed and delivered by the Shareholders and constitutes the
legal, valid and binding obligations of the Shareholders, enforceable against
the several Shareholders in accordance with their respective terms. The
Preferred Shares have been duly authorized. The issuance, sale and delivery of
the Conversion Shares upon conversion of the Preferred Shares have been duly
authorized by all required corporation action; the Preferred Shares have been
validly issued, are fully paid and nonassessable with no personal liability
attaching to the ownership thereof and are free and clear of all liens, charges,
restrictions, claims and encumbrances imposed by or through the Company except
as set forth in this Agreement and the Voting and Stock Restriction Agreement;
and the Conversion Shares have, as of the Closing, been duly reserved for
issuance upon conversion of the Preferred Shares and, when so issued, will be
duly authorized, validly issued, fully paid and nonassessable with no personal
liability attaching to the ownership thereof and will be free and clear of all
liens, charges, restrictions, claims and encumbrances imposed by or through the
Company except as set forth in this Agreement and the Voting and Stock
Restriction Agreement.
3.03. Governmental Approvals. Except as set forth on Exhibit 3.03 and
except for the filing of any notice prior or subsequent to the Closing that may
be required under applicable state and/or Federal securities laws (which, if
required, shall be filed on a timely basis), no authorization, consent,
approval, license, exemption of or filing or registration with any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, is or will be necessary for, or in connection with, the
execution and delivery by the Company of the Operative Agreements, or the offer,
issue, sale, execution or delivery of the Preferred Shares, or for the
performance by the Company of its obligations under the Operative Agreements or
the Shares.
3.04. Litigation. Except as disclosed in Exhibit 3.04, there is no
litigation or governmental proceeding or investigation pending or, to the
knowledge of the Company, threatened against the Company affecting the Company,
its business, or any of its properties or assets, or against any officer, Key
Employee or the holder of more than ten percent (10%) of the capital stock of
the Company relating to the Company or its business, nor, to the best knowledge
of the Company, has there occurred any event or does there exist any condition
on the basis of which any litigation, proceeding or investigation might properly
be instituted. Neither the Company nor, to the best knowledge of the Company,
any officer, Key Employee or holder of more than ten percent (10%) of the
capital stock of the Company is in default with respect to any order, writ,
injunction, decree, ruling or decision of any court, commission, board or other
government agency. There are no actions or proceedings pending or, to the
Company's knowledge, threatened (or any basis
7
therefor known to the Company) which might result, either in any case or in the
aggregate, in any material adverse change in the business, operations,
Intellectual Property Rights, affairs or financial condition of the Company or
in any of its properties or assets, or which might call into question the
validity of the Operative Agreements, any of the Preferred Shares, or any action
taken or to be taken pursuant hereto or thereto. The foregoing sentences
include, without limiting their generality, actions pending or, to the Company's
knowledge, threatened (or any basis therefor known to the Company) involving the
prior employment or engagement of any of the Company's officers, employees or
consultants or their use in connection with the Company's business of any
information or techniques allegedly proprietary to any of their former employers
or to any other Person. Without limitation to the foregoing representations, a
brief summary of the Company's material litigation and the disposition of such
matters is set forth on Exhibit 3.04.
3.05. Certain Agreements of Officers and Employees.
(a) No officer, employee or consultant of the Company is, or
is now, to the Company's knowledge, expected to be, in violation of any term of
any employment contract, patent disclosure agreement, proprietary information
agreement, noncompetition agreement, nonsolicitation agreement, confidentiality
agreement, or any other similar contract or agreement or any restrictive
covenant, including those set forth on Exhibit 3.05(a), relating to the right of
any such officer, employee, or consultant to be employed or engaged by the
Company because of the nature of the business conducted or to be conducted by
the Company or relating to the use of trade secrets or proprietary information
of others, and to the Company's best knowledge and belief, the continued
employment or engagement of the Company's officers, employees or consultants
does not subject the Company or any Purchaser to any liability with respect to
any of the foregoing matters.
(b) Except as disclosed in Exhibit 3.05(b), no officer,
consultant or Key Employee of the Company whose termination, either individually
or in the aggregate, could have an adverse effect on the Company, has terminated
since January 1, 1997, or to the best knowledge of the Company, has any present
intention of terminating, his employment or engagement with the Company.
3.06. Compliance with Other Instruments. The Company is in compliance
in all respects with the terms and provisions of this Agreement and of its
certificate of incorporation and by-laws, each as amended and/or restated to
date, and in all respects with the material terms and provisions of all
mortgages, indentures, leases, agreements and other instruments by which it is
bound or to which it or any of its properties or assets are subject. The Company
is in compliance in all material respects with all judgments, decrees,
governmental orders, laws, statutes,
8
rules or regulations by which it is bound or to which it or any of its
properties or assets are subject. Neither the execution, issuance and delivery
of the Operative Agreements or the Preferred Shares, nor the consummation of any
transaction contemplated hereby or thereby, has constituted or resulted in or
will constitute or result in a default or violation of any term or provision of
any of the foregoing documents, instruments, judgments, agreements, decrees,
orders, statutes, rules and regulations. A schedule of Indebtedness of the
Company, excluding the Safeguard Loan, as of the date hereof (including lease
obligations required to be capitalized in accordance with applicable Statements
of Financial Accounting Standards) is attached as Exhibit 3.06.
3.07. Title to Assets, Patents. The Company has good and marketable
title in fee to such of its fixed assets as are real property, and good and
merchantable title to all of its other assets, now carried on its books, which
assets consist of those reflected in the most recent balance sheet of the
Company which forms Exhibit 3.08 attached hereto, or acquired since the date of
such balance sheet (except personal property disposed of since said date in the
ordinary course of business) free of any mortgages, pledges, charges, liens,
security interests or other encumbrances other than (a) any such created in
accordance with the terms of the leases, security agreements and other financing
documents listed in Exhibit 3.07, (b) liens for taxes not yet due and payable,
(c) liens imposed by law and incurred in the ordinary course of business for
obligations not yet due and payable to landlords, carriers, warehousemen,
materialmen and the like, and (d) unperfected purchase money security interests
existing in the ordinary course of business without the execution of a separate
security agreement. The Company enjoys peaceful and undisturbed possession under
all leases under which it is operating, and all said leases are valid and
subsisting and in full force and effect.
The Company owns or has a valid right to use the Intellectual Property
Rights being used to conduct its business as now operated and as now proposed
to be operated (a complete list of licenses and registrations of such
Intellectual Property Rights is attached hereto as Exhibit 3.07); and the
conduct of its business as now operated and as now proposed to be operated does
not and will not conflict with or infringe upon the intellectual property rights
of others. Except as set forth on Exhibit 3.07, no claim is pending or
threatened against the Company and/or its officers, employees and consultants to
the effect that any such Intellectual Property Right owned or licensed by the
Company, or which the Company otherwise has the right to use, is invalid or
unenforceable by the Company. Except pursuant to the terms of any licenses
specified on Exhibit 3.07, the Company has no obligation to compensate any
Person for the use of any such Intellectual Property Rights and the Company has
not granted any Person any license or other right to use any of
9
the Intellectual Property Rights of the Company, whether requiring payment of
royalties or not.
The Company has taken all reasonable measures to protect and preserve
the security, confidentiality and value of its Intellectual Property Rights,
including its trade secrets and other confidential information. All employees
and consultants of the Company involved in the design, review, evaluation or
development of products or Intellectual Property Rights have executed
nondisclosure and assignment of inventions agreements sufficient to protect the
confidentiality and value of the Company's Intellectual Property Rights and to
vest in the Company exclusive ownership of such Intellectual Property Rights. To
the best knowledge of the Company, all trade secrets and other confidential
information of the Company are presently valid and protectible and are not part
of the public domain or knowledge, nor, to the best knowledge of the Company,
have they been used, divulged or appropriated for the benefit of any person
other than the Company or otherwise to the detriment of the Company. To the best
of the Company's knowledge, no employee or consultant of the Company has used
any trade secrets or other confidential information of any other person in the
course of their work for the Company. The Company is the exclusive owner of all
right, title and interest in its Intellectual Property Rights as purported to be
owned by the Company, and such Intellectual Property Rights are valid and in
full force and effect. Neither the Company, nor any of its employees or
consultants has received notice of, and to the best of the Company's knowledge
after reasonable investigation, there are no claims that the Company's
Intellectual Property Rights or the use or ownership thereof by the Company
infringes, violates or conflicts with any such right of any third party. No
university, hospital, government agency (whether federal or state) or other
organization which has sponsored research and development conducted by the
Company has any claim of right to or ownership of or other encumbrance upon the
Intellectual Property Rights of the Company.
3.08. Financial Information. The financial statements of the Company,
including (i) the Company's Audited Financial Statements from the date of its
incorporation through December 31, 1996 and (ii) the Company's unaudited
Statement of Income and Balance Sheet, as at March 31, 1997 attached hereto as
Exhibit 3.08, present fairly the financial position of the Company as at the
date or dates thereof and the results of operations for the respective periods
then ended, and have been prepared in accordance with generally accepted
accounting principles consistently applied, except, in the case of the financial
statements described in clause (ii), for the absence of footnotes and
normal non-material year-end adjustments (the "Financial Statements"). The
Company does not have, and has no reasonable grounds to know of, any liability,
contingent or otherwise, not adequately reflected in or reserved against in the
Financial Statements. Except as set forth in Exhibit 3.08, since January 1,
1997, (i) there has been no material adverse change in
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the business, assets, operations, affairs, prospects or financial condition of
the Company; (ii) neither the business financial condition, operations,
prospects or affairs of the Company nor any of its properties or assets,
including without limitation, its Intellectual Property Rights, have been
materially adversely affected as the result of any legislative or regulatory
change, any revocation or change in any franchise, permit, license or right to
do business, or any other event or occurrence, whether or not insured against;
and (iii) the Company has not entered into any material transaction other than
in the ordinary course of business, made any distribution on its capital stock,
or redeemed or repurchased any of its capital stock, except as set forth on
Exhibit 3.08.
3.09. Taxes. The Company has accurately prepared and timely filed all
federal, state and other tax returns required by law to be filed by it, has paid
or made provision for the payment of all taxes shown to be due and all
additional assessments, and adequate provisions have been made and are reflected
in the Company's financial statements for all current taxes and other charges to
which the Company is subject and which are not currently due and payable. None
of the federal income tax returns of the Company have been audited by the
Internal Revenue Service. The Company knows of no additional assessments,
adjustments or contingent tax liability (whether federal or state) pending or
threatened for any period, nor of any basis for any such assessment, adjustment
or contingency. Neither the Company nor, to the best of the Company's knowledge,
any of its stockholders, has ever filed a consent pertaining to the Company
pursuant to Section 341(f) of the Code relating to collapsible corporations.
The Company's net operating losses for federal income tax purposes, as
set forth in the Financial Statements, are not subject to any limitations
imposed by Section 382 of the Code, and the sale of the Preferred Shares hereby,
as contemplated by this Agreement or by any other agreement, understanding or
commitment, contingent or otherwise, to which the Company is a party or by which
it is otherwise bound will not have the effect of limiting the Company's ability
to use such net operating losses in full to offset such taxable income, except
as set forth on Exhibit 3.09.
3.10. ERISA. The Company makes no contributions to any employee
pension benefit plans for its employees which are subject to ERISA.
3.11. Transactions with Affiliates. Except as set forth in Exhibit
3.11, there are no loans, leases, royalty agreements or other continuing
transactions between (a) the Company or any of its customers or suppliers, and
(b) any officer, employee, consultant or director of the Company or any Person
owning five percent (5%) or more of the capital stock of the Company or any
member of the immediate family of such
11
officer, employee, consultant, director or stockholder or any corporation or
other entity controlling, controlled by, or under common control with such
officer, employee, consultant, director or stockholder, or a member of the
immediate family of such officer, employee, consultant, director or stockholder.
3.12. Assumptions or Guaranties of Indebtedness of Other Persons. The
Company has not assumed, guaranteed, endorsed or otherwise become directly or
contingently liable on (including, without limitation, liability by way of
agreement, contingent or otherwise, to purchase, to provide funds for payment,
to supply funds to or otherwise invest in the debtor or otherwise to assure the
creditor against loss), any Indebtedness of any other Person except as set forth
in Exhibit 3.12.
3.13. Investments in Other Persons. Except as set forth in Exhibit
3.13, the Company has not made any loans or advances to any Person which is
outstanding on the date of this Agreement in excess of $5,000 in the aggregate,
nor is it committed or obligated to make any such loan or advance, nor does the
Company own any capital stock, assets comprising the business of, obligations
of, or any interest in, any Person. Except as set forth on Exhibit 3.13, the
Company does not have, and has not since its incorporation had, any
Subsidiaries.
3.14. Securities Act of 1933. The Company has complied and will comply
with all applicable federal and state securities laws in connection with the
offer, issuance and sale of the Preferred Shares hereunder and the Company has
complied with all applicable federal and state securities laws in connection
with the offer, issuance or sale of all securities issued by the Company prior
to the date hereof. Neither the Company nor anyone acting on its behalf has or
will sell, offer to sell or solicit offers to buy the Preferred Shares or
similar securities to, or solicit offers with respect thereto from, or enter
into any preliminary conversations or negotiations relating thereto with, any
Person so as to bring the issuance and sale of the Preferred Shares under the
registration provisions of the Securities Act and applicable state securities
laws.
3.15. Disclosure. Neither the Operative Agreements, the Financial
Statements, nor any other agreement, document, certificate, or statement,
whether oral or written, furnished to the Purchaser or their counsel by or on
behalf of the Company in connection with the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein or therein, in
light of the circumstances in which made, not misleading. Projections made in
the business plans and other projections provided to Purchaser are not
considered to be facts for the purpose of this Section. Such projections were
prepared in good faith on the basis of reasonable assumptions, and all such
assumptions which are material to such projections have been disclosed therein.
There is no fact within the knowledge of the
12
Company or any of its executive officers which has not been disclosed herein or
in writing by them to the Purchaser and which materially adversely affects, or
in the future in their opinion may, insofar as they can now foresee, materially
adversely affect the business, operations, properties, Intellectual Property
Rights, assets or condition, financial or other, of the Company. Without
limiting the foregoing, the Company has no knowledge that there exists, or there
is pending or planned, any patent, invention, device, application or principle
or any statute, rule, law, regulation, standard or code which would materially
adversely affect the business, operations, Intellectual Property Rights, affairs
or financial condition of the Company.
3.16. Brokers or Finders. No Person has or will have, as a result of
the transactions contemplated by this Agreement, any right, interest or valid
claim against or upon the Company for any commission, fee or other compensation
as a finder or broker because of any act or omission by the Company or its
respective agents.
3.17. Capitalization; Status of Capital Stock. As of the Closing, the
Company will have a total authorized capitalization consisting of (i) 1,800,000
shares of Common Stock, $.01 par value, and (ii) 1,500,000 shares of Preferred
Stock, $.01 par value, of which (A) 1,000,000 shares will be designated as
Series A Preferred Stock, and (B) 500,000 shares will be designated as Series B
Preferred Stock. As of the Closing, (i) 200,000 shares of Common Stock will be
issued and outstanding, (ii) 860,000 shares of Series A Preferred Stock will be
issued and outstanding, and, without giving effect to the transactions
contemplated hereby, (iii) no shares of Series B Preferred Stock will be issued
or outstanding. A complete list of the capital stock of the Company which has
been previously issued and the names in which such capital stock is registered
on the stock transfer book of the Company is set forth in Exhibit 3.17 hereto.
All the outstanding shares of capital stock of the Company have been duly
authorized, and are validly issued, fully paid and non-assessable. The Preferred
Shares when issued and delivered in accordance with the terms hereof, will be
duly authorized, validly issued, fully-paid and non-assessable. Except for the
Safeguard Warrants and the 250,000 shares of Common Stock that will be reserved
for issuance upon exercise of stock options as further set forth in Exhibit
3.17, no options, warrants, subscriptions or purchase rights of any nature to
acquire from the Company, or commitments of the Company to issue, shares of
capital stock or other securities are authorized, issued or outstanding, nor is
the Company obligated in any other manner to issue shares or rights to acquire
any of its capital stock or other securities except as contemplated by this
Agreement. None of the Company's outstanding securities or authorized capital
stock or the Preferred Stock are subject to any rights of redemption,
repurchase, rights of first refusal, preemptive rights or other similar rights,
whether contractual, statutory or otherwise, for the benefit of the Company, any
13
shareholder, or any other Person, except pursuant to the provisions of (i) the
Safeguard Warrants, (ii) the Safeguard Purchase Agreement, and (iii) the Voting
and Stock Restriction Agreement. Except as set forth in Exhibit 3.17, there are
no restrictions on the transfer of shares of capital stock of the Company other
than those imposed by relevant federal and state securities laws and as
otherwise contemplated by or disclosed in this Agreement. Except as set forth in
Exhibit 3.17, there are no agreements, understandings, trusts or other
collaborative arrangements or understandings concerning the voting or transfer
of the capital stock of the Company. The offer and sale of all capital stock and
other securities of the Company issued before the Closing complied with or were
exempt from all applicable federal and state securities laws and no stockholder
has a right of rescission or damages with respect thereto.
3.18. Registration Rights. Except for the rights granted hereunder and
rights granted to Safeguard under the Safeguard Purchase Agreement and the
Safeguard Warrants, no Person has demand or other rights to cause the Company to
file any registration statement under the Securities Act relating to any
securities of the Company or any right to participate in any such registration
statement.
3.19. Insurance. Company carries insurance covering its properties and
business adequate and customary for the type and scope of the properties, assets
and business, and similar to companies of comparable size and condition
similarly situated in the same industry in which the Company operates, but in
any event in amounts sufficient to prevent the Company from becoming a
co-insurer or self-insurer, with provision for reasonable deductibles.
3.20. Books and Records. The books of account, ledgers, order books,
records and documents of the Company accurately and completely reflect all
material information relating to the business of the Company, the location and
collection of its assets, and the nature of all transactions giving rise to the
obligations or accounts receivable of the Company.
3.21. Material Agreements. Except as set forth in Exhibit 3.21, the
Company is not a party to any written or oral contract, instrument, agreement,
commitment, obligation, plan or arrangement, a copy of which would be required
to be filed with the Commission as an exhibit to a registration statement on
Form S-1, Form SB-2 or Form S-18 if the Company were registering securities
under the Securities Act, or any other agreement which could adversely affect
the business, assets, liabilities, Intellectual Property Rights, financial
condition or operations of the Company. The Company, and to the best of the
Company's knowledge, each other party thereto have in all material respects
performed all the obligations required to be performed by them to date, have
received no notice of default and are not in default
14
under any lease, agreement or contract now in effect to which the Company is a
party or by which it or its property may be bound, the result of which could
cause a material adverse change in the business, assets, liabilities,
Intellectual Property Rights, operations or financial condition of the Company.
Except as set forth in Exhibit 3.21, each of the contracts or agreements listed
in Exhibit 3.21 is in full force and effect with no default, anticipated or
threatened default or failure of performance or observance of any obligations or
conditions contained therein, and none of the foregoing parties nor the Company
has provided any notice of default or of its intention to terminate these
agreements. The Company has supplied to the Purchaser true and complete copies
of each of the contracts or agreements listed in Exhibit 3.21.
3.22. Absence of Certain Developments. Except as provided in Exhibit
3.22, attached hereto, since January 1, 1997 the Company has not:
(a) issued any stock, bonds or other corporate securities or
any rights, options or warrants with respect thereto;
(b) borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities incurred in the
ordinary course of business which are comparable in nature and amount to the
current liabilities incurred in the ordinary course of business during the
comparable portion of its prior fiscal year, as adjusted to reflect the current
nature and volume of the Company's business;
(c) discharged or satisfied any lien or encumbrance or paid
any obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;
(d) declared or made any payment or distribution of cash or
other property to stockholders with respect to its stock, or purchased or
redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock;
(e) mortgaged or pledged any of its assets tangible or
intangible, or subjected them to any liens, charge or other encumbrance, except
liens for current property taxes not yet due and payable;
(f) sold, assigned or transferred any other tangible assets,
or cancelled any debts or claims, except in the ordinary course of business;
(g) sold, assigned or transferred any patents, patent
rights, trademarks, trade names, copyrights, trade secrets or other intangible
assets or intellectual property
15
rights, or disclosed any proprietary confidential information to any persons
except to customers in the ordinary course of business;
(h) suffered any substantial losses or waived any rights of
material value, whether or not in the ordinary course of business, or suffered
the loss of any material amount of prospective business;
(i) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;
(j) made capital expenditures or commitments therefor that
aggregate in excess of $25,000;
(k) entered into any other transaction other than in the
ordinary course of business, or entered into any other material transaction,
whether or not in the ordinary course of business;
(1) made charitable contributions or pledges in excess of
$5,000;
(m) suffered any material damage, destruction or casualty
loss, whether or not covered by insurance;
(n) experienced any problems with labor or management in
connection with the terms and conditions of their employment; or
(o) effected any two or more events of the foregoing kind
which in the aggregate would be material to the Company.
3.23. Environmental and Safety Laws. To the best of the Company's
knowledge after due investigation, it is not in violation of any applicable
statute, law or regulation relating to the environment or occupational safety
and health, and to the best of its knowledge after due investigation, no
material expenditures will be required in order to comply with any such statute,
law or regulation.
3.24. U.S. Real Property Holding Corporation. The Company is not now
and has never been a "United States Real Property Holding Corporation" as
defined in Section 897(c)(2) of the Code and Section 1.897-2(b) of the
Regulations promulgated by the Internal Revenue Service.
3.25. Business Plans and Projections. All factual information
contained in the business plans and projections provided to Purchaser was when
given and is at the date of this Agreement true, complete and accurate in all
material respects
16
and not misleading and, without prejudice to the generality of the foregoing,
the financial forecasts contained in the business plans and projections have
been diligently prepared and such assumptions upon which they are based as to
the prospects of the Company have been carefully considered and are honestly
believed to be reasonable, having regard to the information available and to
the market conditions prevailing at the time of their preparation and that the
Purchaser has made due and careful inquiry so as to ascertain (as far as
possible) all such information and conditions which are relevant to the
preparation of the business plans and projections.
3.26. Safeguard. The Company has supplied the Purchaser with copies of
all material written agreements between the Company and Safeguard or its
affiliates. Except as set forth in such agreements or on Exhibit 3.26, there are
no other material agreements, arrangements or understandings, written or oral,
between the Company and Safeguard or its affiliates.
3.27. Safeguard Warrants. The issuance, sale and delivery of the
Series B Preferred Stock and the Conversion Shares will not, due to the
anti-dilution provisions in any outstanding warrant, option or convertible
security issued by the Company and outstanding on the date hereof, result in a
change in the number of shares of the Company's capital stock which may be
acquired under, or the exercise price of, such warrant, option or convertible
security.
ARTICLE IV
COVENANTS OF THE COMPANY
4.01. Affirmative Covenants of the Company Other Than Reporting
Requirements. Without limiting any other covenants and provisions hereof, and
except to the extent the covenants and provisions of (A) this Section 4.01 are
waived in any instance by (i) a majority of the aggregate holders of the Series
B Preferred Stock, voting separately as a class, or (ii) the Series B Director,
or (B) paragraph (e), only with respect to meetings of the Board of Directors to
be held after the expiration of the Option Period, paragraph (i) or paragraph
(1), except with respect to the right of Purchaser to have one (1)
representative on the Board of Directors, of this Section 4.01 are waived in any
instance by (i) a majority of the aggregate holders of the Series A Preferred
Stock, voting separately as a class, or (ii) a majority of the Series A
Directors, voting separately as a class, the Company covenants and agrees that
until the consummation of a Qualified Public Offering, it will perform and
observe the following covenants and provisions, and will cause each Subsidiary,
if and when such Subsidiary exists, to perform and observe such of the following
covenants and provisions as are applicable to such Subsidiary:
(a) Inspection Rights. Permit during normal business hours,
upon reasonable request and notice, Purchaser or
17
any employees, agents or representatives thereof, to examine and make copies of
and extracts from the records and books of account of, and visit and inspect the
properties, assets, operations and business of the Company and any Subsidiary,
and to discuss the affairs, finances and accounts of the Company and any
Subsidiary with any of its officers, consultants, directors, Key Employees,
attorneys or independent accountants; provided, however, that Purchaser or any
employee, agent or representative thereof, as the case may be, agrees to hold
all information confidential on the terms set forth in Section 8.09 hereof.
(b) Financing. Promptly, fully and in detail, inform the
Board of Directors of any discussions, offers or contracts relating to possible
financing of any material nature for the Company, whether initiated by the
Company or any other Person.
(c) Budgets Approval. Prior to the commencement of each
fiscal year, prepare and submit to, and obtain in respect thereof the approval
of two-thirds of the members of the Board of Directors, a business plan and
monthly operating budget in detail for each fiscal year, monthly operating
expenses and profit and loss projections, quarterly cash flow projections and a
capital expenditure budget for the fiscal year.
(d) New Developments. Cause all technological developments,
patentable or unpatentable inventions, discoveries or improvements by the
Company's or any Subsidiary's employees or consultants to be documented in
accordance with industry practice and, where possible and appropriate, to file
and prosecute United States and foreign patent, copyright, trademark, mask work
or other Intellectual Property Right applications relating to and protecting the
Company's inventions, discoveries or developments on behalf of the Company or
any Subsidiary.
(e) Meetings of Directors and Related Rights. Hold meetings
of the Board of Directors not less than on a quarterly basis; and provide to
Purchaser copies of all notices, reports, minutes and consents at the time and
in the manner as they are provided to the Board of Directors or any committee
thereof.
(f) By-laws; Indemnification. The Company shall at all times
maintain provisions in its By-laws or Certificate of Incorporation indemnifying
all directors against liability to the maximum extent permitted under the laws
of the state of its incorporation.
(g) Corporate Existence. Maintain and cause each of its
Subsidiaries to maintain their respective corporate existence, Intellectual
Property Rights, other rights and
18
franchises in full force and effect to the extent appropriate in accordance
with good business practice.
(h) Properties, Business, Insurance. Maintain and cause each
of its Subsidiaries to maintain as to their respective properties and business,
with financially sound and reputable insurers, insurance against such casualties
and contingencies and of such types and in such amounts as is customary for
companies of a similar size and financial condition similarly situated within
the same industry.
(i) Expenses of Directors. Promptly reimburse in full each
director of the Company for all of his or her reasonable out-of-pocket expenses
incurred in attending each meeting of the Board of Directors.
(j) Compliance with Laws. Comply, and cause each Subsidiary
to comply, with all applicable laws, rules, regulations and orders,
noncompliance with which could materially adversely affect its business, assets
Intellectual Property Rights, operations or condition, financial or otherwise.
(k) Keeping of Records and Books of Account. Keep, and
cause each Subsidiary to keep, adequate records and books of account, in which
complete entries will be made in accordance with generally accepted accounting
principles consistently applied, reflecting all financial transactions of the
Company and such Subsidiary, and in which, for each fiscal year, all proper
reserves for depreciation, depletion, obsolescence, amortization, taxes, bad
debts and other purposes in connection with its business shall be made.
(1) Size of Board. Fix and maintain the number of Directors
on the Board of Directors of the Company at nine (9) members, including two (2)
representatives of the holders of Common Stock, the chief executive officer of
the Company, five (5) representatives of Safeguard, and one (1) representative
of the Purchaser.
(m) Rule 144A Information. At all times during which the
Company is neither subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act, nor exempt from reporting pursuant to Rule 12g3-2(b) under
the Exchange Act, it will provide as promptly as practicable (in any event not
later than twenty (20) days after initial request) in written form, upon the
written request of Purchaser or a prospective buyer of Shares from Purchaser,
all information required by Rule 144A(d)(4)(i) of the General Regulations
promulgated by the Commission under the Securities Act ("Rule 144A
Information"). The Company further covenants, upon written request, as promptly
as practicable (in any event not later than twenty (20) days after initial
request) to cooperate with and assist Purchaser or any member of the National
Association of Securities Dealers, Inc. system for Private Offerings Resales and
19
Trading through Automated Linkage ("PORTAL") in applying to designate and
thereafter maintain the eligibility of the Shares for trading through PORTAL.
The Company's obligations under this Section 4.01(k) shall at all times be
contingent upon the Purchaser's obtaining from a prospective purchaser
an agreement to take all reasonable precautions to safeguard the Rule 144A
Information from disclosure to anyone other than a Person who will assist such
purchaser in evaluating the purchase of the Shares.
4.02. Negative Covenants of the Company. The Company covenants and
agrees that until the consummation of a Qualified Public Offering, it will,
unless waived pursuant to clauses (i), (ii), (iii) or (iv) below, comply with
and observe the following negative covenants and provisions, and cause each
Subsidiary to comply with and observe such of the following covenants and
provisions as are applicable to such Subsidiary, if and when such Subsidiary
exists, and will not, without the written consent or written waiver of any one
of the following: (i) a majority of the aggregate holders of the Series A
Preferred Stock, (ii) a majority of the aggregate holders of the Series B
Preferred Stock, (iii) a majority of the Series A Directors or (iv) the Series B
Director (except that, with respect to the provisions of paragraphs (a), (c),
(e) and (g), the holders of the Series A Preferred Stock and the Series A
Directors may so consent or waive compliance only after the expiration of the
Option Period):
(a) Dealings with Affiliates. Enter into any transaction
after the date hereof, including, without limitation, any loans or extensions of
credit or royalty agreements with any employee, consultant, officer or director
of the Company or any Subsidiary or holder of five percent (5%) of any class
of capital stock of the Company or any Subsidiary, or any member of their
respective immediate families or any corporation or other entity directly or
indirectly controlled by one or more of such employees, consultants, officers,
directors or five percent (5%) stockholder or members of their immediate
families on terms less favorable to the Company or any Subsidiary than it would
obtain in a transaction between unrelated parties except in the case of any
transaction or series of transactions entered into in the ordinary course of
business and involving less than $5,000 in the aggregate.
(b) Issuance of Equity Securities. Authorize or issue, or
obligate itself to issue, any additional shares or capital stock of the Company
of any class, provided, however, that the provisions of this Section 4.02(b)
shall not apply to the issuance of: up to 250,000 shares of Common Stock or
options or warrants exercisable therefor, including the Options, issued on or
after the date hereof to directors, officers, employees or consultants of the
Company and any Subsidiary pursuant to any qualified or non-qualified stock
option plan or agreement, employee stock ownership plan, employee benefit plan,
stock purchase agreement, stock plan, stock
20
restriction agreement, or consulting agreement or such other options,
arrangements, agreements or plans existing on the date hereof.
(c) Compensation to Officers. Except as otherwise approved
by the Board of Directors during any calendar year, pay to any officer or senior
manager compensation (including salary and bonus) which exceeds, compensation
customarily paid to management in companies of similar size, of similar
maturity, and in similar businesses.
(d) Maintenance of Ownership of Subsidiaries. Sell or
otherwise dispose of any shares of capital stock of any Subsidiary, except to
another Subsidiary, or permit any Subsidiary to issue, sell or otherwise dispose
of any shares or rights to acquire any of its capital stock or the capital stock
of any Subsidiary, except to the Company or another Subsidiary; provided,
however, that the Company may liquidate, merge or consolidate any Subsidiary or
Subsidiaries into or with itself, provided that the Company is the surviving
entity, or into or with another Subsidiary or Subsidiaries, or the Company may
sell all or a portion of any Subsidiary to the Company or any other Subsidiary,
provided that after giving effect to the transaction, the Subsidiary continues
to remain a member of the Company's "consolidated group" for tax and accounting
purposes.
(e) Transfer of Technology. Transfer, sell, dispose of,
assign, lease, license or donate any ownership or interest in, or material
rights relating to, and of its technology, or other Intellectual Property Rights
to any Person or entity which is not a member of the "consolidated group" of the
Company and its Subsidiaries; provided, however, that this Section shall not
apply to transfers or licenses of technology or Intellectual Property Rights (i)
accomplished in the ordinary course of business as presently conducted or
proposed to be conducted or (ii) pursuant to the consummation of a Proposed Sale
Transaction.
(f) Restriction on Indebtedness. The Company covenants that
it will not, and will not permit any of its Subsidiaries to, incur, create, or
assume any Indebtedness other than the following:
(i) Indebtedness existing on the date hereof and listed
on Exhibit 3.06 and renewals, replacements and refinancing thereof that do
not increase the aggregate amount of Indebtedness of the Company and its
Subsidiaries taken as a whole; the Safeguard Loan; and Indebtedness
contemplated by the Business Plan or in a budget or projection approved by
a majority of the Board of Directors, including at least two Series A
Directors.
(ii) guarantees by the Company of Indebtedness incurred
by Subsidiaries of the Company,
21
provided that the Indebtedness guaranteed pursuant to this subsection (ii)
shall not exceed $100,000 at any time outstanding with respect to any one
Subsidiary or $250,000 in the aggregate at any time outstanding with
respect to all Subsidiaries;
(iii) Indebtedness of a Subsidiary owing to the Company
or to another Subsidiary; or
(iv) additional Indebtedness not to exceed an aggregate
of $50,000 incurred in any fiscal quarter, and not to exceed in the
aggregate $250,000 at any time, determined on a consolidated basis
(including guarantees permitted by clause (ii) of this Section 4.02(f).
(g) Conduct of Business. The Company covenants that it will
not, and will not permit any of its Subsidiaries to, engage in any business
other than the business engaged in by each of them on the date hereof and any
businesses or activities substantially similar or related thereto other than as
contemplated by any business plan of the Company which has been approved by the
Board of Directors.
(h) Assumptions or Guaranties of Indebtedness of Other
Persons. Assume, guarantee, endorse or otherwise become directly or contingently
liable on, or permit any Subsidiary to assume, guarantee, endorse or otherwise
become directly or contingently liable on (including, without limitation,
liability by way of agreement, contingent or otherwise, to purchase, to provide
funds for payment, to supply funds to or otherwise invest in the debtor or
otherwise to assure the creditor against loss) any Indebtedness of any other
Person, except for guaranties by endorsement of negotiable instruments for
deposit or endorsement of negotiable instruments for deposit or collection in
the ordinary course of business, and except for the guaranties of the permitted
obligations of any wholly-owned Subsidiary.
(i) Investments in Other Corporations or Entities. Make or
permit any Subsidiary to make, any loan or advance to any Person, or purchase,
otherwise acquire, or permit any Subsidiary to purchase or otherwise acquire,
the capital stock, assets comprising the business of, obligations of, or any
interest in, any other corporation or entity which will not be operated as a
wholly-owned Subsidiary, except:
(i) investments by the Company or a Subsidiary in
evidences of indebtedness issued or fully guaranteed by the United States
of America and having a maturity of not more than one year from the date
of acquisition;
(ii) investments by the Company or a Subsidiary in
certificates of deposit, notes, acceptances
22
and repurchase agreements having a maturity of not more than one year from
the date of acquisition issued by a bank organized in the United States
having capital, surplus and undivided profits of at least $50,000,000;
(iii) investments by the Company or a Subsidiary in the
highest-rated commercial paper having a maturity of not more than one year
from the date of acquisition;
(iv) investments by the Company or a Subsidiary in "Money
Market" fund shares, or in money market accounts fully insured by the
Federal Deposit Insurance Corporation and sponsored by banks and other
financial institutions, provided that the investments consist principally
of the types of investments described in clauses (i), (ii) or (iii) of
this Section 4.02(h); or
(v) loans or advances from a Subsidiary to the Company or
from the Company to a Subsidiary, other than in the normal course of
business.
(j) Amendments. Amend the Certificate of Incorporation or
By-laws of the Company.
4.03. Reporting Requirements. Until the consummation of the Initial
Public Offering, the Company will furnish the following to Purchaser.
(a) Monthly and Quarterly Reports. As soon as available and
in any event within 30 days after the end of each calendar month, consolidated
and consolidating balance sheets of the Company and its Subsidiaries as of the
end of such month and consolidated and consolidating statements of income and
retained earnings and a summary statement of monthly cash flow of the Company
and its Subsidiaries for such month and for the period commencing at the end of
the previous fiscal year and ending with the end of such month, setting forth in
each case in comparative form the corresponding figures for the corresponding
period of the preceding fiscal year, and including comparisons to the monthly
budget or business plan of the Company and an analysis of the variances from the
budget or plan of the Company, prepared in accordance with generally accepted
accounting principles consistently applied; and, as soon as available and in any
event within 30 days after the end of each fiscal quarter, a consolidated and
consolidating statements of cash flows of the Company and its Subsidiaries for
such quarter and for the corresponding period of the prior fiscal year, prepared
in accordance with generally accepted accounting principles consistently
applied;
(b) Annual Reports. As soon as available and in any event
within 90 days after the end of each fiscal year of the Company, a copy of the
annual audit report for such year
23
for the Company and its Subsidiaries, including therein consolidated and
consolidating balance sheets of the Company and its Subsidiaries as of the end
of such fiscal year and consolidated and consolidating statements of income and
retained earnings and statements of cash flow of the Company and its
Subsidiaries for such fiscal year, setting forth in each case in comparative
form the corresponding figures for the preceding fiscal year, all such
consolidated statements to be duly certified by the chief financial officer of
the Company and an independent public accountant of recognized national standing
approved by a majority of the Board of Directors;
(c) Budgets and Operating Plan. As soon as available and in
any event before the beginning of each fiscal year of the Company, a business
plan and monthly and quarterly operating budgets for the forthcoming fiscal
year, and as soon as available and in any event within 30 days after the end of
each calendar month, monthly comparisons against the business plan and monthly
operating budgets;
(d) Notice of Adverse Changes. Promptly after the occurrence
thereof and in any event within five (5) business days after each occurrence
notice of any material adverse change in the business, assets, Intellectual
Property Rights, management, operations or financial condition of the Company;
and
(e) Reports and Other Information. Promptly upon receipt,
publication, commencement or occurrence provide to Purchaser copies of all
consulting reports, notices of all material actions, suits or proceedings,
copies of all accountant's reviews, and reports to management, and such other
information as the Company shall make available to the Board of Directors or
Shareholders or the Purchaser shall reasonably request.
ARTICLE V
REGISTRATION RIGHTS
5.01. General. The Company has granted to the Purchaser certain
registration rights pursuant to the Registration Rights Agreement.
ARTICLE VI
RIGHT OF FIRST REFUSAL; OPTION TO PURCHASE
6.01. Right of First Refusal. In the event that, during the First
Refusal Period, (i) the Company or Safeguard receives a bona-fide offer (an
"Offer") from a Person other than the Purchaser (an "Offeror") to purchase the
Company pursuant to (A) an acquisition of all, or substantially all, of the
Company's assets (and a simultaneous assumption of the Company's liabilities),
(B) an acquisition of issued and outstanding capital stock of the Company (and
securities convertible into any
24
such capital stock) having in the aggregate at least a majority of the total
voting power of the issued and outstanding capital stock of the Company, or (C)
a merger, consolidation, or similar transaction (all of the foregoing
transactions being collectively referred to herein as a "Proposed Sale
Transaction"), and (ii) the Company or Safeguard (collectively, the "Selling
Party"), as appropriate, desire to enter into and complete the Proposed Sale
Transaction with the Offeror, the Selling Party shall furnish the Purchaser with
written notice (a "Sale Notice") of its or their desire to enter into and
complete the Proposed Sale Transaction. The Sale Notice shall contain the
following information: (i) the price, terms, and conditions of the Proposed Sale
Transaction; (ii) such information as shall be reasonably necessary to enable
the Purchaser to establish that the Offer is bona-fide; (iii) a true, correct,
and complete copy of the letter of intent, agreement of sale, or other document
setting forth the terms and conditions of the Proposed Sale Transaction
(together with any all agreements, documents, and instruments relating and
pertaining thereto); and (iv) if any of the non-monetary terms of the Proposed
Sale Transaction cannot, by their nature, be matched (such as, by way of example
but not limitation, terms relating to the exchange of stock or other property or
the provisions of unique services), the Sale Notice shall contain a reasonable
quantification in Dollars ($) of the value of such terms (such value to be
determined in good faith by the Board of Directors), which shall constitute part
of the price offered in connection with the Proposed Sale Transaction for
purposes of the Right of First Refusal.
6.02. Exercise of Right of First Refusal. During the period of thirty
(30) days immediately following the giving of a Sale Notice (the "Acceptance
Period"), the Purchaser shall have the opportunity of exercising the right to
purchase the Company at the same price and under precisely the same terms and
conditions recited in the Sale Notice. During the Acceptance Period, the
Purchaser shall have the right to make inquiries of the Company, the Board of
Directors, and Safeguard with respect to the Proposed Sale Transaction and the
Company, the Board of Directors, and Safeguard shall promptly respond to any and
all such inquiries. If Purchaser desires to exercise the Right of First Refusal
pursuant to this Section 6.02, Purchaser shall furnish written notice to the
Selling Party of Purchaser's exercise of the Right of First Refusal prior to the
expiration of the Acceptance Period (the "Purchaser's Acceptance"), and the
parties shall have ninety (90) days from the date of the Purchaser's Acceptance
to (i) negotiate and execute a legally binding agreement of sale (the "Agreement
of Sale") having the terms and conditions recited in the Sale Notice and (ii)
consummate the purchase and sale contemplated by the Agreement of Sale. The
Purchaser, the Company and Safeguard shall negotiate the Agreement of Sale in
good faith. If (a) the Purchaser's Acceptance is not received by the Selling
Party prior to the expiration of the Acceptance Period or (b) the parties fail
to consummate the purchase and sale contemplated by the
25
Agreement of Sale within ninety (90) days of the date of the Purchaser's
Acceptance, all rights of the Purchaser with respect to the Right of First
Refusal shall cease, terminate, and expire automatically and an agreement of
sale may be made with, or a sale may be made to, such Offeror according to terms
and conditions no less favorable to the Selling Party as those set forth in the
Sale Notice and at a price not less than that stated in the Sale Notice;
provided, however, that Purchaser shall be offered by such Offeror the
opportunity to participate in such sale upon the same terms and conditions as
those offered to the Selling Party. If no such sale is made to such Offeror,
then the terms and conditions of the Right of First Refusal granted pursuant to
this Article VI shall remain in full force for the remainder of the First
Refusal Period.
6.03. Evidence of Termination Right of First Refusal. If Purchaser
does not elect to exercise the Right of First Refusal by giving notice of
Purchaser's acceptance in the manner set forth in Section 6.02, and the Right of
First Refusal has expired pursuant to the provisions hereof, Purchaser covenants
and agrees to execute and deliver a written statement evidencing the termination
of the Right of First Refusal.
6.04. Termination of Right of First Refusal. Notwithstanding anything
contained herein to the contrary, the Right of First Refusal shall cease and
terminate immediately prior to the effectiveness of the registration statement
with respect to the Initial Public Offering, but expressly conditioned upon the
completion of the Initial Public Offering.
6.05. Option to Purchase. In addition to the Right of First Refusal
but subject to the terms and conditions of this Agreement, in connection with
the transactions contemplated hereby, the Company and Safeguard hereby grant to
the Purchaser a non-assignable and non-transferable right and option (the
"Option") to purchase the Company pursuant to an Asset Purchase. The Option
shall be exercisable in whole (but not in part) upon written notice to the
Company at any time prior to the expiration of the Option Period.
6.06. Option Price. The purchase price due and payable by the
Purchaser to the Company in connection with an Asset Purchase completed by
reason of the Purchaser's exercise of the Option pursuant hereto shall be equal
to the following (the "Option Price"): (i) the greater of (A) $7,500,000, or (B)
(x) the aggregate cumulative gross revenues of the Company for the nine (9)
month period ending as at the close of the fiscal month of the Company
immediately preceding the date on which the Option was exercised, multiplied by
(y) one and one-third (1 1/3) minus (ii) $1,000,000. The Option Price shall be
due and payable to the Company, simultaneously with the closing of the Asset
Purchase, and shall be paid by Purchaser's delivery of a certified or bank
cashiers check or by wire transfer of immediately available funds.
26
6.07. Special Conditions of Option Purchase. In addition to the terms
and conditions of purchase herein set forth, the following conditions shall be
satisfied prior to or concurrently with the closing of any purchase of the
Company being completed by reason of the Purchaser's exercise of the Option:
(a) (i) the Purchaser shall assume all of the liabilities of
the Company, whether known, unknown, absolute, accrued, contingent or otherwise,
except for (A) all outstanding Indebtedness of the Company to Safeguard up to an
aggregate amount of $1,400,000 and (B) all outstanding Indebtedness of the
Company to Institutional Lenders up to an aggregate amount of $1,000,000, and
(ii) the Purchaser shall tender (or cause to be tendered) all Shares to the
Company for no consideration and all rights of Purchaser (and its assigns) as a
Shareholder shall cease and terminate.
(b) the parties (including Safeguard) shall have negotiated
in good faith and entered into such agreements documents, and instruments which
are reasonably necessary to evidence the Asset Purchase and the completion
thereof in accordance with the provisions hereof, all of which agreements,
documents, and instruments shall contain representations, warranties, covenants,
and conditions which are customary for transactions of that type and which shall
otherwise be reasonably satisfactory to the parties thereto.
6.08. Termination of Option. Notwithstanding anything contained herein
to the contrary, the Option shall cease and terminate immediately prior to the
effectiveness of the registration statement with respect to the Initial Public
Offering, but expressly conditioned upon the completion of the Initial Public
Offering.
6.09. Joinder by Shareholders. Safeguard has executed the Consent and
Joinder to this Agreement to evidence its intent to be bound by the provisions
of this Article VI, to the extent that such provisions are applicable to them as
a shareholder of the Company. The Company and Safeguard shall cause any Person
who becomes a Shareholder during the period between the Closing and the
expiration of the First Refusal Period to execute a counterpart of the Consent
and Joinder to this Agreement as a condition of such Person's acquisition of
shares of the Company's outstanding capital stock.
27
ARTICLE VII
DEFINITIONS AND ACCOUNTING TERMS
7.01. Certain Defined Terms. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"Accredited Investor" shall have the meaning assigned to that term in
Rule 501 under the Securities Act.
"Acceptance Period" shall have the meaning ascribed to it in Section
6.02.
"Asset Purchase" shall mean a transaction, pursuant to which the
Purchaser shall (i) purchase all of the Company's assets, and (ii)
simultaneously with such purchase, assume all of the Company's liabilities,
whether known, unknown, absolute, accrued, contingent or otherwise, except as
set forth in Section 6.07(a)(i).
"Agreement" means this Preferred Stock Purchase Agreement as from time
to time amended and in effect between the parties, including all Exhibits
hereto.
"Board of Directors" means the board of directors of the Company as
constituted from time to time.
"Closing" shall have the meaning ascribed to it in Section 1.03.
"Commission" means the Securities and Exchange Commission or any other
federal agency then administering the Securities Act or Exchange Act.
"Common Stock" includes (a) the Company's Common Stock, $.01 par
value, as authorized on the date of this Agreement, (b) any other capital stock
of any class or classes (however designated) of the Company authorized on or
after the date hereof, the holders of which shall have the right, without
limitation as to amount, either to all or to a share of the balance of current
dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and the holders of which
shall ordinarily, in the absence of contingencies or in the absence of any
provision to the contrary in the Company's Certificate of Incorporation, be
entitled to vote for the election of a majority of directors of the Company
(even though the right so to vote has been suspended by the happening of such a
contingency or provision), and (c) any other securities into which or for which
any of the securities described in (a) or (b) may be converted or exchanged
pursuant to a plan of recapitalization, reorganization, merger, sale of assets
or otherwise.
28
"Company" shall have the meaning ascribed to it in the heading of this
Agreement.
"Consolidated" and "consolidating" when used with reference to any
term defined herein mean that term as applied to the accounts of the Company and
its Subsidiaries consolidated in accordance with generally accepted accounting
principles consistently applied throughout reporting periods.
"Conversion Shares" shall have the meaning ascribed to it in Section
1.02.
"DLB License Agreement" means the Evaluation Licensing Agreement
dated the Closing Date between the Company and the Purchaser pursuant to which
the Company is granting to Purchaser a limited use license for the Company's
software products.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar federal statute, and the rules and regulations of the Commission
(or of any other Federal agency then administering the Exchange Act) thereunder,
all as the same shall be in effect at the time.
"First Refusal Period" shall mean the period commencing on the Closing
hereunder and ending on that date which is nine (9) months subsequent thereto.
"Indebtedness" means (i) any liability for borrowed money or evidenced
by a note or similar obligation given in connection with the acquisition of any
property or other assets (other than trade accounts payable incurred in the
ordinary course of business); (ii) all guaranties, endorsements and other
contingent obligations, in respect of Indebtedness of others, whether or not the
same are or should be reflected in the Company's balance sheet (or the notes
thereto), except guaranties by endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of business; and
(iii) the present value of any lease payments due under leases required to be
capitalized in accordance with applicable Statements of Financial Accounting
Standards, determined by discounting all such payments at the interest rate
determined in accordance with applicable Statements of Financial Accounting
Standards.
"Initial Public Offering" means the first underwritten public offering
of Common Stock of the Company for the account of the Company and offered on a
"firm commitment" or "best efforts" basis pursuant to an offering registered
under the Securities Act with the Commission on Form S-1, Form SB-2, or their
then equivalents.
29
"Institutional Lenders" means, collectively, any bank or financial
institution which serves as lender to the Company.
"Intellectual Property Rights" means any and all, whether domestic or
foreign, patents, patent applications, patent right, trade secrets, confidential
business information, formula, processes, laboratory notebooks, algorithms,
copyrights, mask works, claims of infringement against third parties, licenses,
permits, license rights, contract rights with employees, consultants and third
parties, trademarks, trademark rights, inventions and discoveries, and other
such rights generally classified as intangible, intellectual property assets in
accordance with generally accepted accounting principles.
"Key Employee" means and includes the Chairman, President, Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer, or any
other individual so designated by the Board of Directors or by the Investor
Director.
"Marketing Agreement" means the Value-Added Marketing Agreement dated
the Closing Date pursuant to which the Company is granting to the Purchaser a
non-exclusive right to market the Company's products to end-users in combination
with Purchaser's services.
"Offer" shall have the meaning ascribed to it in Section 6.01.
"Offeror" shall have the meaning ascribed to it in Section 6.01.
"Operative Agreements" means, collectively, this Agreement, the Voting
and Stock Restriction Agreement, the Registration Rights Agreement, the DLB
License Agreement, the Purchaser License Agreement and the Marketing Agreement.
"Option" shall have the meaning ascribed to it in Section 6.05.
"Option Period" shall mean the period commencing on the Closing and
ending on that date which is nine (9) months subsequent thereto; provided,
however, notwithstanding the foregoing, the Option Period shall immediately
cease and terminate upon Purchaser's failure to exercise its Right of First
Refusal with respect to any Sale Notice issued pursuant to Section 6.01, except
as otherwise provided in the last sentence of Section 6.02.
"Option Price" shall have the meaning ascribed to it in Section 6.06.
"Options" means those options to purchase up to 250,000 shares of
Common Stock as described in Exhibit 3.05.
30
"Person" means an individual, corporation, partnership, joint venture,
trust, university, or unincorporated organization, or a government, or any
agency or political subdivision thereof.
"Preferred Shares" shall have the meaning ascribed to it in Section
1.01.
"Proposed Sale Transaction" shall have the meaning ascribed to it in
Section 6.01.
"Purchaser" shall have the meaning ascribed to it in the heading of
this Agreement.
"Purchaser License Agreement" means the Master Software License
Agreement described in Section 2.03 hereof.
"Purchaser's Acceptance" shall have the meaning ascribed to it in
Section 6.02.
"Qualified Public Offering" means a fully underwritten, firm
commitment public offering pursuant to an effective registration under the
Securities Act covering the offer and sale by the Company of its Common Stock in
which the aggregate gross proceeds to the Company exceed $10,000,000 and in
which the price per share of such Common Stock equals or exceeds $3.00 (such
price subject to equitable adjustment in the event of any stock split, stock
dividend, combination, reorganization, reclassification or other similar event).
"Registration Rights Agreement" means the agreement to be entered into
at the Closing among the Company, Safeguard and the Purchaser pursuant to which
the Company is granting rights to Safeguard and the Purchaser with respect to
the registration under the Securities Act of shares of the Company's capital
stock held by Safeguard and the Purchaser.
"Right of First Refusal" means the rights granted to the Purchaser
under Sections 6.01 and 6.02.
"Safeguard" means Safeguard Scientifics, Inc., a Pennsylvania
corporation.
"Safeguard Loan" shall mean the loan made by Safeguard to the Company
on June 26, 1997 in the principal amount of $200,000.
"Safeguard Purchase Agreement" shall mean the Preferred Stock Purchase
Agreement dated as of August 30, 1995, between the Company and Safeguard,
pursuant to which, among other things, Safeguard purchased 650,000 shares of
Series A Preferred Stock, on the terms and conditions set forth therein.
"Safeguard Warrants" shall mean, collectively, (i) the Warrant dated
August 30, 1995 executed by the Company in favor of
31
Safeguard, under which Safeguard has the right to purchase up to 140,000 shares
of the Common Stock on the terms and conditions set forth therein, (ii) the
Warrant dated August 30, 1995 executed by the Company in favor of Safeguard,
under which Safeguard has the right to purchase up to 510,000 shares of the
Common Stock, on the terms and conditions set forth therein, (iii) the Warrant
dated August 19, 1996, executed by the Company in favor of Safeguard, under
which Safeguard has the right to purchase up to 210,000 shares of the Common
Stock on the terms and conditions set forth therein, and (iv) the Warrant dated
April 4, 1997 executed by the Company in favor of Safeguard, under which
Safeguard has the right to purchase up to 80,000 shares of Common Stock on the
terms and conditions set forth therein.
"Sale Notice" shall have the meaning ascribed to it in Section 6.01.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Commission (or of
any other Federal agency then administering the Securities Act) thereunder, all
as the same shall be in effect at the time.
"Series A Directors" means the five directors of the Company who are
representatives of the holders of the outstanding Series A Preferred Stock.
"Series A Preferred Stock" means the Series A Preferred Stock of the
Company, $.01 par value, having the rights, powers, privileges and preferences
set forth in Exhibit 2.02(a) hereto.
"Series B Director" means the director of the Company who is a
representative of the Purchaser.
"Series B Preferred Stock" means the Series B Preferred Stock of the
Company, $.01 par value, having the rights, powers, privileges and preferences
set forth in Exhibit 2.02(a) hereto.
"Series B Shares" shall have the meaning ascribed to it in Section
1.01.
"Shares" means, collectively, the Preferred Shares and the Conversion
Shares.
"Shareholder" means, collectively, Safeguard and all of the other
holders of shares of the outstanding capital stock of the Company, except for
executives of Safeguard who have been granted and hold only shares of Series A
Preferred Stock pursuant to a certain long-term incentive plan maintained by
Safeguard.
"Subsidiary" or "Subsidiaries" means any Person of which the Company
and/or any of its other Subsidiaries (as herein defined) directly or indirectly
owns at the time at least fifty
32
percent (50%) of the outstanding voting shares of every class of such
corporation or trust other than directors' qualifying shares.
"Voting and Stock Restriction Agreement" means the Voting and Stock
Restriction Agreement to be entered into at the Closing among the Purchaser, the
Company and Safeguard.
7.02. Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with generally accepted accounting
principles consistently applied, and all financial data submitted pursuant to
this Agreement shall be prepared in accordance with such principles.
ARTICLE VIII
MISCELLANEOUS
8.01. No Waiver; Cumulative Remedies. No failure or delay on the part
of any party to this Agreement in exercising any right, power or remedy
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy hereunder.
The remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
8.02. Amendments, Waivers and Consents. Any provision in the Agreement
to the contrary notwithstanding, and except as hereinafter provided, changes in,
termination or amendments of or additions to this Agreement may be made, and
compliance with any covenant or provision set forth herein may be omitted or
waived, only if the Company shall obtain consent thereto in writing from the
Purchaser. Any waiver or consent may be given subject to satisfaction of
conditions stated therein and any waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
8.03. Addresses for Notices. All notices, requests, demands and other
communications provided for hereunder shall be in writing (including telegraphic
communication) and mailed, telegraphed or delivered to each applicable party at
the address set forth in Exhibit 1.01 hereto or at such other address as to
which such party may inform the other parties in writing in compliance with the
terms of this Section.
If to Purchaser: at Purchaser's address for notice as set forth in the
register maintained by the Company, or at such other address as shall be
designated by Purchaser in a written notice to the other parties complying as to
delivery with the terms of this Section.
If to the Company: at the address set forth on page 1 hereof, or at
such other address as shall be designated by the
33
Company in a written notice to the Purchaser complying as to delivery with the
terms of this Section.
All such notices, requests, demands and other communications shall,
when mailed (which mailing must be accomplished by first class mail, postage
prepaid; electronic facsimile transmission; express overnight courier service;
or registered or certified mail, return receipt requested) or telegraphed, and
shall be considered to be delivered three (3) days after dispatch.
8.04. Costs and Expenses. Each party hereto shall be responsible for
any and all costs and expenses incurred by such party in connection with the
transactions described herein and contemplated hereby.
8.05. Binding Effect; Assignment. This Agreement shall be binding upon
and inure to the benefit of the Company and the Purchasers and their respective
successors and assigns, except that the Company shall not have the right to
delegate its obligations hereunder or to assign its rights hereunder or any
interest herein without the prior written consent of the Purchaser.
8.06. Survival of Representations and Warranties. All representations
and warranties made in this Agreement, the Shares, or any other instrument or
document delivered in connection herewith or therewith, shall survive the
execution and delivery hereof or thereof.
8.07. Prior Agreements. This Agreement, the terms of the Series B
Preferred Stock, and the other agreements executed and delivered herewith
constitute the entire agreement between the parties and supersedes any prior
understandings or agreements concerning the subject matter hereof.
8.08. Severability. The provisions of this Agreement, the Voting and
Stock Restriction Agreement, and the terms of the Series B Preferred Stock are
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of a provision
contained in this Agreement, the Voting and Stock Restriction Agreement, or the
terms of the Series B Preferred Stock shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement, the Voting and Stock Restriction Agreement, or the terms of the
Series B Preferred Stock; but this Agreement, the Voting and Stock Restriction
Agreement, and the terms of the Series B Preferred Stock shall be reformed and
construed as if such invalid or illegal or unenforceable provision, or part of a
provision, had never been contained herein, and such provisions or part reformed
so that it would be valid, legal and enforceable to the maximum extent possible.
34
8.09. Confidentiality. Purchaser agrees that it will keep confidential
and will not disclose or divulge any confidential, proprietary or secret
information which Purchaser may obtain from the Company pursuant to financial
statements, reports and other materials submitted by the Company to Purchaser
pursuant to this Agreement, or pursuant to visitation or inspection rights
granted hereunder, unless such information is known, or until such information
becomes known, to the public; provided, however, that Purchaser may disclose
such information (i) on a confidential basis to its attorneys, accountants,
consultants and other professionals to the extent necessary to obtain their
services in connection with its investment in the Company, (ii) to any
prospective purchaser of any Preferred Shares or Conversion Shares from such
Purchaser as long as such prospective purchaser agrees in writing to be bound by
the provisions of this Section 8.09, (iii) to any affiliate or partner of such
Purchaser and (iv) as required by applicable law.
8.10. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of Delaware, and
without giving effect to choice of laws provisions.
8.11. Headings. Article, section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
8.12. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
8.13. Further Assurances. From and after the date of this Agreement,
upon the request of Purchaser or the Company, the
35
Company and Purchaser shall execute and deliver such instruments, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement and the
Shares.
IN WITNESS WHEREOF, the parties hereto have caused this Preferred
Stock Purchase Agreement to be executed as of the date first above written.
DLB SYSTEMS, INC., a Delaware
corporation
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇
---------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇
Title: Chairman
"Company"
PREMIER RESEARCH WORLDWIDE LIMITED,
a Delaware corporation
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Title: CEO
"Purchaser"
36
CONSENT AND JOINDER
The undersigned, intending to be legally bound and as a material
inducement for the Purchaser to enter into the foregoing Preferred Stock
Purchaser Agreement (the "Agreement"), hereby consents to and approves of the
Agreement and the Company's completion of all transactions described therein
and contemplated thereby and agrees to be bound by the provisions of Article VI
of the Agreement as if the undersigned was an original signatory thereof.
The undersigned, in furtherance of the foregoing, covenants and
agrees to execute and deliver any and all agreements, documents, and instruments
reasonably necessary to further evidence the provisions of this Consent and
Joinder.
This Consent and Joinder shall be binding upon the undersigned and its
successors and assigns, except for employees of Safeguard who hold shares of the
Company's Series A Preferred Stock (and no other shares of the Company's
outstanding capital stock) pursuant to certain long-term incentive plans
maintained by Safeguard.
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Consent and Joinder this 30th day of June, 1997.
SAFEGUARD SCIENTIFICS (DELAWARE),
INC.
By /s/ ▇▇▇▇▇▇ Resard
--------------------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: VP
37
EHHIBIT 2.02(a)
RESTATED CERTIFICATE OF INCORPORATION
INCLUDING DESIGNATION OF SERIES B PREFERRED STOCK
RESTATED CERTIFICATE OF INCORPORATION
OF DLB SYSTEMS, INC.
a Delaware corporation, hereby certifies as follows:
TABLE OF CONTENTS
Page
I. PREFERRED STOCK ......................................................... 2
A. Description of Undesignated Preferred Stock .................... 3
B. Description and Designation of Series A Preferred Stock ........ 3
1. Designation ............................................... 3
2. Dividends ................................................. 3
2.1 Computation of Cumulative Dividends ................. 3
2.2 Payment ............................................. 4
2.3 Restrictions on Distributions ....................... 4
2.4 Participating Dividends ............................. 5
3. Liquidation, Dissolution or Winding Up .................... 5
3.1 Treatment at Liquidation, Dissolution or
Winding Up .......................................... 5
3.2 Treatment of Reorganization, Consolidation, Merger,
or Sale of Assets ................................... 6
3.3 Distributions Other than Cash ....................... 6
4. Voting Power .............................................. 7
4.1 General ............................................. 7
4.2 Director Election Rights ............................ 7
4.3 Special Director Election Right for Default ......... 8
5. Redemption ................................................11
5.1 Optional Redemption .................................11
5.2 Mandatory Redemption ................................11
5.3 Equitable Adjustment ................................11
5.4 Redemption Notice ...................................11
5.5 Surrender of Certificates ...........................12
5.6 Dividends after Redemption ..........................12
5.7 Insufficient Funds for Redemption ...................12
6. Restrictions and Limitations on Corporate Action ..........13
7. No Dilution or Impairment .................................14
8. Notices of Record Date ....................................14
9. Status of Repurchased Series A Preferred Stock ............15
10. Original Issue Price ......................................15
C. Description and Designation of Series B Preferred Stock ........15
i
1. Designation ..............................................15
2. Dividends ................................................15
2.1 Computation of Cumulative Dividends ..................15
2.2 Payment ..............................................16
2.3 Restrictions on Distributions ........................16
2.4 Participating Dividends ..............................17
3. Liquidation, Dissolution or Winding Up ...................17
3.1 Treatment at Liquidation, Dissolution or
Winding Up .........................................17
3.2 Treatment of Reorganization, Consolidation, Merger,
or Sale of Assets ..................................18
3.3 Distributions Other than Cash ......................19
4. Voting Power .............................................19
4.1 General ..............................................19
4.2 Director Election Rights ...........................19
5. Conversion ...............................................20
5.1 Voluntary Conversion ...............................20
5.2 Automatic Conversion ...............................20
5.3 Anti-Dilution Adjustments ..........................21
5.3.2 Common Stock Equivalents .....................22
5.3.3 Net Consideration Per Share ..................23
5.3.4 Stock Dividends for Holders of
Capital Stock Other Than Common Stock ........23
5.3.5 Consideration Other Than Cash ................23
5.3.6 Exceptions to Anti-dilution Adjustments;
Basket for Reserved Employee Shares ..........23
5.4 Adjustment Upon Extraordinary Common
Stock Event ........................................24
5.5 Adjustment Upon Dividends ..........................24
5.6 Adjustment Upon Capital Reorganization
or Reclassification ................................25
5.7 Certificate as to Adjustments; Notice by
Corporation ........................................25
5.8 Exercise of Conversion Privilege ...................25
5.9 Cash in Lieu of Fractional Shares ..................26
5.10 Partial Conversion .................................26
5.11 Reservation of Common Stock ........................26
6. Redemption ...............................................27
6.1 Optional Redemption ................................27
6.2 Mandatory Redemption ...............................27
6.3 Equitable Adjustment ...............................27
6.4 Redemption Notice ..................................27
6.5 Surrender of Certificates ..........................28
6.6 Dividends after Redemption .........................29
6.7 Insufficient Funds for Redemption ..................29
7. Restrictions and Limitations on Corporate
Action ...................................................29
8. No Dilution or Impairment ................................30
9. Notices of Record Date ...................................30
10. Status of Converted or Repurchased Series B
Preferred Stock ..........................................31
11. Original Issue Price .....................................31
ii
II. COMMON STOCK ...........................................................31
1. Priority ....................................................31
2. Voting Right ................................................31
3. Dividends ...................................................32
4. Liquidation .................................................32
iii
RESTATED CERTIFICATE
OF INCORPORATION OF
DLB SYSTEMS, INC.
a Business-stock corporation
DLB Systems, Inc., a Delaware corporation, hereby certifies as follows:
The name of the corporation is DLB Systems, Inc. The date of filing of
its original Certificate of Incorporation with the Secretary of State was July
28, 1995. The original Certificate of Incorporation was amended and restated on
August 22, 1995 (the "First Restated Certificate of Incorporation").
1. This Restated Certificate of Incorporation (as amended from time to
time, the "Second Restated Certificate of Incorporation") amends, restates and
integrates the provisions of the First Restated Certificate of Incorporation and
has been duly adopted in accordance with the provisions of Section 242 and 245
of the General Corporation Law of the State of Delaware (the "DGCL") by
written consent of (i) the holders of all of the outstanding stock of the
Corporation entitled to vote thereon, and (ii) the holders of the Preferred
Stock, $.01 par value per share, of the Corporation voting separately as a
class, each in accordance with the provisions of Section 228 of the DGCL.
2. The text of the First Restated Certificate of Incorporation is
hereby amended, and restated to read as set forth in full as follows:
FIRST. The name of the Corporation is DLB Systems, Inc.
SECOND. The address of the Corporation's registered office is ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ in the City of Wilmington, County of New Castle. The name of its
registered agent at such address is The Corporation Trust Company.
THIRD. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the DGCL.
FOURTH. The Corporation shall be authorized to issue 1,800,000 shares
of Common Stock, with a par value of $.01 per share (the "Common Stock") and
1,500,000 shares of Preferred Stock, with a par value of $.01 per share (the
"Preferred Stock").
The following is a statement of the designations, preferences, voting
powers, qualifications, special or relative rights and privileges in respect of
the authorized capital stock of the Corporation.
1
I. PREFERRED STOCK
A. Description of Undesignated Preferred Stock
The Preferred Stock may be issued from time to time in one or more
classes or series. As used herein, the term "Preferred Stock" used without
reference to the Series A Preferred Stock or the Series B Preferred Stock means
the shares of Preferred Stock, without distinction as to series, except as
otherwise expressly provided for herein, or as the context otherwise requires.
The Board of Directors of the Corporation shall have authority to the fullest
extent permitted under the DGCL to adopt by resolution from time to time one or
more Certificates of Designation providing for the designation of one or more
classes or series of Preferred Stock and the voting powers, whether full or
limited or no voting powers, and such designations, preferences and relative,
participating, optional, or other special rights and qualifications,
limitations or restrictions thereof, and to fix or alter the number of shares
comprising any such class or series, subject to any requirements of the DGCL
and this Second Restated Certificate of Incorporation; provided, however, that
the designation, authorization, creation or issuance of shares of any class of
stock ranking senior to the Series A Preferred Stock or the Series B Preferred
Stock with respect to liquidation preferences, dividend rights, redemption
rights, or conversion rights shall also require the approval of a majority of
the holders of the outstanding Series A Preferred Stock or Series B Preferred
Stock, respectively.
The authority of the Board of Directors with respect to each such
class or series shall include, without limitation of the foregoing, the right
to determine and fix the following preferences and powers, which may vary as
between different classes or series of Preferred Stock:
(a) the distinctive designation of such class or series and
the number of shares to constitute such class or series;
(b) the rate at which dividends on the shares of such class or
series shall be declared and paid, or set aside for payment, whether
dividends at the rate so determined shall be cumulative or accruing,
and whether the shares of such class or series shall be entitled to any
participating or other dividends in addition to dividends at the rate
so determined, and if so, on what terms;
(c) the right or obligation, if any, of the Corporation to
redeem shares of the particular class or series of Preferred Stock
and, if redeemable, the price, terms and manner of such redemption;
2
(d) the special and relative rights and preferences, if any,
and the amount or amounts per share, which the shares of such class or
series of Preferred Stock shall be entitled to receive upon any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation;
(e) the terms and conditions, if any, upon which shares of
such class or series shall be convertible into, or exchangeable for,
shares of capital stock of any other class or series, including the
price or prices or the rate or rates of conversion or exchange and the
terms of adjustment, if any;
(f) the obligation, if any, of the Corporation to retire,
redeem or purchase shares of such class or series pursuant to a sinking
fund or fund of a similar nature or otherwise, and the terms and
conditions of such obligation;
(g) voting rights, if any, including special voting rights
with respect to the election of directors and matters adversely
affecting any class or series of Preferred Stock;
(h) limitations, if any, on the issuance of additional shares
of such class or series or any shares of any other class or series of
Preferred Stock; and
(i) such other preferences, powers, qualifications, special or
relative rights and privileges thereof as the Board of Directors of the
Corporation, by the vote of the members of the Board of Directors then
in office acting in accordance with the DGCL, may deem advisable and
which are not inconsistent with the DGCL, this Second Restated
Certificate of Incorporation or any such Certificate of Designation.
B. Description and Designation of Series A Preferred Stock
1. Designation. A total of 1,000,000 shares of the Corporation's
Preferred Stock shall be designated the "Series A Preferred Stock."
2. Dividends.
2.1 Computation of Cumulative Dividends. The holders of the
outstanding shares of Series A Preferred Stock shall be entitled to receive, out
of any funds legally available therefor, cumulative dividends at the annual rate
of ten percent (10%) of the original issue price per share of Series A Preferred
Stock. Dividends on the Series A Preferred Stock shall accrue from day to day on
each share of Series A Preferred Stock from the date of original issuance of
such share, whether or not earned or declared, and shall accrue until paid.
3
All numbers relating to calculation of cumulative dividends
shall be subject to equitable adjustment in the event of any stock dividend,
stock split, combination, reorganization, recapitalization, reclassification or
other similar event involving a change in the Corporation's capital structure.
2.2 Payment. Subject to the following, cumulative dividends on
the Series A Preferred Stock shall be payable if, as and when declared by the
Board of Directors of the Corporation. If any accrued cumulative dividends on
the Series A Preferred Stock in respect of any previous or current annual
dividend period shall not have been paid or declared and a sum sufficient for
the payment thereof set apart, the deficiency shall first be fully paid before
any dividend or other distribution shall be paid or declared and set apart for
the Common Stock, or any subsequently designated series of Preferred Stock which
is junior in right of dividends to the Series A Preferred Stock. The rights of
the Series A Preferred Stock to payment of dividends are subject to the rights
of the Series B Preferred Stock, which shall be pari passu in priority with the
Series A Preferred Stock as to dividend payment rights.
2.3 Restrictions on Distributions. Except to the extent in any
instance approval is provided in writing by the holders of a majority of the
outstanding shares of Series A Preferred Stock (voting as a separate class), the
Corporation shall not declare or pay any dividends, or purchase, redeem, retire,
or otherwise acquire for value any shares of its capital stock (or rights,
options or warrants to purchase such shares) now or hereafter outstanding,
return any capital to its stockholders as such, or make any distribution of
assets to its stockholders as such, or permit any Subsidiary to do any of the
foregoing. "Subsidiary" or "Subsidiaries" means any corporation, partnership or
joint venture of which the Company and/or any of its other Subsidiaries (as
herein defined) directly or indirectly owns at the time at least fifty percent
(50%) of the outstanding voting shares or similar interests other than
directors' qualifying shares.
Notwithstanding the foregoing, Subsidiaries may declare and
make payment of cash and stock dividends, return capital and make distributions
of assets to the Corporation, and nothing contained in the foregoing shall
prevent the Corporation from: (i) effecting a stock split or declaring or paying
any dividend consisting of shares of any class of capital stock paid to the
holders of shares of such class of capital stock; (ii) complying with any
specific provision of the terms of the Series A Preferred Stock, the Series B
Preferred Stock or any subsequently designated series of Preferred Stock in
accordance with its terms; (iii) declaring and paying all accrued dividends on
the Series A Preferred Stock and the Series B Preferred Stock; (iv) redeeming or
repurchasing any stock of a deceased stockholder out of proceeds of insurance
held by the Corporation on that stockholder's life; or (v) redeeming or
repurchasing any
4
stock of any director, officer, employee, consultant or other person or entity,
pursuant to a stock repurchase agreement or stock restriction agreement under
which the Corporation has the right or obligation to repurchase such shares in
the event of death, termination of employment or of the consulting arrangement,
or other similar discontinuation of a business relationship.
2.4 Participating Dividends. In the event that the Board of
Directors of the Corporation shall declare a dividend payable upon the then
outstanding shares of Common Stock (other than a stock dividend on the Common
Stock distributed solely in the form of additional shares of Common Stock), the
holders of the Series A Preferred Stock shall be entitled to the amount of
dividends per share of Series A Preferred Stock as would be declared payable on
the largest number of whole and fractional shares of Common Stock issuable upon
exercise of the then outstanding Warrants (as defined in Section 4.1 of this
Chapter B), such number determined as of the record date for the determination
of holders of Common Stock entitled to receive such dividend and without regard
to any restrictions on issuance of or payment of dividends on fractional shares.
3. Liquidation, Dissolution or Winding Up.
3.1 Treatment at Liquidation, Dissolution or Winding Up.
3.1.1 In the event of any liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, or in the event of its
insolvency, before any distribution or payment is made to any holders of Common
Stock, or any other class or series of capital stock of the Corporation
designated to be junior to the Series A Preferred Stock in liquidation
preference, and subject to the liquidation rights and preferences of the Series
B Preferred Stock, which shall be pari passu in priority with the Series A
Preferred Stock in liquidation rights and preferences, and any other class or
series of Preferred Stock designated in the future to be senior to, or on a
parity with, the Series A Preferred Stock with respect to liquidation rights and
preferences, the holders of each share of Series A Preferred Stock shall be
entitled to be paid first out of the assets of the Corporation available for
distribution to holders of the Corporation's capital stock of all classes,
whether such assets are capital, surplus or earnings ("Available Assets"), the
greater of (i) an amount equal to the original issue price per share of Series A
Preferred Stock (subject to equitable adjustment for any stock dividend, stock
split, combination, reorganization, recapitalization, reclassification or other
similar event involving a change in the capital structure of the Preferred
Stock) plus all declared but unpaid dividends on each such share, or (ii) such
amount per share of Series A Preferred Stock as would have been payable had each
share of Preferred Stock which is convertible into Common Stock
5
been so converted immediately prior to such liquidation, dissolution or winding
up.
If, upon liquidation, dissolution or winding up of the
Corporation, the Available Assets shall be insufficient to pay the holders of
Series A Preferred Stock, Series B Preferred Stock and any other series of
Preferred Stock on parity with the Series A Preferred Stock and Series B
Preferred Stock with respect to liquidation rights and preferences, the full
amounts to which they otherwise would be entitled, the holders of Series A
Preferred Stock, the Series B Preferred Stock and such other series of Preferred
Stock shall share ratably in any distribution of Available Assets pro rata in
proportion to the respective liquidation preference amounts which would
otherwise be payable upon liquidation with respect to the outstanding shares of
Series A Preferred Stock, the Series B Preferred Stock and such other series of
Preferred Stock if all liquidation preference dollar amounts with respect to
such shares were paid in full.
3.2 Treatment of Reorganization, Consolidation, Merger, or
Sale of Assets. Any merger, consolidation or other corporate reorganization or
combination to which the corporation is a non-surviving party, and any sale of
all or substantially all of the assets of the Corporation, shall be regarded as
a liquidation, dissolution or winding up of the affairs of the Corporation for
purposes of this Section 3.
The provisions of this Section 3.2 shall not apply to (i) any
reorganization, merger or consolidation involving only a change in the state of
incorporation of the Corporation, (ii) a merger of the Corporation with or into
a wholly-owned Subsidiary of the Corporation that is incorporated in the United
States of America, or (iii) a merger, reorganization, consolidation or other
combination, of which the Corporation is substantively the surviving corporation
and operates as a going concern, with another corporation incorporated in the
United States of America and which does not involve a recapitalization,
reorganization, reclassification or other similar change in the capital
structure of the Corporation.
3.3 Distributions Other than Cash. Whenever the distribution
provided for in this Section 3 shall be payable in whole or in part in property
other than cash, the value of any property distributed shall be the fair market
value of such property as reasonably determined in good faith by the Board of
Directors of the Corporation. All distributions of property other than cash made
hereunder shall be made, to the maximum extent possible, pro rata with respect
to each series and class of Preferred Stock and Common Stock in accordance with
the liquidation amounts payable with respect to each such series and class.
6
4. Voting Power.
4.1 General. Except as otherwise expressly provided in this
Section 4 or Section 6 hereof, in Part I of Article Fourth of the Second
Restated Certificate of Incorporation, or in any Certificate of Designation
heretofore or hereafter filed with respect to any other series of Preferred
Stock, or as otherwise required by law, (i) each holder of Series A Preferred
Stock shall be entitled to vote on all matters submitted to a vote of the
stockholders of the Corporation (including election of directors to the extent
not otherwise expressly provided for) and shall be entitled to that number of
votes equal to the number of shares of Series A Preferred Stock held by such
holder at the record date for the determination of stockholders entitled to vote
on such matters or, if no such record date is established, at the date such vote
is taken or any written consent of stockholders is solicited, and (ii) the
holders of shares of Series A Preferred Stock, Series B Preferred Stock, and
Common Stock entitled to vote shall vote together (or render written consents in
lieu of a vote) as a single class on all matters submitted to the stockholders
of the Corporation (including, except in the case of the Series B Preferred
Stock, the election of directors to the extent not otherwise expressly provided
for).
Notwithstanding the foregoing, the aggregate number of votes
the holders of Series A Preferred Stock shall be entitled to exercise shall be
reduced upon the exercise of the warrants originally issued to the holders of
the Series A Preferred Stock, one such warrant being for 510,000 shares of
common stock (the 51% Warrant"), one being for 140,000 shares of Common Stock
(the 14% Warrant") and the remainder being for 210,000 shares of Common Stock
(the 1996 Warrant") (collectively, the "Warrants"). For each share of common
stock issued under the Warrants, the aggregate number of votes shall be reduced
by one vote; provided that the number of votes will be reduced in respect of a
particular holder of Series A Preferred Stock to the extent that holder
exercises any of the Warrants; provided further that in the event any of the
Warrants are exercised by a person other than a holder of Series A Preferred
Stock, upon such exercise, the number of votes will be reduced pro rata among
the holders of Series A Preferred Stock and any fractional votes shall be
rounded to the next whole number. For purposes of this voting adjustment only,
the shares of Common Stock deemed to have been issued upon the exercise of the
Warrants shall not take into account any antidilution protection of the
Warrants.
4.2 Director Election Rights. So long as any shares of Series
A Preferred Stock remain outstanding, (i) the holders of a majority of the
outstanding shares of the Series A Preferred Stock, voting as a separate class,
shall have the right to elect five directors of the Corporation (the "Series A
Directors"). At any annual or special meeting of the Corporation held for the
purpose of electing directors, the presence in person or by proxy (or by written
consent) of the holders of a majority of the
7
outstanding shares of Series A Preferred Stock shall constitute a quorum for the
election of the Series A Directors. The holders of a majority of the shares of
Series A Preferred Stock present in person or by proxy at any meeting relating
to the election of directors (calculated after the determination of a quorum)
shall then be entitled to elect the Series A Directors.
4.3 Special Director Election Right for Default. In addition
to all rights conferred above with respect to the election of directors, the
holders of Series A Preferred Stock, voting as a separate class, shall have the
following rights with respect to the election of directors of the Corporation
upon the occurrence of an Event of Noncompliance as described in this Section
4.3:
4.3.1 Definition of Event Noncompliance. An "Event of
Noncompliance" will be deemed to have occurred if:
(a) the Corporation fails to make any redemption
or liquidation payment with respect to the Series A Preferred
Stock which it is obligated to make hereunder, whether or not
such payment is legally permissible;
(b) the Corporation breaches or otherwise fails
to perform or observe the liquidation, or redemption, rights of
the Series A Preferred Stock, and any breach or failure is not
cured by the Corporation within 60 days after notice thereof is
furnished or, if earlier, required to be furnished by the
Corporation, or if earlier, after the Corporation discovers such
breach;
(c) the Corporation or any of its Subsidiaries
shall default in any payment of principal of or interest on any
indebtedness for money borrowed in excess of $100,000, beyond
the ▇▇▇▇▇ ▇▇ ▇▇▇▇▇, if any, provided in the instrument or
agreement under which such indebtedness was created; or
(d) (i) the Corporation or any of its
Subsidiaries shall commence any case, proceeding or other action
(A) under any existing or future law of any jurisdiction
relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order of relief entered with respect
to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with
respect to it or its debts, or (B) seeking appointment of a
receiver, trustee, custodian or other similar official for it or
for all or any substantial part of its assets, or the
Corporation or any of its Subsidiaries shall make a general
assignment for the benefit of its creditors; or (ii) there shall
be commenced against the Corporation or any of its
8
subsidiaries any case, proceeding or other action of a nature
referred to in clause (i) above which (A) results in the entry
of an order for relief or any such adjudication or appointment,
or (B) remains undismissed, undischarged or unbonded for a
period of 60 days; or (iii) there shall be commenced against the
Corporation or any of its Subsidiaries any case, proceeding or
other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any
substantial part of its assets which results in the entry of an
order for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal within 60 days
from the entry thereof; or (iv) the Corporation or any of its
Subsidiaries shall generally not, or shall be unable to, or
shall admit in writing its inability to, pay its debts as they
become due.
4.3.2 Consequences of Certain Events of Noncompliance. If
any Event of Noncompliance has occurred and is continuing beyond any applicable
grace period the number of directors constituting the Corporation's Board of
Directors will, at the request and approval of the holders of a majority of the
outstanding shares of Series A Preferred Stock, be increased by such number as
will constitute a minimum majority of the Board of Directors, and the holders of
a majority of the outstanding shares of Series A Preferred Stock will have the
special right, voting separately as a single class (with each share being
entitled to one vote) and to the exclusion of all other classes of the
Corporation's capital stock, to elect individuals to fill such newly created
directorships, to remove any individuals elected to such directorships, and to
fill any vacancies in such directorships. The special right of the holders of
Series A Preferred Stock to elect a majority of the members of the Board of
Directors may be exercised at the special meeting called pursuant to this
subparagraph (ii), at any annual or special meeting of stockholders and, to the
extent and in the manner permitted by applicable law, pursuant to a written
consent in lieu of a stockholders' meeting. Such special right to elect
additional directors will continue until such time as there is no longer any
Event of Noncompliance in existence, at which time such special right will
terminate subject to revesting upon the occurrence and continuation of any Event
of Noncompliance which gives rise to such special right hereunder; provided that
any director so elected will continue to serve as a director to the extent
provided in the last paragraph of this Section 4.3.2.
At any time when an Event of Noncompliance has occurred and is
continuing, a proper officer of the Corporation shall, upon the written request
of the holders of at least 10% of the Series A Preferred Stock then outstanding,
addressed to the Secretary or Assistant Secretary of the Corporation, call a
special meeting of the holders of Series A Preferred Stock for the purpose of
electing directors pursuant to this Section 4.3.2. Such meeting shall be held at
the earliest legally permissible date at the principal office of the
Corporation, or at such other
9
place designated by the holders of at least a majority of the shares of Series A
Preferred Stock then outstanding. If such meeting has not been called by a
proper officer of the Corporation within 10 days after delivery of such written
request upon the Secretary of the Corporation at its principal office, then the
holders of at least 10% of the Series A Preferred Stock then outstanding may
designate in writing one of their number to call such meeting at the expense of
the Corporation, and such meeting may be called by such Person so designated
upon the notice required for annual meetings of stockholders and shall be held
at the Corporation's principal office, or at such other place designated by the
holders of at least 10% of the Series A Preferred Stock then outstanding. Any
holder of Series A Preferred Stock then designated shall be given access to the
stock record books of the Corporation for the purpose of causing a meeting of
stockholders to be called pursuant to this Section.
At any meeting or at any adjournment thereof at which the
holders of Series A Preferred Stock have the special right to elect directors,
the presence, in person or by proxy, of the holders of a majority of the Series
A Preferred Stock then outstanding shall be required to constitute a quorum for
the election or removal of any director (except the Series B Director, as
defined in Section C.4.2) by the holders of the Series A Preferred Stock
exercising such special right. The vote of the holders of a majority of the
shares of Series A Preferred Stock constituting such quorum and present in
person or by proxy at any meeting shall be required to elect or remove any such
director.
Any director so elected by the holders of Series A Preferred
Stock shall continue to serve as a director until the expiration of the lesser
of (a) a period of three months following the date on which there is no longer
any Event of Noncompliance in existence, or (b) the remaining period of the full
term for which such director has been elected. After the expiration of such
three-month period or when the full term for which such director has been
elected ceases (provided that the special right to elect directors has
terminated), as the case may be, the number of directors constituting the Board
of Directors of the Corporation shall decrease to such number as constituted the
whole Board of Directors of the Corporation immediately prior to the occurrence
of the Event or Events of Noncompliance giving rise to this special right of the
holders of Series A Preferred Stock to elect directors. If any Event of
Noncompliance exists, each holder of Series A Preferred Stock shall also have
any other rights which such holder is entitled to under any contract or
agreement at any time and any other rights which such holder may have pursuant
to applicable law,
10
5. Redemption.
5.1 Optional Redemption. Commencing at any time on or after
January 1, 1997 at the option and written election of Corporation, the
Corporation may redeem at any time and from time to time all or a part of the
outstanding shares of Series A Preferred Stock, at the price and terms stated in
this Section 5.
The redemption price for each share of Series A Preferred
Stock redeemed pursuant to this Section 5 shall be original issue price per
share of Series A Preferred Stock, plus all accrued and unpaid dividends
thereon, if any, whether or not earned or declared, on such shares up to and
including the date fixed for redemption (the "Series A Redemption Price"). Each
redemption of shares of Series A Preferred Stock shall be made so that the
number of shares of Series A Preferred Stock held by each registered holder
shall be reduced in an amount which shall bear the same ratio to the total
number of shares of Series A Preferred Stock being so redeemed as the number of
shares of Series A Preferred Stock then held by such registered holder bears to
the aggregate number of shares of Series A Preferred Stock then outstanding.
5.2 Mandatory Redemption. Commencing at any time on or after
December 31, 2000 at the option and written election of the holders of a
majority of the outstanding shares of Series A Preferred Stock, the Corporation
shall redeem all or a portion of the outstanding shares of Series A Preferred
Stock specified in such election, at the price and terms stated in this Section
5.
The redemption price for each share of Series A Preferred
Stock redeemed pursuant to this Section 5 shall be the Series A Redemption
Price. Each redemption of shares of Series A Preferred Stock shall be made so
that the number of shares of Series A Preferred Stock held by each registered
holder shall be reduced in an amount which shall bear the same ratio to the
total number of shares of Series A Preferred Stock being so redeemed as the
number of shares of Series A Preferred Stock then held by such registered holder
bears to the aggregate number of shares of Series A Preferred Stock then
outstanding.
5.3 Equitable Adjustment. The Series A Redemption Price set
forth in this Section 5 shall be subject to equitable adjustment whenever there
shall occur a stock split, stock dividend, combination, reorganization,
recapitalization, reclassification or other similar event involving a change in
the Preferred Stock.
5.4 Redemption Notice. If the Corporation or the holders of a
majority of the outstanding shares of Series A Preferred Stock, as the case may
be, elect to have the Corporation redeem all of the outstanding shares of Series
A Preferred Stock as aforesaid, notice to that effect shall be given by such
holders to the Corporation, or by the Corporation
11
to such holders, as the case may be, at least 45 days prior to the Redemption
Date (as defined below), which notice shall also set forth the date fixed for
redemption pursuant to this Section 5 (hereinafter referred to as the
"Redemption Date"). If such notice is given, then at least 45 days prior to the
Redemption Date, written notice (hereinafter referred to as the "Redemption
Notice") shall be mailed, postage prepaid, by the Corporation to each holder of
record of the Series A Preferred Stock which is to be redeemed, at its address
shown on the records of the Corporation; provided, however, that the
Corporation's failure to give such Redemption Notice shall in no way affect its
obligation to redeem the shares of Series A Preferred Stock as provided in
Section 5.1 or 5.2 hereof. The Redemption Notice shall contain the following
information:
(i) the number of shares of Series A Preferred Stock
held by the holder which shall be redeemed by the Corporation and
the total number of shares of Series A Preferred Stock held by
all holders to be so redeemed;
(ii) the Redemption Date and the applicable
Series A Redemption Price; and
(iii) that the holder is to surrender to the
Corporation, at the place designated therein, its certificate or
certificates representing the shares of Series A Preferred Stock
to be redeemed.
5.5 Surrender of Certificates. Each holder of shares of Series
A Preferred Stock to be redeemed shall surrender the certificate(s) representing
such shares to the Corporation at the place designated in the Redemption Notice,
and thereupon the Series A Redemption Price for such shares as set forth in this
Section 5 shall be paid to the order of the person whose name appears on such
certificate(s) and each surrendered certificate shall be cancelled and retired.
In the event some but not all of the shares of Series A Preferred Stock
represented by a certificate(s) surrendered by a holder are being redeemed, the
Corporation shall execute and deliver to or on the order of the holder, at the
expense of the Corporation, a new certificate representing the number of shares
of Series A Preferred Stock which were not redeemed.
5.6 Dividends after Redemption. From and after the later of
the Redemption Date or 45 days from the date the Corporation shall have given
the Redemption Notice no shares of Series A Preferred Stock subject to
redemption shall be entitled to any further dividends pursuant to Section 2
hereof.
5.7 Insufficient Funds for Redemption. If the funds of the
Corporation legally available for redemption of Series A Preferred Stock on the
Redemption Date are insufficient to redeem the number of shares of Series A
Preferred Stock to be so redeemed on such Redemption Date, the holders of shares
of
12
Series A Preferred Stock shall share ratably in any funds legally available for
redemption of such shares according to the respective amounts which would be
payable with respect to the number of shares owned by them if the shares to be
so redeemed on such Redemption Date were redeemed in full. The shares of Series
A Preferred Stock not redeemed shall remain outstanding and entitled to all
rights and preferences provided herein, notwithstanding Section 5.6 above. At
any time thereafter when additional funds of the Corporation are legally
available for the redemption of such shares of Series A Preferred Stock, such
funds will be used, at the end of the next succeeding fiscal quarter, to redeem
the balance of such shares, or such portion thereof for which funds are then
legally available, on the basis set forth above. In the event that funds are not
legally available for the payment in full of the aggregate Series A Redemption
Price for the actual number of shares of Series A Preferred Stock to be so
redeemed on the Redemption Date, then the Corporation shall be obligated to make
such partial redemption so that the number of shares of Series A Preferred Stock
held by each registered holder shall be reduced in an amount which shall bear
the same ratio to the actual number of shares of Series A Preferred Stock
required to be redeemed on such Redemption Date as the number of shares of
Series A Preferred Stock then held by such registered holder bears to the
aggregate number of shares of Series A Preferred Stock required to be redeemed
on any such Redemption Date. The rights of redemption of shares of Series A
Preferred Stock are subject to the rights of (i) the Series B Preferred Stock
which shall be pari passu in priority with the Series A Preferred Stock as to
redemption rights, and (ii) any other class or series of Preferred Stock
designated to be senior to, or on a parity with, the Series A Preferred Stock as
to redemption rights.
6. Restrictions and Limitations on Corporate Action.
The Corporation shall not take any corporate action or amend
this Second Restated Certificate of Incorporation without the approval by vote
or written consent of the holders of at least a majority of the then outstanding
shares of Series A Preferred Stock, voting as a single class, each share of
Series A Preferred Stock to be entitled to one vote in each instance, if such
corporate action or amendment would change any of the rights, preferences,
privileges of or limitations provided for herein for the benefit of any shares
of Series A Preferred Stock. Without limiting the generality of the preceding
sentence, the Corporation will not amend this Second Restated Certificate of
Incorporation or take any other corporate action without the approval by the
holders of at least a majority of the then outstanding shares of Series A
Preferred Stock, voting as a single class, if such amendment or corporate action
would:
(a) cause or authorize the Corporation to redeem,
purchase or otherwise acquire for value (or pay into or set aside
for a sinking fund for such purpose), any share or
13
shares of equity securities of the Corporation other than as
provided for in Section 2 hereof; or
(b) authorize, create or issue, or obligate the
Corporation to authorize, create or issue, additional shares of
Series A Preferred Stock or of any class of stock ranking senior
to or on a parity with the Series A Preferred Stock with respect
to liquidation preferences, dividend rights or redemption rights;
or
(c) reduce the amount payable to the holders of Series
A Preferred Stock upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; or
(d) adversely affect the liquidation preferences,
dividend rights or voting rights of the holders of Series A
Preferred Stock; or
(e) provide for the voluntary liquidation,
dissolution, recapitalization, reorganization or winding up
of the Corporation; or
(f) authorize, approve or cause any merger,
consolidation, sale of all or substantially all of the assets of
the Corporation, corporate reorganization, recapitalization or
other business combinations which could be deemed to be a
liquidation, dissolution or winding up of the Corporation
pursuant to Section 3.2 hereof.
7. No Dilution or Impairment. The Corporation will not, by amendment of
this Second Restated Certificate of Incorporation or through any reorganization,
transfer of capital stock or assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of the Series A Preferred Stock
set forth herein, but will at all times in good faith assist in the carrying out
of all such terms.
8. Notices of Record Date. In the event of
(a) any taking by the Corporation of a record of the
holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividends or
other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of capital stock of any class or any
other securities or property, or to receive any other right, or
(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the
Corporation, any merger or consolidation of the Corporation, or
any transfer of all or
14
substantially all of the assets of the Corporation to any
other corporation, or any other entity or person, or
(c) any voluntary or involuntary dissolution,
liquidation or winding up of the Corporation,
then and in each such event the Corporation shall mail or cause to be mailed to
each holder of Series A Preferred Stock a notice specifying (i) the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right and a description of such dividend, distribution or right,
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (iii) the time, if any, that is
to be fixed, as to when the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common Stock (or other
securities) for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding up. Such notice shall be mailed by
first class mail, postage prepaid, at least ten (10) days prior to the date
specified in such notice on which action is being taken.
9. Status of Repurchased Series A Preferred Stock. Any share or shares
of Series A Preferred Stock acquired by the Corporation by reason of redemption,
purchase, or otherwise shall be returned to the status of authorized but
unissued shares of undesignated Preferred Stock. Upon the cancellation of all
outstanding shares of Series A Preferred Stock, the provisions of this Chapter B
regarding the description and designation of Series A Preferred Stock shall
terminate and have no further force and effect.
10. Original Issue Price. The original issue price shall be the amount
paid per share for the stock upon its issuance to a holder and may be a
different price for different issuances of Series A Preferred Stock.
C. Description and Designation of Series B Preferred Stock
1. Designation. A total of 500,000 shares of the Corporation's
Preferred Stock shall be designated the "Series B Preferred Stock."
2. Dividends.
2.1 Computation of Cumulative Dividends. The holders of the
outstanding shares of Series B Preferred Stock shall be entitled to receive, out
of any funds legally available therefor, cumulative dividends at the annual rate
of ten percent (10%) of the original issue price per share of Series B Preferred
Stock. Dividends on the Series B Preferred Stock shall accrue from day to day on
each share of Series B Preferred Stock from the date of
15
original issuance of such share, whether or not earned or declared, and shall
accrue until paid.
All numbers relating to calculation of cumulative dividends
shall be subject to equitable adjustment in the event of any stock dividend,
stock split, combination, reorganization, recapitalization, reclassification or
other similar event involving a change in the Corporation's capital structure.
2.2 Payment. Subject to the following, cumulative dividends on
the Series B Preferred Stock shall be payable if, as and when declared by the
Board of Directors of the Corporation. If any accrued cumulative dividends on
the Series B Preferred Stock in respect of any previous or current annual
dividend period shall not have been paid or declared and a sum sufficient for
the payment thereof set apart, the deficiency shall first be fully paid before
any dividend or other distribution shall be paid or declared and set apart for
the Common Stock, or any subsequently designated series of Preferred Stock which
is junior in right of dividends to the Series B Preferred Stock. The rights of
the Series B Preferred Stock to payment of dividends are subject to the rights
of the Series A Preferred Stock, which shall be pari passu in priority with the
Series B Preferred Stock as to dividend payment rights. Upon any conversion of
the Series B Preferred Stock under Section 5 hereof, all such accrued and unpaid
cumulative dividends on the Series B Preferred Stock to and until the date of
such conversion shall be immediately due and payable in either cash or Common
Stock at the election of the Company. For the purposes of the previous sentence,
the Common Stock shall be valued at the Series B Conversion Value (as defined in
Section 5.1 hereof) in effect immediately prior to such conversion.
2.3 Restrictions on Distributions. Except to the extent in any
instance approval is provided in writing by the holders of a majority of the
outstanding shares of Series B Preferred Stock (voting as a separate class), the
Corporation shall not declare or pay any dividends, or purchase, redeem, retire,
or otherwise acquire for value any shares of its capital stock (or rights,
options or warrants to purchase such shares) now or hereafter outstanding,
return any capital to its stockholders as such, or make any distribution of
assets to its stockholders as such, or permit any Subsidiary to do any of the
foregoing. "Subsidiary" or "Subsidiaries" means any corporation, partnership or
joint venture of which the Company and/or any of its other Subsidiaries (as
herein defined) directly or indirectly owns at the time at least fifty-percent
(50%) of the outstanding voting shares or similar interests other than
directors' qualifying shares.
Notwithstanding the foregoing, Subsidiaries may declare and
make payment of cash and stock dividends, return capital and make distributions
of assets to the Corporation, and nothing
16
contained in the foregoing shall prevent the Corporation from: (i) effecting a
stock split or declaring or paying any dividend consisting of shares of any
class of capital stock paid to the holders of shares of such class of capital
stock; (ii) complying with any specific provision of the terms of the Series A
Preferred Stock, the Series B Preferred Stock or any subsequently designated
series of Preferred Stock in accordance with its terms; (iii) declaring and
paying all accrued dividends on the Series A Preferred Stock and the Series B
Preferred Stock; (iv) redeeming or repurchasing any stock of a deceased
stockholder out of proceeds of insurance held by the Corporation on that
stockholder's life; or (v) redeeming or repurchasing any stock of any director,
officer, employee, consultant or other person or entity, pursuant to a stock
repurchase agreement or stock restriction agreement under which the Corporation
has the right or obligation to repurchase such shares in the event of death,
termination of employment or of the consulting arrangement, or other similar
discontinuation of a business relationship.
2.4 Participating Dividends. In the event that the Board of
Directors of the Corporation shall declare a dividend payable upon the then
outstanding shares of Common Stock (other than a stock dividend on the Common
Stock distributed solely in the form of additional shares of Common Stock), the
holders of the Series B Preferred Stock shall be entitled to the amount of
dividends per share of Series B Preferred Stock as would be declared payable on
the largest number of whole and fractional shares of Common Stock into which
each share of Series B Preferred Stock held by each holder thereof could be
converted pursuant to the provisions of Section 5 hereof, such number determined
as of the record date for the determination of holders of Common Stock entitled
to receive such dividend and without regard to any restrictions on issuance of
or payment of dividends on fractional shares.
3. Liquidation, Dissolution or Winding Up.
3.1 Treatment at Liquidation, Dissolution or Winding Up.
3.1.1 In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, or in the
event of its insolvency, before any distribution or payment is made to any
holders of Common Stock or any other class or series of capital stock of the
Corporation designated to be junior to the Series B Preferred Stock in
liquidation preference, and subject to the liquidation rights and preferences
of the Series A Preferred Stock, which shall be pari passu in priority with the
Series B Preferred. Stock in liquidation rights and preferences, and any other
class or series of Preferred Stock designated in the future to be senior to, or
on a parity with, the Series B Preferred Stock with respect to liquidation
rights and preferences, the holders of each share of
17
Series B Preferred Stock shall be entitled to be paid first out of the assets of
the Corporation available for distribution to holders of the Corporation's
capital stock of all classes, whether such assets are capital, surplus or
earnings ("Available Assets"), the greater of (i) an amount equal to the
original issue price per share of Series B Preferred Stock (subject to equitable
adjustment for any stock dividend, stock split, combination, reorganization,
recapitalization, reclassification or other similar event involving a change in
the capital structure of the Preferred Stock) plus all declared but unpaid
dividends on each such share, or (ii) such amount per share of Series B
Preferred Stock as would have been payable had each share of Preferred Stock
which is convertible into Common Stock been so converted immediately prior to
such liquidation, dissolution or winding up.
If, upon liquidation, dissolution or winding up of the
Corporation, the Available Assets shall be insufficient to pay the holders of
Series A Preferred Stock, Series B Preferred Stock and any other series of
Preferred Stock on parity with the Series A Preferred Stock and Series B
Preferred Stock with respect to liquidation rights and preferences, the full
amounts to which they otherwise would be entitled, the holders of Series A
Preferred Stock, the Series B Preferred Stock and such other series of Preferred
Stock shall share ratably in any distribution of Available Assets pro rata in
proportion to the respective liquidation preference amounts which would
otherwise be payable upon liquidation with respect to the outstanding shares of
Series A Preferred Stock, the Series B Preferred Stock and such other series of
Preferred Stock if all liquidation preference dollar amounts with respect to
such shares were paid in full.
3.1.2 After payment of all liquidation preferences to all
holders of Preferred Stock, the entire remaining available assets, if any, shall
be distributed among the holders of Common Stock, the Series B Preferred Stock,
the Warrants (in accordance with the terms thereof) and any other class or
series of Preferred Stock entitled to participate with the Common Stock in a
liquidating distribution, in proportion to the shares of Common Stock then held
by them and the shares of Common Stock which they then have the right to acquire
upon conversion of such shares of Preferred Stock held by them.
3.2 Treatment of Reorganization, Consolidation, Merger, or
Sale of Assets. Any merger, consolidation or other corporate reorganization or
combination to which the Corporation is a non-surviving party, and any sale of
all or substantially all of the assets of the Corporation, shall be regarded as
a liquidation, dissolution or winding up of the affairs of the Corporation for
purposes of this Section 3.
The provisions of this Section 3.2 shall not apply to (i) any
reorganization, merger or consolidation involving only a
18
change in the state of incorporation of the Corporation, (ii) a merger of the
Corporation with or into a wholly-owned Subsidiary of the Corporation that is
incorporated in the United States of America, or (iii) a merger, reorganization,
consolidation or other combination, of which the Corporation is substantively
the surviving corporation and operates as a going concern, with another
corporation incorporated in the United States of America and which does not
involve a recapitalization, reorganization, reclassification or other similar
change in the capital structure of the Corporation.
3.3 Distributions Other than Cash. Whenever the distribution
provided for in this Section 3 shall be payable in whole or in part in property
other than cash, the value of any property distributed shall be the fair market
value of such property as reasonably determined in good faith by the Board of
Directors of the Corporation. All distributions of property other than cash made
hereunder shall be made, to the maximum extent possible, pro rata with respect
to each series and class of Preferred Stock and Common Stock in accordance with
the liquidation amounts payable with respect to each such series and class.
4. Voting Power.
4.1 General. Except as otherwise expressly provided in
Sections 4 or 7 hereof, in Part I of Article Fourth of this Second Restated
Certificate of Incorporation or in any Certificate of Designation heretofore or
hereafter filed with respect to any other series of Preferred Stock, or as
otherwise required by law, (i) each holder of Series B Preferred Stock shall be
entitled to vote on all matters submitted to a vote of the stockholders of the
Corporation, except for the election of directors to the extent not otherwise
expressly provided for, and shall be entitled to that number of votes equal to
the number of shares of Series B Preferred Stock held by such holder at the
record date for the determination of stockholders entitled to vote on such
matters or, if no such record date is established, at the date such vote is
taken or any written consent of stockholders is solicited, and (ii) the holders
of shares of Series A Preferred Stock, Series B Preferred Stock, and Common
Stock entitled to vote shall vote together (or render written consents in lieu
of a vote) as a single class on all matters submitted to the stockholders of the
Corporation, except for the election of directors to the extent not otherwise
expressly provided for.
4.2 Director Election Rights. So long as any shares of Series
B Preferred Stock remain outstanding, (i) the holders of a majority of the
outstanding shares of the Series B Preferred Stock, voting as a separate class,
shall have the right to elect one director of the Corporation (the "Series B
Director"). At any annual or special meeting of the Corporation held for the
purpose of electing directors, the presence in person or by proxy
19
(or by written consent) of the holders of a majority of the outstanding shares
of Series B Preferred Stock shall constitute a quorum for the election or
removal of the Series B Director. The holders of a majority of the shares of
Series B Preferred Stock present in person or by proxy at any meeting relating
to the election of directors (calculated after the determination of a quorum)
shall then be entitled to elect or remove the Series B Director. The Series B
Director shall be removable solely by the holders of the Series B Preferred
Stock.
5. Conversion. The holders of the Series B Preferred Stock shall have
the following rights and be subject to the following obligations with respect to
the Conversion of such shares into shares of Common Stock.
5.1 Voluntary Conversion. Subject to and in compliance with
the provisions of this Section 5, any shares of the Series B Preferred Stock
may, at the option of the holder thereof, be converted at any time and from time
to time into fully-paid and non-assessable shares of Common Stock. The number of
shares of Common Stock which a holder of Series B Preferred Stock shall be
entitled to receive upon conversion shall be the product obtained by multiplying
(i) the number of shares of Series B Preferred Stock being converted at any
time, by (ii) the rate (the "Series B Conversion Rate") equal to the quotient
obtained by dividing $4.76 by the "Series B Conversion Value." The Series B
Conversion Value in effect from time to time, except as adjusted in accordance
with this Section 5, shall be $4.76.
5.2 Automatic Conversion.
5.2.1 Events Causing Conversion. Immediately prior to the
closing of an underwritten public offering on a firm commitment basis pursuant
to an effective registration statement filed pursuant to the Securities Act of
1933, as amended (other than on Form S-4 or S-8 or any successor forms thereto),
covering the offer and sale of Common Stock for the account of the Corporation
in which the Corporation actually receives gross proceeds equal to or greater
than $10,000,000 (calculated before deducting underwriters' discounts and
commissions and other offering expenses), but subject to the closing of such
public offering, all outstanding shares of Series B Preferred Stock shall be
converted automatically into the number of fully paid, non-assessable shares of
Common Stock into which such shares of Series B Preferred Stock are convertible
pursuant to this Section 5 as of the closing and consummation of such
underwritten public offering without any further action by the holders of such
shares and whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent.
5.2.2 Surrender of Certificates Upon Mandatory Conversion.
Upon the occurrence of the conversion event specified in Section 5.2.1,
the holders of the Series B Preferred Stock shall, upon notice from the
Corporation, surrender the
20
certificates representing such shares at the office of the Corporation or its
transfer agent for the Common Stock. Thereupon, there shall be issued and
delivered to such holder a certificate or certificates for the number of shares
of Common Stock into which the shares of Series B Preferred Stock so surrendered
were convertible on the date on which the conversion occurred. The Corporation
shall not be obligated to issue such certificates unless certificates evidencing
such shares of Series B Preferred Stock being converted are either delivered to
the Corporation or any such transfer agent, or the holder notifies the
Corporation that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Corporation to indemnify the
Corporation from any loss incurred by it in connection therewith.
5.3 Anti-Dilution Adjustments.
5.3.1 Upon Dilutive Issuances. If the Corporation shall, while
there are any shares of Series B Preferred Stock outstanding, issue or sell
shares of its Common Stock or "Common Stock Equivalents" (as defined in Section
5.3.2.1 below) without consideration or at a price per share or "Net
Consideration Per Share" (as defined in Section 5.3.3 below) less than the
Series B Conversion Value in effect immediately prior to such issuance or sale,
then in each such case the Series B Conversion Value, except as hereinafter
provided, shall be lowered so as to be equal to an amount determined by
multiplying such Series B Conversion Value by the following fraction:
N + N
0 1
---------
N + N
0 2
Where:
N0 = the number of shares of Common Stock outstanding
immediately prior to the issuance of such additional shares of
Common Stock or Common Stock Equivalents (calculated on a
fully-diluted basis assuming the exercise or conversion of all
then exercisable or convertible options, warrants, purchase
rights and convertible securities).
N1 = the number of shares of Common Stock which the
aggregate consideration, if any (including the Net Consideration
Per Share with respect to the issuance of Common Stock
Equivalents) received or receivable by the Corporation for the
total number of such additional shares of Common Stock so issued
or deemed to be issued would
21
purchase at the Series B Conversion Value in effect immediately
prior to such issuance.
N2 = the number of such additional shares of Common Stock so
issued or deemed to be issued.
The provisions of this Section 5.3.1 may be waived as to all
shares of Series B Preferred Stock in any instance (without the necessity of
convening any meeting of stockholders of the Corporation) upon written agreement
of the holders of two-thirds of the outstanding shares of Series B Preferred
Stock.
5.3.2 Common Stock Equivalents.
5.3.2.1. General. For the purposes of this Section 5.3, the
issuance of any warrants, options, subscription or purchase rights with respect
to shares of Common Stock, any securities convertible into or exchangeable for
shares of Common Stock and any warrants, options, subscription or purchase
rights with respect to such convertible or exchangeable securities
(collectively, "Common Stock Equivalents"), shall be deemed an issuance of
Common Stock. Any obligation, agreement or undertaking to issue Common Stock
Equivalents at any time in the future shall be (deemed to be an issuance at the
time such obligation, agreement or undertaking is made or arises. No adjustment
of the Series B Conversion Value shall be made under this Section 5.3 upon the
issuance of any shares of Common Stock which are issued pursuant to the
exercise, conversion or exchange of any Common Stock Equivalents.
5.3.2.2. Adjustments for Adjustment, Cancellation or
Expiration of Common Stock Equivalents. Should the Net Consideration Per Share
of any such Common Stock Equivalents be decreased from time to time other than
as a result of the application of anti-dilution provisions substantially similar
to the provisions of this Section 5.3, then, upon the effectiveness of each such
change, the Series B Conversion Value will be that which would have been
obtained (1) had the adjustments made pursuant to Section 5.3.2.1 upon the
issuance of such Common Stock Equivalents been made upon the basis of the new
Net Consideration Per Share of such securities, and (2) had the adjustments made
to the Series B Conversion Value since the date of issuance of such Common Stock
Equivalents been made to the Series B Conversion Value as adjusted pursuant to
clause (1) above. Any adjustment of the Series B Conversion Value which relates
to any Common Stock Equivalent shall be disregarded if, as and when such Common
Stock Equivalent expires or is cancelled without being exercised, or is
repurchased by the Company at a price per share at or less than the original
purchase price, so that the Series B Conversion Value effective immediately upon
such cancellation or expiration shall be equal to the Series B Conversion Value
that would have been in effect (1) had the expired or cancelled Common Stock
Equivalent not been issued, and (2) had the adjustments made to the Series B
conversion values
22
since the date of issuance of such Common Stock equivalents been made to the
Series B Conversion Value which would have been in effect had the expired or
canceled Common Stock Equivalent not been issued.
5.3.3 Net Consideration Per Share. For purposes of this
Section 5.3, the "Net Consideration Per Share" which shall be receivable by the
Corporation for any Common Stock issued upon the exercise or conversion of any
Common Stock Equivalents shall be determined as follow:
5.3.3.1. The "Net Consideration Per Share" shall mean the
amount equal to the total amount of consideration, if any, received by the
Corporation for the issuance of such Common Stock Equivalents, plus the minimum
amount of consideration, if any, payable to the Corporation upon exercise, or
conversion or exchange thereof, divided by the aggregate number of shares of
Common Stock that would be issued if such Common Stock Equivalents were
exercised, exchanged or converted.
5.3.3.1. The "Net Consideration Per Share" which shall be
receivable by the Corporation shall be determined in each instance as of the
date of issuance of Common Stock Equivalents without giving effect to any
possible future upward price adjustments or rate adjustments which may be
applicable with respect to such Common Stock Equivalents.
5.3.4 Stock Dividends for Holders of Capital Stock Other Than
Common Stock. In the event that the Corporation shall make or issue (otherwise
than to holders of Common Stock), or shall fix a record date for the
determination of holders of any capital stock of the Corporation, other than
holders of Common Stock, entitled to receive, a dividend or other distribution
payable in Common Stock or securities of the Corporation convertible into or
otherwise exchangeable for shares of Common Stock of the Corporation, then such
Common Stock or other securities issued in payment of such dividend shall be
deemed to have been issued for a consideration of $.01, except for dividends
payable to the holders of Series B Preferred Stock.
5.3.5 Consideration Other Than Cash. For purposes of this
Section 5.3, if a part or all of the consideration received by the Corporation
in connection with the issuance of shares of the Common Stock or the issuance of
any of the securities described in this Section 5.3 consists of property other
than cash, such consideration shall be deemed to have a fair market value as is
reasonably determined in good faith by the Board of Directors of the
Corporation.
5.3.6 Exceptions to Anti-dilution Adjustments; Basket for
Reserved Employee Shares. This Section 5.3 shall not apply (A) under any of the
circumstances which would constitute an Extraordinary Common Stock Event (as
described below), or (B) to any issuance or sale of shares of Common Stock
and/or
23
Common Stock Equivalents in an underwritten public offering not requiring
conversion of the Series B Preferred Stock. Further, this Section 5.3 shall not
apply with respect to (i) the issuance of options to acquire a number of shares
of Common Stock equal to 250,000 minus the number of shares of Common Stock
issuable upon the exercise of the options outstanding on the original issue date
of the Series B Preferred Stock (the "Options") and (ii) the issuance of shares
of Common Stock upon exercise of the options; provided, however, that the number
set forth above may be increased from time to time by the vote or consent of the
Series B Director or by the written consent of the holders of a majority of the
outstanding shares of Series B Preferred Stock. The foregoing numbers shall be
subject to equitable adjustment in the event of any stock divided, stock split,
combination, reorganization, recapitalization, reclassification or other similar
event involving a change in the Common Stock of the Corporation.
5.4 Adjustment Upon Extraordinary Common Stock Event. Upon the
happening of an Extraordinary Common Stock Event (as hereinafter defined), the
Series B Conversion Value shall, simultaneously with the happening of such
Extraordinary Common Stock Event, be adjusted by multiplying the Series B
Conversion Value by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such Extraordinary
Common Stock Event and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such Extraordinary Common Stock
Event, and the product so obtained shall thereafter be the Series B Conversion
Value, which, so adjusted, shall be readjusted in the same manner upon the
happening of any successive Extraordinary Common Stock Event or Events.
An "Extraordinary Common Stock Event" shall mean (i) the
issuance of additional shares of Common Stock as a dividend or other
distribution on outstanding shares of Common Stock, (ii) a subdivision of
outstanding shares of Common Stock into a greater number of shares of Common
Stock, or (iii) a combination or reverse stock split of outstanding shares of
Common Stock into a smaller number of shares of the Common Stock.
5.5 Adjustment Upon Dividends. In the event the Corporation
shall make or issue, or shall fix a record date for the determination of holders
of Common Stock entitled to receive, a dividend or other distribution (other
than a distribution in liquidation or other distribution otherwise provided for
herein) with respect to the Common Stock payable in (i) securities of the
Corporation other than shares of Common Stock, or (ii) other assets (excluding
cash dividends or distributions), then and in each such event provision shall
be made so that the holders of the Series B Preferred Stock shall receive upon
conversion thereof in addition to the number of shares of Common Stock
receivable thereupon, the number of securities or such other assets of the
Corporation which they would have received had their Series B Preferred Stock
been converted into Common Stock
24
on the date of such event and had they thereafter, during the period from the
date of such event to and including the Conversion Date, retained such
securities or such other assets receivable by them, giving application to all
other adjustments called for during such period under this Section 5.
5.6 Adjustment Upon Capital Reorganization or
Reclassification. If the Common Stock shall be changed into the same or
different number of shares of any other class or classes of capital stock,
whether by capital reorganization, recapitalization or otherwise, then and in
each such event the holder of each share of Series B Preferred Stock shall have
the right thereafter to convert such share into, in lieu of the number of shares
of Common Stock which the holder would otherwise have been entitled to receive,
the kind and amount of shares of capital stock and other securities and
property receivable upon such reorganization, recapitalization, reclassification
or other change by the holders of the number of shares of Common Stock into
which such shares of Series B Preferred Stock could have been converted
immediately prior to such reorganization, recapitalization, reclassification or
change, all subject to further adjustment as provided herein. The provision for
such conversion right shall be a condition precedent to the consummation by the
Corporation of any such transaction.
5.7 Certificate as to Adjustments; Notice by Corporation. In
each case of an adjustment or readjustment of the Series B Conversion Rate, the
Corporation at its expense will furnish each holder of Series B Preferred Stock
so affected, upon such holder's written request therefor, with a certificate
prepared by the Treasurer or Chief Financial Officer of the Corporation, showing
such adjustment or readjustment, and stating in detail the facts upon which such
adjustment or readjustment is based.
5.8 Exercise of Conversion Privilege. To exercise its
conversion privilege, a holder of Series B Preferred Stock shall surrender the
certificate or certificates representing the shares being converted to the
Corporation at its principal office, and shall give written notice to the
Corporation at that office that such holder elects to convert such shares. Such
notice shall also state the name or names (with address or addresses) in which
the certificate or certificates for shares of Common Stock issuable upon such
conversion shall be issued. The certificate or certificates for shares of Series
B Preferred Stock surrendered for conversion shall be accompanied by proper
assignment thereof to the Corporation or in blank. The date when such written
notice is received by the Corporation, together with the certificate or
certificates representing the shares of Series B Preferred Stock being
converted, shall be the "Conversion Date." As promptly as practicable after the
Conversion Date, the Corporation shall issue and deliver to the holder of the
shares of Series B Preferred Stock being converted, or on its written order,
such certificate or certificates as it
25
may request for the number of whole shares of Common Stock issuable upon the
conversion of such shares of Series B Preferred Stock in accordance with the
provisions of this Section 5, and cash, as provided in Section 5.9, in respect
of any fraction of a share of Common Stock issuable upon such conversion. Such
conversion shall be deemed to have been effected immediately prior to the close
of business on the Conversion Date, and at such time the rights of the holder as
holder of the converted shares of Series B Preferred Stock shall cease and the
person(s) in whose name(s) any certificates(s) for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become the holder or
holders of record of the shares of Common Stock represented thereby.
5.9 Cash in Lieu of Fractional Shares. No fractional shares of
Common Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series B Preferred Stock. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon conversion of
Series B Preferred Stock, the Corporation shall pay to the holder of the shares
of Series B Preferred Stock which were converted a cash adjustment in respect of
such fractional shares in an amount equal to the same fraction of the market
price per share of the Common Stock (as determined in a reasonable manner
prescribed by the Board of Directors) at the close of business on the Conversion
Date. The determination as to whether or not any fractional shares are issuable
shall be based upon the aggregate number of shares of Series B Preferred Stock
being converted at any one time by any holder thereof, not upon each share of
Series B Preferred Stock being converted.
5.10 Partial Conversion. In the event some but not all of the
shares of Series B Preferred Stock represented by a certificate(s) surrendered
by a holder are converted, the Corporation shall execute and deliver to or on
the order of the holder, at the expense of the Corporation, a new certificate
representing the number of shares of Series B Preferred Stock which were not
converted.
5.11 Reservation of Common Stock. The Corporation shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of the shares
of the Series B Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series B Preferred Stock (including any shares of
Series B Preferred Stock represented by any warrants, options, subscription or
purchase rights for Series B Preferred Stock) and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series B Preferred Stock
(including any shares of Series B Preferred Stock represented by any warrants,
options, subscriptions or purchase rights for Series B Preferred Stock), the
Corporation shall take
26
such action as may be necessary to increase its authorized but unissued shares
of Common Stock to such number of shares as shall be sufficient for such
purpose.
6. Redemption
6.1 Optional Redemption. Commencing at any time on or after
December 31, 2000 at the option and written election of Corporation, the
Corporation may redeem at any time and from time to time all or a part of the
outstanding shares of Series B Preferred Stock, at the price and terms stated in
this Section 6.
The redemption price for each share of Series B Preferred
Stock redeemed pursuant to this Section 6 shall be original issue price per
share of Series B Preferred Stock, plus all accrued and unpaid dividends
thereon, if any, whether or not earned or declared, on such shares up to and
including the date fixed for redemption (the "Series B Redemption Price"). Each
redemption of shares of Series B Preferred Stock shall be made so that the
number of shares of Series B Preferred Stock held by each registered holder
shall be reduced in an amount which shall bear the same ratio to the total
number of shares of Series B Preferred Stock being so redeemed as the number of
shares of Series B Preferred Stock then held by such registered holder bears to
the aggregate number of shares of Series B Preferred Stock then outstanding.
6.2 Mandatory Redemption. Commencing at any time on or after
December 31, 2000 at the option and written election of the holders of a
majority of the outstanding shares of Series B Preferred Stock, the Corporation
shall redeem all or a portion of the outstanding shares of Series B Preferred
Stock specified in such election, at the price and terms stated in this Section
6.
The redemption price for each share of Series B Preferred
Stock redeemed pursuant to this Section 6 shall be the Series B Redemption
Price. Each redemption of shares of Series B Preferred Stock shall be made so
that the number of shares of Series B Preferred Stock held by each registered
holder shall be reduced in an amount which shall bear the same ratio to the
total number of shares of Series B Preferred Stock being so redeemed as the
number of shares of Series B Preferred Stock then held by such registered holder
bears to the aggregate number of shares of Series B Preferred Stock then
outstanding.
6.3 Equitable Adjustment. The Series B Redemption Price set
forth in this Section 6 shall be subject to equitable adjustment whenever there
shall occur a stock split, stock dividend, combination, reorganization,
recapitalization, reclassification or other similar event involving a change in
the Preferred Stock.
6.4 Redemption Notice. If the Corporation or the holders of a
majority of the outstanding shares of Series B
27
Preferred Stock, as the case may be, elect to have the Corporation redeem all of
the outstanding shares of Series B Preferred Stock as aforesaid, notice to that
effect shall be given by such holders to the Corporation, or by the Corporation
to such holders, as the case may be, at least 45 days prior to the Redemption
Date (as defined below), which notice shall also set forth the date fixed for
redemption pursuant to this Section 6 (hereinafter referred to as the
"Redemption Date"). If such notice is given, then at least 45 days prior to the
Redemption Date, written notice (hereinafter referred to as the "Redemption
Notice") shall be mailed, postage prepaid, by the Corporation to each holder of
record of the Series B Preferred Stock which is to be redeemed, at its address
shown on the records of the Corporation; provided, however, that the
Corporation's failure to give such Redemption Notice shall in no way affect its
obligation to redeem the shares of Series B Preferred Stock as provided in
Section 6.1 or 6.2 hereof. The Redemption Notice shall contain the following
information:
(i) the number of shares of Series B Preferred Stock
held by the holder which shall be redeemed by the Corporation
and the total number of shares of Series B Preferred Stock held
by all holders to be so redeemed;
(ii) the Redemption Date and the applicable
Series B Redemption Price; and
(iii) that the holder is to surrender to the
Corporation, at the place designated therein, its certificate or
certificates representing the shares of Series B Preferred Stock
to be redeemed.
The rights of the holders of the Series B Preferred Stock to convert the Series
B Preferred Stock into Common Stock pursuant to Section C.5.1 hereof shall
continue in full force and effect until the Redemption Date, notwithstanding the
giving of the Redemption Notice.
6.5 Surrender of Certificates. Each holder of shares of Series
B Preferred Stock to be redeemed shall surrender the certificate(s) representing
such shares to the Corporation at the place designated in the Redemption Notice,
and thereupon the Series B Redemption Price for such shares as set forth in this
Section 6 shall be paid to the order of the person whose name appears on such
certificate(s) and each surrendered certificate shall be cancelled and retired.
In the event some but not all of the shares of Series B Preferred Stock
represented by a certificate(s) surrendered by a holder are being redeemed, the
Corporation shall execute and deliver to or on the order of the holder, at the
expense of the Corporation, a new certificate representing the number of shares
of Series B Preferred Stock which were not redeemed.
28
6.6 Dividends after Redemption. From and after the later of
the Redemption Date or 45 days from the date the Corporation shall have given
the Redemption Notice, no shares of Series B Preferred Stock subject to
redemption shall be entitled to any further dividends pursuant to Section 2
hereof.
6.7 Insufficient Funds for Redemption. If the funds of the
Corporation legally available for redemption of Series B Preferred Stock on the
Redemption Date are insufficient to redeem the number of shares of Series B
Preferred Stock to be so redeemed on such Redemption Date, the holders of shares
of Series B Preferred Stock shall share ratably in any funds legally available
for redemption of such shares according to the respective amounts which would be
payable with respect to the number of shares owned by them if the shares to be
so redeemed on such Redemption Date were redeemed in full. The shares of Series
B Preferred Stock not redeemed shall remain outstanding and entitled to all
rights and preferences provided herein, notwithstanding Section 6.6 above. At
any time thereafter when additional funds of the Corporation are legally
available for the redemption of such shares of Series B Preferred Stock, such
funds will be used, at the end of the next succeeding fiscal quarter, to redeem
the balance of such shares, or such portion thereof for which funds are then
legally available, on the basis set forth above. In the event that funds are not
legally available for the payment in full of the aggregate Series B Redemption
Price for the actual number of shares of Series B Preferred Stock to be so
redeemed on the Redemption Date, then the Corporation shall be obligated to make
such partial redemption so that the number of shares of Series B Preferred Stock
held by each registered holder shall be reduced in an amount which shall bear
the same ratio to the actual number of shares of Series B Preferred Stock
required to be redeemed on such Redemption Date as the number of shares of
Series B Preferred Stock then held by such registered holder bears to the
aggregate number of shares of Series B Preferred Stock required to be redeemed
on any such Redemption Date. The rights of redemption of shares of Series B
Preferred Stock are subject to the rights of (i) the Series A Preferred Stock
which shall be pari passu in priority with the Series B Preferred Stock as to
redemption rights, and (ii) any other class or series of Preferred Stock
designated to be senior to, or on a parity with, the Series B Preferred Stock as
to redemption rights.
7. Restrictions and Limitations on Corporate Action.
The Corporation shall not take any corporate action or amend
this Second Restated Certificate of Incorporation without the approval by vote
or written consent of the holders of at least a majority of the then outstanding
shares of Series B Preferred Stock, voting as a single class, each share of
Series B Preferred Stock to be entitled to one vote in each instance, if such
corporate action or amendment would change any of the rights, preferences,
privileges of or limitations provided for herein for the benefit of any shares
of Series B Preferred Stock.
29
Without limiting the generality of the preceding sentence, the Corporation will
not amend this Second Restated Certificate of Incorporation or take any other
corporate action without the approval by the holders of at least a majority of
the then outstanding shares of Series B Preferred Stock, voting as a single
class, if such amendment or corporate action would:
(a) cause or authorize the Corporation to redeem,
purchase or otherwise acquire for value (or pay into or set aside
for a sinking fund for such purpose), any share or shares of
equity securities of the Corporation other than as provided for
in Section 2 hereof; or
(b) authorize, create or issue, or obligate the
Corporation to authorize, create or issue, additional shares of
Series B Preferred Stock or of any class of stock ranking senior
to or on a parity with the Series B Preferred Stock with respect
to liquidation preferences, dividend rights or redemption
rights; or
(c) reduce the amount payable to the holders of Series
B Preferred Stock upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; or
(d) adversely affect the liquidation preferences,
dividend rights or voting rights of the holders of Series B
Preferred Stock; or
(e) cancel or modify the conversion rights of the
holders of Series B Preferred Stock provided for in Section 5
herein.
8. No Dilution or Impairment. The Corporation will not, by amendment of
this Second Restated Certificate of Incorporation or through any reorganization,
transfer of capital stock or assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of the Series B Preferred Stock
set forth herein, but will at all times in good faith assist in the carrying out
of all such terms.
9. Notices of Record Date. In the event of
(a) any taking by the Corporation of a record of the
holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividends or
other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of capital stock of any class or any
other securities or property, or to receive any other right, or
(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the
30
capital stock of the Corporation, any merger or consolidation of
the Corporation, or any transfer of all or substantially all of
the assets of the Corporation to any other corporation, or any
other entity or person, or
(c) any voluntary or involuntary dissolution,
liquidation or winding up of the Corporation,
then and in each such event the Corporation shall mail or cause to be mailed to
each holder of Series B Preferred Stock a notice specifying (i) the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right and a description of such dividend, distribution or right,
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (iii) the time, if any, that is
to be fixed, as to when the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common Stock (or other
securities) for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding up. Such notice shall be mailed by
first class mail, postage prepaid, at least ten (10) days prior to the date
specified in such notice on which action is being taken.
10. Status of Converted or Repurchased Series B Preferred Stock. Any
share or shares of Series B Preferred Stock acquired by the Corporation by
reason of redemption, purchase, conversion or otherwise shall be returned to the
status of authorized but unissued shares of undesignated Preferred Stock. Upon
the cancellation of all outstanding shares of Series B Preferred Stock, the
provisions of this Chapter C regarding the description and designation of Series
B Preferred Stock shall terminate and have no further force and effect.
11. Original Issue Price. The original issue price shall be the amount
paid per share for the stock upon its issuance to a holder and may be a
different price for different issuances of Series B Preferred Stock.
II. COMMON STOCK
1. Priority. All preferences, voting powers, relative, participating,
optional or other special rights and privileges, and qualifications, limitations
or restrictions of the Common Stock are expressly made subject to and
subordinate to those that may be fixed with respect to the Preferred Stock.
2. Voting Right. Each holder of record of Common Stock shall be
entitled to one vote for each share of Common Stock standing in his name on the
books of the Corporation. Except as otherwise required by law, or as otherwise
expressly provided in Section 4 of Chapter B and Section 4 of Chapter C of Part
I of
31
this Article Fourth and elsewhere in this Second Restated Certificate of
Incorporation and in any Certificate of Designation heretofore or hereafter
filed with respect to any Preferred Stock, the holders of Common Stock shall
vote together as a single class on all matters submitted to stockholders for a
vote.
3. Dividends. Subject to provisions of law, this Second Restated
Certificate of Incorporation and any Certificate of Designation with respect to
any Preferred Stock, the holders of Common Stock shall be entitled to receive
dividends out of funds legally available therefor at such times and in such
amounts as the Board of Directors may determine in their sole discretion.
4. Liquidation. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after the payment or provision
for payment of all debts and liabilities of the Corporation and all preferential
amounts to which the holders of the Preferred Stock are entitled with respect to
the distribution of assets in liquidation, the holders of Common Stock shall be
entitled to share ratably in the remaining assets of the Corporation available
for distribution.
5. The Board of Directors of the Corporation is expressly authorized to
adopt, amend or repeal by-laws of the Corporation with the vote at a duly held
meeting of two-thirds of the members of the Board of Directors or with the
written consent of all of the members of the Board of Directors in lieu of a
meeting, subject to any rights of holders of Preferred Stock.
6. The number of directors of the Corporation shall be fixed from time
to time by the Board of Directors, provided that such number shall not be less
than five nor more than nine. Elections of directors need not be by written
ballot except and to the extent provided in the by-laws of the Corporation.
7. The Corporation shall, to the maximum extent permitted from time to
time under the laws of the State of Delaware, indemnify and upon request shall
advance expenses to any person who is or was a party or is threatened to be made
a party to any threatened, pending or completed action, suit, proceeding or
claim, whether civil, criminal, administrative or investigative, by reason of
the fact that he is or was or has agreed to be a director or officer of the
Corporation or while a director or officer is or was serving at the request of
or as the agent of the Corporation as a director, officer or the agent of any
other corporation, partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, against any and all
expenses (including attorney's fees and expenses), judgments, fines, penalties
and amounts paid in settlement or incurred in connection with the investigation,
preparation to defend or defense of such action, suit, proceeding or claim;
provided, however, that the foregoing shall not require the Corporation to
indemnify or advance expenses to any person in
32
connection with any action, suit, proceeding, claim or counterclaim initiated by
or on behalf of such person. Such rights arising under any by-law, agreement,
vote of directors or stockholders or otherwise and shall inure to the benefit of
the heirs and legal representatives of such person. Any repeal or modification
of the foregoing provisions of this Article SEVENTH shall not adversely affect
any right or protection of a director or officer of this Corporation existing at
the time of such repeal or modification.
8. A director of the Corporation shall not be liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent that such exemption from liability or limitation
thereof is not permitted under the DGCL as currently in effect or as the same
may hereafter be amended. No amendment, modification or repeal of this Article
EIGHTH shall adversely affect any right or protection of a director that exists
at the time of such amendment, modification or repeal.
9. The Corporation is to have perpetual existence.
IN WITNESS WHEREOF, DLB Systems, Inc. has caused this Second Restated
Certificate of Incorporation to be executed by its duly authorized officers on
the 26th day of June, 1997.
DLB SYSTEMS, INC.
By: ________________________________
▇▇▇▇ ▇. ▇▇▇▇, Chairman
33
EXHIBIT 2.02(g)
DLB LICENSE AGREEMENT TO PRWW
EVALUATION LICENSING AGREEMENT
BETWEEN
DLB SYSTEMS, INC. ("DLB")
Of
▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
AND
PREMIER RESEARCH WORLDWIDE LIMITED ("Customer")
Of
▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
DLB and the Customer agree that the following terms and conditions shall govern
the licensing and provision of the computer software system and services
specified in Schedule A of this Agreement.
This Agreement (including referenced Schedules and Addenda) is the entire
Agreement between the parties and supersedes all prior communications, oral or
written, between the parties with respect to the subject matter hereof. Changes
to this agreement may only be made by mutual written agreement of the parties.
Agreement Date: ________________________________ 19__
For DLB SYSTEMS INC.: For the CUSTOMER:
Signature:_________________________ Signature:_________________________
Printed: _________________________ Printed: _________________________
Title: _________________________ Title: _________________________
Date: _________________________ Date: _________________________
1
1. DEFINITION OF TERMS USED
ADDITIONAL CONSULTANCY: Shall mean services provided by DLB at Customer's
request beyond the scope of this Agreement.
AUTHORIZED USERS: Shall mean those employees, agents and independent contractors
employed or commissioned by the Customer, each of whom are licensed to access
and use the Product(s) subject to the restrictions in Schedule A.
CPU TYPE: Shall mean the class of CPUs resident in either the client or server
or both upon which the Product(s) are used and supported as further defined in
Schedule A and listed in such Schedule.
DOCUMENTATION: Shall mean DLB's published software manuals and any information
or material supplied by DLB, in any form, with the Products or pursuant to this
Agreement which is not defined by the terms Object Code or Source Code.
INSTALLATION DATE: Shall be the date the Products are installed on the first
server computer defined in Schedule A.
LICENSE: Shall mean this License Agreement and the rights and obligations it
creates under the United States Copyright Law and laws of Delaware.
NEW RELEASE: Shall be any improved modified or corrected version of the Product
from time to time issued by DLB.
OBJECT CODE: Shall mean forms of the Products which are computer executable.
Object Code shall exclude Source Code.
ORACLE: Shall mean the Relational Database Management System and related
software produced, owned and licensed by the Oracle Corporation of California,
USA. ORACLE is a registered trademark of Oracle Corporation.
PRODUCTS: Shall mean any proprietary computer software programs owned or
developed by DLB or any separable program module or any customized or amended
version thereof in object code form together with any related Documentation. The
Products listed in Schedule A are the intellectual property of DLB.
SERVICES: Shall mean the Services to be provided by DLB as described in this
Agreement and in Schedule A.
SITE(S): Shall mean the designated Customer location at ▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, wherein the CPU Type is located.
SOURCE CODE: Shall mean the human-readable portion of the Products.
USE: Shall mean the ability of the Authorized Users to copy the Object Code into
the CPU Types for internal processing only.
WARRANTY PERIOD: Shall mean that 90 day period of time beginning on the
Installation Date.
2. PRODUCTS AND SERVICES PROVIDED BY DLB
2.1 DLB will provide the Products and Services defined in this Agreement and
in Schedule A, subject to the Customer not having committed any breach of the
terms of this Agreement.
3. LICENSES GRANTED
3.1 OBJECT CODE ONLY LICENSE
Subject to compliance with the terms of this Evaluation Licensing Agreement,
DLB hereby grants to the Authorized Users of the Customer a royalty-free,
non-exclusive, non-transferrable license to use and evaluate the Products on
the CPU Types at the Site, limited however to use in conjunction with
Customer's standard business operations and not for any large-scale
productive use involving any hospitals or similar entities. Large scale
productive use shall mean use of Products in a project in which the Customer
receives revenue from the use of the Product in such Project that equals or
exceeds $120,000.
Customer may not decompile, disassemble, reverse engineer, modify, sell,
rent, reproduce, distribute, lease, publicly perform or publicly display the
Products, except as expressly provided for in this Evaluation License
Agreement.
3.2 THIRD PARTY LICENSES
In the event that additional licenses or other proprietary software must be
acquired from third parties (including, but not limited to the operating
system and network management software and Oracle Relational Database
Management System and SQR) for the operation of the Products the Customer
shall be solely responsible for obtaining and complying with the terms of
such licenses of software.
DLB MAKES NO WARRANTIES OF ANY KIND IN CONNECTION WITH THE THIRD
2
PARTY SOFTWARE WHETHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, ANY
IMPLIED WARRANTIES OF MERCHANT-ABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
3.3 COPYING OF THE PRODUCTS
Subject to compliance with the terms of this Agreement, DLB hereby grants
permission for the Customer to make such copies of the Products as are
reasonably required for the exclusive purposes of backup and security of
operation provided always that adequate records are kept of the purpose and
location of each copy. All such records shall be available to DLB upon
reasonable request.
Customer shall reproduce on all copies of the Products, or any part thereof,
the same proprietary notices or legends which appear on the original copy of
the Products provided hereunder. Copies of the Products, or any part thereof,
shall be the exclusive property of DLB.
4. INTELLECTUAL PROPERTY
4.1 The Products and all copies thereof are proprietary and confidential to
DLB and exclusive title shall remain in DLB. All applicable rights to
copyright patents, and other intellectual property rights in the Products are
the exclusive property of DLB.
4.2. Customer acknowledges that all rights, title and interest in and to any
trademarks, trade names, logos and identifying slogans associated with the
Products (the "Trademarks"), whether or not registered before the United
States Patent and Trademark Office or before any appropriate foreign
trademark office, belong exclusively to DLB and Customer will not contest
such ownership.
4.3. DLB hereby grants to Customer a non-transferable and non-exclusive right
to use the Trademarks in connection with the Products for the term of this
Agreement.
4.4. Customer acknowledges the considerable investment of DLB in the
Products, and agrees and acknowledges that the Trademarks have an established
prestige and goodwill, have an established secondary meaning, are recognized
by the trade and consuming public, and are of great importance and value to
DLB. Accordingly, Customer agrees that its use of said Trademarks shall be
strictly in accordance with this Agreement and in a commercially acceptable
and responsible manner and style to protect and enhance the
prestige of the Trademarks and DLB, and that no such use of the Trademarks
shall reflect adversely upon the good name of DLB. In furtherance of this
purpose and intent, Customer shall submit to DLB or its authorized
representative, for prior written approval, samples of all uses of the
Trademarks, including without limitation, samples of all advertising and
business materials which Customer proposes to use and which will bear the
licensed Trademarks.
5. INVOICING AND PAYMENT
5.1 There shall be no license fee charges to Customer for the evaluation only
license hereunder; however, Customer agrees to pay for all support costs in
connection therewith, as provided in Schedule A. In the event Customer
acquires licenses for production use of the Products as set forth in Schedule
A, then DLB shall invoice the Customer for the fees and services set forth in
Schedule A of this Agreement, including any taxes, duties and shipping costs,
as follows:
5.1.1 License Fees and Customer Support shall be invoiced upon shipment of
the Software.
5.1.2 Training, consulting services, travel reimbursement shall be invoiced
after such services have been delivered.
5.2 The Customer shall make payment for invoices (including taxes or duties)
within thirty (30) days of the invoice date. In the event of late payment an
additional charge of 1.5% per month shall be made on the overdue balance and
any accrued charges. In the event Customer fails to make any payment in
accordance with this Section 5.2, DLB shall have the right to declare the
entire unpaid balance immediately due and payable and turn over the
Customer's account for collection, and Customer shall also be liable for all
of DLB's reasonable collection costs, including reasonable attorney's fees
and expenses.
6. CONFIDENTIALITY
6.1 The Customer shall keep the Products strictly confidential and limit
access to the Products to those of its employees, agents, sub-contractors or
consultants who either have a need to know or are engaged in the use of the
Products. Customer shall take appropriate action by instruction or agreement
with its employees, agents, sub-contractors and consultants who are
permitted access to the Products to satisfy its obligations hereunder.
Without limiting the generality of the
3
foregoing, Customer shall take such other reasonable steps as shall from time
to time be necessary to protect the confidential and intellectual property
rights of DLB in the Products.
6.2 DLB shall keep confidential all information relating to the Customer's
use and application of the Products and shall not disclose any such
information to a third party without the prior written consent of the
Customer.
6.3 Customer agrees that any inadvertent or deliberate disclosure may cause
irreparable harm to DLB. Therefore, Customer agrees that, at DLB's
discretion, DLB may seek injunctive relief, ▇▇▇ for money damages or seek
criminal prosecution; and, in the case injunctive relief is sought, Customer
agrees not to oppose DLB's request for such relief or to require DLB to post
a bond or other security in connection therewith.
7. GENERAL PROVISIONS
7.1 The Customer shall not be entitled to assign any rights, licenses or
other benefits under this Agreement to any third party without the written
permission of DLB, which permission may be granted or withheld in DLB's sole
discretion.
7.2 Failure by either party to enforce any term or condition of this
Agreement shall not be deemed a waiver of the right to enforce that term or
condition at any other time.
7.3 The Customer and DLB are independent and no relationship of joint
venture, partnership or agency exists between them.
7.4. This Agreement shall be governed by the laws of the State of Delaware
and Customer consents to the exercise of the non-exclusive jurisdiction of
the State and Federal courts of Delaware. The parties agree to exclude, in
its entirety, the application of the United Nations Convention On Contracts
for the International Sale of Goods.
7.5 Except for equitable proceedings commenced by DLB which may be brought
in any court of competent jurisdiction, any controversy or claim arising out
of or related to this Agreement shall be adjudicated in the federal or
state courts of the State of Delaware and the parties hereto consent to the
exclusive personal jurisdiction and venue thereof for this purpose.
8. WARRANTY
8.1. DLB represents and warrants that the Products will be substantially
capable of
performing the functions described in the supplied Documentation during the
Warranty Period when operated on the CPU(s) with the operating system and
ancillary software and hardware identified in Schedule A. DLB's sole and
exclusive obligation under this warranty shall be, at its option, to either
repair or replace the Products which fail to substantially meet this
standard during the Warranty Period. The foregoing shall be Customer's sole
and exclusive remedy.
8.2. DLB does not warrant that the functions contained in the Products will
meet the Customer's requirements or will operate in the combinations which
may be selected for use by the Customer or that the operation of the
Products will be uninterrupted or error free.
8.3. DLB warrants that it will perform the Services detailed herein with
reasonable care and skill.
8.4. THE WARRANTY SET FORTH IN THIS SECTION 8 IS THE SOLE WARRANTY GIVEN BY
DLB IN CONNECTION WITH THE PRODUCTS AND SERVICES PROVIDED HEREUNDER AND NO
OTHER WARRANTIES SHALL BE IMPLIED INCLUDING, WITHOUT LIMITATION, WARRANTIES
OF MERCHANT-ABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND ALL SUCH
WARRANTIES ARE HEREBY EXCLUDED BY DLB AND WAIVED BY CUSTOMER.
9. LIMITATION OF LIABILITY
IN NO EVENT SHALL DLB, ITS AGENTS OR EMPLOYEES, HAVE ANY LIABILITY TO
CUSTOMER OR ANY THIRD PARTY FOR INCIDENTAL, INDIRECT, SPECIAL OR
CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION, LOST PROFITS, LOSS OF
DATA, LOSS OF USE OR CLAIMS OF THIRD PARTIES). DLB SHALL NOT HAVE ANY
LIABILITY FOR DIRECT DAMAGES IN EXCESS OF THE SUM OF THE AMOUNTS PREVIOUSLY
PAID TO DLB WHETHER BY NEGLIGENCE OR OTHERWISE, WHETHER OR NOT DLB HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.
10. DURATION OF AGREEMENT
This Evaluation License will continue until December 31, 1998, unless
extended by a mutually written agreement between DLB and Customer, and
unless sooner terminated in
4
accordance with the provisions of Section 11 or 12.3 below. During the term
of this Agreement, if Customer desires to employ the DBL Products for
significant production use at the designated Site, then DLB and Customer will
enter into a production use license, with substantially the same terms and
conditions set forth herein, for the fees set forth on Schedule A attached
hereto and providing that the duration of such production license shall
continue until terminated in accordance with the provisions of Section 11 or
12.3 below.
11. TERMINATION
11.1 This Agreement may be terminated:
11.1.1. forthwith by DLB if the Customer fails to pay any sum due
hereunder within ten (10) days of the due date thereof provided any amount
so due is not reasonably in dispute;
11.1.2. forthwith by either party if the other commits any material breach
of any term of this Agreement (other than one falling within 11.1.1
above) and which (in the case of a breach capable of being remedied) shall
not have been remedied within thirty (30) days of a written request to
remedy the same;
11.1.3. Forthwith by either party, if the other party files or has filed
against it a petition in bankruptcy (or any similar petition under any
insolvency law of any jurisdiction), proposes any dissolution,
liquidation, composition, financial reorganization or recapitalization
with creditors, or if a receiver, trustee, custodian, or similar agent is
appointed or takes possession of any property or business of either party.
11.2 Any termination of this Agreement pursuant to this section 11 shall be
without prejudice to any other rights or remedies a party may be entitled to
hereunder at law or equity and shall not affect any accrued rights or
liabilities of either party nor the coming into or continuance in force of
any provision hereof which is expressly or by implication intended to come
into or continue in force on or after such termination.
11.3 Subject to section 11.4 below within thirty (30) days of the
termination of this Agreement (howsoever and by whomsoever occasioned) the
Customer shall destroy all copies of the Products in its possession and a
duly authorized officer of the Customer shall certify in writing to DLB that
the Customer has complied with such obligation.
11.4. Notwithstanding the provisions of Section 11.3 above the Customer
shall be entitled
to keep one copy of the Products free of charge in a fire-proof room for
archival purposes only. If the Customer uses the Products (or any part
thereof) other than for archival purposes it shall become liable to pay DLB
its then current charges for the use of the Products or any equivalent
software then licensed in substitution for the Products.
11.5. The provisions of Sections 3.2, 4, 6, 8.4 and 9 of this Agreement
shall survive termination for whatever reason.
11.6 No refund of support charges shall be made in the event of termination
for any reason.
12. FORCE MAJEURE
12.1 Neither party hereto shall be liable for any breach of its obligations
hereunder resulting from causes beyond its reasonable control including but
not limited to fire, strikes (of its own or other employees) insurrection or
riots, embargoes, wrecks or delays in transportation, inability to obtain
supplies and raw materials, requirements or regulations of any civil or
military authority (an "Event of Force Majeure").
12.2 Each of the parties hereto agrees to give notice forthwith to the other
upon becoming aware of an Event of Force Majeure such notice to contain
details of the circumstances giving rise to the Event of Force Majeure.
12.3 If a default due to an Event of Force Majeure shall continue for more
than three months then the party not in default shall be entitled to
terminate this Agreement as a result of an Event of Force Majeure.
13. INVALIDITY AND SEVERABILITY
13.1 If any provision of this Agreement shall be found by any court of
competent jurisdiction to be invalid or unenforceable, the invalid or
unenforceable provision shall not affect the other provisions of this
Agreement and all provisions not affected by such invalidity or
unenforceability shall remain in full force and effect.
13.2 The parties hereby agree to attempt to substitute for any invalid or
unenforceable provision a valid or enforceable provision which achieves to
the greatest extent possible the economic, legal and commercial objectives
of the invalid or unenforceable provision.
14. HEADINGS
Headings to sections in this Agreement are for the purpose of information
and identification only and shall not be construed as forming part of this
Agreement.
5
15. DELIVERY
DLB shall notify the Customer forthwith of any act or omission by the
Customer which may adversely affect DLB's ability to deliver the Products (a
"Customer Imposed Delay").
16. NOTICES
Any notice, request, instruction or other document to be given hereunder
shall be delivered or sent by first class mail or by telex or facsimile
(such telex or facsimile notice to be confirmed by letter mailed within 12
hours) to the address of the other party set out in this Agreement (or such
other address as may have been provided in the interim).
17. INTELLECTUAL PROPERTY RIGHTS INDEMNITY
17.1 DLB will indemnify and hold the Customer harmless against damages
(including reasonable attorneys fees) that may be awarded or agreed to be
paid to any third party in respect of a claim or action that the normal
operation, possession or use of the Products by the Customer infringes the
patent, copyright, registered design or trade ▇▇▇▇ rights of said third
party (an "Intellectual Property Infringement") provided that the Customer:
17.1.1 gives notice to DLB of any Intellectual Property Infringement
immediately upon becoming aware of the same;
17.1.2 gives DLB the sole right to conduct the defense of any claim or
action in respect of an Intellectual Property Infringement and does not at
any time admit liability or otherwise attempt to settle or compromise the
said claim or action except upon the express instructions of DLB; and
17.1.3 acts in accordance with the reasonable instructions of DLB and
gives to DLB such assistance as it shall reasonably require in respect of
the conduct of the said defense including, without prejudice to the
generality of the foregoing, the filing of all pleadings and other court
process and the provision of all relevant documents.
17.2 DLB shall reimburse the Customer its actual costs incurred in complying
with the provisions of section 17.1 above.
17.3 DLB shall have no liability to the Customer in respect of an
Intellectual Property Infringement if the same results from any breach of
the Customer's obligations under this Agreement, or from the use or
operation of the Products with
any software, hardware or other equipment not provided or approved by DLB.
17.4 In the event of an Intellectual Property Infringement DLB shall be
entitled, at its own expense and option, either to:
17.4.1 procure the right for the Customer to continue using the Products;
or
17.4.2 make such alterations, modifications or adjustments to the Products
such that they become non-infringing without incurring a material
diminution in performance or function; or
17.4.3 replace the Products with non-infringing substitutes provided that
such substitutes do not entail a material diminution in performance or
function.
17.5 If DLB, in its reasonable judgment, is not able to exercise any of the
options set out at sections 17.4.1, 17.4.2, 17.4.3 above within thirty (30)
days of the date it received notice of the Intellectual Property
Infringement, then the Customer shall be entitled to terminate this
Agreement effective immediately. Upon any such termination the provisions of
section 11.3 (but not 11.4) shall apply.
17.6. The foregoing states the entire liability of DLB with respect to an
Intellectual Property Infringement.
18. CUSTOMER'S RESPONSIBILITIES
18.1 The Customer will make available sufficient resources and facilities
that DLB may reasonably request in order to provide the Products and
Services described herein.
18.2 Not withstanding the generality of section 18.1 above the Customer
shall ensure that in order to provide the Products and Services detailed
herein:
A. DLB staff are permitted reasonable access to the Customer's hardware
and that appropriate technical personnel are made available to assist DLB
staff by providing technical expertise and support relating to the
Customer's installed hardware and other third party software.
B. The hardware and third party software required for the operation of the
Products are correctly installed and set up in accordance with the
suppliers recommendations. Such hardware and third party software shall
include those items noted in Schedule
C. The Customer's technical staff shall assist in or perform any
modifications to such third party
6
software as may be reasonably requested by DLB for the purposes of
installing or permitting the efficient operation of the Products.
18.3 The Customer shall nominate a suitably qualified member of the
Customer's staff (the "Project Manager") who shall be empowered by the
Customer to take such decisions and instigate any actions which may be
required from time to time by the Customer to facilitate the timely and
efficient provision of the Products and Services detailed herein. The
Project Manager shall be the primary point of contact between DLB and the
Customer from the date hereof until Acceptance of the Products and shall
allocate sufficient time as may reasonably be required commensurate with the
duties detailed in this section 18.3.
19. SOFTWARE SUPPORT
The Customer will purchase Software Support from DLB as provided herein.
19.1 PERIOD OF SUPPORT The initial period of Software Support shall be for a
period of one year from the date of installation on the first server
computer. Software Support for subsequent years shall be provided subject to
annual payment, in advance, of the Renewal Support fee stated in Schedule A.
Fees for periods after the first subsequent support period may be increased
up by to 10% per annum.
19.2 RENEWAL Software Support will be renewed upon the expiration of the
initial period unless the Customer or DLB shall give written notice of
termination of this License Agreement at least 30 days prior to the annual
renewal date.
19.3 SERVICE PROVIDED - DLB shall provide the following service:-
19.3.1 Between the hours of 0900 and 1730 Monday to Friday current British
time and 0800 to 2000 current US Eastern Standard time (excluding
statutory holidays and the period 27 December to 31 December) a support
service to provide comprehensive "hotline" technical support of the
Product to facilitate optimum usage via telephone, fax, mail, Compuserve
or Internet. Weekend and 24 hour availability by prior arrangement.
19.3.2 As new releases of the Product or Documentation become available,
DLB shall provide them to Customer. Installation of such New Releases
shall be performed by the Customer unless the Customer shall request
installation as an Additional Consultancy service.
19.3.3 Use all reasonable efforts to provide identification and resolution
of bugs or errors reported by the Customer in the then current release of
the Product(s). Initial response by DLB to any error or faults will be
within 4 working hours of any oral or written notification by the
Customer. Correction work on any error or fault that materially affects
the utility of the Product(s) will commence within 8 working hours of any
oral or written notification.
19.3.4 Validation Readiness Kits to all Customers who have paid the
appropriate fee for maintenance as of the date of release will be provided
for the Product(s).
19.3.5 Access to the On-line Information System comprising bulletin board
and electronic mail services.
19.4 CUSTOMER BENEFITS The Customer may:-
19.4.1 Become a member of the appropriate DLB User Group and participate
in meetings.
19.4.2 Participate in Product Development Workshops to discuss new
features and future direction of the Product(s) and participate in the
Product Ballot for inclusion of features in New Releases of the
Product(s).
19.5 EXCLUSIONS
Software Support excludes:
A. Services to recover data which is lost or corrupted due to hardware
failure or fault.
B. Services to recover the Product(s) which become lost or corrupted due
to the interference or modification of the Product(s) by the Customer.
C. Services which are required to correct errors due to the failure of the
Customer to implement recommendations in respect of or solutions to faults
previously advised by DLB or to install a New Release of the Product
provided under section 19.3.2 of this Agreement.
19.6 CUSTOMER'S OBLIGATIONS - The Customer will:
A. Ensure that the software is used only on the CPU Types supported by DLB
which must be operated and maintained in accordance with the manufacturers
recommended procedures.
B. Ensure that the software is used and operated with the operating system
and ancillary
7
software and any hardware defined in the Schedule A.
C. Take frequent, regular security copies or backups of the Products
(including software) and data it contains to allow restoration in the
event of faults.
D. Ensure that only adequately trained, competent and authorized persons
are allowed to operate the Software.
E. In the event of an actual or apparent malfunction of the Product(s)
take all reasonable actions to document or record the form, nature,
apparent cause or symptoms of the malfunction. Such documents or records
shall be supplied or provided to DLB in the event that the Customer shall
request Support under this Agreement.
F. Nominate a member of the Customer's staff who shall be responsible for
communications with DLB on matters relating to the Support Service.
19.7 ADDITIONAL CHARGES
19.7.1 DLB shall be entitled to charge the Customer at DLB's then current
rates for Additional Consultancy for any reasonable time, effort and
expenses for the provision of the Support Service in connection with any
fault or other request for Support made by the Customer where such request
is subsequently shown to be excluded from support under section 19.5 of
this Agreement.
19.7.2 DLB shall be entitled to charge the Customer the cost of reasonable
travel, accommodation and subsistence expenses incurred in providing the
services detailed herein.
19.7.3 Customer is responsible for paying Customer startup and ongoing
line charges for access to the On-line Support Information System
comprising bulletin board and electronic mail services.
19.7 CANCELLATION
DLB may cancel its Software Support obligation hereunder if Customer
declines to implement any update to the Product(s) which DLB provides at no
additional cost to all Customers under Software Support. In the event of
such cancellation, DLB will issue a pro-rated refund on the unused portion
of annual software support fees paid.
20. ESCROW AGREEMENT
DLB places all source codes related to the Product(s) with an ESCROW agent.
Customer may register to be a beneficiary of this service by so notifying
DLB and prepayment of the annual fee for such service.
21. ADDITIONAL PRODUCTS
Customer may, by amendment to this LICENSE, purchase additional licenses for
other DLB Products in accordance with the Fee(s) and other terms in DLB's
then-current Price List. An additional Schedule, showing the price
applicable for each additional license, shall be provided by DLB and
attached to each party's copy of this LICENSE.
22. INVOICING INFORMATION
The Customer contact for invoices for this Agreement shall be:
Name:______________________________
Address:___________________________
Phone:_____________________________
FAX:_______________________________
Customer shall notify DLB of any changes to the contact for the receipt of
invoices.
23. Addenda: List below if any:
_____________________________________
_____________________________________
_____________________________________
24. INDEMNITY BY CUSTOMER
Customer will indemnify and hold DLB harmless against any cost, expense,
loss and damages (including reasonable attorneys' fees) that may be incurred
by DLB or awarded or agreed to be paid by DLB to any third party as a result
of any breach of this Evaluation Licensing Agreement by the Customer.
8
SCHEDULE A
The software and services referred to in the Agreement shall include
RECORDER, MONITOR and ALERT and all other products from time to time licensed by
DLB to third parties.
Customer agrees to pay for all support costs during this evaluation period
on a time and materials basis. The provisions of Section 5.1, 5.1.2 and 5.2
shall apply to such support costs.
Should PRWW wish to employ the DLB software for significant production use
in its business operations at the designated Site, as defined in the Agreement,
it may acquire licenses to use the products at the following prices:
For the first product (e.g., RECORDER) $100,000
For the second product (e.g., MONITOR) $100,000 less 30%
For the third and additional products $100,000 less 50%
For any large-scale productive use of the Products, the annual support fee
will be charged to Customer at a rate of annual support at 20% of the
undiscounted license fees. Annual support will entitle PRWW to help desk,
installation support, and new releases at no additional charge. The support fees
will rise as DLB's license fees increase. In the event PRWW wishes to use the
DLB Products in production use to provide service bureau services to a client,
then DLB and PRWW shall negotiate such service bureau licensing so that is on
mutually agreeable terms to PRWW and DLB, and DLB and PRWW shall share the
revenues derived from such service bureau work, which is associated with use of
DLB's Products, on a 50-50 basis.
Use of products limited to 10 users each; upgrades for additional users at
additional license fees of $5,000 per user in minimum upgrades of 5 users.
Hardware: [describe]
9
EXHIBIT 2.02(h)
VOTING AND STOCK RESTRICTION AGREEMENT
VOTING AND STOCK RESTRICTION AGREEMENT
VOTING AND STOCK RESTRICTION AGREEMENT, dated as of June 30, 1997
among DLB SYSTEMS, INC., a Delaware corporation (the "Company"), SAFEGUARD
SCIENTIFICS (DELAWARE), INC. (the "Series A Investor"), and PREMIER RESEARCH
WORLDWIDE LIMITED, a Delaware corporation (the "Series B Investor").
WHEREAS, the Company has issued 860,000 shares of its Series A
Preferred Stock, $.01 par value per share (the "Series A Preferred Stock"), to
the Series A Investor pursuant to a Preferred Stock Purchase Agreement dated
August 30, 1995 and a Stock Purchase Agreement dated as of August 19, 1996
(collectively, the "Series A Stock Purchase Agreements");
WHEREAS, the Company, the Series A Investor and DLB Systems, Inc., a
New Jersey corporation ("DLB-NJ") have executed the Voting and Stock Restriction
Agreement dated August 30, 1995 (the "Original Agreement") relating to the
election of members to the Company's Board of Directors (the "Board of
Directors") and providing for restrictions on the terms of any dispositions by
the Series A Investor and DLB-NJ of their capital stock of the Company;
WHEREAS, the Company is issuing 210,000 shares of its Series B
Preferred Stock, $.01 par value per share (the "Series B Preferred Stock"), to
the Series B Investor pursuant to a Preferred Stock Purchase Agreement dated
the date hereof (the "Series B Stock Purchase Agreement"), and in connection
therewith the parties hereto desire to enter into an agreement providing for the
obligations of the Series A Investor and the Series B Investor (collectively,
the "Investors") relating to the election of the members of the Board of
Directors and restrictions on dispositions by the Investors of their capital
stock of the Company;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein and the investment by the Series B Investor under
the Series B Stock Purchase Agreement, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree to the following:
ARTICLE I
ELECTION OF DIRECTORS
Section 1.1. Election of Directors. At any time at which stockholders
of the Company will have the right to or will vote shares of capital stock of
the Company in an election of directors, the Investors shall vote all shares of
capital stock
of the Company presently owned or hereafter acquired by them in favor of the
following actions:
(a) to cause and maintain the election to the Board of Directors
of five designated representatives of the Series A Investor and its successors
or assigns holding Series A Preferred Stock or capital stock issued on the
exercise of the Warrants (as defined in the Series A Stock Purchase Agreements)
(collectively, the "Series A Investor Directors"), who initially shall be ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and three other persons to be designated by the
Series A Investor;
(b) to cause and maintain the election to the Board of
Directors of one designated representative of the Series B Investor and its
successors or assigns holding Series B Preferred Stock or capital stock issued
upon the conversion of the Series B Preferred Stock (the "Series B Investor
Director");
(c) to cause and maintain the election to the Board of Directors
of two designated representatives (the "Common Director") of the holders of a
majority of the outstanding shares of Common Stock of the Company (the "Common
Stock") (other than capital stock issued on exercise of the Warrants and the
conversion of the Series B Preferred Stock) of the Company, who initially shall
be ▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇; and
(d) to cause and maintain the election to the Board of Directors
of the then-current chief executive officer of the Company (the "CEO Director").
The Company shall cause the nomination for election to the Board of
Directors of the individuals set forth above.
Section 1.2. Committees. The Company and the Investors shall cause the
Board of Directors to nominate and appoint to the Compensation Committee,
Executive Committee, and Finance Committee of the Board of Directors, and to any
other committee with jurisdiction over matters including, without limitation,
review of operations, strategy and general planning, performance review of
management, initial review of proposed financings, compensation, stock option
and stock plan matters three members each, including two Series A Investor
Directors.
Section 1.3. Vacancies and Removal. Each of the directors designated
in Section 1.1 shall be elected at any annual or special meeting of stockholders
(or by written consent in lieu of a meeting of stockholders) and shall serve
until his successor is elected and qualified or until his earlier resignation or
removal.
Each Series A Investor Director may be removed during his term of
office, without cause, by and only by the affirmative vote or written consent of
the holders of a majority of the
2
outstanding shares, of Series A Preferred Stock and capital stock issued on the
exercise of the Warrants.
The Series B Investor Director may be removed during his term of
office, without cause, by and only by the affirmative vote or written consent of
the holders of a majority of the outstanding shares of Series B Preferred Stock
and capital stock issued upon the conversion of the Series B Preferred Stock.
Each Common Director may be removed during his term or office, without
cause, by and only by the affirmative vote or written consent of holders of a
majority of the outstanding shares of Common Stock (other than shares issued on
the exercise of the Warrants or the conversion of the Series B Preferred Stock).
The CEO Director may be removed during his term of office, without
cause, by and only by the affirmative vote or written consent of the holders of
a majority of the outstanding shares of capital stock of the Company; provided
that the parties hereto agree that they shall promptly, and shall only, so
remove the CEO Director if and when he shall cease to be the chief executive
officer of the Company.
Any vacancy in the office of: (a) a Series A Investor Director may be
filled by the vote or written consent of the holders of a majority of the
outstanding shares of the Series A Preferred Stock (and capital stock issued on
exercise of the Warrants); (b) the Series B Investor Director may be filled by
the vote or written consent of the holders of a majority of the outstanding
shares of the Series B Preferred Stock (and capital stock issued upon the
conversion of the Series B Preferred Stock); (c) a Common Director may be filled
by the vote or written consent of the holders of a majority of the outstanding
shares of Common Stock (other than capital stock issued on exercise of the
Warrants or the conversion of the Series B Preferred Stock); and (d) the CEO
Director may be filled by such person as may be approved by the vote or written
consent of holders of a majority of the outstanding shares of capital stock, and
the parties hereto agree to vote their shares of capital stock to elect such
person as is appointed by the Board of Directors to serve as the chief executive
officer of the Company; all in accordance with the certificate of incorporation
and by-laws of the Company and the Delaware General Corporation Law. Pending any
vote (or written consent of holders of capital stock provided for in this
paragraph, any vacancy in the office of a Series A Investor Director shall be
filled by the vote of a majority of the remaining Series A Investor Directors,
and any vacancy in the office of a Common Director or the CEO Director shall be
filled by the vote of a majority of the remaining Directors (other than the
Series A Investor Directors and the Series B Investor Director).
3
ARTICLE II
STOCK RESTRICTION PROVISIONS
Section 2.1. [Intentionally Left Blank]
Section 2.2. [Intentionally Left Blank]
Section 2.3. Right of First Offer on Dispositions.
(a) Right of First Offer on Investor Shares. Except as set
forth in Section 2.7 hereof, if at any time an Investor desires to sell all or
any part of his shares of capital stock, the Investor shall submit a written
offer (the "Investor Offer") to sell such shares (the "Offered Investor Shares")
to the other Investors and DLB-NJ (collectively, the "Major Holders") as
provided herein. The Investor Offer shall disclose the Offered Investor Shares
proposed to be sold, the total number of shares owned by the Investor, and the
proposed terms and conditions, including price and payment terms, of the
proposed sale. The Investor Offer shall further state that the Major Holders may
acquire, in accordance with the provisions of this Section 2.3, any or all of
the Offered Investor Shares for the price and upon the other terms and
conditions, including deferred payment (if applicable), set forth therein.
(b) Notice of Purchase. Each Major Holder who wishes to
purchase any of the Offered Investor Shares at the price and on the payment
terms set forth in the Investor Offer shall, within 30 days from the date of the
Offer, notify the Investor and the Company in writing of the number of shares of
the Offered Investor Shares he wishes to purchase at such price and on such
terms. Any Major Holder not giving timely notice shall be deemed to have given
notice that he does not wish to purchase any of the Offered Investor Shares. If
the number of shares specified by the Major Holders in their respective notices
pursuant to this Section 2.3 is, in the aggregate, greater than or equal to the
number of shares specified in the Investor Offer, then the Investor shall sell
the Offered Investor Shares to the Major Holders in accordance with the
provisions of Section 2.4(c); otherwise the Investor may sell the Offered
Investor Shares as provided in Section 2.3(d).
(c) Closing. If the Major Holders give timely notice of their
desire to purchase an aggregate number of shares greater than or equal to the
number of shares specified in the Investor Offer, then the Offered Investor
Shares shall be allocated among and purchased by them (up to the number of
shares specified in his or its respective notice) in proportion to the aggregate
number of shares of Series A Preferred Stock, Series B Preferred Stock and
Common Stock owned by him or it. The Investor shall as soon as practicable
notify the Major Holders of the number of shares of Offered Investor Shares, if
any, to be purchased by each Major Holder, as determined in accordance with
4
this Section 2.3, and shall specify in such notice a reasonable place and time,
not less than 30 nor more than 60 days from the date thereof, for the closing of
the purchase of all of the Offered Investor Shares. Such purchases shall be
effected by the Investor's delivery to each purchasing Major Holder of a
certificate or certificates evidencing the Offered Investor shares to be
purchased by it, duly endorsed for transfer to the respective purchaser, against
payment to the Investor of the purchase price therefor by the respective
purchaser.
(d) Sale to Third Party. If the Major Holders do not purchase all
of the Offered Investor Shares as and when provided above, all or any part of
the Offered Investor Shares not so purchased may be sold by the Investor at any
time within 210 days after the date the Investor Offer was made, provided, that
any such sale shall be at not less than the price, and upon other terms and
conditions, if any, not materially more favorable, considered as a whole, to the
purchaser than those specified in the Investor Offer. Any Offered Investor
Shares not sold within such 210-day period shall continue to be subject to the
requirements of a prior offer pursuant to this Section 2.3.
Section 2.4. Limitation on Transfer. Each party hereto agrees not to
sell, transfer, assign or dispose of any capital stock of the Company (other
than in a public offering registered under the Securities Act of 1933, as
amended) if, as a result thereof, the Company would be required to register
such capital stock under Section 12 of the Securities Exchange Act of 1934, as
amended.
Section 2.5. Exceptions to Rights of First Refusal and Offer. The
rights of the Major Holders set forth in Section 2.3 shall not apply to any
offer, transaction or event which gives rise to a Right of First Refusal (as
defined in the Series B Stock Purchase Agreement) in favor of the Series B
Investor under the Series B Stock Purchase Agreement.
ARTICLE III
MISCELLANEOUS
Section 3.1. Duration of Agreement. The rights and obligations of the
Company and each Investor under this Agreement shall terminate on the earlier to
occur of the following: (a) immediately prior to the consummation of the first
underwritten public offering by the Company under the Securities Act of 1933 of
any of its equity securities pursuant to an offering registered on Form ▇-▇,
▇▇▇▇ ▇▇-▇, or Form S-18 or their then equivalents in which the aggregate gross
proceeds to the Company equal or exceed $10,000,000, or (b) immediately prior to
the consummation of the sale of all, or substantially all, of the Company's
assets or capital stock either through a direct sale, merger, reorganization,
consolidation or other form of business combination in which control of the
Company is transferred.
5
Section 3.2. Legend. Each certificate representing shares of
capital stock beneficially owned by Investors shall bear a legend in
substantially the following form, until such time as the shares of capital
stock, represented thereby are no longer subject to the provisions hereof:
"The sale, transfer or assignment of the securities represented by
this certificate are subject to the terms and conditions of a certain
Voting and Stock Restriction Agreement dated as of June 30, 1997, as
amended from time to time, among the Company and certain holders of
its outstanding capital stock. Copies of such Agreement may be
obtained at no cost by written request made by the holder of record
of this certificate to the Secretary of the Company."
Section 3.3. Size of Board. Each of the parties hereto agrees to vote
all shares of capital stock now owned or hereafter acquired by him to fix and
maintain the number of directors on the Board of Directors of the Company at not
more than nine (9) members.
Section 3.4. Severability; Governing Law. If any provisions of this
Agreement shall be determined to be illegal or unenforceable by any court of
law, the remaining provisions shall be severable and enforceable to the maximum
extent possible in accordance with their terms. This Agreement shall be governed
by, and construed in accordance with, the laws of the state of organization of
the Company from time to time, initially the State of Delaware.
Section 3.5. Injunctive Relief. It is acknowledged that it will be
impossible to measure the damages that would be suffered by an Investor if the
other parties to this Agreement fail to comply with the provisions of this
Agreement and that in the event of any such failure, the Investor will not have
an adequate remedy at law. The Investor shall, therefore, be entitled to obtain
specific performance of the other parties' obligations hereunder and to obtain
immediate injunctive relief. Such parties shall not argue, as a defense to any
proceeding for such specific performance or injunctive relief, that the Investor
has an adequate remedy at law.
Section 3.6. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their permitted successors and
assigns, legal representatives and heirs.
Section 3.7. Modification or Amendment. Neither this Agreement nor
any provision hereof can be modified, amended, changed, discharged or terminated
except by an instrument in writing, signed by (A) the holders of at least a
majority of the
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outstanding shares of Series A Preferred Stock and capital stock issued upon the
exercise of the Warrants, and (B) the holders of at least a majority of the
outstanding shares of Series B Preferred Stock and capital stock issued on
conversion or exchange thereof.
Section 3.8. Additional Parties and Definitions. The Company and the
Investors, in the case of a transfer of capital stock by them or issuance of
capital stock by the Company, shall cause the following to occur:
(a) Any person or entity who acquires Series A Preferred Stock
shall become a Series A Investor hereunder, unless at the time of such purchase
such person or entity was a Shareholder under and as defined in the Original
Agreement or an employee of the Company, in which case such person or entity
shall remain or become (as the case may be) a Shareholder under and as defined
in the Original Agreement;
(b) Any person or entity who acquires Series B Preferred Stock
shall become a Series B Investor hereunder, unless at the time of such purchase
such person or entity was a Shareholder under and as defined in the Original
Agreement or an employee of the Company, in which case such person or entity
shall remain or become (as the case may be) a Shareholder under and as defined
in the Original Agreement;
(c) Any person or entity who acquires capital stock (other than
in a transaction which was subject to, and complied with, Section 2.3 hereof),
shall become a Shareholder under and as defined in the Original Agreement,
unless at the time of such acquisition such person or entity was an Investor;
and
(d) Any person or entity who acquires five percent (5%) or more
of the outstanding shares of capital stock (on a fully-diluted basis) through
any transactions whatsoever (other than provided in Sections 3.8(a), (b) or (c))
shall become a Shareholder under and as defined in the Original Agreement,
unless at the time such person or entity was, or was required pursuant to this
Section 3.8 to become, an Investor.
Execution by such persons or entities and the Company of a counterpart
of this Agreement and an amendment adding their names hereto shall be a
condition of any acquisition of such shares, by such person or entity.
Section 3.9. Counterparts. This Agreement may be executed in one or
more counterparts each of which shall be deemed to be an original, but all of
which taken together shall constitute one and the same instrument.
Section 3.10. Notices. All notices to be given or otherwise made to
any part to this Agreement shall be deemed to
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be sufficient if contained in a written instrument, delivered by hand in person,
or by express overnight courier service, or by electronic facsimile transmission
(with a confirming copy sent by U.S. mail, registered or certified, return
receipt requested), or by registered or certified mail, return receipt
requested, postage prepaid, addressed to such party at the address set forth
herein, or at such other address as may hereafter be designated in writing by
the addressee to the addressor listing all parties.
All such notices shall, when mailed or telegraphed, be effective when
received or when attempted delivery is refused.
Section 3.11. Original Agreement. The Series B Investor agrees to join
in and be bound by the Original Agreement as a Shareholder thereunder only with
respect to the Series B Investor's rights against and obligations to DLB-NJ; the
Series B Investor shall have no duties and obligations to the Series A Investor
or the Company under the Original Agreement.
Section 3.12. Further Assurances. From and after the date of this
Agreement, upon the request of any Investor or the Company, the Company and the
Investors shall execute and deliver such instruments, documents and other
writings as may be
[Remainder of page intentionally left blank.]
8
reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Voting and
Stock Restriction Agreement to be executed as of the date first above written.
DLB Systems, Inc. SERIES A INVESTOR:
a Delaware corporation
Safeguard Scientifics
By: ________________________ (Delaware), Inc.
Title:
By: ______________________________
Title:
SERIES B INVESTOR:
Premier Research Worldwide Limited
By: ______________________________
Title:
9
EXHIBIT 2.02(i)
MARKETING AGREEMENT BETWEEN THE COMPANY AND PURCHASER
VALUE-ADDED MARKETING AGREEMENT
THIS AGREEMENT is effective on June 30, 1997, between DLB SYSTEMS,
INC. of ▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ("DLB") and PREMIER
RESEARCH WORLDWIDE, LTD. ("VAR") of ▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
Section 1.01 Non-Exclusive Grant. DLB hereby grants to VAR a
non-exclusive, non-transferable, non-assignable right to copy, reproduce,
distribute, license, bundle, sublicense, demonstrate, train, support, market,
DLB's Products in object form, through any media, worldwide, in perpetuity,
only directly to end-users on any platforms only in a configuration combining
VAR's services and DLB's products for a royalty as defined below in Section
3.01. VAR may not grant any stand-alone licenses of DLB Products unbundled
from its services. DLB's Products or Products are RECORDER, MONITOR, ALERT and
any products to be developed in the future.
Section 2.01 Duties of DLB. DLB agrees:
1. to train the VAR on the use, features and benefits of each
of the Products;
2. to become a subcontractor to VAR:
(a) to provide installation of the Products to the VAR's
end-users;
(b) to provide support and technical assistance to the
VAR's end-users in the same manner that DLB provides these services to
their own end users;
(c) to maintain and enhance each of the Products;
3. to furnish VAR an appropriate end-user license for its
customers to execute; and
4. to implement the Products for the VAR's end users.
Section 3.01 Royalty and Payment Terms. VAR shall pay to DLB, DLB's
then-current fee for licenses that VAR, in turn, provides to end-users. This
fee in U.S. dollars is subject to change upon 30 days' notice, with any such
change being effective only with respect to licenses entered into after the
lapse of such notice period. VAR shall follow DLB's policies for collecting the
applicable license fee from the end-user and shall promptly remit the fee to
DLB. Lastly, VAR may exercise its own business judgment in selecting a license
fee that it in turn charges to its end users.
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VAR shall also pay DLB a fee for DLB's standard provision of annual
help desk, support, maintenance and similar services to VAR's end-users based
on the following terms:
a) for help-desk, support and maintenance DLB should be
paid their annual fee in advance of the services being provided and
b) for other services, DLB should be paid by the VAR
monthly for the services rendered.
Any custom, customized or similar services shall be provided to VAR's
end-users based upon DLB's staff availability and then-current rates.
Section 4.01 Duties of VAR. VAR agrees to:
1. initially diagnose and troubleshoot any of VAR's end-user
problems by logging and tracking the problem, identifying and correcting
any simple usage problems and then communicating to DLB any unresolved
problems;
2. maintain a trained sales forces knowledgeable in how to
sell, demo, market and support the Products;
3. advertise with a minimum budget of $50,000.00 annually for
the bundled services and products;
4. comply with any written policies and procedures delivered
by DLB to VAR particularly pertaining to the negotiation and drafting of
all end-users license agreements, maintenance and support agreements or
any development agreements;
5. notify DLB of any problems of which VAR has actual
knowledge particularly dealing with infringement or misappropriation of
any DLB Product;
6. furnish any reports as DLB may reasonably request
concerning VAR's duties herein from time to time;
7. permit reasonable access by DLB to VAR's books and records
etc. pertaining to the services provided by VAR hereunder for the sole
purpose of ascertaining whether VAR is complying with the terms and
provisions of this Agreement;
8. provide forecasts of anticipated demand and end-user's
suggestions for improvement of the Product; and
9. not reverse engineer, decompile or disassemble the Product.
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Section 5.01 Representations and Warranties of VAR.
1. VAR represents that it is a corporation in good standing in
Delaware.
2. VAR represents that it has the power to enter into this
Agreement.
3. VAR represents that entering into this Agreement poses no
conflict with any other contract to which VAR is a party.
Section 6.01 Default. Failure of the VAR to comply with any term or
condition under this Agreement shall entitle DLB to give the VAR notice in order
to cure such default within thirty (30) days after receipt of notice. DLB may
terminate this Agreement if VAR fails to cure the breach within the allotted
time.
DLB may terminate this Agreement immediately for any breach of the
Confidentiality provision of Section 8.01 and seek immediate relief under
Section 8.01.
The provisions dealing with Confidentiality, Royalty Payments and
Limitation of Liabilities shall survive termination regardless of the reason for
the termination.
Section 7.01 Bankruptcy. In the event that DLB breaches its obligations
in Section 2.01-2(a), (b), or (c) except for providing enhancements and fails to
cure this default within thirty (30) days of its receipt of notice or files for
bankruptcy or an involuntary bankruptcy is filed against it then the attached
six (6) licenses of the Product with an allowance for up to a maximum of ten
(10) users per license, may be marketed by the VAR pursuant to Section 1.01 of
this Agreement without any royalty being payable to DLB in connection therewith
to the extent required for the VAR to recover the value that the VAR has added
to the project by bundling its services which include initial support, training,
advertising, conducting seminars & the like with DLB's Product. VAR may not
offset any claims they may have against DLB by refusing to pay or reducing the
amount of DLB's fees as enumerated in Section 3.01.
Section 8.01 Confidentiality. VAR shall keep DLB's Products strictly
confidential and limit access to the Products to those of its employees, agents,
sub-contractors or consultants who either have a need to know or are engaged in
the use of the Products. VAR shall take appropriate action by instruction or
agreement with its employees, agents, sub-contractors and consultants who are
permitted access to the Products to satisfy its obligations hereunder. Without
limiting the generality of the foregoing, VAR shall take such other reasonable
steps as shall from time to time be necessary to protect the confidential and
intellectual property rights of DLB in the Products.
3
VAR agrees that any inadvertent or deliberate disclosure may cause
irreparable harm to DLB. Therefore, VAR agrees that at DLB's discretion they may
seek injunctive relief, ▇▇▇ for money damages or seek criminal prosecution.
Section 9.01 Limitation of Liability. In no event shall DLB, its
agents or employees, have any liability to VAR or any third party for direct,
incidental, indirect, special or consequential damages (including, without
limitation, lost profits, loss of data, loss of use or claims of third parties).
Any liability pertaining to DLB's obligation to subcontract under
Section 2.01(2-6) shall not exceed the actual losses incurred by VAR under the
particular sublicense agreement as a result of DLB's failure.
Section 10.01 Source Code Escrow. DLB shall deposit the source code to
the Products with The National Computing Centre Limited ("NCC") with thirty
(30) days of the date hereof. Such deposit shall be confirmed in writing by NCC
to VAR. In the event that DLB enters into any composition or arrangement with
its creditors, or enters into liquidation whether compulsory or voluntary, or
has a receiver appointed, or becomes bankrupt, or an event of bankruptcy occurs
with respect to DLB, or DLB ceases to trade, or DLB assigns its copyright to any
of its intellectual property in any of its Products to an assignee who fails
within sixty (60) days of such assignment to offer the VAR substantially similar
protection to that provided by this Agreement without significantly increasing
the cost to the VAR, or DLB does not fulfill its obligations under
Section 2.01-2(b) of this Agreement, The National Computing Centre Limited shall
release the source code to the VAR subject to the provisions of Section 8.01
hereof, and for the limited purpose of allowing the VAR to support licenses
granted pursuant to this Agreement or VAR's internal use of the Products.
Section 11.01 Outsourcing or Service Bureau Services. In the event
that the VAR desires to use DLB's Products to provide any form of outsourcing,
facilities management or service bureau function, then the parties shall
negotiate in good faith, based upon their intent to ▇▇▇▇▇▇ a long-term
relationship, a mutually beneficial agreement providing, among other essential
terms, that all revenues involving the use of DLB's Products in connection with
such services shall be shared equitably and mutually.
Section 12.01 Trademark Licensing Agreement.
1. Grant of VAR
DLB grants to VAR a nonexclusive, nontransferable,
nonassignable, personal license to use the Trademarks only in connection
with the distribution, licensing, sublicensing and marketing of DLB's
Products worldwide.
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2. Payment
VAR shall pay to DLB a payment of $1.00 for the use of the
Trademarks.
3. Term
The term of this Agreement shall be coterminous with this
Agreement.
4. Validity and Protection of the Trademarks
VAR shall have no proprietary or ownership rights to the
Trademarks or any confusingly similar variation thereof, except as may be
expressly granted hereunder. VAR shall not at any time oppose, seek
cancellation of, or take any action which may prejudice the validity of,
or DLB's title to, the Trademarks, or create any rights adverse to those
of DLB, nor shall VAR use the Trademarks or any confusingly similar
variation thereof for any purpose other than as authorized by this
Agreement or any other agreement entered into between DLB and VAR. VAR
acknowledges that any goodwill derived from VAR's use of the Trademarks
inures to the benefit of DLB. The authorization granted hereby is not
intended to be and shall not be construed as an assignment, nor shall
anything in this Agreement or in the authorization granted hereby confer
upon VAR any right, title or interest in or to the Trademarks, other than
VAR's right to use the Trademarks in accordance with the terms of this
Agreement, except as otherwise provided herein.
5. Infringement
VAR shall notify DLB promptly of any actual or threatened
infringements, imitations, or unauthorized use of the Trademarks by third
parties of which VAR becomes aware. DLB shall have the sole right, at its
expense, to bring any action on account of any such infringements,
imitations, or unauthorized use, and VAR at DLB's sole cost and expense
shall cooperate with DLB, as DLB may reasonably request, in connection with
any such action brought by DLB. DLB shall retain any and all damages,
settlement and/or compensation paid in connection with any such action
brought by DLB.
6. Indemnification
DLB at its expense, shall defend and indemnify, and save and
hold the VAR harmless from and against any and all liabilities, claims,
causes of action, suits, damages, including, without limitation, suits for
personal injury or death of third parties, and expenses, including
reasonable attorney's fees and expenses, for which VAR becomes liable, or
may incur or be compelled to pay by reason of DLB's activities or breach
of the terms of this Agreement,
5
including but not limited to claims of infringement of any intellectual
property right.
VAR at its expense, shall defend and indemnify an save and hold
DLB harmless from and against any and all liabilities, claims, causes of
action, suits (other than suits based upon a claim of infringement of any
intellectual property right), damages, including, without limitation, suits for
personal injury or death of third parties, and expenses, including reasonable
attorney's fees and expenses, for which DLB becomes liable, or may incur or be
compelled to pay by reason of VAR's activities, the rights licensed to VAR or
any end user hereunder or breach of the terms of this Agreement, including but
not limited to product liability suits by direct or indirect customers of VAR.
7. Termination
DLB shall have the right to terminate this Agreement effective
immediately upon VAR's receipt of written notice from DLB in the event of
any affirmative act of insolvency by VAR, or upon the appointment of any
receiver or trustee to take possession of the properties of VAR not
discharged within 30 days or upon the winding-up, sale, consolidation,
merger, or any sequestration by governmental authority of VAR, or upon
any breach of any of the duties and obligations of VAR under this
Agreement.
The exercise of any right of termination under this Article
shall not affect any rights which have accrued prior to termination and
shall be without prejudice to any other legal or equitable remedies to
which DLB may be entitled by reason of such rights. The obligations and
provisions of Article 6 shall survive any expiration or termination of
this Agreement.
8. Equitable Relief
DLB and VAR hereby confirm that damages at law may not be an
adequate remedy for a breach or threatened breach of any provision
thereof, the respective rights and obligations of DLB and VAR hereunder
shall be enforceable by specific performance, injunction, or other
equitable remedy, but nothing herein contained is intended to, nor shall
it, limit or affect any right or rights at law or by statute or otherwise
of the aggrieved party as against the other for a breach or threatened
breach of any provision hereof, it being the intention of this Section 8
to make clear the agreement of DLB and VAR that their respective rights
and obligations hereunder shall be enforceable in equity as well as at
law or otherwise and that the mention herein of any particular remedy
shall not preclude the party aggrieved from any other remedy or right it
may have, either at law or in equity.
4
9. Relationship of the Parties
The relationship of VAR to DLB is that of an independent
contractor and neither VAR nor its agents or employees shall be
considered employees or agents of DLB. This Agreement does not constitute
and shall not be construed as constituting a partnership or joint venture
or grant of a franchise between DLB and VAR. VAR shall not have the
right to bind DLB to any obligations to third parties.
10. Assignment
This Agreement may be assigned by DLB but shall not be assignable
or transferable by VAR without the prior written consent of DLB, and any
attempted assignment by VAR without such prior written consent shall be
void and shall constitute a breach of the obligations of VAR hereunder.
11. Notice
Any notice, demand, waiver, consent approval, or disapproval
(collectively referred to as "notice") required or permitted herein shall
be in writing and shall be given personally, by messenger, by air
courier, by telecopy, or by prepaid registered or certified mail, with
return receipt requested, addressed to the parties at their respective
addresses set forth above or at such other address as a party may
hereafter designate in writing to the other party.
12. Modification, Amendment, Supplement, or Waiver
This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes all
previous agreements, promises, representations, understandings, and
negotiations, whether written or oral.
No modification, amendment, supplement to or waiver of this
Agreement or any of its provisions shall be binding upon the parties
hereto unless made in writing and duly signed by both of the parties to
this Agreement. A waiver by either party of any of the terms or conditions
of this Agreement in any one instance shall not be deemed a waiver of such
terms or conditions in the future.
Section 13.01 Representations and Warranties of DLB.
1. DLB has the authority to enter into this Agreement and the
right to grant this license. This Agreement does not conflict with any other
Agreements including any agreements with DLB's banks. DLB owns the Products and
has not infringed any third party rights anywhere in the world.
7
Section 14.01 Miscellaneous Provisions.
1. Attorney's Fees
In the event of any dispute under this Agreement, the prevailing
party shall be entitled to recover reasonable attorney fees & costs.
2. Complete Agreement
The parties agree that this Agreement is the complete and
exclusive statement thereof between the parties and that it supersedes and
merges all prior proposals and understandings and all other agreements, whether
oral or written, between the parties relating to the subject matter hereof. This
Agreement may not be modified or altered except by written instrument duly
executed by the parties hereto.
3. Compliance with Export Control
VAR hereby confirms that it is knowledgeable concerning the
export laws and regulations of each Country of Destination and the United
States Export Administration Regulations and their applicability to the transfer
of products and technical data such as the Licensed Materials.
VAR understands and agrees that they will comply with all laws,
acts, rules, orders, restrictions, regulations and the like pertaining to the
export of DLB Products and obtain all necessary licenses or exemptions or both
thereafter. VAR shall demonstrate to DLB such compliance prior to delivery
thereof to any foreign end user.
4. Infringement Actions
VAR shall cooperate fully with DLB at DLB's sole cost and
expense in any prosecution for infringement of any Product brought by DLB
against any third party. If DLB fails to prosecute any infringement or
misappropriation then VAR may prosecute in its stead. VAR may recover its costs
of prosecutions and any actual damages sustained with any balance being,
returned to DLB.
5. Force Majeure
Either party's obligations shall be excused for any Act of God.
8
6. Governing law
This Agreement will be governed by and construed in accordance
with the laws of Delaware.
7. Waivers
No term or provision hereof shall be deemed waived and no breach
excused, unless such waiver or consent shall be in writing and signed by the
party claimed to have waived or consented. Any consent by any part to, or
waiver of, a breach by the other, whether expressed or implied, shall not
constitute a consent to, waiver of, or excuse for any other different or
subsequent breach.
8. Alternate Dispute Resolution
(a) Good Faith Negotiations. If any dispute arises under
this Agreement that is not settled promptly in the ordinary course of business,
the parties shall seek to resolve any such dispute between them, first, by
negotiating promptly with each other in good faith in face-to-face negotiations.
These face-to-face negotiations shall be conducted by the respective
designated senior management representative of each party. If the parties are
unable to resolve the dispute between them through these face-to-face
negotiations, within 20 business days (or such period as the parties shall
otherwise agree) following the date of notice (the "Notice Date") by one party
to the other(s) of the existence of such dispute, then any such disputes shall
be resolved in the following manner.
(b) Mediation. The parties shall endeavor to resolve any
dispute arising out of or relating to this Agreement by mediation under the CPR
Mediation Procedures for Business Disputes. Unless otherwise agreed, the parties
will select a mediator from the CPR Panels of Neutrals and shall notify CPR to
initiate the selection process.
(c) Resolution of Disputes.
(i) Any action, suit or proceeding where the amount in
controversy as to at least one party, exclusive of interest and costs, does not
exceed $1 million ("Summary Proceeding"), arising out of or relating to this
Agreement, or any other agreement executed in connection herewith or the breach,
termination or validity thereof which has not been resolved by mediation as
provided herein within 90 days of the Notice Date, shall be litigated
exclusively in the Superior Court of the State of Delaware (the "Delaware
Superior Court") as a summary proceeding pursuant to Rules 124-131 of the
Delaware Superior Court, or any successor rules ("the Summary Proceeding
Rules"). Each of the parties hereto hereby irrevocably and unconditionally (A)
submits to the jurisdiction of the Delaware Superior Court for any Summary
Proceeding, (B) agrees not to
9
commence any Summary Proceeding except in the Delaware Superior Court, (C)
waives, and agrees not to plead or to make, any objection to the venue of any
Summary Proceeding in the Delaware Superior Court, (D) waives, and agrees not to
plead or to make any claim that any Summary Proceeding brought in the Delaware
Superior Court has been brought in an improper or otherwise inconvenient forum,
(E) waives, and agrees not to plead or to make, any claim that the Delaware
Superior Court lacks personal jurisdiction over it, (F) waives its right to
remove any Summary Proceeding to the federal courts except where such courts are
vested with sole and exclusive jurisdiction by statute, and (G) understands and
agrees that it shall not seek a jury trial or punitive damages in any Summary
Proceeding based upon or arising out of or otherwise related to this Agreement,
or any other agreement executed in connection herewith or the breach,
termination or validity thereof, and waives any and all rights to any such jury
trial or to seek punitive damages.
(ii) In the event any action, suit or proceeding where
the amount in controversy as to at least one party, exclusive of interest and
costs, does not exceed $1,000,000 (a "Proceeding"), arising out of or relating
to this Agreement or any other agreement executed in connection herewith or the
breach, termination or validity thereof, is brought, the parties to such
Proceeding agree to make application to the Delaware Superior Court to proceed
under the Summary Proceeding Rules. Until such time as such application is
rejected, such Proceeding shall be treated as a Summary Proceeding and all of
the foregoing provisions of this Section relating to Summary Proceedings shall
apply to such Proceeding.
(iii) If a Summary Proceeding is not available to
resolve any dispute hereunder, the controversy or claim shall be settled by
arbitration conducted on a confidential basis, under the U.S. Arbitration Act,
if applicable, and the then current Commercial Arbitration Rules of the American
Arbitration Association (the "Association") strictly in accordance with the
terms of this Agreement and the substantive law of the State of Delaware
including law in respect of any statute of limitations. The arbitration shall be
conducted at the Association's regional office located in Wilmington, Delaware
by three arbitrators all of whom shall be knowledgeable in the information
technology licensing world. The arbitrators are not empowered to award damages
in excess of compensating damages and each party hereby irrevocably waives any
right to recover damages in excess of compensating damages with respect to any
such dispute. Judgment upon the arbitrators' award may be entered and enforced
in any court of competent jurisdiction.
(d) Neither party shall be precluded hereby from securing
equitable remedies in courts of any jurisdiction, including, but not limited to,
temporary restraining orders and preliminary injunctions to protect its
10
rights and interests but such equitable remedies shall not be sought as a means
to avoid or stay arbitration or Summary Proceeding.
(e) Each party is required to continue to perform its
obligations under this contract pending final resolution of any dispute arising
out of or relating to this contract, unless to do so would be impossible or
impracticable under the circumstances.
9. Taxes
Any taxes other than taxes based upon DLB's income will be the
responsibility of VAR.
10. Statute of Limitation
No action, regardless of form, arising out of this Agreement, may
be brought by either party more than one year after the cause of action accrued,
except for an action for nonpayment may be brought within one year of the date
of last payment.
Schedules
1. Program License Agreement to VAR'S End-Users.
2. Maintenance Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed on the Effective Date.
DLB SYSTEMS, INC. PREMIER RESEARCH WORLDWIDE, LTD.
Name:__________________________ Name: _______________________________
Title__________________________ Title:_______________________________
11
EXHIBIT 2.02(k)
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of June 30, 1997 by and among
DLB SYSTEMS, INC., a Delaware corporation (the "Company"), SAFEGUARD SCIENTIFICS
(DELAWARE), INC., a Delaware corporation ("Safeguard") and PREMIER RESEARCH
WORLDWIDE, INC., a Delaware corporation ("Premier").
BACKGROUND
A. Pursuant to Article V of the Preferred Stock Purchase Agreement,
dated August 30, 1995, the Company has granted certain rights to Safeguard,
pursuant to which Safeguard may, under certain circumstances, cause the Company
to register under the Securities Act of 1933, as amended, shares of the
outstanding capital stock of the Company held by Safeguard (the "Safeguard
Registration Rights").
B. The Company is on the date hereof issuing and selling to Premier
210,000 shares of the Series B Preferred Stock of the Company pursuant to the
terms of a Preferred Stock Purchase Agreement dated June 30, 1997 between the
Company and Premier (the "Premier Purchase Agreement").
C. The Company desires to grant rights to Premier which are similar to
the Safeguard Registration Rights and to supersede and replace the Safeguard
Registration Rights with the rights granted to Safeguard under this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
ARTICLE I
DEFINITIONS
1.01. Definitions. As used in this Agreement, the following terms
shall have the following meanings:
"Commission" means the Securities and Exchange Commission or any,
other federal agency then administering the Securities Act or Exchange Act.
"Common Stock" includes (a) the Company's Common Stock, $.01 par
value, as authorized on the date of this Agreement, (b) any other capital stock
of any class or classes (however designated) of the Company authorized on or
after the date hereof, the holders of which shall have the right, without
limitation as to amount, either to all or to a share of the balance of current
dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and the holders of which
shall ordinarily, in the absence of contingencies or in the absence of any
provision to
1
the contrary in the Company's Restated Certificate of Incorporation, be entitled
to vote for the election of a majority of directors of the Company (even though
the right so to vote has been suspended by the happening of such a contingency
or provision), and (c) any other securities into which or for which any of the
securities described in (a) or (b) may be converted or exchanged pursuant to a
plan of recapitalization, reorganization, merger, sale of assets or otherwise.
"Company" shall have the meaning ascribed to it in the heading of this
Agreement.
"Conversion Shares" shall have the meaning ascribed to it in Section
1.02. of the Premier Purchase Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar federal statute, and the rules and regulations of the Commission
(or of any other Federal agency then administering the Exchange Act) thereunder,
all as the same shall be in effect at the time.
"Initial Public Offering" means the first underwritten public offering
of Common Stock of the Company for the account of the Company and offered on a
"firm commitment" or "best efforts" basis pursuant to an offering registered
under the Securities Act with the Commission on Form S-1, Form SB-2, or their
then equivalents.
"Key Employee" means and includes the Chairman, President, Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer, or any
other individual so designated by the Board of Directors of the Company.
"Person" means an individual, corporation, partnership, joint venture,
trust, university, or unincorporated organization, or a government, or any
agency or political subdivision thereof.
"Preferred Shareholders" shall mean Safeguard and Premier, and their
respective successors and assigns.
"Preferred Shares" shall mean the Series A Preferred Stock and the
Series B Preferred Stock.
"Premier" shall have the meaning ascribed to it in the heading of this
Agreement.
"Premier Purchase Agreement" shall have the meaning ascribed to it in
the Background of this Agreement.
"Qualified Public Offering" means a fully underwritten, firm
commitment public offering pursuant to an effective registration under the
Securities Act covering the offer and sale by the Company of its Common Stock in
which the aggregate gross proceeds to the Company exceed $10,000,000 and in
which the price
2
per share of such Common Stock equals or exceeds $3.00 (such price subject to
equitable adjustment in the event of any stock split, stock dividend,
combination, reorganization, reclassification or other similar event).
"Registrable Shares" means and includes (i) the shares obtained
pursuant to the exercise of the Safeguard Warrants; (ii) the Conversion Shares;
and (iii) any shares of capital stock of the Company acquired after the date
hereof by any Preferred Shareholder, including shares of Common Stock issuable
on the conversion of other securities acquired by the Preferred Shareholders;
provided, however, that shares of Common Stock which are Registrable Shares
shall cease to be Registrable Shares upon the consummation of any sale pursuant
to a registration statement, Section 4(l) of the Securities Act or Rule 144
under the Securities Act; and provided, further, that Registrable Shares shall
not include capital stock acquired pursuant to the exercise of Options or
capital stock otherwise acquired primarily as, or acquired pursuant to exercise
of options or rights granted to any employee primarily as, compensation for
employment or services and not for a cash investment in the Company.
"Safeguard Purchase Agreement" shall mean the Preferred Stock Purchase
Agreement dated as of August 30, 1995, between the Company and Safeguard,
pursuant to which, among other things, Safeguard purchased 650,000 shares of
Series A Preferred Stock, on the terms and conditions set forth therein.
"Safeguard Warrants" shall mean, collectively, (i) the Warrant dated
August 30, 1995 executed by the Company in favor of Safeguard, under which
Safeguard has the right to purchase up to 140,000 shares of the Common Stock on
the terms and conditions set forth therein, (ii) the Warrant dated August 30,
1995 executed by the Company in favor of Safeguard, under which Safeguard has
the right to purchase up to 510,000 shares of the Common Stock, on the terms and
conditions set forth therein, (iii) the Warrant dated August 19, 1996, executed
by the Company in favor of Safeguard, under which Safeguard has the right to
purchase up to 210,000 shares of the Common Stock on the terms and conditions
set forth therein, and (iv) the Warrant dated April 4, 1997 executed by the
Company in favor of Safeguard, under which Safeguard has the right to purchase
up to 80,000 shares of Common Stock on the terms and conditions set forth
therein.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Commission (or of
any other Federal agency then administering the Securities Act) thereunder, all
as the same shall be in effect at the time.
"Series A Preferred Stock" means the Series A Preferred Stock of the
Company, $.01 par value, having the rights, powers,
3
privileges and preferences set forth in the Company's Restated Certificate of
Incorporation.
"Series B Preferred Stock" means the Series B Preferred Stock of the
Company, $.01 par value, having the rights, powers, privileges and preferences
set forth in the Company's Restated Certificate of Incorporation.
ARTICLE II
REGISTRATION RIGHTS
2.01. Piggy-Back Registrations. If at any time the Company shall
determine to register for its own account or the account of others under the
Securities Act (including pursuant to the Qualified Public Offering, the Initial
Public Offering or a demand for registration made by any stockholder of the
Company) any of its equity securities, other than on Form S-8 or Form S-4 or
their then equivalents relating to shares of Common Stock to be issued solely in
connection with any acquisition of any entity or business or shares of Common
Stock issuable in connection with stock option or other employee benefit plans,
it shall send to the Preferred Shareholders written notice of such determination
and, if within fifteen (15) days after receipt of such notice, either of the
Preferred Shareholders (other than any Preferred Shareholder which caused the
delivery of such notice by exercising registration rights with respect to the
Registrable Shares) shall so request in writing, the Company shall use its best
efforts to include in such registration statement all or any part of the
Registrable Shares such Preferred Shareholders request to be registered, except
that if, in connection with any offering involving an underwriting of Common
Stock to be issued by the Company, the managing underwriter shall impose a
limitation on the number of shares of such Common Stock which may be included in
the registration statement because, in its judgment, such limitation is
necessary to effect an orderly public distribution, then the Company shall be
obligated to include in such registration statement only such limited portion of
the Registrable Shares with respect to which such Preferred Shareholders have
requested inclusion hereunder; provided, however, that the Company shall not so
exclude any Registrable Shares held by either of the Preferred Shareholders
unless it has first excluded any securities to be offered and sold by employees
of the Company or by any other holders other than the other Preferred
Shareholders (collectively, "Excludable Shares"); provided, further, that (i) as
between the Company and each Preferred Shareholder, in no event shall the
Registrable Shares held by such Preferred Shareholder and included in such
offering be limited to less than twenty-five percent (25%) of the aggregated
shares offered and (ii) as between the Preferred Shareholders, the Company will
include in such registration the Registrable Shares on a pro rata basis based on
the number of Registrable Shares held by each. No incidental right under this
Section 2.01 shall be construed to limit any registration required under Section
2.02. The obligations of the Company
4
under this Section 2.01 shall expire on the tenth anniversary following the
consummation of an Initial Public Offering or, with respect to each Preferred
Shareholder, at any time after the Company has effected five registrations for
the benefit of such Preferred Shareholder under this Section 2.01.
2.02. Required Registration. If on any occasion either Preferred
Shareholder shall notify the Company in writing that it intends to offer or
cause to be offered for public sale at least thirty percent (30%) of the
Registrable Shares held by it, the Company will so notify all holders of
Registrable Shares, and the Company will use its best efforts to cause such of
the Registrable Shares as may be requested by the Preferred Shareholders to be
registered under the Securities Act as expeditiously as possible. With respect
to each Preferred Shareholder, the Company shall not be required to effect more
than one registration during any twelve (12) month period pursuant to this
Section 2.02 and two such registrations in the aggregate. If the Company
determines to include shares to be sold by it or by other selling shareholders
in any registration request pursuant to this Section 2.02, such registration
shall be deemed to have been a "piggy back" registration under Section 2.01 and
not a "demand" registration under this Section 2.02 with respect to the
Preferred Shareholder requesting registration, if such Preferred Shareholder is
unable to include in any such registration statement eighty-five percent (85%)
of the Registrable Shares initially requested for inclusion in such registration
statement. The Company shall not be required to effect a registration pursuant
to this Section 2.02 unless the minimum market value of any offering and
registration of Registrable Shares made pursuant thereto is at least $1,000,000,
before calculation of underwriting discounts and commissions. The Preferred
Shareholders may not exercise their rights under this Section 2.02 until the
earlier to occur of (i) August 30, 1999 or (ii) 90 days after the effectiveness
of any registration statement covering the Initial Public Offering.
2.03. Registrations on Form S-3. In addition to the rights provided
the Preferred Shareholders in Sections 2.01 and 2.02 above, if the registration
of Registrable Shares under the Securities Act can be effected on Form S-3 (or
any similar form promulgated by the Commission), then upon the written request
of either Preferred Shareholder, the Company will use its best efforts to, as
expeditiously as possible, effect registration under the Securities Act on Form
S-3 of all or such portion of the Registrable Shares as the Preferred
Shareholders shall specify; provided, however, the Company shall not be required
to effect a registration pursuant to this Section 2.03 unless the market value
of the Registrable Shares to be sold in any such registration shall be estimated
to be at least $500,000 at the time of filing such registration statement,
before calculation of underwriting discounts and commissions, and further
provided that, with respect to each Preferred Shareholder, the Company shall not
be required to effect more than one (1) registration
5
during any twelve (12) month period pursuant to this Section 5.03 and four (4)
such registrations in the aggregate.
2.04. Effectiveness. The Company will use its best efforts to maintain
the effectiveness for up to 90 days (or such shorter period of time as the
underwriters need to complete the distribution of the registered offering, or
one year in the case of a "shelf" registration statement on Form S-3) of any
registration statement pursuant to which any of the Registrable Shares are being
offered, and from time to time will amend or supplement such registration
statement and the prospectus contained therein to the extent necessary to comply
with the Securities Act and any applicable state securities statute or
regulation. The Company will also provide the Preferred Shareholders with as
many copies of the prospectus contained in any such registration statement as it
may reasonably request.
2.05. Indemnification of Holder of Registrable Shares. In the event
that the Company registers any of the Registrable Shares under the Securities
Act, the Company will indemnify and hold harmless the Preferred Shareholders and
each underwriter of the Registrable Shares (including their officers, directors,
affiliates and partners) so registered (including any broker or dealer through
whom such shares may be sold) and each Person, if any, who controls such holder
or any such underwriter within the meaning of Section 15 of the Securities Act
from and against any and all losses, claims, damages, expenses or liabilities,
joint or several, to which they or any of them become subject under the
Securities Act, applicable state securities laws or under any other statute or
at common law or otherwise, as incurred, and, except as hereinafter provided,
will reimburse the Preferred Shareholders, each such underwriter and each such
controlling Person, if any, for any legal or other expenses reasonably incurred
by them or any of them in connection with investigating or defending any
actions, whether or not resulting in any liability, as incurred, insofar as such
losses, claims, damages, expenses, liabilities or actions arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in the registration statement, in any preliminary or amended
preliminary prospectus or in the final prospectus (or the registration statement
or prospectus as from time to time amended or supplemented by the Company) or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary in order to make the
statements therein not misleading, or any violation by the Company of any rule
or regulation promulgated under the Securities Act or any state securities laws
applicable to the Company and relating to action or inaction required of the
Company in connection with such registration, unless (i) such untrue statement
or alleged untrue statement or omission or alleged omission was made in such
registration statement, preliminary or amended preliminary prospectus or final
prospectus in reliance upon and in conformity with information furnished in
writing to the Company in connection therewith by a Preferred
6
Shareholder (in the case of indemnification of such Preferred Shareholder), any
such underwriter (in the case of indemnification of such underwriter) or any
such controlling Person (in the case of indemnification of such controlling
person) expressly for use therein, or unless (ii) in the case of a sale directly
by a Preferred Shareholder (including a sale of such Registrable Shares through
any underwriter retained by such Preferred Shareholder to engage in a
distribution solely on behalf of such Preferred Shareholder) such untrue
statement or alleged untrue statement or omission or alleged omission was
contained in a preliminary prospectus and corrected in a final or amended
prospectus copies of which were delivered to such Preferred Shareholder or such
underwriter on a timely basis, and such Preferred Shareholder failed to deliver
a copy of the final or amended prospectus at or prior to the confirmation for
the sale of the Registerable Shares to the Person asserting any such loss,
claim, damage or liability in any case where such delivery is required by the
Securities Act.
Promptly after receipt by any Preferred Shareholder, any underwriter
or any controlling Person of notice of the commencement of any action in respect
of which indemnity may be sought against the Company, such Preferred
Shareholder, or such underwriter or such controlling person, as the case may be,
will notify the Company in writing of the commencement thereof (provided, that
failure to so notify the Company shall not relieve the Company from any
liability it may have hereunder) and, subject to the provisions hereinafter
stated, the Company shall be entitled to assume the defense of such action
(including the employment of counsel, who shall be counsel reasonably
satisfactory to such Preferred Shareholder, such underwriter or such controlling
Person, as the case may be), and the payment of expenses insofar as such action
shall relate to any alleged liability in respect of which indemnity may be
sought against the Company.
Any such Preferred Shareholder, any such underwriter or any such
controlling Person shall have the right to employ separate counsel in any such
action and to participate in the defense thereof but the fees and expenses of
such counsel subsequent to any assumption of the defense by the Company shall
not be at the expense of the Company unless the employment of such counsel has
been specifically authorized in writing by the Company. The Company shall not be
liable to indemnify any Person for any settlement of any such action effected
without the Company's written consent. The Company shall not, except with the
approval of each party being indemnified under this Section 2.05, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to the
parties being so indemnified of a release from all liability in respect to such
claim or litigation.
7
In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which a Preferred Shareholder
exercising rights under this Agreement, or any controlling person of any such
holder, makes a claim for indemnification pursuant to this Section 2.05 but it
is judicially determined (by the entry of a final judgment or decree by a court
of competent jurisdiction and the expiration of time to appeal or the denial of
the last right of appeal) that such indemnification may not be enforced in such
case notwithstanding the fact that this Section 2.05 provides for
indemnification in such case, then the Company and the Preferred Shareholders
will contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (after contribution from others) in such proportion as is
appropriate to reflect the relative fault of the Company and each of the
Preferred Shareholders in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative fault of the Company and each of
the Preferred Shareholders shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company or by either Preferred Shareholder, and each party's
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission; provided, however, that, in any such case,
(A) a Preferred Shareholder will not be required to contribute any amount in
excess of the public offering price of all such Registrable Shares offered by it
pursuant to such registration statement and (B) no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
2.06. Indemnification of Company. In the event that the Company
registers any of the Registrable Shares under the Securities Act, each Preferred
Shareholder holding such Registrable Shares will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed or
otherwise participated in the preparation of the registration statement, each
underwriter of the Registrable Shares so registered (including any broker or
dealer through whom such of the shares may be sold) and each Person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act from
and against any and all losses, claims, damages, expenses or liabilities, joint
or several, to which they or any of them may become subject under the Securities
Act, applicable state securities laws or under any other statute or at common
law or otherwise, and, except as hereinafter provided, will reimburse the
Company and each such director, officer, underwriter or controlling Person for
any legal or other expenses reasonably incurred by them or any of them in
connection with investigating or defending any actions whether or not resulting
in any liability, insofar as such losses, claims, damages, expenses,
8
liabilities or actions arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in the registration
statement, in any preliminary or amended preliminary prospectus or in the final
prospectus (or in the registration statement or prospectus as from time to time
amended or supplemented) or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary in order to make the statements therein not misleading, but only
insofar as any such statement or omission was made in reliance upon and in
conformity with information furnished in writing to the Company in connection
therewith by such Preferred Shareholder expressly for use therein; provided,
however, that each Preferred Shareholder's obligations hereunder shall be
limited to an amount equal to the proceeds received by such holder of
Registrable Shares sold in such registration.
Promptly after receipt of notice of the commencement of any action in
respect of which indemnity may be sought against a Preferred Shareholder, the
Company will notify such Preferred Shareholder in writing of the commencement
thereof (provided, that failure to so notify such Preferred Shareholder shall
not relieve such Preferred Shareholder from any liability it may have
hereunder), and such Preferred Shareholder shall, subject to the provisions
hereinafter stated, be entitled to assume the defense of such action (including
the employment of counsel, who shall be counsel reasonably satisfactory to the
Company) and the payment of expenses insofar as such action shall relate to the
alleged liability in respect of which indemnity may be sought against such
Preferred Shareholder. The Company and each such director, officer, underwriter
or controlling Person shall have the right to employ separate counsel in any
such action and to participate in the defense thereof, but the fees and expenses
of such counsel subsequent to any assumption of the defense by such Preferred
Shareholder shall not be at the expense of such Preferred Shareholder unless
employment of such counsel has been specifically authorized in writing by such
Preferred Shareholder. A Preferred Shareholder shall not be liable to indemnify
any Person for any settlement of any such action effected without such Preferred
Shareholder's written consent.
In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which the Company exercising
its rights under this Agreement, makes a claim for indemnification pursuant to
this Section 2.06, but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding that this
Section 2.06 provides for indemnification, in such case, then, the Company and
the Preferred Shareholders will contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (after contribution from
others) in such proportion as is
9
appropriate to reflect the relative fault of the Company and each Preferred
Shareholder in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative fault of the Company and of each
Preferred Shareholder shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
Company or by either Preferred Shareholder, and each party's relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided, however, that, in any such case, (A) a
Preferred Shareholder will not be required to contribute any amount in excess of
the public offering price of all such Registrable Shares offered by it pursuant
to such registration statement; and (B) no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
2.07. Exchange Act Registration. If the Company at any time shall list
any class of equity securities on any national securities exchange or Nasdaq and
shall register such class of equity securities under the Exchange Act, the
Company will, at its expense, simultaneously so list and register the Common
Stock, and will maintain such listing and registration. If the Company becomes
subject to the reporting requirements of either Section 13 or Section 15(d) of
the Exchange Act, the Company will use its best efforts to timely file with the
Commission such information as the Commission may require under either of said
Sections; and in such event, the Company shall use its best efforts to take all
action as may be required as a condition to the availability of Rule 144 or Rule
144A under the Securities Act (or any successor exemptive rule hereinafter in
effect) with respect to such Common Stock. Thereafter, the Company shall furnish
to each Preferred Shareholder upon request (i) a written statement by the
Company as to its compliance with the reporting requirements of Rule 144, (ii) a
copy of the most recent annual or quarterly report of the Company as filed with
the Commission, and (iii) such other reports and documents as such Preferred
Shareholder may reasonably request in availing itself of any rule or regulation
of the Commission allowing it to sell any such Registrable Securities without
registration. After the occurrence of the Initial Public Offering, the Company
agrees to use its best efforts to facilitate and expedite transfers of the
Preferred Shares or any Common Stock held by the Preferred Shareholders pursuant
to Rule 144 under the Securities Act, which efforts shall include timely notice
to its transfer agent to expedite such transfers.
2.08. Damages. The Company recognizes and agrees that the Preferred
Shareholders will not have an adequate remedy if the Company fails to comply
with any provisions of this Agreement and that damages may not be readily
ascertainable, and the
10
Company expressly agrees that, in the event of such failure, it shall not oppose
an application by either Preferred Shareholder or any other Person entitled to
the benefits of this Agreement requiring specific performance of any and all
provisions hereof or enjoining the Company from continuing to commit any such
breach of this Agreement.
2.09. Further Obligations of the Company. Whenever under this
Agreement, the Company is required hereunder to register Registrable Shares, it
agrees that it shall also do the following:
(a) Furnish to the Preferred Shareholder such copies of each
preliminary and final prospectus and such other documents as the Preferred
Shareholders may reasonably request to facilitate the public offering of its
Registrable Shares;
(b) Use its best efforts to register or qualify the Registrable
Shares covered by said registration statement under the applicable securities or
"blue sky" laws of such jurisdictions as either Preferred Shareholder may
reasonably request; provided, however, that the Company shall not be obligated
to qualify to do business in any jurisdictions where it is not then so qualified
or to take any action which would subject it to the service of process in suits
other than those arising out of the offer or sale of the securities covered by
the registration statement in any jurisdiction where it is not then so subject;
(c) Furnish to each Preferred Shareholder a signed counterpart,
addressed to such Preferred Shareholder, of
(i) an opinion of counsel for the Company, dated the
effective date of the registration statement, and
(ii) "comfort" letters signed by the Company's independent
public accountants who have examined and reported on the Company's
financial statements included in the registration statement, to the extent
permitted by the standards of the American Institute of Certified Public
Accountants, covering substantially the same matters with respect to the
registration statement (and the prospectus included therein) and (in the
case of the accountants' "comfort" letters) with respect to events
subsequent to the date of the financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants' "comfort"
letters delivered to the underwriters in underwritten public offerings of
securities, to the extent that the Company is required to deliver or cause
the delivery of such opinion or "comfort" letters to the underwriters in an
underwritten public offering of securities;
11
(d) Permit each Preferred Shareholder or its counsel or other
representatives to inspect and copy such corporate documents and records as may
reasonably be requested by them;
(e) Furnish to each Preferred Shareholder a copy of all
documents filed with and all correspondence from or to the Commission in
connection with any such offering of securities;
(f) Use its best efforts to ensure the obtaining of all
necessary approvals from the National Association of Securities Dealers, Inc.;
and
(g) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders as soon as reasonably practicable, an earning statement
covering the period of at least twelve months, but not more than eighteen
months, beginning with the first month after the effective date of the
registration statement covering the Initial Public Offering, which earning
statement shall satisfy the provisions of Section 11(a) of the Securities Act
and Rule 158 thereunder.
Whenever under the preceding Sections of this Agreement a Preferred
Shareholder is registering shares pursuant to any registration statement, such
Preferred Shareholder agrees to (i) timely provide to the Company such
information and materials as it, may reasonably request in order to effect the
registration of such Registrable Shares and (ii) convert all Preferred Shares
included in any registration statement to shares of Common Stock, such
conversion to be effective at the closing of such offering pursuant to such
registration statement.
2.10. Expenses. In the case of each registration effected under
Sections 2.01, 2.02 or 2.03, the Company shall bear all reasonable costs and
expenses of each such registration on behalf of the Preferred Shareholders,
including, but not limited to, the Company's printing, legal and accounting
fees and expenses, Commission and NASD filing fees and "Blue Sky" fees and
expenses and the reasonable fees and disbursements (such fees not to exceed
$25,000) of one counsel for each Preferred Shareholder in connection with the
registration of its Registrable Shares; provided, however, that the Company
shall have no obligation to pay or otherwise bear any portion of the
underwriters' commissions or discounts attributable to the Registrable Shares
being offered and sold by the Preferred Shareholders, or the fees and expenses
of more than one counsel for each Preferred Shareholder in connection with the
registration of the Registrable Shares. The Company shall pay all expenses of
each Preferred Shareholder in connection with any registration initiated
pursuant to this Agreement which is withdrawn, delayed or abandoned at the
request of the Company, except if such withdrawal, delay or abandonment is
caused by the fraud, material
12
misstatement or omission of a material fact by a Preferred Shareholder to be
included in such registration.
2.11. Approval of Underwriter. Any managing underwriter engaged in any
registration made pursuant to Section 2.02 shall be a nationally recognized firm
requiring the approval in writing of each Preferred Shareholder participating in
the offering and the consent of the Company, which consent shall not be
unreasonably withheld or delayed.
2.12. "Lock-Up" Agreement.
(a) Initial Public Offering. Each Preferred Shareholder agrees,
if so requested by the Company and an underwriter of Common Stock or other
securities of the Company, not to sell, grant any option or right to buy or
sell, or otherwise transfer or dispose of in any manner, whether in
privately-negotiated or open-market transactions, any Common Stock or other
securities of the Company held by it during the 90-day period following the
effective date of a registration statement filed pursuant to the Initial Public
Offering, provided that:
(i) Such agreement shall apply only to the Initial Public
Offering; and
(ii) All holders of Registrable Shares, any other security
holders whose securities are included in such registration statement, and
all officers, directors and Key Employees of the Company shall also enter
into similar agreement.
Such "lock-up" agreement shall be in writing and in form and substance
satisfactory to the Company and such underwriter. The Company may impose
stop-transfer instructions with respect to the shares subject to the foregoing
restrictions until the end of said 90-day period.
(b) Lock-Up after Initial Public Offering. Each Preferred
Shareholder agrees that in the event the Company proposes to offer for sale to
the public any of its equity securities after the Initial Public Offering, and
(1) if such Preferred Shareholder is an "affiliate" of the Company (for example,
because a general partner of such Preferred Shareholder is a director of the
Company) or otherwise holds beneficially or of record ten percent (10%) or more
of the outstanding equity securities of the Company; and (2) if requested by the
Company and an underwriter of Common Stock or other securities of the Company to
sign a "Lock-Up Agreement" (as described herein); and (3) if all other
"affiliates" and such 10% stockholders similarly situated are requested by the
Company and such underwriter to sign, and actually do sign, any Lock-Up
Agreement, then it will not sell, grant any option or right to buy or sell, or
otherwise transfer or dispose of in any manner, to the public in open
13
market transactions, any Common Stock or other securities of the Company held by
it during the 90-day period following the effective date of the registration
statement of the Company filed under the Securities Act. The Company agrees that
it will sign a Lock-Up Agreement upon substantially similar terms and conditions
in the event of a registration effected pursuant to Sections 2.02 or 2.03
hereof. Such agreements shall be in writing and in form and substance reasonably
satisfactory to the Preferred Shareholders signing such agreements, the Company
and such underwriter and pursuant to customary and prevailing terms and
conditions.
The Company may impose stop-transfer instructions with respect to the
securities subject to the foregoing restrictions until the end of said 90-day
period.
2.13. Mergers, Etc. The Company shall not, directly or indirectly,
enter into any merger, consolidation or reorganization in which the Company
shall not be the surviving corporation unless the proposed surviving corporation
shall, prior to such merger, consolidation or reorganization, agree in writing
to assume the obligations of the Company under this Agreement, and for that
purpose references hereunder to Registrable Shares shall be deemed to be
references to the securities which the Preferred Shareholders would be entitled
to receive in exchange for Registrable Shares under any such merger,
consolidation or reorganization; provided, however, that the provisions of this
Section 2.13 shall not apply in the event of any merger, consolidation, or
reorganization in which the Company is not the surviving corporation if all
stockholders are entitled to receive in exchange for their Registrable Shares
consideration consisting solely of (i) cash, (ii) securities of the acquiring
corporation which may be immediately sold to the public without registration
under the Securities Act, or (iii) securities of the acquiring corporation which
the acquiring corporation has agreed to register within 90 days of completion of
the transaction for resale to the public pursuant to the Securities Act.
2.14. Limitations on Subsequent Registration Rights. From and after
the date of this Agreement, the Company shall not, without the prior written
consent of, with respect to the rights of the holders of the Series A Preferred
Stock, the holders of at least a majority of the outstanding Series A Preferred
Stock and, with respect to rights of the holders of the Series B Preferred
Stock, the holders of a majority of the outstanding Series B Preferred Stock,
voting separately by class, enter into any agreement with any holder or
prospective holder of any securities of the Company which would grant such
holder or prospective holder of any securities of the Company the right to
require the Company to initiate any registration of any securities of the
Company (a) that is inconsistent with or superior to the rights of the holders
of Preferred Shares provided in this Agreement or (b) that would require the
exclusion of Registrable Shares by the holders from such a registration beyond
any such exclusion
14
contemplated by this Agreement. This Section 2.14 shall not limit the right of
the Company to enter into any agreements with any holder or prospective holder
of any securities of the Company giving such holder or prospective holder the
right to require the Company, upon any registration of any of its securities, to
include, among the securities which the Company is then registering, securities
owned by such holder if such rights are subordinate to the rights of a holder of
Registrable Shares.
2.15. Transferability. For all purposes of this Agreement, a holder of
Registrable Shares shall include not only the Preferred Shareholders but (i) any
assignee or transferee of the Registrable Shares who acquires at least ten
percent (10%) of the Registrable Shares held or purchased by any Preferred
Shareholder on the date hereof and who is not a competitor of the Company, or
(ii) any general or limited partner or any officer or director of any Preferred
Shareholder or their affiliates, including, but not limited to, their immediate
family, irrevocable trusts for estate planning purposes and personal
representative; provided, however, that such assignee or transferee agrees in
writing to be bound by all of the provisions of this Agreement, including,
without limitation, Section 2.12 hereof. Except as set forth in this Section
2.15, the rights and interests hereunder of the Preferred Shareholders may not
be sold, assigned, pledged or otherwise transferred without the written consent
of the Company and the other Preferred Shareholder.
ARTICLE III
MISCELLANEOUS
3.01. No Waiver; Cumulative Remedies. No failure or delay on the part
of any party to this Agreement in exercising any right, power or remedy
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy hereunder.
The remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
3.02. Amendments, Waivers and Consents. Any provision in the Agreement
to the contrary notwithstanding, and except as hereinafter provided, changes in,
termination or amendments of or additions to this Agreement may be made, and
compliance with any covenant or provision set forth herein may be omitted or
waived, only if the Company shall obtain consent thereto in writing from each of
the Preferred Shareholders. Any waiver or consent may be given subject to
satisfaction of conditions stated therein and any waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
3.03. Addresses for Notices. All notices, requests, demands and other
communications provided for hereunder shall be in writing (including telegraphic
communication) and mailed,
15
telegraphed or delivered to each applicable party at the address set forth
below.
If to a Preferred Shareholder: at such Preferred Shareholder's
address for notice as set forth in the register maintained by the Company, or
at such other address as shall be designated by such Preferred Shareholder in a
written notice to the other parties complying as to delivery with the terms of
this Section.
If to the Company: at the address set forth in the Safeguard Purchase
Agreement, or at such other address as shall be designated by the Company in a
written notice to the Preferred Shareholders complying as to delivery with the
terms of this Section.
All such notices, requests, demands and other communications shall,
when mailed (which mailing must be accomplished by first class mail, postage
prepaid; electronic facsimile transmission; express overnight courier service;
or registered or certified mail, return receipt requested) or telegraphed, and
shall be considered to be delivered three (3) days after dispatch.
3.04. Binding Effect; Assignment. This Agreement shall be binding
upon and inure to the benefit of the Company and the Preferred Shareholders and
their respective successors and assigns. Except as set forth in Section 2.15,
the rights and interests under this Agreement are not assignable by the
Preferred Shareholders.
3.05. Survival of Representations and Warranties. All representations
and warranties made in this Agreement or any other instrument or document
delivered in connection herewith or therewith, shall survive the execution and
delivery hereof or thereof.
3.06. Prior Agreements. This Agreement constitutes the entire
agreement between the parties and supersedes any prior understandings or
agreements concerning the subject matter hereof, including, without limitation,
the provisions of Article V of the Safeguard Purchase Agreement, but excluding
any other provisions of the Safeguard Purchase Agreement. Without limiting the
generality of the last clause of the immediately preceding sentence, this
Agreement shall not supersede, replace, alter or modify Safeguard's rights with
respect to a rights offering set forth in Article IV of the Safeguard Purchase
Agreement.
3.07. Severability. The provisions of this Agreement, are severable
and, in the event that any court of competent jurisdiction shall determine that
any one or more of the provisions or part of a provision contained in this
Agreement, shall, for any reason, be held to be invalid, illegal or
16
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision or part of a provision of this Agreement;
but this Agreement, shall be reformed and construed as if such invalid or
illegal or unenforceable provision, or part of a provision, had never been
contained herein, and such provisions or part reformed so that it would be
valid, legal and enforceable to the maximum extent possible.
3.08. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of Delaware, and
without giving effect to choice of laws provisions.
3.9. Headings. Article, section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
3.10. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
3.11. Further Assurances. From and after the date of this Agreement,
upon the request of either Preferred Shareholder or the Company, the Company and
the Preferred Shareholders shall execute and deliver such instruments, documents
and other writings as may be reasonably necessary or desirable to confirm
17
and carry out and to effectuate fully the intent and purposes of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be executed as of the date first above written.
DLB SYSTEMS, INC., a Delaware
corporation
By:_________________________________
Name:
Title:
"Company"
PREMIER RESEARCH WORLDWIDE LIMITED,
a Delaware corporation
By:_________________________________
Name:
Title:
SAFEGUARD SCIENTIFICS (DELAWARE),
INC.
By__________________________________
Name:
Title:
18
EXHIBIT 2.03
LICENSE AGREEMENT FROM PRWW TO DLB
MASTER SOFTWARE LICENSE AGREEMENT
This Agreement is made and entered into as of the 30th day of June,
1997, by and between Premier Research Worldwide, Ltd., a Delaware corporation,
having its principal place of business at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ (hereinafter referred to as "Premier"), and DLB Systems,
Inc., a Delaware corporation, having its principal place of business at ▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ (hereinafter referred to as "DLB").
BACKGROUND
1. Premier is the owner of all right, title and interest in and to
certain proprietary computer software commonly known as "Navigator," which is
used to create clinical research data review systems ("Navigator").
2. DLB desires to obtain a license from Premier to use and modify
Navigator to access and review data generated by DLB software, to integrate
Navigator with DLB's software products, and to sublicense Navigator to third
parties.
3. Premier is willing to grant the requested license to DLB, but solely
upon the terms and conditions contained in this Agreement.
WITNESSETH
For and in consideration of the mutual promises and covenants
hereinafter contained, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, do hereby agree
as follows:
ARTICLE 1. DEFINITIONS
1.1 As used in this Agreement, the following terms shall have the
following meanings:
"Affiliate" shall mean any person, firm or entity which
directly or indirectly controls, is controlled by, or is under common control
with another party. Control, for these purposes, means the ability to influence
substantially the business or financial policies of another party and shall in
any event be deemed to exist when one party owns, directly or indirectly, at
least 25% of the voting securities of another party.
"DLB Improvements" shall have the meaning set forth in Section
6.1 hereof.
"DLB Proprietary Software" shall mean all computer software
programs developed solely by DLB or in which DLB has acquired all right, title
and interest and which are licensed by DLB, in the ordinary course of its
business, to third party end-users.
"Effective Date" shall mean the date on which the last party
hereto executes and delivers this Agreement.
"Existing Navigator Licenses" shall have the meaning set forth
in Section 2.3 hereof.
"Licensed Know-How" shall mean all technical information
(whether proprietary or not) relating to the Software which (i) Premier
possesses or controls and (ii) is useful for the full exercise and enjoyment by
DLB of the licenses granted hereunder. Licensed Know-How shall include all
technical and descriptive materials relating to the acquisition, design,
development, use or maintenance of the computer code or program documentation
and materials relating to the Software and any other items in Premier's
possession which are necessary to fully understand and utilize the Software.
"Licensed Programs" shall mean all computer software programs
which incorporate, or are made or developed, in whole or in part, by or using,
the Software or any of the Licensed Know-How.
"Premier Improvements" shall mean all ideas, inventions,
improvements or the like made, acquired or conceived by Premier after the
Effective Date (whether any such idea, invention or improvement shall be
proprietary or not) which relate to the Software or the Licensed Know-How.
"Software" the software object code and related documentation
for Navigator. The Software will also include all U.S. and foreign patents and
copyrights (including registrations, licenses, and applications pertaining
thereto) and all other intellectual property rights necessary for the enjoyment
by DLB of the licenses granted herein.
ARTICLE 2. GRANT OF LICENSE
2.1 Premier grants to DLB, pursuant to the following terms and
conditions, (a) until March 31, 1998, an exclusive world-wide license to use,
copy, reproduce, distribute, modify, sublicense, and market, the Software, the
Licensed Programs, the Licensed Know-How, and all Premier Improvements, and (b)
after March 31, 1998, a non-exclusive world-wide license to use, copy,
reproduce, distribute, modify, sublicense, and market, the Software, the
Licensed Programs, the Licensed Know-How, and all Premier Improvements. The
licenses
2
granted to DLB hereunder shall include the right to sublicense the Software and
the Licensed Programs, in their present form and as hereafter modified, to third
parties.
2.2 In conjunction with the grant of the licenses hereunder, Premier
hereby grants to DLB the right to utilize the trade names and trademarks listed
on Exhibit A attached hereto (collectively, the "Trademarks"), in conjunction
with the use, marketing, sublicensing and distribution of Licensed Programs
and/or the Software permitted hereunder.
2.3 Notwithstanding anything to the contrary contained herein, Premier
shall have the right to disclose, and license to end-users the Software, the
Licensed Programs, the Licensed Know-How, and/or the Premier Improvements, so
long as such end-users are also utilizing services provided by Premier. If,
during any calendar quarter commencing on or after April 1, 1998, DLB shall fail
to license hereunder at least one Licensed Program to a third party that is not
related to or affiliated with DLB in any manner, the licenses granted hereunder
to DLB hereunder shall automatically become non-exclusive and Premier and its
Affiliates shall have the right, from and after such date, to use, disclose,
license and otherwise transfer to any other party the Software, the Licensed
Programs, the Licensed Know-How, and/or the Premier Improvements. However,
during the term of this Agreement, Premier shall not have the right to
sublicense or otherwise transfer any DLB Improvement, except as specifically
provided herein or as may be agreed to in writing by DLB. Nothing contained in
this Agreement shall be construed as prohibiting Premier, or any Affiliate of
Premier, from utilizing the Software, the Licensed Know-How, any Premier
Improvement or any Licensed Program in any manner or for any purpose whatsoever
in (a) the conduct of its own business operations, or (b) conjunction with the
presently existing licenses of the Software described on Exhibit B attached
hereto, or any renewals or extensions thereof (the "Existing Navigator
Licenses").
2.4 Upon the execution of this Agreement, and thereafter upon the
request of DLB, Premier shall fully disclose to DLB and its designees all of the
Licensed Know-How. Not less than once each calendar year, Premier shall disclose
to DLB and its designees all Premier Improvements not theretofore disclosed to
DLB.
2.5 Upon execution of this Agreement, and at any time thereafter,
Premier shall execute and deliver to DLB such documents as may be deemed
necessary or advisable by counsel for DLB for filing in the appropriate patent,
copyright, trademark and other governmental offices to evidence the licenses
granted herein.
2.6 An express condition of this Agreement and the licenses granted
hereunder is that Premier shall at all times retain ownership of the Software,
the Premier Improvements, the Licensed Programs and the Licensed Know-How. This
Agreement shall not constitute a sale of the Software, the Premier Improvements,
the Licensed Programs, or the Licensed Know-How for any purpose whatsoever.
3
2.7 The grant of any sublicense by DLB hereunder shall be subject to
the execution and delivery by the end-user of a sublicense agreement and support
and maintenance agreement, each in form and substance acceptable to Premier in
its reasonable discretion.
ARTICLE 3. TERM
3.1 The term of the licenses granted by Premier to DLB hereunder shall
commence on the Effective Date and shall continue until otherwise terminated in
accordance with the provisions contained herein.
ARTICLE 4. ROYALTIES; SUPPORT COSTS
4.1 For each sublicense of the Software or any Licensed Program granted
by DLB hereunder, DLB shall pay Premier a royalty (the "Royalty Payment") in an
amount equal to (a) fifteen percent (15%) of the sublicense fee payable to DLB
by the sublicensee for such sublicense if the Software or Licensed Program, as
applicable, is being bundled with DLB Proprietary Software and will be used by
the sublicensee for the sole purpose of accessing and reviewing data generated
by DLB Proprietary Software, and (b) thirty-five percent (35%) of the sublicense
fee payable to DLB by the sublicensee for such sublicense if the Software or
Licensed Program, as applicable, is not being bundled with DLB Proprietary
Software and/or will be used by the sublicensee for any purpose other than
accessing and reviewing data generated by DLB Proprietary Software. The amount
of each such sublicense fee to be paid by a sublicensee of DLB hereunder shall
be subject to the prior written approval of Premier. The Royalties Payments to
be made pursuant to this Section 4.1 shall be payable in arrears with respect to
each calendar quarter within thirty (30) days after the end of each such
calendar quarter.
4.2 Each Royalty Payment made by DLB to Premier shall be accompanied by
the written report of DLB setting forth (a) the total fees received by DLB
during the immediately preceding calendar quarter from the bundled sublicensing
of the Software or any Licensed Program, (b) the total fees received by DLB
during the immediately preceding calendar quarter from the unbundled
sublicensing of the Software or any Licensed Program, and (c) the method of
computing total royalty payments. DLB shall keep books and records in such form
and detail as shall conform to normal business and accounting practices and as
shall be necessary to enable the royalties payable under this Agreement to be
determined readily. Premier or its designated agent may inspect such books and
records from time to time to the extent necessary to confirm the accuracy of the
royalty reports during regular business hours, and make copies of them to
monitor or investigate DLB's compliance with the terms of this Agreement.
4
4.3 In addition to the Royalty Payments, the amount of any present or
future sales, use, excise or other taxes or duties that may be imposed and that
are applicable to the licenses granted hereunder shall be paid by DLB.
4.4 DLB also agrees to pay to Premier, on a time and materials basis,
all costs incurred by Premier in supporting the licenses granted to DLB
hereunder. DLB shall make payment for all support costs (including taxes or
duties) within thirty (30) days of its receipt of an invoice therefor from
Premier.
ARTICLE 5. COPIES
5.1 DLB may make copies of the Software, the Licensed Programs, the
Licensed Know-How, the Premier Improvements, provided that such copies shall
include Premier's copyright and other proprietary notices. All copies of the
Software, the Licensed Programs, the Licensed Know-How, the Premier Improvements
made by DLB are the exclusive property of Premier.
ARTICLE 6. DLB MODIFICATIONS
6.1 All ideas, inventions, improvements or the like made, conceived or
acquired by DLB which relate to the Licensed Know-How or the Software
(collectively the "DLB Improvements"), shall be and remain the property of DLB.
Premier shall have an irrevocable, fully paid license to use each such DLB
Improvements for any purpose whatsoever in the conduct of its own business
operations, whether during the continuance of or after the termination of this
Agreement, and no royalties or other payments shall be due to DLB with respect
thereto. DLB shall immediately disclose in writing to Premier each DLB
Improvement made, conceived or acquired by DLB.
ARTICLE 7. WARRANTIES; REMEDIES
7.1 Premier hereby represents and warrants to DLB that Premier has all
necessary right, power and authority to execute, deliver and perform this
Agreement and to grant to DLB the licenses provided for herein. This Agreement,
upon its execution by Premier and DLB, shall constitute a legal, valid and
binding obligation of Premier, enforceable in accordance with its terms.
7.2 THE ABOVE IS A LIMITED WARRANTY AND IT IS THE ONLY
WARRANTY MADE BY PREMIER. PREMIER MAKES AND DLB RECEIVES NO OTHER WARRANTY
EXPRESS OR IMPLIED AND THERE ARE EXPRESSLY
5
EXCLUDED ALL WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
7.3 Premier shall have no liability with respect to its obligations
under this Agreement for consequential, exemplary, punitive, special, or
incidental damages even if it has been advised of the possibility of such
damages. Premier's sole liability, including liability arising out of contract,
negligence, and strict liability in tort or warranty, shall not exceed any
amounts payable by DLB hereunder for the license to use the Software.
7.4 All sublicense agreements entered into by DLB pursuant to the terms
and provisions of this Agreement shall expressly disclaim Premier's liability
for breach of any warranty or other obligation of DLB contained in such
sublicense agreement.
7.5 Premier and DLB each acknowledges that the provisions of this
Agreement were negotiated to reflect an informed, voluntary allocation between
them of all risks (both known and unknown) associated with the transactions
contemplated by this Agreement. The warranty disclaimers and limitations in this
Agreement are intended to limit the circumstances of liability. The remedy
limitations, and the limitations of liability, are separately intended to limit
the forms of relief available to DLB.
ARTICLE 8. TERMINATION
8.1 Premier shall have the right to terminate this Agreement and the
licenses granted hereunder by delivery of written notice of termination to DLB,
during the continuance of any of the following events:
(a) DLB shall fail to make any payment required of it
hereunder, and such failure shall continue for thirty (30) days after written
notification thereof is given to DLB by Premier, unless the amount of such
payment is disputed by DLB in which case Premier may terminate this Agreement
and the license hereunder only if DLB shall fail to make such payment within
sixty (60) days after final resolution of the dispute concerning such payment;
or
(b) DLB shall fail to perform any of its other obligations
under this Agreement and such failure shall continue for thirty (30) days after
written notice thereof has been provided by Premier to DLB; or
(c) DLB shall either voluntarily file for protection under any
federal or state bankruptcy law or be adjudicated by a court of competent
jurisdiction to be insolvent or bankrupt.
6
8.2 DLB shall have the right to terminate this Agreement and the
licenses granted hereunder at any time upon thirty (30) days' prior written
notice to Premier.
8.3 Upon any termination of this Agreement, each sublicensee of DLB
under the licenses granted under this Agreement, which licensee is not an
Affiliate of DLB, shall be notified by Premier in writing of such termination
and shall attorn to Premier as successor to DLB under the terms of its
sublicense agreement with DLB. Premier agrees to accept any such sublicensee as
their licensee pursuant to the terms and provisions of such sublicense agreement
as is then in effect. For the purposes of this Section 8.3, any license or
sublicense pertaining to the Software or the Licensed Programs shall be deemed
to be a sublicense under the licenses granted under this Agreement.
8.4 Upon any termination of this Agreement, DLB and its Affiliates,
shall (i) cease all use of (A) the Software, the Licensed Programs, the Premier
Improvements, and the Trademarks, and (B) to the extent not then public
knowledge, the Licensed Know-How, and (ii) shall deliver to Premier all
documents, prototypes and materials which it received pursuant to this Agreement
from Premier relating to the Software, the Premier Improvements, the Licensed
Know-How, the Trademarks or the Licensed Programs.
ARTICLE 9. ENFORCEMENT
9.1 If DLB fails to pay, when due, any amount payable hereunder or
fails to fully perform its obligations hereunder, DLB agrees to pay, in addition
to any amount past due, interest thereon equal to the lesser of eighteen percent
(18%) per annum or the highest rate allowed under applicable law, as well as all
reasonable expenses incurred by Premier in enforcing this Agreement - including,
but not limited to, all expenses of any legal proceeding related thereto and all
reasonable attorney's fees incurred in connection therewith. No failure by
Premier to request any such payment or to demand any such performance shall be
deemed a waiver by Premier of its rights hereunder.
ARTICLE 10. INDEMNIFICATION
10.1 DLB shall have the right to defend any claim alleged or proceeding
commenced on the ground that the use of the Software, the Licensed Know-How or
the Trademarks, by DLB, or those acting through it, infringes any patent,
copyright, trademark or trade name of any third party or violates the rights of
any third party under any trade secret, proprietary right, or similar statute or
common law principle. Premier shall hold DLB, and its directors, officers,
employees, agents, and Affiliates, and their respective successors and assigns,
harmless from and pay the amount of any settlement, judgment, or award, and any
and all other costs incurred by any such person or entity (including without
limitation attorneys' fees and costs of suit), in connection with any such
claims or proceedings.
7
10.2 Each party hereto shall, at its own cost and expense, take any and
all such measures as it deems advisable, by way of legal proceedings, settlement
or otherwise, to prevent or permanently enjoin the infringement by a third party
of the rights licensed hereunder, and the other parties shall cooperate in such
actions. If any party hereto finds it necessary in any suit or proceeding which
they may institute in fulfillment of the obligations of this Section 10.2, such
party may join any other party hereto as a plaintiff. In performance of the
foregoing, each party shall, at its own expense, execute all necessary papers
and testify in any suit when requested to do so by any other party hereto. The
parties shall be reimbursed for all costs actually incurred by them in
connection with the action out of any amounts recovered from the action or its
settlement. Any remaining amounts of any recovery shall be divided between the
parties as their rights may then appear.
10.3 Premier and DLB shall cooperate in the defense of any claim or
proceeding for personal injury or property damage brought against Premier or
DLB, or anyone acting through DLB, on the ground or based on the assertion that
any Licensed Program used or distributed by, on behalf of or through DLB, or any
design, procedure or standard with respect thereto is in any way defective or
deficient, or which otherwise is in any other manner based upon a claim of
product liability. DLB agrees to indemnify and hold harmless Premier from and
against any loss, cost or expense arising out of any such claim or proceeding;
provided that (i) DLB, at its sole cost and expense, has been given the
opportunity to defend such claim or proceeding, (ii) any settlement or
compromise of such claim or proceeding has been approved by DLB in advance, and
(iii) Premier has assisted in every reasonable way in such defense.
10.4 DLB shall use its best efforts to obtain and maintain in force, to
the extent available at reasonable rates, continuously during the term of this
Agreement policies of insurance covering the risks and related expenses for
which it has agreed to be responsible pursuant to Section 10.3 above. All such
insurance shall be placed with insurance companies of good standing and repute
and shall be in such amounts as DLB shall reasonably determine to be proper.
Upon request, DLB shall deliver to Premier duplicate originals of such policies
or certificates evidencing the same.
ARTICLE 11. ASSIGNABILITY AND TRANSFERABILITY
11.1 DLB's rights under the terms of this Agreement shall not be
transferrable or assignable by DLB (except for the right to grant sublicenses as
expressly provided for herein) and any attempt to do so by DLB without the
express written permission of Premier prior thereto shall constitute a breach of
the terms and conditions of this Agreement.
8
ARTICLE 12. SEVERABILITY
12.1 If any part or provision of this Agreement shall be held invalid,
unenforceable or in conflict with any law of a federal, state or local
government having jurisdiction over this Agreement, this Agreement shall be
considered divisible and the validity of the remaining provisions shall not be
affected thereby.
ARTICLE 13. GOVERNING LAW
13.1 This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Pennsylvania, without giving effect to the
conflict of law rules thereof.
ARTICLE 14. NOTICES
14.1 Any notice required or permitted to be sent under this Agreement
shall be in writing and delivered personally or sent by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to Premier:
Premier Research Worldwide, Ltd.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, M.D.,
President and CEO
with a copy to:
▇▇▇▇▇ ▇. ▇▇▇▇▇, Esquire
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, A Professional Corporation
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
If to DLB:
DLB Systems, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, CEO
9
with a copy to:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esquire
▇▇▇▇▇▇▇ & ▇▇▇
A Professional Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
or to such other address for a party as shall be specified by like notice. Any
notice that is delivered personally in the manner provided herein shall be
deemed to have been duly given to the party to whom it is directed upon actual
receipt by such party (or its agent for notices hereunder). Any notice that is
addressed and mailed in the manner herein provided shall be conclusively
presumed to have been duly given to the party to which it is addressed at the
close of business, local time of the recipient, on the fourth business day after
the day it is so placed in the mail.
ARTICLE 15. COMPLETE AGREEMENT
15.1 This Agreement constitutes the complete agreement between the
parties hereto with respect to the subject matter hereof. No amendment,
modification or alteration of the terms of this Agreement shall be binding
unless the same is in writing and duly executed by DLB and Premier.
ARTICLE 16. WAIVERS
16.1 No forbearance, delay or indulgence by either party in enforcing
the provisions of this Agreement shall prejudice or restrict the rights of that
party nor shall any waiver of its rights operate as a waiver of any subsequent
breach and no right, power or remedy herein conferred upon or reserved for
either party is exclusive of any other right, power or remedy available to that
party and each such right, power or remedy shall be cumulative.
ARTICLE 17. ATTORNEYS' FEES
17.1 In the event that any arbitration or other legal action is brought
with respect to the subject matter of this Agreement, the prevailing party in
such arbitration or legal action shall be entitled to receive reasonable
attorneys' fees, as well as costs of the arbitration or legal action (including
without limitation costs of investigation and costs of appeal), in addition to
any other relief it may receive. The reasonability of any attorneys' fees shall
be determined by the arbitrator or the court, as applicable.
10
ARTICLE 18. COUNTERPARTS
18.1 This Agreement may be executed in one or counterparts, each of
which shall for all purposes be deemed to be an original and all of which shall
constitute the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
Attest: PREMIER RESEARCH WORLDWIDE, LTD.
____________________________ By: ____________________________
Name:_______________________ Name:____________________________
Title:______________________ Title:___________________________
Attest: DLB SYSTEMS, INC.
____________________________ By: ____________________________
Name: ______________________ Name:____________________________
Title:______________________ Title:___________________________
11
EXHIBIT A
LICENSED TRADEMARKS
[To be completed]
12
EXHIBIT B
EXISTING NAVIGATOR LICENSES
[To be completed]
13
EXHIBIT 3.03
CONSENTS
No governmental consents are required
To the extent that the consent of PNC Bank, the Company's primary financial
institution lender, may be required in connection with the Company entering
into the Value-Added Marketing Agreement with Purchaser, see attached consent
from PNC Bank.
PNC BANK
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
June 26, 1997
DLB Systems, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Gentlemen:
You have advised PNC Bank, N.A. ("PNC") of the intent of DLB Systems,
Inc. ("DLB") to enter into a marketing arrangement with Premier Research
Worldwide Ltd. ("PRWW") by which DLB will grant PRWW a non-exclusive license to
market DLB's software products, with DLB's standard licensing fee payable by
PRWW. We understand also that if DLB fails to provide support for its products
which are sub-licensed by PRWW, or files for bankruptcy, PRWW will receive up to
six 10-user licenses for DLB products without obligation to pay DLB's license
fee to the extent required for PRWW to recover the value that PRWW has added to
the project, although this will have no affect as to license fees theretofore
paid or on accounts receivable owing to DLB by PRWW for DLB products theretofore
sub-licensed by PRWW.
To the extent that the foregoing arrangement might be prohibited by the
terms of PNC's loan documents with DLB, please take this letter as PNC's consent
to the subject transaction as outlined above.
Sincerely,
PNC BANK, NATIONAL ASSOCIATION
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇,
Vice President
EXHIBIT 3.04
LITIGATION
There are no pending litigation, claims or assessments against DLB Systems,
Inc., a Delaware corporation (the "Company").
DLB Systems, NJ*, has an outstanding balance due to the State of California for
sales tax for the period 4/1/92 - 8/1/95. The outstanding balance as of April
11, 1997, was $42,752.95. There is a verbal agreement with ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, of
the California Sales Tax Board of Equalization, to pay them $7,000 per month
beginning June 10th and continuing to make payments on the 10th of every month
until the amount is paid in full. The payments are first applied against the
delinquent tax amount and not the penalty and interest. This reduces the amount
of interest that accrues on the outstanding principal every month.
DLB Systems, NJ and DLB Systems, Delaware - NJ Unemployment tax had been
reported under the wrong employer ID Number for the 4th qtr. 1995 and 1st qtr.
1996. Ceridian Employer Tax Services, the Company's payroll service, is
currently in the process of having this corrected with the State of New Jersey.
* as used in these Exhibits, "DLB Systems, NJ" means DLB Systems, Inc., a New
Jersey corporation, which is a shareholder of the Company. "The Company" or "DLB
Systems, Delaware" means DLB Systems, Inc., a Delaware corporation, which is the
Company as defined in the Preferred Stock Purchase Agreement.
EXHIBIT 3.05
CERTAIN AGREEMENTS OF OFFICERS AND EMPLOYEES
The Company has agreements or contracts with the following:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ - Employment Agreement dated August 30, 1995; expires 8/1/97
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ - Employment Agreement dated August 30, 1995; expires 8/1/97
▇▇▇ ▇▇▇▇▇▇▇▇ - Severance Agreement, dated May 12, 1997
All employees - non disclosure agreement substantially in the form
attached hereto.
3.05(b) Officers, consultants or Key Employees who have terminated since
1/1/97 or have a present intention to terminate their employment with DLB
Systems, Inc.:
Employees
---------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ - Chief Consultant Resignation as of 8/1/97
▇▇▇▇ ▇▇▇▇▇▇▇▇ - V.P. of Product Mgmt. (Monitor) Resigned 2/24/97
▇▇▇▇▇▇▇▇ ▇▇▇▇▇ - V.P. of Finance & Admin. Resigned 3/7/97
EXHIBIT 3.05 cont'd.
DLB SYSTEMS CORPORATION
EMPLOYEE NON-DISCLOSURE, ASSIGNMENT OF DEVELOPMENTS
AND NON-SOLICITATION AGREEMENT
In consideration and as a condition of my employment by DLB Systems
Corporation (the "Company"), I hereby agree with the Company as follows:
1. I will not at any time, whether during or after the termination of my
employment, reveal to any person or entity any of the trade secrets or
confidential information of the Company or of any third party which the Company
is under an obligation to keep confidential (including but not limited to
trade secrets or confidential information respecting inventions, products,
designs, methods know-how, techniques, systems, processes, software programs,
other technical information, works of authorship, customer lists, financial
information, business plans, projects, plans and proposals), except as may be
required in the ordinary course of performing my duties as an employee of the
Company, and I shall keep secret all matters entrusted to me and shall not use
or attempt to use any such information in any manner which may injure or cause
loss or may be calculated to injure or cause loss whether directly or indirectly
to the Company.
The above restrictions shall not apply to: (i) information that at the time
of disclosure is in the public domain through no fault of mine; (ii) information
received from a third party outside of the company that was disclosed without
any confidentiality obligation or any breach by such third party of any
confidentiality obligation; (iii) information approved for release by written
authorization of the Company; or (iv) information that may be required by law or
an order of any court, agency or proceeding to be disclosed; provided, I shall
provide the Company notice of any such required disclosure once I have
knowledge of it and will help the Company to the extent reasonable to obtain an
appropriate protective order.
Further, I agree that during my employment I shall not take, use or permit
to be used any notes, memoranda, reports, lists, records, drawings, sketches,
specifications, software programs, data documentation or other materials of any
nature relating to any matter within the scope of the business of the Company or
concerning any of its dealings or affairs otherwise than for the benefit of the
Company. I further agree that I shall not, after the termination of my
employment, use or permit to be used any such notes, memoranda, reports, lists,
records, drawings, sketches, specifications, software programs, data,
documentation or other materials, it being agreed that all of the foregoing
shall be and remain the sole and exclusive property of the Company and that
immediately upon the termination of my employment I shall deliver all of the
foregoing, and all copies thereof, to the Company, at its main office.
2. If at any time during my employment I shall (either alone or with others)
make, conceive, discover or reduce to practice any invention, modification,
discovery, design, development, improvement, process, software program, work of
authorship, documentation, formula, data technique, know-how, secret or
intellectual property right whatsoever or any interest therein (whether or not
patentable or registrable under copyright or similar statutes or subject to
analogous protection) (herein called "Developments") that (a) relates to the
business of the Company or any other company of person with which the Company is
doing business or invested in or is considering doing business with or investing
in, or any of the products or services being developed, manufactured or sold by
the Company or any other such company or person, or which may be used in
relation therewith, (b) results from tasks assigned me by the Company or (c)
results from the use of premises or personal property (whether tangible or
intangible) owned, leased or contracted for by the Company, such Developments
and the benefits thereof shall immediately become the sole and absolute property
of the Company and its assigns, and I shall promptly disclose to the Company (or
any persons designated by it) each such Development and hereby assign any rights
I may have or acquire in the Developments and benefits and/or rights resulting
therefrom to the Company and its assigns without further compensation and shall
communicate, without cost or delay, and without publishing the same, all
available information relating thereto (with all necessary plans and models) to
the Company.
1
Upon disclosure of each Development to the Company, I will, during my
employment and at any time thereafter, at the request and cost of the Company,
sign, execute, make and do all such deeds, documents, acts and things as the
Company and its duly authorized agents may reasonable require:
(a) to apply for, obtain and vest in the name of the Company along
(unless the Company otherwise directs) letters patent, copyrights or other
analogous protection in any country throughout the world and when so obtained
or vested to renew and restore the same; and
(b) to defend any opposition proceedings in respect of such
applications and any opposition proceedings or petitions or applications for
revocation of such letters patent, copyright or other analogous protection.
In the event the Company is unable, after reasonable effort, to secure my
signature on any letters patent, copyright or other analogous protection
relating to a Development, whether because of my physical or mental incapacity
or for any other reasons whatsoever, I hereby irrevocably designate and appoint
the Company and its duly authorized officers and agents as my agent and
attorney-in-fact, to act for and in my behalf and stead to execute and file any
such application or applications and to do all other lawfully permitted acts to
further the prosecution and issuance of letter patents, copyrights and other
analogous protection thereon with the same legal force and effect as if executed
by me.
3. While I am employed at the Company and for a period of one (1) year after
termination of my employment (for any reason, whether voluntarily or
involuntarily), I will not directly or indirectly solicit, recruit or hire any
employee of the Company to work for a third party other than the Company or
engage in any activity that would cause any employee to violate any agreement
with the Company.
4. I agree that any breach of this Agreement by me will cause irreparable damage
to the Company and that in the event of such breach the Company shall have, in
addition to any and all remedies of law, the right to an injunction, specific
performance or other equitable relief to prevent the violation of my obligations
hereunder.
5. I understand that this Agreement does not create an obligation on the Company
or any other person or entity to continue my employment or to exploit any
Developments.
6. Any waiver by the Company of a breach of any provision of this Agreement
shall not operate or be construed as a waiver of any subsequent breach of such
provision or any other provision hereof.
7. I hereby acknowledge that the type and periods of restriction imposed in the
provisions of this Agreement are fair and reasonable and are reasonably required
for the protection of the Company and the goodwill associated with the business
of the Company. I further agree that each provision herein shall be treated as a
separate and independent clause, and the unenforceability of any one clause
shall in no way impair the enforceability of any of the other clauses herein.
Moreover, if one or more of the provisions contained in this Agreement shall for
any reason be held to be excessively broad as to scope, activity or subject so
as to be unenforceable a law, such provision or provisions shall be construed by
the appropriate judicial body by limiting and reducing it or them, so as to be
enforceable to the maximum extent compatible with the applicable law as it shall
then appear.
8. My obligations under this Agreement shall survive the termination of my
employment regardless of the manner of such termination and shall be binding
upon my heirs, executors, administrators and legal representatives.
9. The term "Company" shall include DLB Systems Corporation and any of its
subsidiaries, subdivisions or affiliates. The Company shall have the right to
assign this Agreement to its successors and
2
assigns, and all covenants and agreements hereunder shall inure to the benefit
of and be enforceable by said successors or assigns.
10. This Agreement shall be governed by and construed in accordance with the
laws of New Jersey.
IN WITNESS WHEREOF, the undersigned has executed this Agreement as a sealed
document as of the ______ day of _________________ 199_,
_________________________________
Signature
_________________________________
Please Print Name
_________________________________
Address
3
EXHIBIT 3.06
COMPLIANCE with OTHER INSTRUMENTS; SCHEDULE OF INDEBTEDNESS
Lending Institution/Company: Loans
PNC Bank, NA - $2.0 million Credit Line, under committed Line of Credit Note,
dated May 14, 1997 (only $1.0 million is currently available).
PNC Bank, NA - $325,312.28 Term Note dated May 14, 1997
First Union National Bank - $1.0 million Promissory Note dated November 25, 1996
Safeguard Scientifics (Delaware), Inc.: -
$1,000,000 Amended and Restated Demand Note dated July 25, 1996
$ 250,000 Demand Note dated March 31, 1997
$ 150,000 Demand Note dated April 4, 1997
Integrated Systems Consulting Group - $100,000 Note dated 9/30/95, of which
$50,000 has been paid per its terms.
Financing Institution/Company: Capital Leases
AT&T Capital - Computer Equipment dated July 26, 1994.
AT&T Capital - Computer Equipment dated October 21, 1994
Advanta Leasing - Computer Equipment May 15, 1995
Financing Institution/Company: Operating Leases
Copelco Capital - Copy Machines dated March 14, 1996
Copelco Capital - Fax Machine dated April 21, 1997
Toyota Credit - Automobile dated July 16, 1994
Property Owner: Office Leases
Bernards/78 Associates - Office lease, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇
▇▇▇▇▇▇, dated May 15, 1992.
IXI Limited - Office lease, ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇
(▇▇), dated June 14, 1996.
▇▇▇▇▇ & ▇▇▇▇▇▇ - Office Sublease, ▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇ ▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇
▇▇▇▇▇▇, dated June 17, 1997.
The Company is in non-compliance with a financial covenant set forth in the
Letter Agreement dated May 14, 1997 in connection with the PNC Bank, NA, loan
agreement, net worth was not allowed to exceed ($4,700,000), as of May 31. PNC
has advised The Company that it understands that upon consummation of this
transaction with Purchaser, this noncompliance will cease and therefore no
written waiver is necessary at this time.
EXHIBIT 3.06 Cont'd
Lending Institution/Company: Loans
On June 26, 1997, with Purchaser's knowledge, $200,000 was loaned by Safeguard
Scientifics (Delaware), Inc. to the Company. This loan will be repaid to
Safeguard Scientifics (Delaware), Inc. out of the proceeds from this
transaction, as set forth in Section 1.04 of the Agreement.
EXHIBIT 3.07
TITLE to ASSET, PATENTS
The Company has good and marketable title to its assets reflected in the most
recent balance sheet with the exception of those listed in Exhibit 3.06 under
"Capital Leases". PNC Bank, NA, has a first priority perfected lien on all
assets per the Security Agreement between The Company and PNC dated May 14, 1997
and the UCC-1 filed in connection therewith, entered into in connection with
the loan agreements with PNC listed on Exhibit 3.06. Safeguard Scientifics
(Delaware), Inc., has a second priority lien per the $ 1.0 million Demand Note,
dated July 25, 1996, subordinate to the PNC Bank, NA lien, pursuant to the
subordinate agreement, dated May 14, 1997.
The Company has a right to use the Intellectual Property Rights of
Oracle Corporation - Reseller Agreement
SQRibe Technologies - Software Evaluation Agreement, dated January 17, 1997
See attached Asset Listing.
EXHIBIT 3.07 Cont'd
DLB Systems, Delaware
Fixed Asset Schedule
As Of: 31-May-97
Month: 5
Type: Software
Annual Monthly Expense Expense
Deprec Deprec FYE FYE
Date Description Life Method Cost Expense Expense 31-Dec-95 31-Dec-96
-------- ------------------------------------- ---- ------ -------- -------- --------- --------- ---------
1-Aug-95 Oracle software 3 SL 1,387.66 462.55 38.55 192.73 462.55
1-Aug-95 Research Group S/W pack 3 SL 346.32 115.44 9.62 48.10 115.44
1-Aug-95 VMS User Documentation package 3 SL 141.51 47.17 3.93 19.65 47.17
1-Aug-95 Microsoft Office/Access (UK) 3 SL 325.30 108.43 9.04 45.18 108.43
1-Aug-95 Microsoft 3 SL 449.33 149.78 12.48 62.41 149.78
1-Aug-95 Mail-it 10 pack 3 SL 248.90 82.97 6.91 34.57 82.97
1-Aug-95 Upgrade 3 SL 40.89 13.63 1.14 5.68 11.63
1-Aug-95 SupportMagic - 8 Users 3 SL 5,558.36 1,852.79 154.40 771.99 1,852.79
1-Aug-95 Reflection 4 4.1 WIN DUAL 3 SL 169.53 56.51 4.71 23.55 56.51
1-Aug-95 Software-Harvard Graphics 2.0 3 SL 142.14 47.38 3.95 19.74 47.38
1-Aug-95 Microsoft Excel 5.0 Windows 3.5 3 SL 131.75 43.92 3.66 18.30 43.92
1-Aug-95 Software-Excel 5. 3 SL 250.95 83.65 6.97 34.85 83.65
1-Aug-95 Microsoft Project for Windows 3.0&3.5 3 SL 204.47 68.16 5.68 28.40 68.16
1-Aug-95 Microsoft MS Office 4.0 3 SL 215.81 71.94 5.99 29.97 71.94
1-Aug-95 Teach-OR Complete Library Pkg 3 SL 750.00 250.00 20.83 104.17 250.00
1-Aug-95 SABLIME for Sun Sparc 3 SL 2,650.00 883.33 73.61 368.06 883.33
1-Aug-95 Softwr Col 93-Engineering Collection 3 SL 68.28 22.76 1.90 9.48 22.76
1-Aug-95 Framemaker V4.0 31/2 3 SL 340.68 113.56 9.46 47.32 113.56
1-Aug-95 Reflection 3 SL 156.75 52.25 4.35 21.77 52.25
1-Aug-95 Clear Software for C 1.0 DOS 3 SL 98.96 32.99 2.75 13.74 32.99
1-Aug-95 CALPI Accounting Software 3 SL 118.07 39.36 3.28 16.40 39.36
1-Aug-95 RoboHELP 2.61 Upgrade 3 SL 127.72 42.57 3.55 17.74 42.57
1-Aug-95 Microsoft ACCESS 2.0 Upgrade 3 SL 70.83 23.61 1.97 9.84 23.61
1-Aug-95 Microsoft Visual C+ + Pro Vl.5 CD 3 SL 217.31 72.44 6.04 30.18 72.44
1-Aug-95 Microsoft Visual Basic V3.0 3 SL 552.23 184.08 15.34 76.70 184.08
1-Aug-95 CC:Mail Platform Pack 3 SL 213.25 71.08 5.92 29.62 71.08
1-Aug-95 CC:Mail 25 User Pack V4.0 3 SL 355.17 118.39 9.87 49.33 118.39
1-Aug-95 CC:Mail 25 User Pack V4.0 3 SL 355.17 118.39 9.87 49.33 118.39
1-Aug-95 Microsoft Win Interface APPS Design 3 SL 180.94 60.31 5.03 25.13 60.31
1-Aug-95 Lotus CC:Mail Router 4.0 3 SL 592.58 194.19 16.18 80.91 194.19
1-Aug-95 Support Magic F/Windows 3 SL 1,461.25 487.08 40.59 202.95 487.08
1-Aug-95 Crystal Report Module(Support Magic) 3 SL 583.33 194.44 16.20 81.02 194.44
1-Aug-95 Word Power Point Excel 3 SL 281.72 93.91 7.83 39.13 93.91
1-Aug-95 CC:Mail Link SMTP V2.0 3 SL 1,572.26 524.09 43.67 218.37 524.09
1-Aug-95 Microsoft Access 2.0 license Upgrade 3 SL 61.25 20.42 1.70 8.51 20.42
1-Aug-95 Crystal Reports for Windows 3 SL 308.61 102.87 9.57 42.86 102.87
1-Aug-95 Q&E Multilink/VB 2 3 SL 264.58 88.19 7.35 36.75 88.19
Expense Total
FYE Accum. Net
Date Description 31-Dec-97 Depreciation Asset
-------- ------------------------------------- --------- ------------ -------
1-Aug-95 Oracle software 192.73 848.01 539.64
1-Aug-95 Research Group S/W pack 48.10 211.64 134.68
1-Aug-95 VMS User Documentation package 19.65 86.48 55.03
1-Aug-95 Microsoft Office/Access (UK) 45.18 198.80 126.51
1-Aug-95 Microsoft 62.41 274.59 174.74
1-Aug-95 Mail-it 10 pack 34.57 152.11 96.79
1-Aug-95 Upgrade 5.68 24.99 15.90
1-Aug-95 SupportMagic - 8 Users 771.99 3,396.78 2,161.58
1-Aug-95 Reflection 4 4.1 WIN DUAL 23.55 103.60 65.93
1-Aug-95 Software-Harvard Graphics 2.0 19.74 86.86 55.28
1-Aug-95 Microsoft 5.0 Windows 3.5 18.30 80.51 51.24
1-Aug-95 Software-Excel 5. 34.85 153.36 97.59
1-Aug-95 Microsoft Project for Windows 3.0&3.5 28.40 124.96 79.52
1-Aug-95 Microsoft MS Office 4.0 29.97 131.88 83.92
1-Aug-95 Teach-OR Complete Library Pkg 104.17 458.33 291.67
1-Aug-95 SABLIME for Sun Sparc 368.06 1,619.44 1,030.56
1-Aug-95 Softwr Col 93-Engineering Collection 9.48 41.73 26.55
1-Aug-95 Framemaker V4.0 31/2 47.32 208.19 132.49
1-Aug-95 Reflection 21.77 95.79 60.96
1-Aug-95 Clear Software for C 1.0 DOS 13.74 60.47 38.48
1-Aug-95 CALPI Accounting Software 16.40 72.16 45.92
1-Aug-95 RoboHELP 2.61 Upgrade 17.74 78.05 49.67
1-Aug-95 Microsoft ACCESS 2.0 Upgrade 9.84 43.29 27.55
1-Aug-95 Microsoft Visual C+ + Pro Vl.5 CD 30.18 132.80 84.51
1-Aug-95 Microsoft Visual Basic V3.0 76.70 337.48 214.76
1-Aug-95 CC:Mail Platform Pack 29.62 130.32 82.93
1-Aug-95 CC:Mail 25 User Pack V4.0 49.33 217.05 138.12
1-Aug-95 CC:Mail 25 User Pack V4.0 49.33 217.05 138.12
1-Aug-95 Microsoft Win Interface APPS Design 25.13 110.58 70.37
1-Aug-95 Lotus CC:Mail Router 4.0 80.91 356.02 226.56
1-Aug-95 Support Magic F/Windows 202.95 892.99 568.26
1-Aug-95 Crystal Report Module(Support Magic) 81.02 356.48 226.85
1-Aug-95 Word Power Point Excel 39.13 172.16 109.56
1-Aug-95 CC:Mail Link SMTP V2.0 218.37 960.82 611.43
1-Aug-95 Microsoft Access 2.0 license Upgrade 8.51 37.43 23.82
1-Aug-95 Crystal Reports for Windows 42.86 188.60 120.02
1-Aug-95 Q&E Multilink/VB 2 36.75 161.69 102.89
Page 1
Annual Monthly Expense Expense
Deprec Deprec FYE FYE
Date Description Life Method Cost Expense Expense 31-Dec-95 31-Dec-96
-------- ------------------------------------- ---- ------ -------- -------- --------- --------- ---------
1-Aug-95 Microsoft Access for Windows 2.0 3 SL 82.27 27.42 2.29 11.43 27.42
1-Aug-95 Microsoft Project V4.0 for windows 3 SL 100.47 33.49 2.79 13.95 33.49
1-Aug-95 Microsoft Office for Windows V4.2 3 SL 320.65 106.88 8.91 44.53 106.88
1-Aug-95 Microsoft Visual C++ 3 SL 68.71 22.90 1.91 9.54 22.90
1-Aug-95 Microsoft Excel 5.0 3 SL 69.18 23.06 1.92 9.61 23.06
1-Aug-95 Business Works - Network Version 3 SL 159.82 53.27 4.44 22.20 53.27
1-Aug-95 MS Project Upgrade-CA 3 SL 108.96 36.32 3.03 15.13 36.32
1-Aug-95 Netblazer 40, Assy Upgrade kit 3 SL 510.47 170.16 14.18 70.90 170.16
1-Aug-95 Cheyenne Arcserve NLM Windows 100 3 SL 748.14 249.38 20.78 103.91 249.38
1-Aug-95 Oracle Version 7.0 3 SL 999.48 333.16 27.76 138.82 333.16
1-Aug-95 Spread/VBX 2.1 & Aware/VBX 1.0 3 SL 225.53 75.18 6.26 31.32 75.18
1-Aug-95 Lotus CC:Mail l0 User pack 3 SL 181.61 60.54 5.04 25.22 60.54
1-Aug-95 Access Development Kit 3 SL 206.30 68.77 5.73 28.65 68.77
1-Aug-95 Act for Windows Version 2.0 3 SL 138.33 46.11 3.84 19.21 46.11
1-Aug-95 ACT! V2.0 f/Windows(2) 3 SL 389.03 129.68 10.81 54.03 129.68
1-Aug-95 Letterworks Software 3 SL 147.15 49.05 4.09 20.44 49.05
1-Aug-95 Oracle Software 3 SL 1,671.97 557.32 46.44 232.22 557.32
1-Aug-95 Business Works 9.0 Windows(Acctg) 3 SL 244.98 81.66 6.80 34.02 81.66
1-Aug-95 Hijack Graphics for Windows 3 SL 335.25 111.75 9.31 46.56 111.75
1-Aug-95 Version Manager for Windows 3 SL 10,191.45 3,397.15 283.10 1,415.48 3,397.15
1-Aug-95 Speed Edit for Windows 3 SL 254.17 84.72 7.06 35.30 84.72
27-Sep-95 Mercury-GUI Software 3 SL 18,297.79 6,099.26 508.27 2,062.36 6,099.26
27-Sep-95 DEC-Alpha Software 3 SL 21,925.72 7,308.57 609.05 2,468.82 7,308.57
1-Oct-95 PC Windows 95 3 SL 3,410.50 1,136.83 94.74 284.20 1,136.83
17-Mar-96 Oracle Designer 2000 3 SL 4,234.70 1,411.57 117.63 0.00 1,176.31
5-Apr-96 Oracle Designer 2000-1 user (TS) 3 SL 2,152.31 717.44 59.79 0.00 538.07
7-May-96 Anti Virus Software 3 SL 1,986.79 662.26 55.19 0.00 441.51
29-Aug-96 Oracle Designer 2000 license 3 SL 2,117.35 705.78 58.82 0.00 235.26
1-Oct-96 Lotus CC:mail v6.0 upgrade 3 SL 952.99 317.66 26.47 0.00 79.42
1-Dec-97 DEC-Object Broker Software (Alert) 3 SL 10,398.54 3,466.18 288.85 0.00 288.85
1997 Additions:
---------- --------- -------- --------- ---------
103,614.49 34,538.16 2,878.18 10,112.30 30,016.69
========== ========= ======== ========= =========
Expense Total
FYE Accum. Net
Date Description 31-Dec-97 Depreciation Asset
-------- ------------------------------------- --------- ------------ -------
1-Aug-95 Microsoft Access for Windows 2.0 11.43 50.27 31.99
1-Aug-95 Microsoft Project V4.0 for windows 13.95 61.40 39.07
1-Aug-95 Microsoft Office for Windows V.42 44.53 195.95 124.70
1-Aug-95 Microsoft Visual C++ 9.54 41.99 26.72
1-Aug-95 Microsoft Excel 5.0 9.61 42.28 26.90
1-Aug-95 Business Works - Network Version 22.20 97.67 62.15
1-Aug-95 MS Project Upgrade-CA 15.13 66.59 42.37
1-Aug-95 Netblazer 40, Assy Upgrade kit 70.90 311.96 198.52
1-Aug-95 Cheyenne Arcserve NLM Windows 100 103.91 457.20 290.94
1-Aug-95 Oracle Version 7.0 138.82 610.79 388.69
1-Aug-95 Spread/VBX 2.1 & Aware/VBX 1.0 31.32 137.82 87.71
1-Aug-95 Lotus CC:Mail l0 User pack 25.22 110.98 70.62
1-Aug-95 Access Development Kit 28.65 126.07 80.23
1-Aug-95 Act for Windows Version 2.0 19.21 84.54 53.80
1-Aug-95 ACT! V2.0 f/Windows(2) 54.03 237.74 151.29
1-Aug-95 Letterworks Software 20.44 89.93 57.23
1-Aug-95 Oracle Software 232.22 1,021.76 650.21
1-Aug-95 Business Works 9.0 Windows(Acctg) 34.02 149.71 95.27
1-Aug-95 Hijack Graphics for Windows 46.56 204.87 130.37
1-Aug-95 Version Manager for Windows 1,415.48 6,228.11 3,963.34
1-Aug-95 Speed Edit for Windows 35.30 155.32 98.84
27-Sep-95 Mercury-GUI Software 2,541.36 10,702.98 7,594.81
27-Sep-95 DEC-Alpha Software 3,045.24 12,822.63 9,103.09
1-Oct-95 PC Windows 95 473.68 1,894.71 1,515.79
17-Mar-96 Oracle Designer 2000 588.15 1,764.46 2,470.24
5-Apr-96 Oracle Designer 2000-1 user (TS) 298.93 837.00 1,315.31
7-May-96 Anti Virus Software 275.94 717.46 1,269.33
29-Aug-96 Oracle Designer 2000 license 294.08 529.34 1,588.01
1-Oct-96 Lotus CC:mail v6.0 upgrade 132.36 211.78 741.21
1-Dec-97 DEC-Object Broker Software (Alert) 1,444.24 1,733.09 8,665.45
1997 Additions:
--------- --------- ---------
14,390.90 54,519.89 49,094.60
========= ========= =========
Page 2
EXHIBIT 3.07 Cont'd.
DLB Systems, Delaware
Fixed Asset Schedule
As of: 31-May-97
Month: 5
Type: Computers
Annual Monthly Expense Expense Expense
Deprec Deprec FYE FYE FYE
Date Description Life Method Cost Expense Expense 31-Dec-95 31-Dec-96 31-Dec-97
-------- ----------------------------------- ---- ------ -------- -------- --------- --------- --------- ---------
1-Aug-95 Laptop monitors, keyboards (2) 3 SL 73.30 24.43 2.04 10.18 24.43 10.18
1-Aug-95 Dell 325SX (Reception) 3 SL 89.20 29.73 2.48 12.39 29.73 12.39
1-Aug-95 SPARCbook 1 3 SL 982.42 327.47 27.29 136.45 327.47 136.45
1-Aug-95 Desktop Storage Tape Drive 3 SL 410.46 136.82 11.40 57.01 136.82 57.01
1-Aug-95 DEC tape storage unit 3 SL 241.90 80.63 6.72 33.60 80.63 33.60
1-Aug-95 Dell Laptop 3 SL 232.85 77.62 6.47 32.34 77.62 32.34
1-Aug-95 HP Laserjet 4M 3 SL 301.60 100.53 8.38 41.89 100.53 41.89
1-Aug-95 Mac II Computer 3 SL 583.88 194.63 16.22 81.09 194.63 81.09
1-Aug-95 SPARCbook 1 3 SL 987.22 329.07 27.42 137.11 329.07 137.11
1-Aug-95 Dell 425S/L 3 SL 296.32 98.77 8.23 41.16 98.77 41.16
1-Aug-95 Logitech Color Scanman 3 SL 112.89 37.63 3.14 15.68 37.63 15.68
1-Aug-95 Dell 425S/L 3 SL 324.85 108.28 9.02 45.12 108.28 45.12
1-Aug-95 Toshiba T440 DXC 3 SL 997.21 332.40 27.70 138.50 332.40 138.50
1-Aug-95 Dell 425S/L 3 SL 384.35 128.12 10.68 53.38 128.12 53.38
1-Aug-95 SPARCBook II 3 SL 2,948.92 982.97 81.91 409.57 982.97 409.57
1-Aug-95 SPARCBook I 3 SL 2,250.73 750.24 62.52 312.60 750.24 312.60
1-Aug-95 Compaq Laptop 3 SL 739.99 246.66 20.56 102.78 246.66 102.78
1-Aug-95 HP Laserjet 4L (UK) 3 SL 310.15 103.38 8.62 43.08 103.38 43.08
1-Aug-95 SPARCBook tax I11650 3 SL 129.75 43.25 3.60 18.02 43.25 18.02
1-Aug-95 535MB Storage 3 SL 574.90 191.63 15.97 79.85 191.63 79.85
1-Aug-95 HP Laserjet 4M 3 SL 649.40 216.47 18.04 90.19 216.47 90.19
1-Aug-95 Keyboard & 14C Monitor 3 SL 217.49 72.50 6.04 30.21 72.50 30.21
1-Aug-95 535MB Storage 3 SL 457.57 152.52 12.71 63.55 152.52 63.55
1-Aug-95 Dell 425S/L 3 SL 715.11 238.37 19.86 99.32 238.37 99.32
1-Aug-95 Dell 425S/L 3 SL 715.11 238.37 19.86 99.32 238.37 99.32
1-Aug-95 Keyboard & 14C Monitor 3 SL 188.85 62.95 5.25 26.23 62.95 26.23
1-Aug-95 Keyboard & 14C Monitor 3 SL 188.85 62.95 5.25 26.23 62.95 26.23
1-Aug-95 9600-bps Internal Data & Fax Modem 3 SL 308.37 102.79 8.57 42.83 102.79 42.83
1-Aug-95 535 MB Desktop Disk Pack 3 SL 440.19 146.73 12.23 61.14 146.73 61.14
1-Aug-95 Compaq 4/25 Model 209 & Acces. 3 SL 1,142.34 380.78 31.73 158.66 380.78 158.66
1-Aug-95 HP Laserjet IV 3 SL 585.84 195.28 16.27 81.37 195.28 81.37
1-Aug-95 HP9000 827S Business Server 3 SL 4,338.01 1,446.00 120.50 602.50 1,446.00 602.50
1-Aug-95 Dell 425S/L Base 3 SL 2,437.68 812.56 67.71 338.57 812.56 338.57
1-Aug-95 16MB Expansion Board 3 SL 353.93 117.98 9.83 49.16 117.98 49.16
1-Aug-95 Dell 466/L Base 3 SL 1,596.70 532.23 44.35 221.76 532.23 221.76
Total Net
Accum. Book
Date Description Depreciation Value
-------- ------------------------------------- ------------ -------
1-Aug-95 Laptop monitors, keyboards (2) 44.80 28.51
1-Aug-95 Dell 325SX (Reception) 54.51 34.69
1-Aug-95 SPARCbook 1 600.37 382.05
1-Aug-95 Desktop Storage Tape Drive 250.83 159.62
1-Aug-95 DEC tape storage unit 147.83 94.07
1-Aug-95 Dell Laptop 142.30 90.55
1-Aug-95 HP Laserjet 4M 184.31 117.29
1-Aug-95 Mac II Computer 356.82 227.07
1-Aug-95 SPARCbook 1 603.30 383.92
1-Aug-95 Dell 425S/L 181.09 115.24
1-Aug-95 Logitech Color Scanman 68.99 43.90
1-Aug-95 Dell 425S/L 198.52 126.33
1-Aug-95 Toshiba T440 DXC 609.41 387.80
1-Aug-95 Dell 425S/L 234.88 149.47
1-Aug-95 SPARCBook II 1,802.12 1,146.80
1-Aug-95 SPARCBook I 1,375.45 875.29
1-Aug-95 Compaq Laptop 452.21 287.77
1-Aug-95 HP Laserjet 4L (UK) 189.54 120.62
1-Aug-95 SPARCBook tax I11650 79.29 50.46
1-Aug-95 535MB Storage 351.33 223.57
1-Aug-95 HP Laserjet 4M 396.85 252.54
1-Aug-95 Keyboard & 14C Monitor 132.91 84.58
1-Aug-95 535MB Storage 279.62 177.94
1-Aug-95 Dell 425S/L 437.01 278.10
1-Aug-95 Dell 425S/L 437.01 278.10
1-Aug-95 Keyboard & 14C Monitor 115.41 73.44
1-Aug-95 Keyboard & 14C Monitor 115.41 73.44
1-Aug-95 9600-bps Internal Data & Fax Modem 188.45 119.92
1-Aug-95 535 MB Desktop Disk Pack 269.01 171.19
1-Aug-95 Compaq 4/25 Model 209 & Acces. 698.10 444.24
1-Aug-95 HP Laserjet IV 358.01 227.83
1-Aug-95 HP9000 827S Business Server 2,651.00 1,687.00
1-Aug-95 Dell 425S/L Base 1,489.69 947.98
1-Aug-95 16MB Expansion Board 216.29 137.64
1-Aug-95 Dell 466/L Base 975.76 620.94
Page 1
Annual Monthly Expense Expense
Deprec Deprec FYE FYE
Date Description Life Method Cost Expense Expense 31-Dec-95 31-Dec-96
-------- ------------------------------------- ---- ------ -------- -------- --------- --------- ---------
1-Aug-95 HP-4L Printer 3 SL 305.75 101.92 8.49 42.46 101.92
1-Aug-95 8MB Memory VS4000-VLC 3 SL 401.47 133.82 11.15 55.76 133.82
1-Aug-95 ▇▇▇/▇ ▇/▇ ▇ User 3 SL 1,346.66 448.89 37.41 187.04 448.89
1-Aug-95 Pocket Lan Adpt 3 SL 119.94 39.98 3.33 16.66 39.98
1-Aug-95 Volknet Hub Telco W/RJ4 3 SL 235.64 78.55 6.55 32.73 78.55
1-Aug-95 LWG Workgroup 100User 3 SL 2,029.61 676.54 56.38 281.89 676.54
1-Aug-95 VAX Base Doc + Bin TK5078SB 3 SL 500.56 166.85 13.90 69.52 166.85
1-Aug-95 535 MB 3.5 disk StorWrks 3 SL 712.05 237.35 19.78 98.90 237.35
1-Aug-95 Compaq 4/25 Model 209 & Acces. 3 SL 1,710.18 570.06 47.50 237.52 570.06
1-Aug-95 NTW312 100 User 3.5 3 SL 1,831.75 610.58 50.88 254.41 610.58
1-Aug-95 Pocket Lan Adpt 3 SL 123.72 41.24 3.44 17.18 41.24
1-Aug-95 HPLaserjet Printer & Acces. 3 SL 1,007.13 335.71 27.98 139.88 335.71
1-Aug-95 Compaq 486/25 Model 209 & Acces. 3 SL 1,343.95 447.98 37.33 186.66 447.98
1-Aug-95 Dell 4MB-325 3 SL 113.27 37.76 3.15 15.73 37.76
1-Aug-95 VGA 800 Color Monitor 3 SL 270.01 90.00 7.50 37.50 90.00
1-Aug-95 Pocket Lan Adpt 3 SL 131.04 43.68 3.64 18.20 43.68
1-Aug-95 X545A 1.05-GB 3.5 SCSI Dsktop 3 SL 689.00 229.67 19.14 95.69 229.67
1-Aug-95 CM CDT 3.5 3 SL 425.00 141.67 11.81 59.03 141.67
1-Aug-95 Compaq 486/25 Model 209 & Acces. 3 SL 1,589.79 529.93 44.16 220.80 529.93
1-Aug-95 Compaq 486/25 Model 209 & Acces. 3 SL 1,765.57 588.52 49.04 245.22 588.52
1-Aug-95 HP Jetstore 5000I Int Dat Drive 3 SL 748.89 249.63 20.80 104.01 249.63
1-Aug-95 Dell Lease 3 SL 2,376.22 792.07 66.01 330.03 792.07
1-Aug-95 HP Vectra Netserver 486 & Tape Drive 3 SL 5,833.33 1,944.44 162.04 810.18 1,944.44
▇-▇▇▇-▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇.▇ 3 SL 2,754.47 918.16 76.51 382.57 918.16
1-Aug-95 HP Vectra 486 & acces 3 SL 2,404.02 801.34 66.78 333.89 801.34
1-Aug-95 Novell Lan Workgroup V4.1 10U 3 SL 2,111.53 703.84 58.65 293.27 703.84
1-Aug-95 Fuji 1.05G 3.5 F/SCSI 3 SL 656.53 218.84 18.24 91.18 218.84
1-Aug-95 Compaq co 486/25 w/fax modem 3 SL 1,495.74 498.58 41.55 207.74 498.58
1-Aug-95 HP Laserjet 3 SL 570.12 190.04 15.84 79.18 190.04
1-Aug-95 XIRC Pocket Eth Coax 3 SL 167.83 55.94 4.66 23.31 55.94
1-Aug-95 Pocket Lan Adpt 3 SL 138.37 46.12 3.84 19.22 46.12
1-Aug-95 Dell Computer Lease 3 SL 5,121.89 1,707.30 142.27 711.37 1,707.30
1-Aug-95 Compaq co 486/25 w/fax modem 3 SL 1,727.50 575.83 47.99 239.93 575.83
1-Aug-95 Megahertz 96/96 Fax Modem 3 SL 237.45 79.15 6.60 32.98 79.15
1-Aug-95 Megahertz 96/96 Fax Modem 3 SL 178.33 59.44 4.95 24.77 59.44
1-Aug-95 VS14 Color Monitor & Keyboard 3 SL 308.77 102.92 8.58 42.89 102.92
1-Aug-95 Compaq co 486/25 w/fax modem 3 SL 1,767.67 589.22 49.10 245.51 589.22
1-Aug-95 Pocket Lan Combo ADPII 3 SL 146.82 48.94 4.08 20.39 48.94
1-Aug-95 Xircom Ethernet Adaptor 3 SL 166.26 55.42 4.62 23.09 55.42
1-Aug-95 HP Laserjet printer 4 & cables 3 SL 1,209.18 403.06 33.59 167.94 403.06
1-Aug-95 Compaq 486/25 w/acces. 3 SL 1,770.26 590.09 49.17 245.87 590.09
Expense Total Net
FYE Accum. Book
Date Description 31-Dec-97 Depreciation Value
-------- ------------------------------------- --------- ------------ -------
1-Aug-95 HP-4L Printer 42.46 186.85 118.90
1-Aug-95 8MB Memory VS4000-VLC 55.76 245.34 156.13
1-Aug-95 ▇▇▇/▇ ▇/▇ ▇ User 187.04 822.96 523.70
1-Aug-95 Pocket Lan Adpt 16.66 73.30 46.65
1-Aug-95 Volknet Hub Telco W/RJ4 32.73 144.00 91.64
1-Aug-95 LWG Workgroup 100User 281.89 1,240.32 789.29
1-Aug-95 VAX Base Doc + Bin TK5078SB 69.52 305.90 194.66
1-Aug-95 535 MB 3.5 disk StorWrks 98.90 435.14 276.91
1-Aug-95 Compaq 4/25 Model 209 & Acces. 237.52 1,045.11 665.07
1-Aug-95 NTW312 100 User 3.5 254.41 1,119.40 712.35
1-Aug-95 Pocket Lan Adpt 17.18 75.61 48.11
1-Aug-95 HPLaserjet Printer & Acces. 139.88 615.47 391.66
1-Aug-95 Compaq 486/25 Model 209 & Acces. 186.66 821.30 522.65
▇-▇▇▇-▇▇ ▇▇▇▇ ▇▇▇-▇▇▇ 15.73 69.22 44.05
1-Aug-95 VGA 800 Color Monitor 37.50 165.01 105.00
1-Aug-95 Pocket Lan Adpt 18.20 80.08 50.96
1-Aug-95 X545A 1.05-GB 3.5 SCSI Dsktop 95.69 421.06 267.94
1-Aug-95 CM CDT 3.5 59.03 259.72 165.28
1-Aug-95 Compaq 486/25 Model 209 & Acces. 220.80 971.54 618.25
1-Aug-95 Compaq 486/25 Model 209 & Acces. 245.22 1,078.96 686.61
1-Aug-95 HP Jetstore 5000I Int Dat Drive 104.01 457.66 291.24
1-Aug-95 Dell Lease 330.03 1,452.13 924.09
1-Aug-95 HP Vectra Netserver 486 & Tape Drive 810.18 3,564.81 2,268.52
1-Aug-95 ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇.▇ 382.57 1,683.29 1,071.18
1-Aug-95 HP Vectra 486 & acces 333.89 1,469.12 934.90
1-Aug-95 Novell Lan Workgroup V4.1 10U 293.27 1,290.38 821.15
1-Aug-95 Fuji 1.05G 3.5 F/SCSI 91.18 401.21 255.32
1-Aug-95 Compaq co 486/25 w/fax modem 207.74 914.07 581.68
1-Aug-95 HP Laserjet 79.18 348.40 221.71
1-Aug-95 XIRC Pocket Eth Coax 23.31 102.56 65.27
1-Aug-95 Pocket Lan Adpt 19.22 84.56 53.81
1-Aug-95 Dell Computer Lease 711.37 3,130.04 1,991.85
1-Aug-95 Compaq co 486/25 w/fax modem 239.93 1,055.69 671.81
1-Aug-95 Megahertz 96/96 Fax Modem 32.98 145.11 92.34
1-Aug-95 Megahertz 96/96 Fax Modem 24.77 108.98 69.35
1-Aug-95 VS14 Color Monitor & Keyboard 42.89 188.69 120.08
1-Aug-95 Compaq co 486/25 w/fax modem 245.51 1,080.24 687.43
1-Aug-95 Pocket Lan Combo ADPII 20.39 89.72 57.10
1-Aug-95 Xircom Ethernet Adaptor 23.09 101.60 64.66
1-Aug-95 HP Laserjet printer 4 & cables 167.94 738.95 470.24
1-Aug-95 Compaq 486/25 w/acces. 245.87 1,081.82 688.43
Page 2
Annual Monthly Expense Expense
Deprec Deprec FYE FYE
Date Description Life Method Cost Expense Expense 31-Dec-95 31-Dec-96
-------- ------------------------------------- ---- ------ -------- -------- --------- --------- ---------
1-Aug-95 Xircom Ethernet Adaptor (2) 3 SL 282.22 94.07 7.84 39.20 94.07
1-Aug-95 Compaq 486/25 w/Acces. 3 SL 1,762.48 587.49 48.96 244.79 587.49
1-Aug-95 Pocket Lan Combo ADPII 3 SL 140.59 46.86 3.91 19.53 46.86
1-Aug-95 Compaq Contura & Accessories 3 SL 1,764.77 588.26 49.02 245.11 588.26
1-Aug-95 Sanwa Computer Lease 3 SL 1,990.23 663.41 55.28 276.42 663.41
1-Aug-95 Sanwa Computer Lease 3 SL 1,795.90 598.63 49.89 249.43 598.63
1-Aug-95 TFT 520/16 3 SL 5,456.00 1,818.67 151.56 757.78 1,818.67
1-Aug-95 Sun Microsystems X545A 3.5 dsktp 3 SL 757.46 252.49 21.04 105.20 252.49
1-Aug-95 Xircom PE3-10BC 3 SL 194.91 64.97 5.41 27.07 64.97
1-Aug-95 Hitachi Accuve Multisyn Monitor 3 SL 1,074.49 358.16 29.85 149.23 358.16
1-Aug-95 Fax Machine - Ricoh 3 SL 173.13 57.71 4.81 24.05 57.71
1-Aug-95 Compaq Contura & Accessories 3 SL 2,244.34 748.11 62.34 311.71 748.11
1-Aug-95 CMPD3 DT VL 4/420 W/D 3 SL 1,709.68 569.89 47.49 237.46 569.89
1-Aug-95 TM 4000E 50M Color Laptop & Access 3 SL 3,057.04 1,019.01 84.92 424.59 1,019.01
1-Aug-95 Sun-16MB Memory Expansion 3 SL 426.03 142.01 11.83 59.17 142.01
1-Aug-95 HP Vectra VL2 4/50 access, 3 SL 1,400.18 466.73 38.89 194.47 466.73
1-Aug-95 Volksnet Hub Telco W/RJ4 3 SL 305.56 101.85 8.49 42.44 101.85
1-Aug-95 Monitor-DEC C V/V CW:10 3 SL 848.82 282.94 23.58 117.89 282.94
1-Aug-95 HP Laserjet 4L 3 SL 413.15 137.72 11.48 57.38 137.72
1-Aug-95 Pacific Data, HP Laser 3 SL 148.42 49.47 4.12 20.61 49.47
1-Aug-95 HP Vectra VL2 4/50 access, 3 SL 1,390.52 463.51 38.63 193.13 463.51
1-Aug-95 HP Vectra Keyboard, Mouse 3 SL 267.06 89.02 7.42 37.09 89.02
1-Aug-95 Pocket Lan Combo Adpt-II (2) 3 SL 375.63 125.21 10.43 52.17 125.21
1-Aug-95 Pocket Lan Combo Adpt-II 3 SL 189.87 63.29 5.27 26.37 63.29
1-Aug-95 ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇ ▇▇ H 3 SL 320.72 106.91 8.91 44.54 106.91
1-Aug-95 DE-812TP+ 12PT 10BT Ethe 3 SL 235.49 78.50 6.54 32.71 78.50
1-Aug-95 Ethernet - RS6000 3 SL 2,966.67 988.89 82.41 412.04 988.89
1-Aug-95 HP Vectra 256K 3 SL 248.98 82.99 6.92 34.58 82.99
1-Aug-95 16/4 MBIT Token Ring Int 3 SL 814.38 271.46 22.62 113.11 271.46
1-Aug-95 SPARCbook 3 SL 832.64 277.55 23.13 115.64 277.55
1-Aug-95 X567A 2.1 GB Disk Pack 3 SL 1,343.40 447.80 37.32 186.58 447.80
1-Aug-95 Megahertz 14.4 Fax Modem 3 SL 296.29 98.76 8.23 41.15 98.76
1-Aug-95 Samtron VGA 1024X768, Mouse 3 SL 356.76 118.92 9.91 49.55 118.92
1-Aug-95 Megahertz 14.4 Fax Modem 3 SL 317.42 105.81 8.82 44.09 105.81
1-Aug-95 HP Laserjet 3 SL 300.69 100.23 8.35 41.76 100.23
1-Aug-95 Brother Fax 620 3 SL 235.83 78.61 6.55 32.75 78.61
1-Aug-95 Mac-Toolkit 3 SL 534.58 178.19 14.85 74.25 178.19
1-Aug-95 Data Migration Equip Lease-▇▇▇▇ 3 SL 11,416.35 3,805.45 317.12 1,585.60 3,805.45
1-Aug-95 Westwood Computer Lease 3 SL 3,604.24 1,201.41 100.12 500.59 1,201.41
1-Aug-95 Panelbook 3 SL 2,902.99 967.66 80.64 403.19 967.66
1-Aug-95 Samtron Super VGA & Acces. 3 SL 380.91 126.97 10.58 52.90 126.97
Expense Total Net
FYE Accum. Book
Date Description 31-Dec-97 Depreciation Value
-------- ------------------------------------- --------- ------------ -------
1-Aug-95 Xircom Ethernet Adaptor (2) 39.20 172.47 109.75
1-Aug-95 Compaq 486/25 w/Acces. 244.79 1,077.07 685.41
1-Aug-95 Pocket Lan Combo ADPII 19.53 85.92 54.68
1-Aug-95 Compaq Contura & Accessories 245.11 1,078.47 686.30
1-Aug-95 Sanwa Computer Lease 276.42 1,216.25 773.98
1-Aug-95 Sanwa Computer Lease 249.43 1,097.49 698.40
1-Aug-95 TFT 520/16 757.78 3,334.22 2,121.78
1-Aug-95 Sun Microsystems X545A 3.5 dsktp 105.20 462.89 294.57
1-Aug-95 Xircom PE3-10BC 27.07 119.11 75.80
1-Aug-95 Hitachi Accuve Multisyn Monitor 149.23 656.63 417.86
1-Aug-95 Fax Machine - Ricoh 24.05 105.80 67.33
1-Aug-95 Compaq Contura & Accessories 311.71 1,371.54 872.80
1-Aug-95 CMPD3 DT VL 4/420 W/D 237.46 1,044.80 664.88
1-Aug-95 TM 4000E 50M Color Laptop & Access 424.59 1,868.19 1,188.85
1-Aug-95 Sun-16MB Memory Expansion 59.17 260.35 165.68
1-Aug-95 HP Vectra VL2 4/50 access, 194.47 855.66 544.51
1-Aug-95 Volksnet Hub Telco W/RJ4 42.44 186.73 118.83
1-Aug-95 Monitor-DEC C V/V CW:10 117.89 518.72 330.10
1-Aug-95 HP Laserjet 4L 57.38 252.48 160.67
1-Aug-95 Pacific Data, HP Laser 20.61 90.70 57.72
1-Aug-95 HP Vectra VL2 4/50 access, 193.13 849.76 540.76
1-Aug-95 HP Vectra Keyboard, Mouse 37.09 163.20 103.85
1-Aug-95 Pocket Lan Combo Adpt-II (2) 52.17 229.55 146.08
1-Aug-95 Pocket Lan Combo Adpt-II 26.37 116.03 73.84
1-Aug-95 ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇ ▇▇ H 44.54 196.00 124.73
1-Aug-95 DE-812TP+ 12PT 10BT Ethe 32.71 143.91 91.58
1-Aug-95 Ethernet - RS6000 412.04 1,812.96 1,153.70
1-Aug-95 HP Vectra 256K 34.58 152.15 96.83
1-Aug-95 16/4 MBIT Token Ring Int 113.11 497.67 316.70
1-Aug-95 SPARCbook 115.64 508.83 323.80
1-Aug-95 X567A 2.1 GB Disk Pack 186.58 820.97 522.43
1-Aug-95 Megahertz 14.4 Fax Modem 41.15 181.07 115.22
1-Aug-95 Samtron VGA 1024X768, Mouse 49.55 218.02 138.74
1-Aug-95 Megahertz 14.4 Fax Modem 44.09 193.98 123.44
1-Aug-95 HP Laserjet 41.76 183.75 116.93
1-Aug-95 Brother Fax 620 32.75 144.12 91.71
1-Aug-95 Mac-Toolkit 74.25 326.69 207.89
1-Aug-95 Data Migration Equip Lease-▇▇▇▇ 1,585.60 6,976.66 4,439.69
1-Aug-95 Westwood Computer Lease 500.59 2,202.59 1,401.65
1-Aug-95 Panelbook 403.19 1,774.05 1,128.94
1-Aug-95 Samtron Super VGA & Acces. 52.90 232.78 148.13
Page 3
Annual Monthly Expense Expense
Deprec Deprec FYE FYE
Date Description Life Method Cost Expense Expense 31-Dec-95 31-Dec-96
--------- ------------------------------------- ---- ------ -------- -------- --------- --------- ---------
1-Aug-95 Pocket Lan 3 SL 433.36 144.49 12.04 60.20 144.49
1-Aug-95 Dell Color Monitor 3 SL 237.71 79.24 6.60 33.01 79.24
1-Aug-95 ▇▇▇ ▇▇▇▇▇▇-Compaq & Monitor 3 SL 3,296.14 1,098.71 91.56 457.80 1,098.71
1-Aug-95 Compaq 8MB Mem Exp Board 3 SL 432.06 144.02 12.00 60.01 144.02
1-Aug-95 Large Monitors/Computer/Mem 3 SL 7,075.38 2,358.46 196.54 982.69 2,358.46
1-Aug-95 Master Consol 3 SL 856.26 285.42 23.78 118.92 285.42
1-Aug-95 ALPA 3 SL 17,882.20 5,960.73 496.73 2,483.64 5,960.73
1-Aug-95 Color Monitor 3 SL 232.35 77.45 6.45 32.27 77.45
1-Aug-95 Computer Back-up system 3 SL 306.94 102.31 8.53 42.63 102.31
1-Aug-95 4MB Module 3 SL 337.04 112.35 9.36 46.81 112.35
1-Aug-95 Toshiba Memory 3 SL 684.67 228.22 19.02 95.09 228.22
1-Aug-95 Ciber Networks 3 SL 7,790.29 2,596.76 216.40 1,081.99 2,596.76
1-Aug-95 Ciber Networks 3 SL 1,195.33 398.44 33.20 166.02 398.44
1-Aug-95 Toshiba Color Sparcbook 3 SL 7,802.58 2,600.86 216.74 1,083.69 2,600.86
▇▇-▇▇▇-▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇ SL 6,383.44 2,127.81 177.32 354.63 2,127.81
▇▇-▇▇▇-▇▇ ▇▇▇▇▇▇-▇▇▇▇▇▇▇ Computer (2) 3 SL 8,000.00 2,666.67 222.22 444.45 2,666.67
8-Dec-95 Micron-Pentium Computer (2) 3 SL 8,331.64 2,777.21 231.43 231.45 2,777.21
15-Jan-96 Micron-Pentium Computer (2) 3 SL 8,663.28 2,887.76 240.65 0.00 2,887.76
17-Jan-96 Solsource-Sparcbook upgrade 3 SL 8,000.00 2,666.67 222.22 0.00 2,666.67
18-Jan-96 Micron-Pentium Computer (2) 3 SL 7,428.04 2,476.01 206.33 0.00 2,476.01
1-Feb-96 ▇▇-▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ 3 SL 2,809.00 936.33 78.03 0.00 858.30
12-Feb-96 Sparcserver 3 SL 16,046.29 5,348.76 445.73 0.00 4,903.03
▇▇-▇▇▇-▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ Notebook 3 SL 5,012.53 1,670.84 139.24 0.00 1,531.60
14-Feb-96 Dell Pentium Notebook 3 SL 3,604.96 1,201.65 100.14 0.00 1,101.51
20-Feb-96 Micron-Pentium Computer 3 SL 4,020.02 1,340.01 111.67 0.00 1,116.67
1-Mar-96 2GB Disk Module for HP Netserver 3 SL 1,742.34 580.78 48.40 0.00 483.98
7-Mar-96 Micron-Pentium Computer (2) 3 SL 7,413.02 2,471.01 205.92 0.00 2,059.17
19-Mar-96 Dell Pentium Notebook 3 SL 3,428.56 1,142.85 95.24 0.00 952.37
27-Mar-96 SMS-Disk drives 3 SL 2,384.40 794.80 66.23 0.00 662.34
1-Apr-96 Continental-Pentium Computer 3 SL 4,051.60 1,350.53 112.54 0.00 1,012.89
8-Apr-96 Micron-Pentium Computer 3 SL 3,907.00 1,302.33 108.53 0.00 976.75
1-May-96 Ciber-Pentium Laptop 3 SL 8,963.14 2,987.71 248.98 0.00 1,991.79
5-May-96 Micron-Pentium Computer 3 SL 2,688.00 896.00 74.67 0.00 597.32
7-May-96 ▇▇▇▇▇-▇▇▇▇ ▇▇▇▇▇▇▇ Laptop 3 SL 8,268.83 2,756.28 229.69 0.00 1,837.52
14-May-96 Solsource-Texas Inst Pentium Laptop 3 SL 7,782.20 2,594.07 216.17 0.00 1,729.38
1-Jun-96 Ciber-Pentium Laptop 3 SL 8,268.83 2,756.28 229.69 0.00 1,607.83
13-Jun-96 Ciber-Megahertz 3 SL 893.10 297.70 24.81 0.00 173.66
9-Jul-96 Ciber-Axis Print server 3 SL 1,492.95 497.65 41.47 0.00 248.82
22-Jul-96 Ciber-NT server & Backup solution 3 SL 14,931.56 4,977.19 414.77 0.00 2,488.60
1-Aug-96 MMM-LCD panel 3 SL 5,641.34 1,880.45 156.70 0.00 783.52
2-Aug-96 Ciber-Cheyenne arcserver client agent 3 SL 1,066.83 355.61 29.63 0.00 148.17
Expense Total Net
FYE Accum. Book
Date Description 31-Dec-97 Depreciation Value
--------- ------------------------------------- --------- ------------ -------
1-Aug-95 Pocket Lan 60.20 264.89 168.57
1-Aug-95 Dell Color Monitor 33.01 145.26 92.44
1-Aug-95 ▇▇▇ ▇▇▇▇▇▇-Compaq & Monitor 457.80 2,014.31 1,281.83
1-Aug-95 Compaq 8MB Mem Exp Board 60.01 264.04 168.02
1-Aug-95 Large Monitors/Computer/Mem 982.69 4,323.84 2,751.54
1-Aug-95 Master Consol 118.92 523.27 332.99
1-Aug-95 ALPA 2,483.64 10,928.01 6,954.19
1-Aug-95 Color Monitor 32.27 141.99 90.36
1-Aug-95 Computer Back-up system 42.63 187.58 119.37
1-Aug-95 4MB Module 46.81 205.97 131.07
1-Aug-95 Toshiba Memory 95.09 418.41 266.26
1-Aug-95 Ciber Networks 1,081.99 4,760.73 3,029.56
1-Aug-95 Ciber Networks 166.02 730.48 464.85
1-Aug-95 Toshiba Color Sparcbook 1,083.69 4,768.24 3,034.33
17-Nov-95 DEC Tape Drive 886.59 3,369.03 3,014.41
▇▇-▇▇▇-▇▇ ▇▇▇▇▇▇-▇▇▇▇▇▇▇ Computer (2) 1,111.11 4,222.23 3,777.77
8-Dec-95 Micron-Pentium Computer (2) 1,157.17 4,165.84 4,165.80
15-Jan-96 Micron-Pentium Computer (2) 1,203.23 4,090.99 4,572.29
17-Jan-96 Solsource-Sparcbook upgrade 1,111.11 3,777.78 4,222.22
18-Jan-96 Micron-Pentium Computer (2) 1,031.67 3,507.69 3,920.35
1-Feb-96 ▇▇-▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ 390.14 1,248.44 1,560.56
12-Feb-96 Sparcserver 2,228.65 7,131.68 8,914.61
▇▇-▇▇▇-▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ Notebook 696.18 2,227.79 2,784.74
14-Feb-96 Dell Pentium Notebook 500.69 1,602.20 2,002.76
20-Feb-96 Micron-Pentium Computer 558.34 1,675.00 2,345.02
1-Mar-96 2GB Disk Module for HP Netserver 241.99 725.97 1,016.37
7-Mar-96 Micron-Pentium Computer (2) 1,029.59 3,088.75 4,324.27
19-Mar-96 Dell Pentium Notebook 476.19 1,428.56 2,000.00
27-Mar-96 SMS-Disk drives 331.17 993.51 1,390.89
1-Apr-96 Continental-Pentium Computer 562.72 1,575.62 2,475.98
8-Apr-96 Micron-Pentium Computer 542.64 1,519.39 2,387.61
1-May-96 Ciber-Pentium Laptop 1,244.88 3,236.67 5,726.47
5-May-96 Micron-Pentium Computer 373.33 970.65 1,717.35
7-May-96 ▇▇▇▇▇-▇▇▇▇ ▇▇▇▇▇▇▇ Laptop 1,148.45 2,985.97 5,282,86
14-May-96 Solsource-Texas Inst Pentium Laptop 1,080.86 2,810.24 4,971.96
1-Jun-96 Ciber-Pentium Laptop 1,148.45 2,756.28 5,512.55
13-Jun-96 Ciber-Megahertz 124.04 297.70 595.40
9-Jul-96 Ciber-Axis Print server 207.35 456.17 1,036.78
22-Jul-96 Ciber-NT server & Backup solution 2,073.83 4,562.42 10,369.14
1-Aug-96 MMM-LCD panel 783.52 1,567.04 4,074.30
2-Aug-96 Ciber-Cheyenne arcserver client agent 148.17 296.34 770.49
Page 4
Annual Monthly Expense Expense
Deprec Deprec FYE FYE
Date Description Life Method Cost Expense Expense 31-Dec-95 31-Dec-96
--------- ------------------------------------- ---- ------ -------- -------- --------- --------- ---------
12-Aug-96 Ciber-2 Compac laptops & accessories 3 SL 10,000.33 3,333.44 277.79 0.00 1,388.93
22-Jul-96 Micron-Pentium Computer (2) 3 SL 7,173.00 2,391.00 199.25 0.00 996.25
12-Oct-96 Micron-Pentium Computer (2) 3 SL 5,934.00 1,978.00 164.83 0.00 494.50
16-Oct-96 Compaq 6x CD-Rom for lte 5000 (2) 3 SL 989.51 329.84 27.49 0.00 82.47
21-Oct-96 Harddrive upgrade for Sparebook 3 3 SL 1,827.00 609.00 50.75 0.00 152.25
1-Dec-96 Ciber-HP Surestore 3 SL 3,071.74 1,023.91 85.33 0.00 85.33
1997 Additions:
13-Jan-97 Ciber- 3 SL 1,131.86 377.29 31.44 0.00 0.00
22-Jan-97 Micron-Pentium Computers (2) 3 SL 5,805.00 1,935.00 161.25 0.00 0.00
23-Jan-97 PC Comp-Pentium Laptops (2) 3 SL 4,744.07 1,581.36 131.78 0.00 0.00
23-Jan-97 Alpha-Network Server 3 SL 20,539.65 6,846.55 570.55 0.00 0.00
1-Feb-97 Alpha-Pentium Laptop (2) 3 SL 6,648.15 2,216.05 184.67 0.00 0.00
▇▇-▇▇▇-▇▇ ▇▇▇▇▇-▇▇▇▇▇▇▇ Laptop 3 SL 3,132.84 1,044.28 87.02 0.00 0.00
13-Feb-97 Micron-Pentium Computers 3 SL 5,034.00 1,678.00 139.83 0.00 0.00
▇▇-▇▇▇-▇▇ ▇▇▇▇▇-▇▇▇▇▇▇▇ Laptop 3 SL 3,527.53 1,175.84 97.99 0.00 0.00
11-Mar-97 Ciber-(2) Laptops 3 SL 5,820.00 1,940.00 161.67 0.00 0.00
2-Apr-97 Micron-Pentium Computers (2) 3 SL 5,372.00 1,790.67 149.22 0.00 0.00
2-Apr-97 Micron-Pentium Computers (2) 3 SL 5,372.00 1,790.67 149.22 0.00 0.00
__________ __________ _________ _________ __________
437,036.39 145,678.80 12,139.90 27,509.63 109,008.10
========== ========== ========= ========= ==========
Expense Total Net
FYE Accum. Book
Date Description 31-Dec-97 Depreciation Value
--------- ------------------------------------- --------- ------------ ---------
12-Aug-96 Ciber-2 Compac laptops & accessories 1,388.93 2,777.87 7,222.46
22-Jul-96 Micron-Pentium Computer (2) 996.25 1,922.50 5,180.50
12-Oct-96 Micron-Pentium Computer (2) 824.17 1,318.67 4,615.33
16-Oct-96 Compaq 6x CD-Rom for lte 5000 (2) 137.43 219.90 769.61
21-Oct-96 Harddrive upgrade for Sparebook 3 253.75 406.00 1,421.00
1-Dec-96 Ciber-HP Surestore 426.63 511.96 2,559.78
1997 Additions:
13-Jan-97 Ciber- 157.20 157.20 974.66
22-Jan-97 Micron-Pentium Computers (2) 806.25 806.25 4,998.75
23-Jan-97 PC Comp-Pentium Laptops (2) 658.90 658.90 4,085.17
23-Jan-97 Alpha-Network Server 2,852.73 2,852.73 17,686.92
1-Feb-97 Alpha-Pentium Laptop (2) 738.68 738.68 5,909.47
▇▇-▇▇▇-▇▇ ▇▇▇▇▇-▇▇▇▇▇▇▇ Laptop 348.10 348.10 2,784.74
13-Feb-97 Micron-Pentium Computers 559.34 559.34 4,474.66
▇▇-▇▇▇-▇▇ ▇▇▇▇▇-▇▇▇▇▇▇▇ Laptop 391.94 391.94 3,135.59
11-Mar-97 Ciber-(2) Laptops 484.99 484.99 5,335.01
2-Apr-97 Micron-Pentium Computers (2) 298.45 298.45 5,073.55
2-Apr-97 Micron-Pentium Computers (2) 298.45 298.45 5,073.55
_________ ____________ __________
58,971.33 190,922.94 246,113.45
========= ============ ==========
Page 5
EXHIBIT 3.07 Cont'd.
DLB Systems, Delaware
Fixed Asset Schedule
As of: 31-May-97
Month: 5
Type: Furniture
Annual Monthly Expense Expense
Acq Useful Deprec Deprec FYE FYE
Date Description Life Method Cost Expense Expense 31-Dec-95 31-Dec-96
--------- ------------------------------------- ---- ------ -------- -------- --------- --------- ---------
1-Aug-95 Office Furniture 5 SL 2,421.57 484.31 40.36 201.80 484.31
1-Aug-95 Desk, Chair, File (MA) 5 SL 462.52 92.50 7.71 38.54 92.50
1-Aug-95 Lateral files 5 SL 1,080.61 216.12 18.01 90.05 216.12
1-Aug-95 Artwork 5 SL 4,420.20 0.00 0.00 0.00 0.00
1-Aug-95 Desk, chairs, Tables 5 SL 57,040.78 11,408.16 950.68 4,753.40 11,408.16
1-Aug-95 Bookcases 5 SL 434.81 86.96 7.25 36.23 86.96
1-Aug-95 Desk, chairs, tables 5 SL 23,561.22 4,712.24 392.69 1,963.43 4,712.24
1-Aug-95 Exhibition display stand 5 SL 4,065.71 813.14 67.76 338.81 813.14
1-Aug-95 Portable conf room panels 5 SL 1,479.91 295.98 24.67 123.33 295.98
1-Aug-95 Desk, chair, bookcases (UK) 5 SL 1,930.58 386.12 32.18 160.88 386.12
1-Aug-95 Tables, filing cabinets 5 SL 976.43 195.29 16.27 81.37 195.29
1-Aug-95 Office Furniture-B ▇▇▇▇▇ 5 SL 470.76 94.15 7.85 39.23 94.15
1-Aug-95 Bookcases 5 SL 478.57 95.71 7.98 39.88 95.71
1-Aug-95 Office Furniture-T Smallshaw 5 SL 299.94 59.99 5.00 25.00 59.99
1-Aug-95 2nd floor furniture 5 SL 3,904.33 780.87 65.07 325.36 780.87
1-Aug-95 1st floor workstations 5 SL 14,509.89 2,901.98 241.83 1,209.16 2,901.98
1-Aug-95 Office Furniture 5 SL 23,277.70 4,655.54 387.96 1,939.81 4,655.54
1-Aug-95 File cabinets 5 SL 493.88 98.78 8.23 41.16 98.78
1-Aug-95 Office furniture for new offices 5 SL 7,216.67 1,443.33 120.28 601.39 1,443.33
1-Aug-95 Office furniture-▇▇▇▇▇ ▇▇▇▇▇ 5 SL 266.65 53.33 4.44 22.22 53.33
1-Aug-95 File cabinets 5 SL 492.19 98.44 8.20 41.02 98.44
1-Aug-95 File cabinets 5 SL 867.08 173.42 14.45 72.26 173.42
1-Aug-95 Art work 5 SL 2,655.30 0.00 0.00 0.00 0.00
1-Aug-95 Office furniture-C Kalfaian 5 SL 839.17 167.83 13.99 69.93 167.83
1-Aug-95 File cabinets 5 SL 492.20 98.44 8.20 41.02 98.44
1-Aug-95 Work Stations 5 SL 3,687.02 737.40 61.45 307.25 737.40
1-Aug-95 File cabinet 5 SL 204.80 40.96 3.41 17.07 40.96
1-Aug-95 Conference Room Furniture 5 SL 8,102.72 1,620.54 135.05 675.23 1,620.54
1-Aug-95 File Cabinet 5 SL 176.49 35.30 2.94 14.71 35.30
1-Aug-95 Office Furniture-San Diego 5 SL 1,071.63 214.33 17.86 89.30 214.33
20-Mar-96 Village (3) desk w/file cab 5 SL 2,624.55 524.91 43.74 0.00 437.43
1997 Additions:
---------- --------- -------- --------- ---------
Total 170,005.86 32,586.07 2,715.51 13,358.82 32,498.59
========== ========= ======== ========= =========
Expense Net
Acq FYE Total Book
Date Description 31-Dec-97 Expense Value
--------- ------------------------------------- --------- ------------ ---------
1-Aug-95 Office Furniture 201.80 887.91 1,533.66
1-Aug-95 Desk, Chair, File (MA) 38.54 169.59 292.93
1-Aug-95 Lateral files 90.05 396.22 684.39
1-Aug-95 Artwork 0.00 0.00 4,420.20
1-Aug-95 Desk, Chairs, Tables 4,753.40 20,914.95 36,125.83
1-Aug-95 Bookcases 36.23 159.43 275.38
1-Aug-95 Desk, chairs, tables 1,963.43 8,639.11 14,922.10
1-Aug-95 Exhibition display stand 338.81 1,490.76 2,574.95
1-Aug-95 Portable conf room panels 123.33 542.63 937.28
1-Aug-95 Desk, chair, bookcases (UK) 160.88 707.88 1,222.70
1-Aug-95 Tables, filing cabinets 81.37 358.03 618.41
1-Aug-95 Office Furniture-B ▇▇▇▇▇ 39.23 172.61 298.15
1-Aug-95 Bookcases 39.88 175.48 303.10
1-Aug-95 Office Furniture-T Smallshaw 25.00 109.98 189.96
1-Aug-95 2nd floor furniture 325.36 1,431.59 2,472.74
1-Aug-95 1st floor workstations 1,209.16 5,320.29 9,189.59
1-Aug-95 Office Furniture 1,939.81 8,535.16 14,742.54
1-Aug-95 File cabinets 41.16 181.09 312.79
1-Aug-95 Office furniture for new offices 601.39 2,646.11 4,570.56
1-Aug-95 Office furniture-▇▇▇▇▇ ▇▇▇▇▇ 22.22 97.77 168.88
1-Aug-95 File cabinets 41.02 180.47 311.72
1-Aug-95 File cabinets 72.26 317.93 549.15
1-Aug-95 Art work 0.00 0.00 2,655.30
1-Aug-95 Office furniture-C Kalfaian 69.93 307.69 531.47
1-Aug-95 File cabinets 41.02 180.47 311.73
1-Aug-95 Work Stations 307.25 1,351.91 2,335.11
1-Aug-95 File cabinet 17.07 75.09 129.70
1-Aug-95 Conference Room Furniture 675.23 2,971.00 5,131.72
1-Aug-95 File Cabinet 14.71 64.71 111.78
1-Aug-95 Office Furniture-San Diego 89.30 392.93 678.70
20-Mar-96 Village (3) desk w/file cab 218.71 656.14 1,968.41
1997 Additions:
--------- --------- ----------
Total 13,577.53 59,434.94 110,570.92
========= ========= ==========
EXHIBIT 3.07 Cont'd.
DLB Systems, Delaware
Fixed Asset Schedule
As of: 31-May-97
Month: 5
Type: Leasehold Improvements
Annual Monthly Expense Expense
Acq Useful Deprec Deprec FYE FYE
Date Description Life Method Cost Expense Expense 31-Dec-95 31-Dec-96
--------- ------------------------------------- ---- ------ -------- -------- --------- --------- ---------
1-Aug-95 Ampro-temporary cabling 2 SL 572.99 286.49 23.87 119.37 286.49
1-Aug-95 Cabling Bernards/78 2 SL 3,668.90 1,834.45 152.87 764.35 1,834.45
1-Aug-95 Reception Logo-Deposit 2 SL 383.33 191.67 15.97 79.86 191.67
▇-▇▇▇-▇▇ ▇▇▇▇▇▇ Sign 2 SL 143.56 71.78 5.98 29.91 71.78
1-Aug-95 Uplift costs-Bernards/78 2 SL 12,140.17 6,070.08 505.84 2,529.20 6,070.08
1-Aug-95 Reception Logo 2 SL 1,374.53 687.26 57.27 286.36 687.26
1-Aug-95 Remodel STJ doors 2 SL 1,196.41 598.21 49.85 249.25 598.21
1-Aug-95 New office 2nd floor 2 SL 1,495.00 747.50 62.29 311.46 747.50
1-Aug-95 New office 2nd floor 2 SL 3,450.00 1,725.00 143.75 718.75 1,725.00
1-Aug-95 Security System for Doors 2 SL 7,669.95 3,834.97 319.58 1,597.91 3,834.97
1-Aug-95 New offices 1st floor 2 SL 4,255.00 2,127.50 177.29 886.46 2,127.50
1-Aug-95 New office 2nd floor 2 SL 352.50 176.25 14.69 73.44 176.25
---------- --------- -------- --------- ---------
Total 36,702.33 18,351.17 1,529.26 7,646.32 18,351.17
========== ========= ======== ========= =========
Expense Net
Acq FYE Total Book
Date Description 31-Dec-97 Expense Value
--------- ------------------------------------- --------- ------------ ---------
1-Aug-95 Ampro-temporary cabling 119.37 525.24 47.75
1-Aug-95 Cabling Bernards/78 764.35 3,363.16 305.74
1-Aug-95 Reception Logo-Deposit 79.86 351.39 31.94
▇-▇▇▇-▇▇ ▇▇▇▇▇▇ Sign 29.91 131.60 11.96
1-Aug-95 Uplift costs-Bernards/78 2,529.20 11,128.49 1,011.68
1-Aug-95 Reception Logo 286.36 1,259.98 114.54
1-Aug-95 Remodel STJ doors 249.25 1,096.71 99.70
1-Aug-95 New office 2nd floor 311.46 1,370.42 124.58
1-Aug-95 New office 2nd floor 718.75 3,162.50 287.50
1-Aug-95 Security System for Doors 1,597.91 7,030.79 639.16
1-Aug-95 New offices 1st floor 886.46 3,900.42 354.58
1-Aug-95 New office 2nd floor 73.44 323.13 29.38
-------- --------- --------
Total 7,646.32 33,643.81 3,058.53
======== ========= ========
EXHIBIT 3.07 Cont'd.
DLB Systems, Delaware
Fixed Asset Schedule
As of: 31-May-97
Month: 5
Type: Office Equipment
Annual Monthly Expense Expense
Acq Useful Deprec Deprec FYE FYE
Date Description Life Method Cost Expense Expense 31-Dec-95 31-Dec-96
--------- ------------------------------------- ---- ------ -------- -------- --------- --------- ---------
1-Aug-95 Fax Machine 3 SL 305.67 101.89 8.49 42.45 101.89
1-Aug-95 Fax Machine-MA 3 SL 223.30 74.43 6.20 31.01 74.43
1-Aug-95 Phone System 3 SL 2,768.98 922.99 76.92 384.58 922.99
1-Aug-95 Ricoh fax 3 SL 1,015.79 338.60 28.22 141.08 338.60
1-Aug-95 Phone System-addition 3 SL 822.01 274.00 22.83 114.17 274.00
1-Aug-95 Slide Projector 3 SL 236.35 78.78 6.57 32.83 78.78
1-Aug-95 Phone System-addition 3 SL 319.33 106.44 8.87 44.35 106.44
1-Aug-95 Phone System-addition 3 SL 1,240.20 413.40 34.45 172.25 413.40
1-Aug-95 TV, VCR & Cart 3 SL 363.07 121.02 10.09 50.43 121.02
1-Aug-95 Typewriter 3 SL 287.42 95.81 7.98 39.92 95.81
1-Aug-95 Lighting 3 SL 2,772.80 924.27 77.02 385.11 924.27
1-Aug-95 Fax/Answering Machine 3 SL 545.38 181.79 15.15 75.75 181.79
1-Aug-95 Office Eqp. San ▇▇▇▇ Office 3 SL 319.28 106.43 8.87 44.34 106.43
1-Aug-95 Fax Machine-SF Office 3 SL 417.80 139.27 11.61 58.03 139.27
1-Aug-95 Fax Machine-SF Office 3 SL 289.73 96.58 8.05 40.24 96.58
1-Aug-95 Executive phone 3 SL 305.46 101.82 8.48 42.42 101.82
1-Aug-95 Single line phone (4) 3 SL 556.86 185.62 15.47 77.34 185.62
1-Aug-95 Phone System 3 SL 567.45 189.15 15.76 78.81 189.15
1-Aug-95 Phone System 3 SL 2,821.20 940.40 78.37 391.83 940.40
1-Aug-95 Phone System 3 SL 498.47 166.16 13.85 69.23 166.16
1-Aug-95 Phone System 3 SL 894.38 298.13 24.84 124.22 298.13
1-Aug-95 Phone/Answering Machine 3 SL 181.86 60.62 5.05 25.26 60.62
1-Aug-95 Fax Machine-▇▇▇▇▇ 3 SL 390.95 130.32 10.86 54.30 130.32
1-Aug-95 Ric 3000L Master Unit 3 SL 243.80 81.27 6.77 33.86 81.27
1-Aug-95 Phone System 3 SL 2,161.57 720.52 60.04 300.22 720.52
1-Aug-95 Phone System 3 SL 660.49 220.16 18.35 91.73 220.16
1-Aug-95 Phone System 3 SL 1,402.38 467.46 38.96 194.78 467.46
1-Aug-95 Overhead Projector 3 SL 348.00 116.00 9.67 48.33 116.00
1-Aug-95 Phones 3 SL 1,346.16 448.72 37.39 186.97 448.72
1-Aug-95 Phones 3 SL 945.31 315.10 26.26 131.29 315.10
1-Aug-95 Binding Machine 3 SL 480.30 160.10 13.34 66.71 160.10
1-Aug-95 Phone System Addition 3 SL 1,485.93 495.31 41.28 206.38 495.31
1-Aug-95 Phone System Lease 3 SL 19,805.40 0.00 0.00 0.00 19,805.40
13-Mar-96 ▇▇▇▇▇▇-Voice Mail 3 SL 7,308.70 2,436.23 203.02 0.00 2,030.19
---------- --------- -------- --------- ---------
Total 54,331.77 11,508.79 959.07 3,780.23 36,499.25
========== ========= ======== ========= =========
Expense Net
Acq FYE Total Book
Date Description 31-Dec-97 Expense Value
--------- ------------------------------------- --------- ------------ ---------
1-Aug-95 Fax Machine 42.45 186.80 118.87
1-Aug-95 Fax Machine-MA 31.01 136.46 86.84
1-Aug-95 Phone System 384.58 1,692.16 1,076.83
1-Aug-95 Ricoh fax 141.08 620.76 395.03
1-Aug-95 Phone System-addition 114.17 502.34 319.67
1-Aug-95 Slide Projector 32.83 144.44 91.91
1-Aug-95 Phone System-addition 44.35 195.14 124.18
1-Aug-95 Phone System-addition 172.25 757.90 482.30
1-Aug-95 TV, VCR & Cart 50.43 221.88 141.19
1-Aug-95 Typewriter 39.92 175.64 111.77
1-Aug-95 Lighting 385.11 1,694.49 1,078.31
1-Aug-95 Fax/Answering Machine 75.75 333.29 212.09
1-Aug-95 Office Eqp. San ▇▇▇▇ Office 44.34 195.11 124.16
1-Aug-95 Fax Machine-SF Office 58.03 255.32 162.48
1-Aug-95 Fax Machine-SF Office 40.24 177.06 112.67
1-Aug-95 Executive phone 42.42 186.67 118.79
1-Aug-95 Single line phone (4) 77.34 340.31 216.56
1-Aug-95 Phone System 78.81 346.78 220.68
1-Aug-95 Phone System 391.83 1,724.07 1,097.13
1-Aug-95 Phone System 69.23 304.62 193.85
1-Aug-95 Phone System 124.22 546.56 347.81
1-Aug-95 Phone/Answering Machine 25.26 111.14 70.72
1-Aug-95 Fax Machine-▇▇▇▇▇ 54.30 238.92 152.04
1-Aug-95 Ric 3000L Master Unit 33.86 148.99 94.81
1-Aug-95 Phone System 300.22 1,320.96 840.61
1-Aug-95 Phone System 91.73 403.63 256.86
1-Aug-95 Phone System 194.78 857.01 545.37
1-Aug-95 Overhead Projector 48.33 212.67 135.33
1-Aug-95 Phones 186.97 822.65 523.51
1-Aug-95 Phones 131.29 577.69 367.62
1-Aug-95 Binding Machine 66.71 293.52 186.78
1-Aug-95 Phone System Addition 206.38 908.07 577.86
1-Aug-95 Phone System Lease 0.00 19,805.40 0.00
13-Mar-96 ▇▇▇▇▇▇-Voice Mail 1,015.10 3,045.29 4,263.41
--------- --------- ----------
Total 4,795.33 39,483.71 14,848.06
========= ========= ==========
EXHIBIT 3.08
FINANCIAL INFORMATION
Attached are the December 31, 1996 audited financial statements and the
Company's unaudited Statement of Income and Balance Sheet as of March 31, 1997.
In April 1997, Amgen Inc. canceled their license agreement with the Company for
RECORDER. The agreement was dated December 23, 1996.
See also Exhibit 3.22.
DLB SYSTEMS, INC.
Financial Statements
December 31, 1996 and 1995
(With Independent Auditors' Report Thereon)
Peat Marwick LLP
Princeton Pike Corporate Center
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Independent Auditors' Report
The Board of Directors and Stockholders
DLB Systems, Inc.:
We have audited the accompanying balance sheets of DLB Systems, Inc. as of
December 31, 1996 and 1995, and the related statements of operations,
stockholders' deficit, and cash flows for the year ended December 31, 1996 and
for the period from July 31, 1995 (date of incorporation) to December 31, 1995.
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 DLB Systems, Inc. as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for the year ended December 31, 1996 and for the period from July 31, 1995 (date
of incorporation) to December 31, 1995 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
March 21, 1997
DLB SYSTEMS, INC.
Balance Sheets
December 31, 1996 and 1995
Assets 1996 1995
---- ----
Current assets:
Cash $ 29,002 10,013
Accounts receivable - trade, net of allowance for
doubtful accounts of $265,281 and $46,800,
respectively 2,259,059 1,203,983
Receivables - related parties 340,627 342,835
Prepaid expenses and other current assets 45,631 31,146
--------- ---------
Total current assets 2,674,319 1,587,977
Furniture, fixtures, equipment and leasehold
improvements, net 455,940 498,413
Other assets 64,340 72,922
--------- ---------
Total assets $ 3,194,599 2,159,312
========= =========
Liabilities and Stockholders' Deficit
Current liabilities:
Notes payable to banks 2,318,667 1,016,932
Note payable to related parties 1,050,000 50,000
Accounts payable 824,773 400,898
Due to related parties - 93,121
Accrued expenses 409,165 220,412
Deferred revenue 2,445,450 1,864,363
Accrued dividend on preferred stock 250,000 -
--------- ---------
Total current liabilities 7,298,055 3,645,726
Long-term debt - 429,490
--------- ---------
Total liabilities 7,298,055 4,075,216
--------- ---------
Stockholders' deficit:
Series A redeemable cumulative preferred stock, $.01
par value. Authorized 1,000,000 shares; issued and
outstanding 860,000 and 621,999 shares in 1996 and
1995, liquidation value $2.89 per share 8,600 6,220
Common stock, $.01 par value. Authorized 1,000,000
shares; issued and outstanding 200,000 shares 2,000 2,000
Paid-in capital (172,384) (1,120,004)
Accumulated deficit (3,941,672) (804,120)
--------- ---------
Total stockholders' deficit (4,103,456) (1,915,904)
--------- ---------
Total liabilities and stockholders' deficit $ 3,194,599 2,159,312
========= =========
See accompanying notes to financial statements.
DLB SYSTEMS, INC.
Statements of Operations
Year ended December 31, 1996 and Period from July 31, 1995
(Date of Incorporation) to December 31, 1995
Period from
July 31, 1995
(Date of
Incorporation)
to December 31,
1996 1995
---- ----
Software license fees $ 2,880,983 782,500
Software maintenance and continuing
support contracts 2,611,237 925,457
Consulting/training services 839,482 138,226
--------- ---------
Net revenue 6,331,702 1,846,183
Cost of revenue 2,409,583 492,565
--------- ---------
Gross margin 3,922,119 1,353,618
--------- ---------
Operating expenses:
Selling and marketing 672,769 224,286
Research and development 1,281,388 912,998
General and administrative 4,910,911 959,799
--------- ---------
Total operating expenses 6,865,068 2,097,083
--------- ---------
Operating loss (2,942,949) (743,465)
Other expenses:
Interest expense, act 182,853 65,555
Loss (gain) on sale of assets 11,750 (4,900)
--------- ---------
Total other expenses 194,603 60,655
--------- ---------
Net loss $ (3,137,552) (804,120)
========= =========
See accompanying notes to financial statements.
DLB SYSTEMS, INC.
Statements of Stockholders' Deficit
Year ended December 31, 1996 and Period from July 31, 1995
(Date of Incorporation) to December 31, 1995
Series A redeemable Total
preferred stock Common stock Accumu- stock-
--------------------- ------------------ Paid-in lated holders'
Shares Amount Shares Amount Capital Deficit Deficit
------ ------ ------ ------ ------- ------- -------
Balance at beginning of period - $ - - $ - - - -
Net book value of assets
contributed and liabilities
assumed in exchange for issuance
of shares to DLB Systems, Inc.,
a New Jersey Corporation (note 1) - - 200,000 2,000 (2,911,784) - (2,909,784)
Issuance of shares to Safeguard
Scientifics, Inc. 621,999 6,220 - - 1,791,780 - 1,798,000
Net loss - - - - - (804,120) (804,120)
------- ----- ------- ----- --------- -------- ---------
Balance, December 31, 1995 621,999 6,220 200,000 2,000 (1,120,004) (804,120) (1,915,904)
Issuance of shares to Safeguard
Scientifics, Inc. 28,001 280 - - 199,720 - 200,000
Preferred stock dividend - - - - (250,000) - (250,000)
Conversion of debt to equity 210,000 2,100 - - 997,900 - 1,000,000
Net loss - - - - - (3,137,552) (3,137,552)
------- ----- ------- ----- --------- -------- ---------
Balance, December 31, 1996 860,000 $8,600 200,000 $2,000 (172,384) (3,941,672) (4,103,456)
======= ===== ======= ===== ========= ========= =========
See accompanying notes to financial statements.
DLB SYSTEMS, INC.
Statements of Cash Flows
Year ended December 31, 1996 and Period from July 31, 1995
(Date of Incorporation) to December 31, 1995
Period from
July 31, 1995
(Date of
Incorporation) to
December 31,
1996 1995
---- ----
Cash flows from operating activities:
Net loss $ (3,137,552) (804,120)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 199,334 62,908
(Gain) loss on sale of furniture, fixtures, equipment
and leasehold improvements 11,750 (4,900)
Changes in operating assets and liabilities:
Increase in accounts receivable - trade, net of
allowance (1,055,076) (337,805)
(Increase) decrease in receivables - related parties 2,208 (214,898)
(Increase) decrease in prepaid expenses and other
current assets (14,485) (12,786)
(Increase) decrease in other assets 8,582 3,075
Increase (decrease) in accounts payable 423,875 (327,099)
Increase (decrease) in due to related parties (93,121) 93,121
Increase (decrease) in accrued expenses 188,753 (141,707)
Increase in deferred revenue 581,087 220,906
---------- ----------
Net cash used in operating activities (2,884,645) (1,463,305)
---------- ----------
Cash flows from investing activities:
Purchase of fixed assets (172,511) (66,348)
Proceeds from sale of assets 3,900 -
---------- ----------
Net cash used in investing activities (168,611) (66,348)
---------- ----------
Cash flows from financing activities:
Issuance of note payable for payment of services rendered - 100,000
Proceeds from financing arrangements 3,051,037 659,638
Payments of principal on financing arrangements (178,792) (708,665)
Proceeds from issuance of common stock - 2,000
Proceeds from issuance of Series A redeemable
cumulative preferred stock 200,000 1,378,000
---------- ----------
Net cash provided by financing activities 3,072,245 1,430,973
---------- ----------
Net increase (decrease) in cash 18,989 (98,680)
Cash at beginning of period 10,013 108,693
---------- ----------
Cash at end of period $ 29,002 10,013
========== ==========
Supplemental information:
Cash paid for interest $ 185,155 57,246
========== ==========
Supplemental noncash financing activities:
Conversion of notes payable into Series A redeemable
preferred stock $ 1,000,000 420,000
Accrual of preferred stock dividend 250,000 -
========== ==========
See accompanying notes to financial statements.
DLB SYSTEMS, INC.
Notes to Financial Statements
December 31, 1996 and 1995
(1) Summary of Significant Accounting Policies
Organization and Operations
DLB Systems, Inc. (DLB or the Company) was Organized under the laws
of the State of Delaware on July 31, 1995 to continue to conduct
certain business operations formerly conducted by DLB Systems, Inc.,
a New Jersey Corporation (DLB-NJ). The principal activities of the
Company are the development and licensing of computer software
products and associated services to the pharmaceutical industry to
assist with clinical research and development and regulatory
compliance.
DLB-NJ was founded in 1992 as a wholly-owned subsidiary of DLB
Systems, Ltd. (DLB-Ltd.), a U.K.-based company. Both DLB-NJ AND
DLB-Ltd. performed the same principal activities of the Company.
On August 1, 1995, substantially all of the assets and liabilities of
DLB-NJ were transferred to the Company under an asset purchase
agreement between DLB, DLB-NJ and DLB-Ltd. (the Agreement). The
assets and liabilities transferred to the Company had a negative net
book value of $(2,911,784). The transfer has been accounted for at
historical book values without any purchase accounting adjustments
due to the common shareholders of DLB and DLB-NJ.
As part of the Agreement, Safeguard Scientific, Inc. (Safeguard)
committed to contribute a minimum of $1 million to the Company in
exchange for Series A redeemable cumulative preferred stock (Series A
Preferred Stock) and an additional $1 million in exchange for
additional shares of Series A Preferred Stock as necessary over the
first 12 months from the date of the Agreement. During 1996 and 1995,
Safeguard was issued 28,001 and 621,999 shares, respectively, of
Series A Preferred Stock and warrants for the purchase of common
stock of the Company in exchange for $1,998,000 in capital
contributions (see note 4). Proceeds from the issuance of stock were
used to reduce the outstanding liabilities and to provide working
capital for operations and general corporate purposes of the Company.
DLB-NJ was issued 200,000 shares of common stock of the Company as
part of the Agreement. Upon execution of the Agreement, two officers
of DLB-NJ entered into employment agreements with the Company (see
note 9). DLB-NJ and its parent, DLB-Ltd., are paid monthly support
service fees, in accordance with the Agreement (see note 9), to cover
their operating expenses as they provide customer support and
marketing and selling support to the Company. As part of the
Agreement, Peapack-Gladstone Bank (PG Bank) agreed to the Company's
assumption of DLB-NJ's
2
DLB SYSTEMS, INC.
Notes to Financial Statements, Continued
(1) Summary of Significant Accounting Policies, cont.
indebtedness to the Bank. As part of this assumption of
indebtedness, the Bank extended the due date on its term note
assumed by DLB from DLB-NJ, from June 30, 1996 to March 31, 1998
(see note 2). The Company also assumed certain other liabilities and
commitments of DLB-NJ.
The Company has incurred losses of $3,941,672 since inception and
has relied on Safeguard for financing, when necessary, to sustain
its business and finance its research and development activities.
Safeguard has committed to provided sufficient financing to the
Company and/or implement appropriate strategies or take other
measures to assure that the Company will continue as a going concern
through 1997.
The Company plans to achieve sustained profitability over time and
may require additional financing until it has the ability to
generate cash flows to further develop its software products and
continue operating activities in future periods. There can be no
assurance that the Company will achieve profitability or be able to
generate cash flows to sustain future operations. Nor can there be
any assurance that if the Company requires additional financing
after 1997 that the Company would be able to obtain such additional
financing on favorable terms, if at all.
Revenue Recognition
Revenue is derived primarily from one-time software license fees,
software maintenance and support contracts and consulting/training
services. DLB recognizes revenue from software license transactions
as of the date of installation or upon customer acceptance, as
appropriate. Revenue from software maintenance and continuing
support contracts is recognized on a straight-line basis over the
period in which the software maintenance and continuing support is
provided. Revenue from consulting/training services is recognized
when services are performed.
Deferred revenues arise primarily from advance billing under
licensing agreements and software maintenance and continuing support
contracts.
Furniture, Fixtures, Equipment and Leasehold Improvements
Furniture, fixtures, equipment and leasehold improvements are stated
at cost to the Company. The cost of repairs and maintenance is
charged to operating expenses as incurred; significant renewals and
leasehold improvements are capitalized.
Depreciation is provided using the straight-line method over the
estimated useful lives of the assets. The cost of leasehold
improvements is amortized using the straight-line method over the
shorter of the lease term or the estimated useful life of the asset.
3
DLB SYSTEMS, INC.
Notes to Financial Statements, Continued
(1) Summary of Significant Accounting Policies, cont.
The useful lives, for purposes of computing depreciation and
amortization, are as follows:
Leasehold improvements 2 years
Computer hardware and software 3 years
Equipment and furniture 3 - 5 years
===========
Income Taxes
The asset and liability method prescribed by Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes,"
requires recognition of deferred tax assets and liabilities for the
estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Under this method,
deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets
and liabilities using tax rates in effect for the year in which the
differences are expected to reverse.
Research and Development and Software Development Costs
Research and development costs are charged to expense when incurred.
Costs incurred in the research and development of new software
products and enhancements to existing software products are also
expensed as incurred until the technological feasibility of the
product or enhancement has been established. After technological
feasibility has been established and prior to product release, any
additional development costs are capitalized in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for
the Cost of Computer Software to be Sold, Leased or Otherwise
Marketed," and are included in the balance sheet. However, to date,
software development costs on DLB products, after achieving
technological feasibility, have been immaterial.
4
DLB SYSTEMS, INC.
Notes to Financial Statements, Continued
(1) Summary of Significant Accounting Policies, cont.
Stock-based Employee Compensation
Prior to January 1, 1996, the Company accounted for its stock option
plan in accordance with the provisions of Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to Employees", and
related interpretations. As such, compensation expense would be
recorded on the date of the grant only if the current market price of
the underlying stock exceeded the exercise price. On January 1, 1996,
the Company adopted Statement of Financial Accounting Standards (SFAS
No. 123) 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 ▇▇▇ ▇▇. ▇▇ and provide pro forma net earnings
disclosures for employee stock option grants made in 1995 and future
years as if the fair-value-based method defined in SFAS No. 123 had
been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires DLB to make estimates and
assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of
The Company adopted the provisions of SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of", on January 1, 1996. This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs
to sell. Adoption of this Statement did not have any impact on the
Company's financial position, results of operations, or liquidity.
5
DLB SYSTEMS, INC.
Notes to Financial Statements, Continued
(2) Financing Arrangements
The Company's outstanding financing arrangements as of December 31, 1996
and 1995 are as follows:
1996 1995
---- ----
Line of credit $ 877,379 826,342
Term loan note payable to bank 441,288 561,639
Note payable to bank 1,000,000 -
Notes payable to related parties 1,050,000 100,000
Installment loan payable to bank - 8,441
--------- ---------
Total debt 3,368,667 1,496,422
Less current portion of notes payable to:
Banks 2,318,667 1,016,932
Related parties 1,050,000 50,000
--------- ---------
Net long-term debt $ - 429,490
========= =========
Line of credit
At December 31, 1996, the Company's unused portion of its line of
credit with Peapack-Gladstone Bank (PG Bank) is approximately
$222,621. The line of credit in the aggregate amount of $1,100,000
is subject to renewal in May 1997. The Company was in default of its
debt covenants at December 31, 1996, which were waived by PG Bank.
This instrument (and the PG Bank term loan noted below) is secured by
a lien on substantially all of the Company's assets. The line of
credit is also secured by the assignment of life insurance policies
of its two key employees of the Company. Interest is charged at 2.25%
above PG Bank's prime rate, as defined (10.5% at December 31, 1996).
Term loan note - payable to bank
At December 31, 1996, the Company has a term loan with PG Bank with a
maturity date of May 1, 1997. Interest is charged at 2.25% above PG
Bank's prime rate, as defined (10.5% at December 31, 1996). As of
December 31, 1996, there is no collateral held by the bank. Two key
employees of the Company have guaranteed this note.
Note payable to bank
At December 31, 1996, the Company has a loan payable to another bank
in the amount of $1,000,000, which is due October 5, 1997. Interest
is charged at LIBOR plus 2%. As of December 31, 1996 there is no
collateral held by the bank and Safeguard is the guarantor.
6
DLB SYSTEMS, INC.
Notes to Financial Statements, Continued
(2) Financing Arrangements, cont.
Notes payable to related parties
At December 31, 1996, the Company has a loan payable to Safeguard in
the amount of $1,000,000, which is due July 25, 1997. Interest is
charged at 9.25%. As of December 31, 1996 there is no collateral held
by Safeguard and no guarantors.
In addition, the Company has outstanding a note payable to a software
development consulting company which performed research and
development services for DLB in prior years. Under the terms of the
note, final payment of $50,000 is due on September 30, 1997. Interest
is charged at a rate of 7%. As of December 31, 1996 there is no
collateral held by the software developer and no guarantors.
Installment loan - payable to bank
The installment loan outstanding at December 31, 1995, matured in
April 1996 and was secured by certain office furniture and computer
equipment of the Company. Interest was charged at 8%.
(3) Furniture, Fixtures, Equipment and Leasehold Improvements, at Cost
Furniture, fixtures, equipment and improvements at December 31, 1996 and
1995 consist of the following:
1996 1995
---- ----
Equipment and furniture $ 224,338 229,483
Computer hardware and software 473,524 322,176
Leasehold improvements 36,702 36,702
------- -------
734,564 588,361
Less accumulated depreciation and
amortization 278,624 89,948
------- -------
$ 455,940 498,413
======= =======
(4) Common Stock, Preferred Stock, Stock Options and Warrants
Pursuant to the Agreement, the Company sold 621,999 shares of Series A
Preferred Stock to Safeguard during the period August 1, 1995 to December
31, 1995 and 28,001 shares in 1996. In accordance with a Voting and Stock
Restriction Agreement executed together with the Agreement, the Series A
Preferred Stock is entitled to one vote per share; however, the aggregate
number of votes Safeguard shall be entitled to exercise shall be reduced
upon the exercise of certain common stock warrants.
7
DLB SYSTEMS, INC.
Notes to Financial Statements, Continued
(4) Common Stock, Preferred Stock, Stock Options and Warrants, cont.
Also in 1996, the Company's Board of Directors approved the conversion of
$1,000,000 of then outstanding term notes owed to Safeguard into 210,000
shares of Series A Preferred Stock.
For each share of Series A Preferred Stock issued, a warrant for the
purchase of a share of common stock was issued in accordance with the
Agreement. The Voting and Stock Restriction Agreement also addresses the
preferred shareholders' rights regarding dispositions of their stock.
The Series A Preferred Stock has a par value of $.01 per share and accrues
cumulative dividends at an annual rate of 10% of the original issue price
per share and is redeemable at the option of the Company any time on or
after January 1, 1997 and at the option of the holders of a majority of the
outstanding shares of Series A Preferred Stock, commencing at any time on or
after December 31, 2000 at the original issue price per share plus all
accrued and unpaid dividends thereon. In 1996, $250,000 of dividends have
been accrued for the aforementioned preferred stock. Safeguard waived the
Company's obligation to pay dividends of approximately $58,000 for the
period August 1, 1995 through December 31, 1995 and, as a result, the
Company has properly not accrued for dividends payable as of December 31,
1995.
Pursuant to an incentive stock option purchase plan (the Plan) established
in September 1995 as part of the Agreement, certain key employees have been
granted options to purchase up to 200,000 shares of the Company's common
stock at exercise prices equal to or greater than the estimated fair value
of the Company's common stock; as determined by the Board of Directors at
the date of grant. Generally such options vest over a five-year period, with
the exception of 17,000 options which vested immediately when they were
granted to an employee of DLB-Ltd. All options expire either on the close of
business on September 24, 2005 or upon termination, subject to the terms of
the Plan.
Activity in the Plan is as follows:
Number
of shares
---------
Granted in 1995 ($3.00 per share) 136,000
-------
Balance, December 31, 1995 136,000
Granted ($3.00-$4.75 per share) 71,000
Forfeited ($3.00 per share) (26,000)
-------
Balance, December 31, 1996 181,000
=======
Exercisable at December 31, 1996 40,800
=======
8
DLB SYSTEMS, INC.
Notes to Financial Statements, Continued
(4) Common Stock, Preferred Stock, Stock Options and Warrants, cont.
At December 31, 1996, there were 19,000 additional shares available for
grant under the Plan. The per share weighted-average fair value of stock
options granted during 1996 and 1995 was determined to be zero on the date
of grant using the Black Scholes option-pricing model with the following
weighted average assumptions: 1996 - expected dividend yield 0%, risk-free
interest rate of 6.5%, volatility of 0.0% and an expected life of 7.23
years; 1995 - expected dividend yield 0%, risk-free interest rate of 6.5%,
volatility of 0.0%, and an expected life of 7.5 years.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its options in the
financial statements. Had the Company recorded compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123,
the effect on the Company's net loss would have been immaterial.
At December 31, 1996, the number of options exercisable was 40,800, the
weighted-average exercise price of those options was $3.00, and the
weighted-average remaining contractual life of outstanding options was 9.81
years.
Subject to the Agreement, Safeguard was issued warrants to purchase 650,000
shares of common stock for $.1667 per share. If Safeguard exercises all of
the warrants, based on the Company's capital structure as of December 31,
1996, it would own 65% of the Company. The Agreement also addresses certain
limited rights of the holders of warrants and the warrant stock to include
the warrant stock in a registration statement of the Company. The warrants
expire on August 1, 2002, and are exercisable immediately. The purchase
price of the stock may be paid at the warrantholder's option through the
application of indebtedness of the Company to the warrantholder on a
dollar-for-dollar basis. None of the warrants have been exercised as of
December 31, 1996.
(5) Lease Commitments
At December 31, 1996, the Company is obligated under operating leases which
expire through 1998 for office space and equipment. The aggregate minimum
rental commitments under noncancellable operating leases are as follows:
1997 $ 110,080
1998 7,220
-------
Total minimum lease
payments $ 117,300
=======
Rental expense for operating leases during 1996 and during the period July
31, 1995 to December 31, 1995 amounted to $218,361 and $53,800,
respectively.
9
DLB SYSTEMS, INC.
Notes to Financial Statements, Continued
(6) Income Taxes
Differences between pre-tax book losses and taxable losses are generated
mainly from certain nondeductible permanent differences and temporary
differences such as accelerated methods of calculating tax depreciation.
Deferred tax assets and liabilities at December 31, 1996 and 1995 are
comprised of the following:
1996 1995
---- ----
Deferred tax assets:
Loss carryforwards $ 2,266,127 1,093,232
Research and experimentation credits 54,147 54,147
Allowance accruals 105,953 18,692
--------- ---------
Gross deferred tax assets 2,426,227 1,166,071
Deferred tax asset valuation allowance (2,408,298) (1,158,393)
--------- ---------
17,929 7,678
Deferred tax liabilities:
Property and equipment (17,929) (7,678)
--------- ---------
Gross deferred tax liabilities (17,929) (7,678)
--------- ---------
Net deferred tax assets (liability) $ - -
========= =========
The net changes in the total valuation allowance for the year ended December
31, 1996 and period from incorporation to December 31, 1995 were increases
of $1,249,905 and $1,158,393, respectively. In assessing the realizability
of deferred tax assets, management considers whether it is more likely than
not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon
the generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income and
tax planning strategies in making this assessment. Based upon the level of
historical taxable losses and projections for future tax losses over the
periods which the deferred tax assets are deductible, management believes it
is not more likely than not the Company will realize the benefits of these
deductible differences. Accordingly, a valuation allowance at December 31,
1996 and 1995 has been established for the full amount of the net deferred
assets.
10
DLB SYSTEMS, INC.
Notes to Financial Statements, Continued
(6) Income Taxes, cont.
At December 31, 1996, the Company had net Federal and state net operating
losses available for carryforward of approximately $6,007,000 and
$3,765,000, respectively expiring through the years 2011 and 2003,
respectively. If certain substantial changes in the Company's ownership
should occur, there could be an annual limitation on the amount of the
Federal net operating loss carryforwards which could be utilized annually.
(7) Concentration of Credit Risk
During 1996 and for the Period from July 31, 1995 to December 31, 1995,
three customers and one customer, respectively, accounted for 41% and 26%,
respectively, of net revenue. Accounts receivable from such customers were
approximately $826,000 and $305,000 at December 31, 1996 and 1995,
respectively. Substantially all sales are made to customers who are in the
pharmaceutical industry. The Company performs periodic credit evaluations of
its customers' financial condition and frequently does not require
collateral. The Company does not believe that this concentration of sales
and credit risk represents a material risk of loss with respect to its
financial position as of December 31, 1996.
(8) Related-party Transactions
For the period from July 31, 1995 to December 31, 1995, DLB utilized the
services of a software development consulting company (the consultant) that
was affiliated with both an executive officer of DLB and Safeguard. During
1996, the aforementioned executive officer was no longer affiliated with the
consultant. DLB incurred approximately $1,303,000 and $485,000 in research
and development expenditures for services provided by the consultant. As of
December 31, 1996 and 1995, due to related parties includes none and
$43,900, respectively, of consulting fees due to the consultant and none and
$28,000, respectively, of consulting fees due to an executive officer of DLB
and $18,961 and $11,990, respectively, to DLB-NJ. DLB also maintains a note
payable to the consultant as of December 31, 1996 and 1995 (see note 2).
DLB had the following accounts receivable from related parties:
1996 1995
---- ----
Receivable from DLB-Ltd. $ 244,167 244,167
Loans receivable from employees 96,460 98,668
------- -------
Receivables - other $ 340,627 342,835
======= =======
11
DLB SYSTEMS, INC.
Notes to Financial Statements, Continued
(8) Related-party Transactions, cont.
DLB and DLB-NJ entered into a consulting agreement which in effect provides
for the payment of support service fees to DLB-NJ. These fees cover the
consulting and related costs of specified employees of DLB-NJ including the
two directors identified in the employment agreements entered into with DLB
(see note 9). The consulting agreement will continue until terminated by
DLB. During 1996 and for the period July 31, 1995 to December 31, 1995, DLB
paid $1,302,684 and $480,000, respectively and $561,722 and $190,886,
respectively in support service fees to DLB-Ltd. and DLB-NJ, respectively.
Upon execution of the Agreement, DLB and Safeguard entered into an
Administrative Services Agreement whereby Safeguard will provide the Company
with certain administrative support services, as defined in the
Administrative Services Agreement, for which Safeguard shall be paid an
annual fee equal to 1/2% of the Company's gross revenues each year. The
Administrative Services Agreement was effective through April 1, 1996 and
shall automatically continue on an annual basis, subject to termination on
the final day of any succeeding calendar year by delivery of 90 days' notice
by either party prior to the termination date. As of December 31, 1996 and
1995, DLB owed $44,436 and $9,231 to Safeguard in accordance with the
Administrative Services Agreement for 1996 and for the period July 31, 1995
through December 31, 1995, respectively.
(9) Employment Agreements
In August 1995, DLB entered into two-year employment agreements with two
employees of DLB-NJ. These agreements include nondisclosure and
noncompetition clauses and are subject to renewal for consecutive one-year
periods.
(10) Retirement Savings Plan
The Company maintains a 401(k) retirement savings plan (the 401(k) Plan).
The Company administers the 401(k) Plan at its own expense and provides no
match to employee contributions.
DLB Systems, Inc.
Balance Sheets
As of March 31, 1997 and December 31, 1996
3/31/97 12/31/96
-------------- --------------
ASSETS
Current assets:
Cash $ 130,346 $ 29,002
Accounts receivable, net 2,366,783 2,251,073
Contracts in progress 7,986 7,986
Intercompany receivables 244,167 244,167
Other current assets 66,373 45,631
-------------- --------------
Total current assets 2,815,655 2,577,859
Fixed Assets, Cost 790,947 734,564
Accumulated deprec. (337,561) (278,624)
Fixed assets, net 453,386 455,940
Receivable from related party 96,460 96,460
Other assets, principally deposits 63,515 64,340
-------------- --------------
Total Assets $ 3,429,016 $ 3,194,599
============== ==============
LIABILITIES
Current liabilities:
Accounts payable $ 1,083,588 $ 824,773
Notes payable to bank 1,160,469 1,037,848
Notes payable, other 2,300,000 2,050,000
Accrued expenses and other liabilities 317,842 381,967
Equipment lease obligations 21,728 27,198
Advanced ▇▇▇▇▇▇▇▇ 14,395 14,395
Deferred support revenue 2,169,237 2,431,055
Accrued preferred stock dividend 325,000 250,000
-------------- --------------
Total current liabilities 7,392,259 7,017,236
Long-term portion of loans 189,446 280,819
-------------- --------------
Total liabilities 7,581,705 7,298,055
-------------- --------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock; 1m authorized; 860,000 outstanding 8,600 8,600
Common stock; 1m authorized; 200,000 outstanding 2,000 2,000
Paid-in capital (247,382) (172,382)
Accumulated deficit (3,915,907) (3,941,674)
-------------- --------------
Total stockholders' equity (deficit) (4,152,689) (4,103,456)
-------------- --------------
Total Liabilities & Stockholders' Equity (Deficit) $ 3,429,016 $ 3,194,599
============== ==============
DLB Systems, Inc.
Statement of Operations
For the Period ending March 31, 1997
Month YTD
------------ -----------
Sales Revenue:
Software license revenue $ 287,500 $ 1,451,750
Oracle/SQR license - 41,470
Support revenue 219,728 638,079
Consulting/training fees 40,000 152,863
------------ -----------
Total Sales Revenue 547,228 2,284,162
Cost of Sales:
US customer services 56,894 194,510
US development 32,459 101,458
UK customer services 47,470 145,283
------------ -----------
Total Cost of Sales 136,823 441,251
Gross Profit 410,405 1,842,911
------------ -----------
Gross Margin % 75.00% 80.68%
Selling, General & Administrative Expenses:
Compensation & related expenses 166,882 501,228
Support services - DLB NJ 21,771 84,368
Support services - DLB Ltd. 52,530 184,717
Premises 20,495 90,018
Professional advisors 159,866 467,517
Marketing & selling 84,828 125,288
Oracle/SQR license fees 3,879 21,385
Client support 6,369 26,179
User group meetings - -
Software license costs/non-capital software 7,775 23,220
Equipment maint & rental 1,262 6,711
Provision for doubtful accounts - -
General & administrative 57,891 137,760
Bank charges/late fees 550 1,341
Depreciation and amortization 19,885 58,937
------------ -----------
Total Selling, General & Administrative Expenses 603,983 1,728,669
Income (Loss) from Operations (193,578) 114,242
------------ -----------
Other income (Expense):
Interest Expense - Other (20,221) (65,607)
Interest Expense - Safeguard (7,708) (22,868)
Loss on sale of assets - -
------------ -----------
Total Other Income (Expense), net (27,929) (88,475)
Income (Loss) before Taxes (221,507) 25,767
------------ -----------
Income Taxes - -
------------ -----------
Net Income (Loss) $ (221,507) $ 25,767
============ ===========
EXHIBIT 3.09
TAXES
DLB Systems, Inc. (Delaware) - Federal income tax returns have been filed for
1995, and extensions have been made for 1996 New Jersey State and Federal tax
returns. (See attachment).
In 1992, 1993 and 1994 Federal tax returns of The Company's shareholder, DLB
Systems (NJ) were audited, and the settlement, including penalties and interest,
was paid-in-full.
See Exhibit 3.04, Litigation, regarding California Sales Tax and New Jersey
Unemployment Tax.
Form 7004
(Rev June 1995) Application for Automatic Extension of Time OMB No. 1545-0233
Department of the Treasury To File Corporation Income Tax Return
Internal Revenue Service
------------------------------------------------------------------------------------------------------------------------------------
Name of Corporation Employer identification number
DLB SYSTEMS INC. ▇▇-▇▇▇▇▇▇▇
------------------------------------------------------------------------------------------------------------------------------------
Number, street, and room or suite no. (If a P.O. box or outside the United States, see instructions)
▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇/▇▇
------------------------------------------------------------------------------------------------------------------------------------
City or town, state and ZIP code
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇
------------------------------------------------------------------------------------------------------------------------------------
Check type of return to be filed:
[x] Form 1120 [ ] Form 1120-FSC [ ] Form 1120-ND [ ] Form 1120-REIT [ ] Form 1120-SF
[ ] Form 1120-A [ ] Form 1120-H [ ] Form 1120-PC [ ] Form 1120-RIC [ ] Form 990-C
[ ] Form 1120-F [ ] Form 1120-L [ ] Form 1120-POL [ ] Form 1120S [ ] Form 990-T
------------------------------------------------------------------------------------------------------------------------------------
Form 1120-F filers: Check here if you do not have an office or place of business in the United States............................[ ]
------------------------------------------------------------------------------------------------------------------------------------
1a I request an automatic 6-month (or, for certain foreign corporations, 3-month) extension of time
until SEPTEMBER 15, 1997, to file the income tax return of the corporation named above for [x] calendar
year 1996 or [ ] tax year beginning _______________, 19__ and ending _______________, 19__
b If this tax year is for less than 12 months, check reason:
[ ] Initial return [ ] Final return [ ] Change in accounting period [ ] Consolidated return to be filed
------------------------------------------------------------------------------------------------------------------------------------
2 If this application also covers subsidiaries to be included in a consolidated return, complete the following:
------------------------------------------------------------------------------------------------------------------------------------
Name and address of each member of the affiliated group | Employer identification group | Tax period
---------------------------------------------------------------------------|---------------------------------------|----------------
| |
---------------------------------------------------------------------------|---------------------------------------|----------------
| |
---------------------------------------------------------------------------|---------------------------------------|----------------
| |
---------------------------------------------------------------------------|---------------------------------------|----------------
| |
---------------------------------------------------------------------------|---------------------------------------|----------------
| |
---------------------------------------------------------------------------|---------------------------------------|----------------
| |
---------------------------------------------------------------------------|---------------------------------------|----------------
| |
---------------------------------------------------------------------------|---------------------------------------|----------------
| |
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3 Tentative tax (see instructions).......................................................................| 3 | NONE
|--------------------------
4 Credits: |
a Overpayment credited from prior year......| 4a | | |
|----|------------| |
b Estimated tax payments for the tax year...| 4b | | |
|----|------------| |
c Less refund for the tax year applied for | | | |
on Form 4466..............................| 4c |( )| Bal | 4d | |
------------------- |----|-----------------------------|
e Credit from regulated investment companies........................ | 4e | |
|----|-----------------------------|
f Credit for Federal tax on fuels................................... | 4f | |
-----------------------------------|
5 Total. Add lines 4d through 4f........................................................................| 5 | NONE
|---|----------------------
6 Balance Due. Subtract line 5 from line 3. Deposit this amount electronically or with a Federal | |
Tax Deposit (FTD) Coupon (see instructions)...........................................................| 6 | NONE
------------------------------------------------------------------------------------------------------------------------------------
Signature - Under penalties of perjury, I declare that I have been authorized by the above-named corporation to make this
application, and to the best of my knowledge and belief, the statements made are true, correct and complete.
-------------------------------------------------- --------------------------------------------------- -------------------
(Signature of officer or agent) (Title) (Date)
------------------------------------------------------------------------------------------------------------------------------------
For Paperwork Reduction Act Notice, see instructions. Form 7004 (Rev. 6-95)
STATE OF NEW JERSEY
DIVISION OF TAXATION
TENTATIVE RETURN AND APPLICATION FOR EXTENSION OF TIME TO FILE
The New Jersey Corporation Business Tax Return (Form CBT-100) or
The New Jersey S Corporation Business Tax Return (Form CBT-100S)
For Taxable Years Ending on and After July 31, 1993
(See instructions on reverse side. Type or print the requested information.)
====================================================================================================================================
For accounting period beginning 01/01 1996, and ending 12/31 1996
------------------------------------------------------------------------------------------------------------------------------------
Corporation Name | Federal Employer Identification Number
|
DLB SYSTEMS INC. | ▇▇-▇▇▇▇▇▇▇
----------------------------------------------------------------------------------|-------------------------------------------------
Mailing Address | NJ Corporation Number
|
▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇/▇▇ |
----------------------------------------------------------------------------------|-------------------------------------------------
City State Zip Code | State and Date of Incorporation
|
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ | 07/31/95 DELAWARE
------------------------------------------------------------------------------------------------------------------------------------
APPLICATION IS HEREBY MADE FOR AN AUTOMATIC EXTENSION OF SIX (6) MONTHS FOR FILING THE COMPLETED
RETURN OF THE ABOVE CORPORATION UNDER THE CORPORATION BUSINESS TAX ACT (N.J.S.A. 54:10A-1 et seq.)
------------------------------------------------------------------------------------------------------------------------------------
Remittance to cover the full amount of the net balance due, as per computation below, must accompany this application.
No extension will be granted in the absence of such remittance.
COMPUTATION OF TENTATIVE TAX
1. Total Tentative Tax for Current Period --------------------------------------
IMPORTANT: See Instruction 5 regarding minimum tax requirements........................ | 1 | 200. |
----|--------------------------------|
2. Installment Payment (See instruction 6)................................................ | 2 | 100. |
----|--------------------------------|
3. Combined Total (Line 1 plus Line 2).................................................... | 3 | 300. |
|------------------------------------|
4. Credits: --------------------------| |
(a) Installments Paid | | | |
(Including payment on prior year's return, if any)........ | 4(a) | | |
|------|------------------| |
(b) Overpayment Claimed as a Credit | | | |
(From prior period)....................................... | 4(b) | | |
---------------------------------------------------------------|
Total Credits (Add Lines (a) and (b)................................................... | 4 | |
----|--------------------------------|
5. Net Balance Remitted Herewith (Line 3 minus Line 4).................................... | 5 | 300. |
--------------------------------------
WARNING: Penalties may be assessed for underestimation of tax. See Instruction 7 on reverse side.
------------------------------------------------------------------------------------------------------------------------------------
Remittance should be made payable to "State of New Jersey" and forwarded with this return to:
Division of Taxation - Corporation Tax, CN 666, Trenton, NJ 08646-0666
------------------------------------------------------------------------------------------------------------------------------------
SIGNATURE AND VERIFICATION
I declare under the penalties of perjury that I have been authorized by the above-named corporation to make this application and
that to the best of my knowledge and belief the statements made herein are true and correct.
------------------------------------------------------------------------------------------------------------------------------------
(Date) (Signature of Duly Authorized Officer of Taxpayer) (Title)
###-##-####
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(Date) (Tax Preparer's Signature) (Address) (Preparer's I.D. Number)
KPMG PEAT MARWICK LLP ▇▇▇ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇-▇▇▇▇▇▇▇
------------------------------------------------------------------------------------------------------------------------------------
(Name of Tax Preparer's Employer) (Address) (Employer's I.D. Number)
EXHIBIT 3.11
TRANSACTIONS WITH AFFILIATES
DLB Systems (NJ), a shareholder of The Company, is a subsidiary of DLB Systems,
Ltd., a United Kingdom corporation - referred to hereafter as DLB (UK).
The Company has a consulting agreement with DLB systems, NJ, where The company
pays a consulting fee for the five employees in DLB Systems, NJ. DLB Systems, NJ
provides consulting services in connection with the design, development, use
and operation of computer software for use in the pharmaceutical industry. This
fee covers payroll, benefits and operating expenses that are billed to DLB
Systems, NJ. The Company also pays a consulting fee to DLB UK, whereby
approximately $130,000 per month is transferred to the UK to cover DLB UK's
expenses. DLB UK provides sales and support services for the Company in the
European market for the Company's computer software products that are used in
the pharmaceutical industry.
DLB Systems, Inc., Delaware, also has an Administrative Services Agreement with
Safeguard Scientifics, Inc. dated 8/30/95. DLB Systems, Inc., Delaware, pays to
Safeguard Scientifics, Inc., 1/2% of DLB's gross revenues each year.
See Exhibit 3.06 regarding loans from Safeguard Scientifics (Delaware), Inc.
DLB Systems, Inc., Delaware, has employment contracts with ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, that expire on August 1, 1997, see Exhibit 3.05. There is also
an outstanding loan from ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ to The Company in the
amount of $96,460.
DLB Systems, Inc., Delaware, has a severance agreement with ▇▇▇ ▇▇▇▇▇▇▇▇, see
Exhibit 3.05.
EXHIBIT 3.12
ASSUMPTIONS or GUARANTEES of INDEBTEDNESS of OTHER PERSONS
None
EXHIBIT 3.13
INVESTMENTS in OTHER PERSONS
The Company has an outstanding loan receivable with ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
in the amount of $96,460.
The Company has a wholly owned UK subsidiary, Knightview Computing Limited,
which UK counsel has advised is a dormant company. This company was formed with
the intention of transferring the employees of DLB (UK) into it, which has not
been done. However, the lease for the UK offices of DLB (UK), described in
Exhibit 3.06, designates Knightview Computing Limited as "the Prospective
Tenant" and DLB (UK) as "the Surety".
EXHIBIT 3.17
CAPITALIZATION: STATUS OF CAPITAL STOCK
See attached Capitalization Table and Employee Stock Option Table.
Safeguard Scientifics, Inc.
Capitalization Table - DLB Systems, Inc.
As of 6/16/97
--------------------------------------
| | | Unrelated |
| Total | Safeguard | 3rd Parties|
|---------- |------------|------------|
COMMON STOCK OUTSTANDING | 200,000 | | 200,000 |
| | | |
OPTIONS/WARRANTS TO ACQUIRE | | | |
COMMON STOCK | | | |
| | | |
Non-qualified options | | | |
Number Outstanding | | | |
Average strike price | | | |
| | | |
Incentive stock options | | | |
Number Outstanding | 209,000 | | 209,000 |
Average strike price | $ 3.93 | | $ 3.93 |
| | | |
Warrants | | | |
Number Outstanding | 650,000 | 650,000 | |
Average strike price | $ 0.1667 | $ 0.1667 | |
Number Outstanding | 80,000 | 80,000 | |
Average strike price | $ 0.2580 | $ 0.2580 | |
Number Outstanding | 210,000 | 210,000 | |
Average strike price | $ 0.2580 | $ 0.2580 | |
| | | |
PREFERRED STOCK OUTSTANDING | | | |
| | | |
SERIES A | Shares | Amount | |
|-----------|------------|------------|
Outstanding shares | 860,000* | | |
Stated value | | | |
------------------ | | | |
Par value $ 0.01 | 860,000 | $ 8,600 | |
|-----------|------------|------------|
Price per share $1.9608 | 510,000 | 1,000,008 | |
Price per share $7.1429 | 140,000 | 1,000,006 | |
Price per share $4.7619 | 210,000 | 999,999 | |
|-----------|------------|------------|
TOTAL | 860,000 | $3,000,013 | |
--------------------------------------
Liquidation value N/A
Dividend rate 10%
Common conversion rate N/A
Preconversion voting rights N/A
*73,198 shares of Series A Preferred Stock are held by Safeguard Scientifics
Inc. for the benefit of certain executives pursuant to its Long Term Incentive
Plan.
EXHIBIT 3.17 Cont'd
DLB Systems Inc.
Stock Options Awards
As of 6/16/97
Granted Granted Granted Granted Granted Total
A. Employee Pool, 10% of total Oct. '95 Apr. '96 Oct. '96 Apr. '97 June '97 Forfeited Granted
---------------------------------------------------------------------------------
▇. ▇▇▇▇▇▇▇▇▇ 17,000 17,000
▇. ▇▇▇▇▇ 15,000 15,000
▇. ▇▇▇▇▇▇ 3,000 7,000 10,000
▇. ▇▇▇▇▇▇▇▇ 1,000 1,000
▇. ▇▇▇▇ 1,000 1,000
▇. ▇▇▇▇▇▇▇▇▇ 1,000 4,000 5,000
▇. ▇▇▇▇▇▇ 1,000 1,000
▇. ▇▇▇▇▇ 1,000 1,000
▇. ▇▇▇▇▇▇▇▇▇▇ 1,000 (1,000) --
R. Dolphin 3,000 3,000
▇. ▇▇▇▇▇ 10,000 10,000
N. Vivian 10,000 5,000 15,000
----------------------------------------------------------------------------------
TOTAL 45,000 18,000 3,000 10,000 (1,000) 79,000
----------------------------------------------------------------------------------
B. CEO Pool - ▇. ▇▇▇▇ 50,000 (50,000) --
▇. ▇▇▇▇▇▇▇▇ 100,000 100,000
-----------------------------------------------------------------------------------
TOTAL 50,000 -- -- -- 100,000 (50,000) 100,000
-----------------------------------------------------------------------------------
C. ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Pool 5% of total
▇. ▇▇▇▇▇▇ 10,000 15,000 (20,000) 5,000
▇. ▇▇▇▇▇▇ 10,000 15,000 25,000
-----------------------------------------------------------------------------------
TOTAL 20,000 30,000 -- -- -- (20,000) 30,000
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
GRAND TOTAL 115,000 48,000 3,000 10,000 (71,000) 209,000
===================================================================================
Total Option Pool 250,000
Option Price $ 3.00
-----------------------------------------------------------------------------------
Note:
▇▇▇▇▇ ▇▇▇▇▇▇ will forfeit 20,000 shares upon his departure on August 1, 1997
Page 1
EXHIBIT 3.17 Cont'd
COMMON STOCK
RECORD OF CERTIFICATES ISSUED AND TRANSFERRED
CERTIFICATES SHARES TRANSFERRED FROM
ISSUED (IF ORIGINAL ISSUE ENTER AS SUCH)
------------ -----------------------------------------
CERTIF NO ISSUED TO DATE CERTIF
NOS SHARES (NAME AND ADDRESS) ISSUED NAME NOS
---------------------------------------------------------------------------------------------------------
1 200,000 DLB Systems, Inc.
(a New Jersey Corporation) 8/30/95 Original Issue
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
CERTIFICATES CERTIFICATES
ISSUED RECEIVED CEERTIFICATE TRANSFERRED ENTER
------------ AMOUNT ----------------------------------------------------- ORIGINAL
CERTIF PAID NO ISSUES
NOS THEREON DATE SIGNATURE DATE SHARES ONLY
--------------------------------------------------------------------------------------
1
---------------------------------------------------------------------------------------
EXHIBIT 3.17 Cont'd
SERIES A PREFERRED STOCK
RECORD OF CERTIFICATES ISSUED AND TRANSFERRED
CERTIFICATES SHARES TRANSFERRED FROM
ISSUED (IF ORIGINAL ISSUE ENTER AS SUCH)
------------ -----------------------------------------
CERTIF NO ISSUED TO DATE CERTIF
NOS SHARES (NAME AND ADDRESS) ISSUED NAME NOS
----------------------------------------------------------------------------------------------------------
1 510,000 Safeguard Scientifics
(Delaware), Inc. 8/30/96 Original Issue
CANCELLED
----------------------------------------------------------------------------------------------------------
2 140,000 Safeguard Scientifics
(Delaware), Inc. 1/30/96 Original Issue
----------------------------------------------------------------------------------------------------------
P3* 13,943 ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ 12/12/95 Safeguard Scientifics
(Delaware), Inc. P1
----------------------------------------------------------------------------------------------------------
P4* 13,943 ▇▇▇▇▇▇▇ ▇. Root 12/12/95 Safeguard Scientifics
(Delaware), Inc. P1
----------------------------------------------------------------------------------------------------------
P5* 5,070 ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 12/12/95 Safeguard Scientifics
(Delaware), Inc. P1
----------------------------------------------------------------------------------------------------------
P6* 10,140 ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ 12/12/95 Safeguard Scientifics
(Delaware), Inc. P1
----------------------------------------------------------------------------------------------------------
P7* 10,140 ▇▇▇▇▇▇ ▇. ▇▇▇▇ 12/12/95 Safeguard Scientifics
(Delaware), Inc. P1
----------------------------------------------------------------------------------------------------------
P8* 6,654 ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 12/12/95 Safeguard Scientifics
(Delaware), Inc. P1
----------------------------------------------------------------------------------------------------------
P9* 6,654 ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 12/12/95 Safeguard Scientifics
(Delaware), Inc. P1
----------------------------------------------------------------------------------------------------------
P10* 6,654 ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ 12/12/95 Safeguard Scientifics
(Delaware), Inc. P1
----------------------------------------------------------------------------------------------------------
P11 436,802 Safeguard Scientifics 12/12/95 Safeguard Scientifics
(Delaware), Inc. (Delaware), Inc. P1
----------------------------------------------------------------------------------------------------------
P12 210,000 Safeguard Scientifics 8/19/96 Original Issue
(Delaware), Inc.
----------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
CERTIFICATES CERTIFICATES
ISSUED RECEIVED CEERTIFICATE TRANSFERRED ENTER
------------ AMOUNT ----------------------------------------------------- ORIGINAL
CERTIF PAID NO ISSUES
NOS THEREON DATE SIGNATURE DATE SHARES ONLY
--------------------------------------------------------------------------------------
1
12/12/95 510,000
--------------------------------------------------------------------------------------
2
--------------------------------------------------------------------------------------
P3*
--------------------------------------------------------------------------------------
P4*
--------------------------------------------------------------------------------------
P5*
--------------------------------------------------------------------------------------
P6*
--------------------------------------------------------------------------------------
P7*
--------------------------------------------------------------------------------------
P8*
--------------------------------------------------------------------------------------
P9*
--------------------------------------------------------------------------------------
P10*
--------------------------------------------------------------------------------------
P11
--------------------------------------------------------------------------------------
P12
--------------------------------------------------------------------------------------
*Voting rights retained by Safeguard Scientifics (Delaware), Inc.
(See irrevocable proxy agreements dated 12/12/95)
Exhibit 3.17 Cont'd
DLB SYSTEMS, INC.
1995 EQUITY COMPENSATION PLAN
INCENTIVE STOCK OPTION
GRANT LETTER
------------
DLB Systems, Inc. (the "Company") has adopted the DLB Systems, Inc. 1995
Equity Compensation Plan (the "Plan"). This Incentive Stock Option is granted
to (the "Grantee") on (the "Date of Grant") in accordance with
the terms of the Plan. Capitalized terms used and not otherwise defined in this
Grant Letter are used herein as defined in the Plan.
1. Option Grant and Acceptance
(a) The Company hereby grants to the Grantee effective as of the Date of
Grant, the right and option (the "Option") to purchase, ____________ shares of
Common Stock (the "Shares"). The Option is intended to constitute an "incentive
stock option" within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code").
(b) The Grantee shall signify his acceptance of the Option by executing this
Grant Letter.
2. Option Price
The price of each Share covered by the Option shall be _________________ (the
"Option Price"), which is 100% of the fair market value of a Share on the Date
of Grant (as determined in accordance with the terms of the Plan).
3. Option Expiration
The Option, to the extent that it has not theretofore been exercised, shall
automatically expire on the earliest to occur of the following events:
(a) the close of business on
(b) if the Grantee's employment with the Company terminates voluntarily or
involuntarily for any reason other than death or Disability (as defined in
Section 1 of the Plan), the Option may thereafter be exercised by the Grantee,
to the extent it was exercisable at the time of such termination, for a period
of three months from the date of such termination of employment or until the
occurrence of the date specified in Section 3(a), whichever period is shorter;
provided, however, that if the Grantee dies within such three-month period, the
unexercised portion of the Option shall thereafter be exercisable to the extent
to which it was exercisable at the time of death, for a period of twelve months
from the date of such death or until the occurrence of the date specified in
Section 3(a), whichever period is shorter.
(c) if the Grantee's employment with the Company terminates by reason of
death, the Option may be thereafter exercised, to the extent then exercisable,
by the legal representative of the estate or by the legatee of the Grantee under
the will of the Grantee, for a period of one year from the date of such death or
until the occurrence of the date specified in Section 3(a), whichever period is
shorter.
(d) if the Grantee's employment with the Company terminates by reason of
"Disability" (as defined in Section 1 of the Plan), the Option may thereafter be
exercised by
the Grantee, to the extent it was exercisable at the time of such termination,
for a period of one year from the date of such termination of employment or
until the occurrence of the date specified in Section 3(a), whichever period is
shorter; provided, however, that if the Grantee dies within such one-year
period, any unexercised portion of the Option held by the Grantee shall
thereafter be exercisable to the extent it was exercisable at the time of death
for a period of twelve months from the date of such death or until the
occurrence of the date specified in Section 3(a), whichever period is shorter.
4. Vesting
(a) Subject to the terms, conditions and limitations expressed herein and,
except as provided below, the Option shall become exercisable in accordance with
the following vesting schedule:
Period Percentage Vested
------ -----------------
On or before 0%
to 20%
to 40%
to 60%
to 80%
On or after 100%
(b) The right to purchase Shares under the Option as provided in Section 4(a)
above may be exercised in a cumulative fashion, such that any right to purchase
Shares which becomes exercisable on a given date shall remain exercisable until
the date stated in any applicable provision of Section 3 (with respect to the
expiration of the Option).
5. Time and Method of Exercise
Subject to the terms of Section 4 above, the Option may be exercised at any
time, or from time to time, prior to expiration (as defined in Section 3 above),
by written notice to the Chief Financial Officer of the Company. Such written
notice shall be effective upon receipt by the Chief Financial Officer of the
Company and shall be accompanied by:
(a) a check, or the equivalent thereof acceptable to the Company in its
discretion, for the full Option Price of the number of Shares being purchased;
(b) if and only if permitted by the Committee administering the Plan, one or
more certificates representing a number of Shares which are, in the aggregate,
equal in fair market value to the full Option Price for the Shares being
purchased, such certificates being duly endorsed (or accompanied by stock powers
signed in blank) so as to transfer to the Company all right, title and interest
in and to the Shares represented by such certificates;
(c) if and only if permitted by the Committee administering the Plan, a
combination of the forms of payment specified in Section 5(a) and 5(b) above
which, in the aggregate, is equal to the full Option Price of the number of
Shares being purchased; or
(d) where there is a public market for the Shares, in the discretion of the
Company, by delivering a properly executed notice of exercise of the Option to
the
Company and a broker, with irrevocable instructions to the broker to deliver to
the Company on the settlement date the amount of sale proceeds necessary to pay
the exercise price of the Option.
The fair market value of each Share of Company Stock delivered by the Grantee
pursuant to Section 5(b) or 5(c) above shall be determined in accordance with
the provisions of the Plan.
6. Replacement Option
Upon an exercise of the Option, in whole or in part, at any time, the Grantee
shall be entitled to receive a replacement Option covering such number of shares
of Common Stock, at such exercise price per share and upon such terms and
conditions as the Committee may, in its sole discretion, establish in any policy
or program adopted from time to time by the Committee. The Committee may, in its
sole discretion, amend, modify or terminate at any time any such policy or
program. Unless otherwise provided by the Committee, if any such policy or
program is amended or modified, such policy or program shall be deemed to become
part of this Grant Letter as so amended or modified without further action by
the Company or the Grantee. The Committee may specify in any such policy or
program that the grant of any such replacement Option may be automatic upon an
exercise of the Option complying with the terms and conditions of the policy or
program.
7. Restrictions on Transfer.
(a) The Company shall have the right of first refusal to repurchase any
shares offered for sale by the Grantee, his executor, administrator, or
beneficiaries, which shares were issued to the Grantee pursuant to one or more
Options granted to the Grantee under this Plan. Such offer shall be communicated
to the Company by written notice, stipulating the terms and conditions of such
offer therein, forwarded by registered or certified mail. The Company shall
exercise its right to repurchase (or to designate a third party to repurchase)
by giving written notice thereof by registered or certified mail to the Grantee,
his executor, administrator or beneficiaries no later than 30 days after the
date of the receipt of the offer. Within 30 days after receipt of such notice,
the Grantee, his executor, administrator or beneficiaries shall deliver a
certificate or certificates for the shares being sold, together with appropriate
duly signed stock powers transferring such shares to the Company, and the
Company shall deliver to the Grantee, his executor, administrator or
beneficiaries the Company's check in the amount of the purchase price for the
shares being sold.
In the event that such offer shall not be accepted by written notice
forwarded by registered or certified mail no later than 30 days after the date
of the receipt of the offer, the Grantee, his executor, administrator or
beneficiaries, may dispose of the shares offered to any person, firm or
corporation, without restriction, except that the subsequent transfer of such
shares shall not be on terms more favorable to the transferee than the terms
upon which the shares were originally offered to the Company. If, within 60 days
after the expiration of the 30 day period of any offer made hereunder, the
Grantee, his executor, administrator, or beneficiaries offering to sell any
shares issued hereunder, shall fail to consummate a sale thereof to any other
purchaser, then no sale of such shares may be made thereafter without again
reoffering the same to the Company in accordance with the provisions of this
subparagraph.
(b) In the event of the Grantee's termination of employment for any reason,
whether voluntary or involuntary, the Company shall have the right to repurchase
all
shares issued or to be issued to the Grantee under this Plan at the greater of
fair market value (as may be determined by the Board of Directors of the
Company, from time to time) or Grantee's cost.
The Company's right to repurchase shall be exercisable at any time within one
year after the date of Grantee's termination of employment or service on the
Board of Directors of the Company by the delivery of written notice by the
Company to such effect to the Grantee, his executor, administrator or
beneficiaries. Within 30 days after receipt of such notice, the Grantee, his
executor, administrator or beneficiaries shall deliver a certificate or
certificates for the shares being sold, together with appropriate duly signed
stock powers transferring such shares to the Company, and the Company shall
deliver to the Grantee, his executor, administrator or beneficiaries the
Company's check in the amount of the purchase price for the shares being sold.
(c) The right of first refusal and buy-back rights shall terminate when the
Company has consummated a public offering of its Common Stock pursuant to the
Securities Act of 1933, as amended.
(d) The right of first refusal and buy-back rights granted to the Company
pursuant to subparagraphs 7(a) and 7(b) above are separate and independent
obligations of the Grantee and shall survive any termination of employment or
termination of service on the Board. Furthermore, such rights shall not be
construed as an absolute obligation on the part of the Company to repurchase any
shares tendered.
(e) Each certificate for shares issued by the Company to the Grantee shall
bear an appropriate legend that the transfer of such shares is restricted by the
provisions of this Plan.
8. Nonassignability of Option Rights
The Option shall not be assigned or transferred by the Grantee except in the
event of the death of the Grantee, by will or by laws of descent or
distribution, or pursuant to a qualified domestic relations order. Upon a
transfer by will or by the laws of descent or distribution, the person to whom
the Option is transferred shall have the right to exercise the Option in
accordance with the Plan and this Grant Letter. Any attempt to assign, transfer,
pledge or dispose of the Option contrary to the provisions hereof, and the levy
of any execution, attachment or similar process upon the Option, shall be null
and void and without effect.
9. Adjustments
If any change is made to the Common Stock (whether by reason of merger,
consolidation, reorganization, recapitalization, stock dividend, stock split,
combination of shares, or exchange of shares or any other change in capital
structure made without receipt of consideration), then unless such event or
change results in the termination of all outstanding Grants under the Plan, the
Committee (as defined in Section 1 of the Plan) shall preserve the value of the
Option by making appropriate adjustments to the number and class of shares, the
Option Price or otherwise, except that any fractional shares resulting from such
adjustments shall be eliminated by rounding any portion of a share equal to .500
or greater up, and any portion of a share equal to less than .500 down, in each
case to the nearest whole number.
10. Withholding
The Grantee or other person receiving Shares upon an exercise of the Option,
in whole or in part, shall be required to pay to the Company the amount of any
taxes or other charges that the Company is required to withhold with respect to
such exercise. The Company shall have the right to take whatever action it deems
necessary to protect the interests of the Company in respect of such
liabilities, including, without limitation, withholding a portion of the Shares
otherwise deliverable upon exercise of the Option. The Company's obligation to
issue or transfer Shares upon exercise of the Option shall be conditioned upon
the Grantee's compliance with the requirements of this section to the
satisfaction of the Committee.
11. Notice to Company of Disqualifying Disposition
By accepting an incentive stock option under the Plan, each optionee agrees
to notify the Company in writing immediately after he or she makes a
disqualifying disposition (as described in Sections 421, 422 and 424 of the Code
and regulations thereunder) of any stock acquired pursuant to the exercise of
incentive stock options granted under the Plan. A disqualifying disposition is
generally any disposition occurring within two years of the date the incentive
stock option was granted or within one year of the date the incentive stock
option was exercised, whichever period ends later.
12. No Contract for Employment
(a) Nothing contained in this Grant Letter shall be deemed to require the
Company to continue the Grantee's employment by the Company. Except as may be
provided in a written employment contract executed by a duly authorized officer
of the Company and approved by the board of directors of the Company, the
Grantee shall at all times be an employee-at-will of the Company and the
Company may discharge the Grantee at any time for any reason, with or without
cause, and with or without severance compensation.
(b) From time to time, the Company may distribute employee manuals or
handbooks, and officers or other representatives of the Company may make written
or oral statements relating to the Company's policies and procedures. Such
manuals, handbooks and statements are intended only for the general guidance of
employees. No policies, procedures or statements of any nature by or on behalf
of the Company (whether written or oral, and whether or not contained in any
formal employee manual or handbook) shall be construed to modify this Grant
Letter or to create express or implied obligations to the Grantee of any nature.
13. Administration
The Option has been granted pursuant to the terms, conditions and other
provisions of the Plan, as in effect on the Date of Grant, and as the Plan may
be amended from time to time in accordance with Section 8 of the Plan. All
questions of interpretation and application of the Plan and of any grant under
the Plan (including this Grant) shall be determined by the Committee in its
discretion, and such determination shall be final and binding upon all persons.
The validity, construction and effect of this Option shall be determined in
accordance with the laws of the State of Delaware, without giving effect to the
principles of conflicts of law thereof.
14. No Stockholder Rights
Neither the Grantee, nor any person entitled to exercise the Grantee's rights
in the event of the Grantee's death, shall have any of the rights and privileges
of a stockholder with respect to the Shares subject to the Option, except to the
extent that certificates for such Shares shall have been issued upon the
exercise of the Option as provided herein.
15. Cancellation or Amendment
This Option may be canceled or amended by the Committee, in whole or in part,
at any time that the Committee determines, in its sole discretion, that the
cancellation or amendment is necessary or advisable in light of any change after
the Date of Grant in (a) the Code or the regulations issued thereunder or (b)
any federal or state securities law or other law or regulation, which change by
its terms is effective retroactively to a date on or before the Date of Grant;
provided, however, that no such cancellation or amendment shall, without the
Grantee's consent, apply to or affect installments that matured on or before the
date on which the Committee makes such determination.
16. Notice
Any notice to the Company provided for in this Grant Letter shall be
addressed to it in care of the Chief Financial Officer of the Company, at ▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ and any notice to the Grantee shall be
addressed to such Grantee at the current address shown on the payroll of the
Company, or to such other address as the Grantee may designate to the Company in
writing. Any notice provided for hereunder shall be delivered by hand, sent by
telecopy or telex or enclosed in a properly sealed envelope addressed as stated
above, registered and deposited, postage and registry being prepaid, in a post
office or branch post office regularly maintained by the United States Postal
Service.
17. Grantee's Securities Law Representations
If the Committee shall deem it appropriate by reason of any securities law,
it may require that the Grantee upon exercise in whole or in part of the Option,
represent to the Company and agree in writing that the purchase of the Shares
is for investment only and not with a view to distribution. The Committee may
require that the Share certificates be inscribed with a legend restricting
transfer in accordance with applicable securities law requirements.
DLB SYSTEMS, INC.
Attest:_________________________ By:_____________________________
Accepted By:
________________________________
EXHIBIT 3.21
MATERIAL AGREEMENTS
The following is a list of material agreements that the Company is a party to:
All agreements and contracts listed in Exhibit 3.05
All loans and leases listed in Exhibit 3.06
All agreements related to Intellectual Property Rights and Assets listed in
Exhibit 3.07
All agreements with Affiliates listed in Exhibit 3.11
The ▇▇▇▇▇▇ loan receivable listed in Exhibit 3.13
DLB Systems, Inc.'s 1995 Equity Compensation plan.
Memoranda dated June 27, 1996 and October 17, 1996 between The Company and
Nippon Steel Corporation regarding software development Agreement
Consulting Agreement between DLB (UK) and GC Consulting Sources Ltd. dated June
27, 1994.
Letter Agreement between The Company and ▇▇▇▇ ▇▇▇▇▇▇▇ dated August, 30, 1996.
Partnership Agreement dated December 26, 1995 between The Company and
Integrated Systems Consulting Group, Inc.
Office leases listed on Exhibit 3.06: ▇▇▇▇▇ & ▇▇▇▇▇▇ (new office lease),
Bernards/78 Associates (current landlord, US), IXI Limited (UK office lease)
See Exhibit 3.06 regarding temporary non-compliance with financial covenant in
PNC Bank loan Letter Agreement.
License Agreement and Support Agreement between The Company and Merck KGAA,
dated December 12, 1996.
EXHIBIT 3.22
ABSENCE OF CERTAIN DEVELOPMENTS
3.22(a) See Stock Option Table in Exhibit 3.17; Warrant for 80,000 Shares of
Common Stock to Safeguard Scientifics (Delaware), Inc. (listed on The
Capitalization Table) was issued April 4, 1997
3.22(b) See Exhibit 3.06 regarding loan agreements with PNC Bank dated May 14,
1997
3.22(c) None
3.22(d) None
3.22 (e) See Exhibit 3.06 and Exhibit 3.07 regarding loan agreements with PNC
Bank dated May 14, 1997 including Security Agreement and UCC-1
3.22(f) In connection with the loan transactions with PNC Bank dated May 14,
1997, The Company's prior loans with Peapack-Gladstone Bank were paid off in
full on that date.
3.22(g) None
3.22(h) Amgen terminated its License Agreement dated December 24, 1996 with the
Company in April 1997. ▇▇▇▇▇▇ Consumer Products Company license agreement is
likely not to happen; offset by likely gains in license agreements with
Pharmaceutical Research Associates International Inc., N.V. ("PRA"), Organon,
Hybridon Inc. ("Hybridon"), Berlex Laboratories Inc. ("Berlex"), and SCIMED Life
Systems Inc ("SCIMED"). See also attached conservative 1997 financial forecasts
of the Company, which were presented to at the Company's Board of Directors
meeting on June 12, 1997, and which do not reflect anticipated revenues from
Hybridon, Berlex and SCIMED nor larger dollar projections for transactions with
PRA and Organon which are now expected.
3.22(i) None
3.22(j) See Exhibit 3.07 Asset listings
EXHIBIT 3.22 Cont'd
3.22(k) See ▇▇▇ ▇▇▇▇▇▇▇▇ Severance Agreement, dated May 12, 1997 - Exhibit 3.05
See ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇'▇ Employment Agreements, dated August 30,
1995; which expire 8/l/97 - Exhibit 3.05
See PNC Bank Loan Agreement, dated May 14, 1997 - Exhibit 3.06
See Safeguard Scientifics (Delaware), Inc. Demand Notes dated March 31,
1997 and April 4, 1997, as well as the June 26, 1997 loan - Exhibit 3.06
See ▇▇▇▇▇ & ▇▇▇▇▇▇ Office Sublease Agreement, dated June 17, 1997 -
Exhibit 3.06
3.22(l) None
3.22(m) None
3.22(n) None
3.22(o) See 3.22(h) above
EXHIBIT 3.26
MATERIAL AGREEMENTS WITH SAFEGUARD
In addition to the material written agreements between the Company and Safeguard
or its affiliates, copies of which have been supplied to Purchaser, the
following material agreements, arrangements and understandings exist with
Safeguard or its affiliates in connection with the Company:
Under a Limited Guaranty and Suretyship Agreement dated May 14, 1997 with
PNC Bank (a copy of which has been provided to Purchaser), Safeguard
currently guarantees $800,000 of the loans from PNC to the Company. When
the Company's line of credit with PNC Bank is increased to $2 million
(expected to occur soon after the closing of this transaction), the amount
of Safeguard's guarantee will be increased to $1.5 million, pursuant to a
replacement guaranty agreement.
Under an Amended and Restated Unconditional Guaranty dated November 25, 1996
with First Union National Bank, Safeguard currently guarantees $1 million
of the loans from First Union to the Company. When the Company's loan from
First Union is paid off in full at the time its line of credit with PNC
Bank is increased to $2 million (see above), this guaranty will terminate.
Under a Sublease Guaranty dated June 17, 1997 from Safeguard to ▇▇▇▇▇ &
▇▇▇▇▇▇, Inc., lessor under the Sublease of same date entered into by the
Company and ▇▇▇▇▇ & ▇▇▇▇▇▇ for the Company's new corporate headquarters,
Safeguard guarantees the Company's payment of rent and additional rent on
a rolling 12 month basis.
Subject to the approval of Safeguard's Investment Committee (to which this
matter has not yet been submitted) and the closing of this transaction,
Safeguard has verbally committed to loan up to $500,000 to the Company in
fiscal 1997.
With respect to the $1 Million Amended and Restated Demand Note from the
Company to Safeguard Scientifics (Delaware), Inc., dated July 25, 1996,
which currently contains repayment terms of the earlier of upon demand or
one year from its date, it is agreed between the parties that this note
will be amended prior to July 25, 1997 so that its repayment terms will be
the earlier of (i) upon the consummation of a sale of substantially all of
the assets or stock of the Company or (ii) July 25, 1998. This amendment
will be documented prior to July 25, 1997.