Exhibit 10.9
ELECTRONIC SUBMISSION PUBLISHING SYSTEM, INC.
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES A PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is made
as of March 5, 1997, between ELECTRONIC SUBMISSION PUBLISHING SYSTEMS, INC., a
Delaware corporation (the "Company"), ADOBE VENTURES L.P., a California limited
partnership and H&Q ESPS INVESTORS L.P., a California limited partnership. Adobe
Ventures L.P. and H&Q ESPS Investors L.P. are sometimes referred to herein
individually as a "Purchaser" and collectively as the "Purchasers." The parties
hereby agree as follows:
1. Authorization and Sale of the Preferred Shares.
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1.1. Authorization; Amendment of the Certificate of Incorporation. The
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Company has authorized the issuance and sale pursuant to the terms and
conditions hereof of up to 4,000,000 shares of its Series A Preferred Stock, par
value $0.001 per share (the "Series A Shares"), having the rights, restrictions,
privileges and preferences as set forth in the Company's Certificate of
Incorporation. The Company shall adopt and file with the Secretary of State of
the State of Delaware on or before the Closing (as defined below) the
Certificate of Amendment of the Certificate of Incorporation attached hereto as
Exhibit A ("Certificate of Amendment").
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1.2. Sale and Issuance of the Series A Shares. Subject to the terms and
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conditions hereof, at the Closing (as defined below) the Company will issue and
sell to each Purchaser and each Purchaser will purchase from the Company the
number of Series A Shares, at a purchase price of $1.00 per share, as specified
opposite such Purchaser's name on Schedule A to this Agreement.
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2. Closing Date; Delivery.
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2.1. Closing Date.
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(a) Purchase and Sale at the Closing. The closing comprising the
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purchase by the Purchasers and sale by the Company of Series A Shares shall be
held at the offices of Fox, Rothschild, O'Brien & ▇▇▇▇▇▇▇, Eagleview Corporate
Center, ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ on March 5, 1997, or at such
other time and place as the Company and the Purchaser may agree in writing. The
closing referred to in this Section 2.1(a) shall be hereinafter referred to as
the "Closing" and the date of the Closing is hereinafter referred to as the
"Closing Date".
2.2. Delivery. Subject to the terms of this Agreement, at the Closing the
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Company will deliver to the Purchaser the certificates representing the Series A
Shares to be purchased by the Purchaser from the Company, against payment of the
purchase price therefor by delivery of a check, payable to the order of the
Company, by wire transfer or by cancellation of indebtedness owed by the Company
to Purchaser, which indebtedness is set forth on Exhibit A.
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3. Representations and Warranties of the Company. The Company hereby
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represents and warrants to each Purchaser that except as set forth on a Schedule
of Exceptions attached hereto as Exhibit B, which exceptions shall be deemed to
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be representations and warranties as if made hereunder:
3.1. Organization and Standing. The Company is a corporation duly
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organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to carry on its
businesses as now conducted and as proposed to be conducted. The Company is
qualified or licensed to do business as a foreign corporation in all
jurisdictions where such qualification or licensing is required, except where
the failure to so qualify would not have a material adverse effect upon the
Company.
3.2. Corporate Power. The Company has now, or will have at the Closing
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Date, all requisite corporate power necessary for the authorization, execution
and delivery of this Agreement and the Amendment to Rights Agreement in the form
attached hereto as Exhibit C (the "Rights Amendment"). This Agreement and the
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Rights Amendment are valid and binding obligations of the Company enforceable in
accordance with their terms, except as the same may be limited by bankruptcy,
insolvency, moratorium, and other laws of general application affecting the
enforcement of creditors' rights.
3.3. Subsidiaries. The Company does not control, directly or indirectly,
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any other corporation, association or business entity.
3.4. Capitalization. The authorized capital stock of the Company is
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10,000,000 shares of Common Stock and 6,000,000 shares of Preferred Stock, of
which 6,000,000 shares have been designated Series A Preferred Stock. There are
issued and outstanding 365,400 shares of the Company's Common Stock and
2,000,000 shares of Preferred Stock. All such issued and outstanding shares have
been duly authorized and validly issued, are fully paid and nonassessable, and
were issued in compliance with all applicable state and federal laws concerning
the issuance of securities. Except for (a) the conversion privileges of the
Preferred Stock, (b) options to purchase 1,538,000 shares of Common Stock and
(c) the right of first refusal granted to certain stockholders of the Company
pursuant to that certain Registration Rights Agreement between the Company and
those stockholders dated July 5, 1994, as amended by the Rights Amendment (such
Registration Rights Agreement as amended by the Rights Agreement is herein
referred to as the "Rights Agreement"), there are no outstanding rights
(including conversion or preemptive rights), options, warrants, conversion
rights or agreements for the purchase or acquisition from the Company of any
shares of its capital stock. The Company is not a party or subject to any
agreement or understanding between any persons or entities, which affects or
relates to the voting or giving of written consents with respect to any
securities or by any director of the Company.
3.5. Authorization.
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(a) Corporate Action. All corporate action on the part of the Company,
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directors and stockholders necessary for the execution and delivery of this and
the Rights Amendment, the sale and issuance of the Series A Shares, the of the
Common Stock issuable upon conversion of the Series A Preferred Stock
performance of
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the Company's obligations hereunder and under the Rights Agreement has been
taken or will be taken prior to the Closing. The Company has duly served an
aggregate of 6,000,000 shares of Common Stock for issuance upon conversion of
the Series A Preferred Stock.
(b) Valid Issuance. The Series A Shares when issued in compliance with the
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provisions of this Agreement, and the shares of Common Stock issued upon
conversion of the Series A Preferred Stock when issued in accordance with the
provisions of the Certificate of Incorporation, will be validly issued, fully
paid and nonassessable and will be free of any liens or encumbrances; provided,
however, that all such shares may be subject to restrictions on transfer under
state and/or federal securities laws as set forth herein, and as may be required
by future changes in such laws. The rights, preferences, privileges and
restrictions of the Series A Preferred Stock are as set forth in the Certificate
of Incorporation.
(c) No Preemptive Rights. Except as set forth in the Rights Agreement, no
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person has any right of first refusal or any preemptive rights in connection
with the issuance of the Series A Shares, the issuance of the Common Stock upon
conversion of the Series A Preferred Stock or any future issuances of securities
by the Company.
3.6. Patents, Trademarks, etc. The Company owns and possesses or is
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licensed under all patents, patent applications, licenses, trademarks, trade
names, brand names, trade secrets, inventions and copyrights employed in the
operation of its business as now conducted and as proposed to be conducted, with
no infringement of or conflict with the rights of others respecting any of the
same. The operation of the Company's business as now conducted or as proposed to
be conducted does not infringe any patent, copyright, trade secret or other
proprietary rights of any third parties. There are no outstanding options,
licenses, or agreements of any kind relating to the foregoing, nor is the
Company bound by or a party to any options, licenses or agreements of any kind
with respect to patents, patent applications, licenses, trademarks, trade names,
brand names, inventions, proprietary rights and copyrights of any other person
or entity. The Company is not obligated to make any payments by way of
royalties, fees or otherwise to any owner, licensor of, or other claimant to any
patent, trademark, trade name, copyright or other intangible asset, with respect
to the use thereof or in connection with the conduct of its business, or
otherwise. The Company has not received any communications alleging that it has
violated or, by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, trade names, copyrights or trade secrets or
other proprietary rights of any other person or entity, nor is the Company aware
of any basis for the foregoing. There are no agreements, understandings,
instruments, contracts, judgments, orders, writs of decrees to which the Company
is a party or by which it is bound which involve indemnification by the Company
with respect to infringements of proprietary rights.
3.7. Compliance with Other Instruments, None Burdensome, etc. The Company
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is not in violation of any term of its Certificate of Incorporation or Bylaws,
nor is the Company in violation of or in default in any material respect under
the terms of any mortgage, indenture, contract, agreement, instrument, judgment
or decree, the violation of which would have a material adverse effect on the
Company as a whole, and to the best knowledge of the Company, is not in
violation of any order, statute, rule or regulation applicable to the Company,
the violation of which would have a material adverse effect on the Company. The
execution, delivery and performance of and compliance with this Agreement and
the Rights Amendment
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and the issuance and sale of the Series A Shares will not (a) result in any such
violation, or (b) be in conflict with or constitute a default under any such
term, or (c) result in the creation of any mortgage, pledge, lien, encumbrance
or charge upon any of the properties or assets of the Company pursuant to any
such term. To the best knowledge of the Company, there is no such term or any
such order, statute, rule or regulation which adversely affects, or in the
future may materially adversely affect, the business, prospects, condition,
affairs or operations of the Company or any of its properties or assets.
3.8. Proprietary Agreements; Employees. Each employee and consultant of the
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Company has executed an agreement regarding confidentiality and proprietary
information, the form of which has been provided to special counsel to the
Purchaser. None of its employees or consultants is in violation thereof and the
Company will use best efforts to prevent such violations. The employees and
consultants of the Company are not obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency, that
would interfere with the use of his or her best efforts to promote the interests
of the Company or that would conflict with the Company's business as conducted
or as proposed to be conducted or that would prevent any such employee or
consultant from assigning inventions to the Company. Neither the execution nor
delivery of this Agreement or the Rights Amendment, nor the carrying on of the
Company's business as proposed, will conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees or consultants is now
obligated. The Company does not believe that it is or will be necessary for the
Company to utilize any inventions of any of its employees made prior to their
employment by the Company.
3.9. Litigation, etc. There is no action, proceeding or investigation
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pending against the Company or its officers, directors or stockholders, or to
the best of the Company's knowledge, against employees or consultants of the
Company (or, to the best of the Company's knowledge, any basis therefor or
threat thereof): (1) which might result, either individually or in the
aggregate, in (a) any material adverse change in the business, prospects,
conditions, affairs or operations of the Company or in any of its properties or
assets, or (b) any material impairment of the right or ability of the Company to
carry on its business as now conducted or as proposed to be conducted, or (c)
any material liability on the part of the Company; or (2) which questions the
validity of this Agreement, the Rights Amendment or the Rights Agreement or any
action taken or to be taken in connection herewith, including in each case,
without limitation, actions pending or threatened involving the prior employment
of any of the Company's employees or consultants, the use in connection with the
Company's business of any information or techniques allegedly proprietary to any
of the former employers of such employees or consultants or their obligations
under any agreements with prior employers. The Company is not a party to or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company currently pending or which the
Company currently intends to initiate.
3.10. Governmental Consent, etc. No consent, approval or authorization of
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or designation, declaration or filing with any governmental authority on the
part of the Company is required in connection with: (a) the valid execution and
delivery of this Agreement or the Rights Amendment; or (b) the offer, sale or
issuance of the Series A Shares, or the issuance of the
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shares of Common Stock issuable upon conversion of the Series A Preferred Stock
or (c) the obtaining of the consents, permits and waivers specified in
subsection 5.1(b) hereof.
3.11. Offering. In reliance on the representations and warranties of the
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Purchaser in Section 4 hereof, the offer, sale and issuance of the Series A
Shares in conformity with the terms of this Agreement will not result in a
violation of the requirements of Section 5 of the Securities Act of 1933, as
amended (the "Securities Act") or the qualification or registration requirements
of applicable blue sky laws.
3.12. Taxes. The Company has filed all tax returns that are required to
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have been filed with appropriate federal, state, county and local governmental
agencies or instrumentalities, except where the failure to do so would not have
a material adverse effect upon the Company, taken as a whole. The Company has
not elected pursuant to the Internal Revenue Code of 1986, as amended ("Code"),
to be treated as a Subchapter S corporation or a collapsible corporation
pursuant to Section 341(f) or Section 1362(a) of the Code, nor has it made any
other elections pursuant to the Code (other than elections which relate solely
to methods of accounting, depreciation or amortization) which would have a
material effect on the Company, its financial condition, its business as
presently conducted or proposed to be conducted or any of its properties or
material assets. The Company has paid or established reserves for all income,
franchise and other taxes, assessments, governmental charges, penalties,
interest and fines due and payable by them on or before the Closing.
3.13. Title. The Company owns its property and assets free and clear of all
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liens, mortgages, loans or encumbrances except liens for current taxes, and such
encumbrances and liens which arise in the ordinary course of business and do not
materially impair the Company's ownership or use of such property or assets.
With respect to the property and assets leased by the Company, the Company is in
compliance with such leases and, to the best of the Company's knowledge, holds
valid leasehold interests free and clear of any liens, claims or encumbrances.
3.14. Material Contracts and Commitments. All of the contracts, mortgages,
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indentures, agreements, instruments and transactions to which the Company is a
party or by which it is bound (including purchase orders to the Company or
placed by the Company) which involve obligations of, or payments to, the Company
in excess of Ten Thousand Dollars ($10,000) and all agreements between the
Company and its officers, directors, consultants and employees are either (i)
attached as exhibits to this Agreement, or (ii) set forth on Exhibit B (the
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"Contracts"), copies of which have been delivered to special counsel to the
Purchaser. All of the Contracts are valid, binding and in full force and effect
in all material respects and enforceable by the Company in accordance with their
respective terms in all material respects, subject to the effect of applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights and rules
or laws concerning equitable remedies. The Company is not in material default
under any of such Contracts.
3.15. Financial Statements. The Company maintains and will continue to
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maintain a standard system of accounting established and administered in
accordance with generally accepted accounting principles. The Company has
delivered to Purchaser its unaudited balance sheet as of March 31, 1996 and its
statement of operations and statement of cash flows for the year ended March 31,
1996 and its unaudited balance sheet as of January 31, 1997 and its
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statement of operations and statement of cash flows for the ten month period
ended January 31, 1997 (the above financial statements are hereinafter
collectively referred to as the "Financial Statements"). The Financial
Statements fairly set out and describe the financial condition and operating
results of the Company as of the dates, and during the periods, indicated
therein. Except as disclosed in the Financial Statements, the Company has no
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business, and (ii) obligations under contracts and
commitments incurred in the ordinary course of business, which, in both cases,
individually or in the aggregate, are not material to the financial condition or
operating results of the Company.
3.16. Absence of Changes. Since January 31, 1997 (a) the Company has not
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entered into any transaction which was not in the ordinary course of business,
(b) there has been no material adverse change in the condition (financial or
otherwise) of the business, property, assets or liabilities of the Company other
than changes in the ordinary course of its business, none of which, individually
or in the aggregate, has been materially adverse, (c) there has been no damage
to, destruction of or loss of physical property (whether or not covered by
insurance) materially adversely affecting the assets, prospects, financial
condition, operating results, business or operations of the Company, (d) the
Company has not declared or paid any dividend or made any distribution on its
stock, or redeemed, purchased or otherwise acquired any of its stock, (e) the
Company has not materially changed any compensation arrangement or agreement
with any of its key employees or executive officers, or materially changed the
rate of pay of its employees as a group, (f) the Company has not changed or
amended any material contract by which the Company or any of its assets are
bound or subject, except as contemplated by this Agreement, (g) there has been
no resignation or termination of employment of any key officer or employee of
the Company and the Company does not know of any impending resignation or
termination of employment of any such officer or employee that if consummated
would have a material adverse effect on the business of the Company, (h) there
has been no change, except in the ordinary course of business, in the material
contingent obligations of the Company (nor in any contingent obligation of the
Company regarding any director, stockholder or key employee or officer of the
Company) by way of guaranty, endorsement, indemnity, warranty or otherwise, (i)
there have been no loans made by the Company to any of its employees, officers
or directors other than travel advances and other advances made in the ordinary
course of business, (j) there has been no waiver by the Company of a valuable
right or of a material debt owing to it, and (k) there has not been any
satisfaction or discharge of any lien, claims or encumbrance or any payment of
any obligation by the Company, except in the ordinary course of business and
which is not material to the assets, properties, financial condition, operating
results or business of the Company.
3.17. Outstanding Indebtedness. The Company has no indebtedness for
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borrowed money which it has directly or indirectly created, incurred, assumed or
guaranteed, or with respect to which it has otherwise become liable, directly or
indirectly, except as reflected on the Financial Statements.
3.18. Registration Rights. Other than as granted pursuant to the Rights
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Agreement, the Company has not granted or agreed to grant any rights to register
(as that term is defined in the Rights Agreement), including piggyback
registration rights, to any person or entity.
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3.19. Certain Transactions. The Company is not indebted, directly or
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indirectly, to any of its employees, officers, directors or stockholders or to
their spouses or children, in any amount whatsoever; and none of said employees,
officers, directors or, to the best of the Company's knowledge, stockholders, or
any member of their immediate families, are indebted to the Company or have any
direct or indirect ownership interest in any firm or corporation with which the
Company is affiliated or with which the Company has a business relationship. To
the best of the Company's knowledge, no such employee, officer, director or
stockholder, or any member of their immediate families, is, directly or
indirectly, interested in any material contract with the Company. The Company is
not guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
3.20. Corporate Documents; Minute Books. Except for amendments necessary to
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satisfy representations and warranties or conditions contained herein (the form
of which amendments has been approved by the Purchaser), the Certificate of
Incorporation and Bylaws of the Company are in the form previously provided to
special counsel to the Purchaser. The minute books of the Company previously
provided to special counsel to the Purchaser contain a complete summary of all
meetings of directors and stockholders since the time of incorporation of the
Company.
3.21. Employee Benefit Plans. The Company does not have any "employee
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benefit plan" as defined in the Employee Retirement Income Security Act of 1974,
as amended.
3.22. Environmental and Safety Laws. To the best of its knowledge, the
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Company is not in violation of any applicable statute, law, or regulation
relating to the environment or occupational health and safety, and to the best
of its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law, or regulation.
3.23. Insurance. The Company has in full force and effect fire and casualty
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insurance policies, with extended coverage, and insurance against other hazards,
risks and liabilities to persons and property to the extent and in the manner
customary for companies in similar businesses similarly situated.
3.24. Labor Agreements and Actions. The Company is not aware that any
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officer or key employee or consultant intends to terminate his or her employment
with the Company, nor does the Company have a present intention to terminate the
employment of any of the foregoing. Subject to general principles related to
wrongful termination of employees, the employment of each officer and employee
of the Company is terminable at the will of the Company.
3.25. Section 83(b) Elections. To the best of the Company's knowledge, all
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elections and notices required by Section 83(b) of the Internal Revenue Code and
any analogous provisions of applicable state tax laws have been timely filed by
all individuals who have purchased shares of the Company's Common Stock.
3.26. Disclosure. No representation or warranty by the Company in this
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Agreement, or in any document or certificate furnished or to be furnished to the
Purchaser pursuant hereto or in connection with the transactions contemplated
hereby, when taken together, contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact
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necessary to make the statements made herein and therein, in the light of the
circumstances under which they were made, not misleading. The Company has fully
provided the Purchaser with all the information which such Purchaser has
requested for deciding whether to purchase the Series A Preferred Stock.
4. Representations and Warranties of Purchasers and Restrictions on Transfer
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Imposed by the Securities Act.
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4.1. Representations and Warranties by the Purchasers. Each Purchaser
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represents and warrants to the Company as follows:
(a) Investment Intent. This Agreement is made with the Purchaser in
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reliance upon such Purchaser's representation to the Company, evidenced by
Purchaser's execution of this Agreement, that Purchaser is acquiring the Series
A Shares and the Common Stock issuable upon conversion of Series A Preferred
Stock (collectively the "Securities") for investment for such Purchaser's own
account, for investment and not with a view to, or for resale in connection
with, any distribution or public offering thereof within the meaning of the
Securities Act. Purchaser has the full right, power and authority to enter into
and perform this Agreement and the Rights Amendment, and this Agreement, the
Rights Amendment and the Rights Agreement constitute valid and binding
obligations upon it.
(b) Series A Shares Not Registered. Purchaser understands and
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acknowledges that the offering of the Series A Shares pursuant to this Agreement
will not be registered under the Securities Act or qualified under applicable
blue sky laws on the grounds that the offering and sale of securities
contemplated by this Agreement are exempt from registration under the Securities
Act and exempt from qualifications available under applicable blue sky laws, and
that the Company's reliance upon such exemptions is predicated upon such
Purchaser's representations set forth in this Agreement. The Purchaser
acknowledges and understands that the Securities must be held indefinitely
unless the Securities are subsequently registered under the Securities Act and
qualified under applicable blue sky laws or an exemption from such registration
and such qualification is available.
(c) No Transfer. Purchaser covenants that in no event will such
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Purchaser dispose of any of the Securities (other than in conjunction with an
effective registration statement for the Securities under the Securities Act or
in compliance with Rule 144 promulgated under the Securities Act) unless and
until (i) such Purchaser shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement of the
circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, such Purchaser shall have furnished the Company with
an opinion of counsel to the effect that (x) such disposition will not require
registration under the Securities Act and (y) appropriate action necessary for
compliance with the Securities Act and other applicable state, local or foreign
law has been taken. It is agreed that the Company will not require opinions of
counsel for transactions made pursuant to Rule 144.
(d) Permitted Transfers. Notwithstanding the provisions of subsection
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(c) above, no registration statement or opinion of counsel shall be necessary
for a transfer by a Purchaser which is a partnership to a partner of such
partnership or a former partner of such
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partnership who leaves such partnership after the date hereof, or to the estate
of any such partner or former partner or the transfer by gift, will or intestate
succession of any partner to his spouse or lineal descendants or ancestors, if
the transferee agrees in writing to be bound by the terms of this Agreement to
the same extent as if he were an original Purchaser hereunder.
(e) Knowledge and Experience. Purchaser (i) has such knowledge and
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experience in financial and business matters as to be capable of evaluating the
merits and risks of such Purchaser's prospective investment in the Securities;
(ii) has the ability to bear the economic risks of such Purchaser's prospective
investment; (iii) has been furnished with and has had access to such information
as such Purchaser has considered necessary to make a determination as to the
purchase of the Securities together with such additional information as is
necessary to verify the accuracy of the information supplied; (iv) has had all
questions which have been asked by such Purchaser satisfactorily answered by the
Company; and (v) has not been offered the Securities by any form of
advertisement, article, notice or other communication published in any
newspaper, magazine, or similar media or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by any such media.
(f) Not Organized to Purchase. Purchaser has not been organized for
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the purpose of purchasing the Securities.
4.2. Legends. Each certificate representing the Securities may be endorsed
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with the following legends:
(a) Federal Legend. THE SECURITIES REPRESENTED BY THIS CERTIFICATE
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HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT") AND ARE "RESTRICTED SECURITIES" AS DEFINED IN RULE 144 PROMULGATED UNDER
THE ACT. THE SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE
DISTRIBUTED EXCEPT (i) IN CONJUNCTION WITH AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SHARES UNDER THE ACT OR (ii) IN COMPLIANCE WITH RULE 144, OR (iii)
PURSUANT TO AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION OR COMPLIANCE IS NOT REQUIRED AS TO SAID SALE, OFFER OR
DISTRIBUTION.
(b) Other Legends. Any other legends required by applicable state blue
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sky laws.
The Company need not register a transfer of legended Securities, and may also
instruct its transfer agent not to register the transfer of the Securities,
unless the conditions specified in each of the foregoing legends are satisfied.
4.3. Removal of Legend and Transfer Restrictions. Any legend endorsed on a
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certificate pursuant to subsection 4.2(a) and the stop transfer instructions
with respect to such legended Securities shall be removed, and the Company shall
issue a certificate without such legend to the holder of such Securities if such
Securities are registered under the Securities Act and a prospectus meeting the
requirements of Section 10 of the Securities Act is available or if such holder
satisfies the requirements of Rule 144(k) and, where reasonably deemed necessary
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by the Company, provides the Company with an opinion of counsel for such holder
of the Securities to the effect that (i) such holder, meets the requirements of
Rule 144(k) or (ii) a public sale, transfer or assignment of such Securities may
be made without registration.
5. Conditions to Closing.
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5.1. Conditions to Purchasers' Obligations. The obligation of the Purchaser
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to purchase the Series A Shares at the Closing is subject to the fulfillment to
its satisfaction, on or prior to the Closing Date, of the following conditions,
any of which may be waived by Purchaser:
(a) Representations and Warranties Correct; Performance of
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Obligations. The representations and warranties made by the Company in Section 3
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hereof shall be true and correct when made, and shall be true and correct in all
material respects on the Closing Date with the same force and effect as if they
had been made on and as of said date. The Company's business and assets shall
not have been adversely affected in any material way prior to the Closing Date.
The Company shall have performed in all material respects all obligations and
conditions herein required to be performed or observed by it on or prior to the
Closing Date.
(b) Consents and Waivers. The Company shall have obtained in a timely
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fashion any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by this Agreement and the Rights
Agreement, as amended by the Rights Amendment.
(c) Filing of the Certificate of Amendment of the Certificate of
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Incorporation. The Certificate of Amendment shall have been filed with the
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Division of Corporations for the State of Delaware.
(d) Compliance Certificate. The Company shall have delivered a
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Certificate, executed by the President of the Company, dated the Closing Date,
certifying to the fulfillment of the conditions specified in subsections (a),
(b) and (c) of this section 5.1.
(e) Secretary Certificate. The Company shall have delivered a
---------------------
Certificate, executed by the Secretary of the Company, dated the Closing Date,
certifying the Board of Directors and stockholders resolutions approving this
Agreement and the issuance of the Series A Shares and certifying the current
versions of the Certificate of Incorporation and Bylaws of the Company.
(f) Opinion of Counsel. The Purchaser shall have received an opinion
------------------
from Fox, Rothschild, O'Brien & ▇▇▇▇▇▇▇, the Company's counsel, satisfactory in
form to special counsel for the Purchaser.
5.2. Conditions to Obligations of the Company. The Company's obligation to
----------------------------------------
sell and issue the Series A Shares at the Closing is subject to the fulfillment
to the satisfaction of the Company on or prior to the respective Closing Date of
the following conditions, any of which may be waived by the Company:
10
(a) Representations and Warranties Correct. The representations and
--------------------------------------
warranties made by the Purchaser in Section 4 hereof shall be true and correct
when made, and shall be true and correct on the Closing Date with the same force
and effect as if they had been made on and as of said date.
(b) Conditions Fulfilled. The conditions set forth in subsections (b)
--------------------
and (c) of Section 5.1 shall have been fulfilled.
6. Affirmative Covenants of the Company. The Company hereby covenants and
------------------------------------
agrees as follows:
6.1. Financial Information. Until the first to occur of (i) the date on
---------------------
which the Company is required to file a report pursuant to Section 13(a) of the
Securities Exchange Act of 1934 (the "Exchange Act"), by reason of the Company
having registered any of its securities pursuant to Section 12(g) of the
Exchange Act or (ii) quotations for the Common Stock of the Company are reported
by the automated quotations system operated by the National Association of
Securities Dealers, Inc. or by an equivalent quotations system or (iii) shares
of the Common Stock of the Company are listed on a national securities exchange
registered under Section 6 of the Exchange Act, the Company will furnish to the
Purchaser:
(a) so long as such Purchaser or its affiliates own any of the Series
A Shares or Common Stock issued upon conversion of the Series A Shares, as soon
as practicable after the end of each fiscal year, and in any event within 90
days thereafter, consolidated balance sheets of the Company and its
subsidiaries, if any, as at the end of such fiscal year, and consolidated
statements of operations and consolidated statements of cash flow of the Company
and its subsidiaries, if any, for such year, prepared in accordance with
generally accepted accounting principles, all in reasonable detail and certified
by independent public accountants of recognized national standing selected by
the Company; and
(b) so long as the Purchaser continues to hold at least 100,000 shares
of the Company's Series A Preferred Stock (as adjusted for stock splits,
combinations, dividends, distributions or recapitalizations), as soon as
practicable after the end of each month and in any event within 15 days
thereafter, consolidated balance sheets of the Company and its subsidiaries, if
any, as of the end of such month and consolidated statements of income and cash
flow statements, for such month and for the current fiscal year to date,
prepared in accordance with generally accepted accounting principles (except for
required footnotes), all in reasonable detail and signed, subject to changes
resulting from year-end audit adjustments, by the principal financial officer or
chief executive officer of the Company; and
(c) at such time as the Purchaser or its affiliates are no longer
entitled to receive information under Section 6.1(b) above and so long as such
Purchaser or its affiliates own any of the Series A Shares or Common Stock
issued upon conversion of the Series A Shares, as soon as practicable after the
end of each fiscal quarter, and in any event within 45 days thereafter,
consolidated balance sheets of the Company and its subsidiaries, if any, as at
the end of such fiscal quarter, and consolidated statements of operations and
consolidated statements of cash flow of the Company and its subsidiaries, if
any, for such quarter, prepared in accordance with generally accepted accounting
principles (except for required footnotes), all in reasonable
11
detail and signed, subject to changes resulting from year-end audit adjustments,
by the principal financial officer or chief executive officer of the Company;
and
(d) so long as the Purchaser continues to hold at least 100,000 shares
of the Company's Series A Preferred Stock (as adjusted for stock splits,
combinations, dividends, distributions or recapitalizations), as soon as
practicable and in any event no later than sixty (60) days before the end of the
fiscal year, an annual budget (consisting of projected income statements and
projected cash flow statements reported on a monthly basis) for the subsequent
fiscal year.
6.2. Conflicts of Interests. The Company shall use its best efforts to
----------------------
ensure that the Company's employees and consultants, during the term of their
employment with the Company, do not engage in activities which would result in a
conflict of interest with the Company. The Company's obligations hereunder
include, but are not limited to, requiring that the Company's employees devote
their primary productive time, ability and attention to the business of the
Company (provided, however, the Company's employees may engage in other
professional activity if such activity does not materially interfere with their
obligations to the Company), requiring that the Company's employees and
consultants enter into agreements regarding proprietary information and
confidentiality.
6.3. Proprietary Agreements. The Company will use its best efforts to
----------------------
prevent any employee or consultant from violating the confidentiality and
proprietary information agreement entered into between the Company and each of
its employees.
6.4. Future Stock Issuances. After July 5, 1994, the Company has not and in
----------------------
the future will not issue more than 3,634,600 shares of Common Stock (or grant
any options, warrants or other rights to purchase the same) to employees,
officers, directors and consultants without unanimous vote of the Company's
Board of Directors. The Company will not issue any shares of Common Stock (or
grant any options, warrants or other rights to purchase the same) to any
employee, officer, director or consultant except pursuant to agreements which
provide for vesting over a period of at least forty-eighty (48) months (with the
initial vesting date to occur after twelve (12) months) and a right of first
refusal in favor of the Company in the event of any proposed transfer unless
such issuance or grant is approved by unanimous vote of the Company's Board of
Directors. The Company, Adobe Ventures L.P. and H&Q ESPS Investors L.P. agree to
terminate Section 6.4 of that certain Series A Preferred Stock Purchase
Agreement dated July 5, 1994.
6.5. Inspection. The Company shall permit the Purchaser, at the Purchaser's
----------
expense, to visit and inspect the Company's properties, to examine its books of
account and records and to discuss the Company's affairs, finances and accounts
with its officers, all at such reasonable times as may be requested by the
Purchaser; provided, however, that the Company shall not be obligated pursuant
to this Section 6.5 to provide access to any information which it reasonably
considers to be a trade secret or similar confidential information.
12
7. Miscellaneous.
-------------
7.1. Governing Law. This Agreement shall be governed in all respects by the
-------------
laws of the State of Delaware as such laws are applied to agreements between
Delaware residents entered into and to be performed entirely within Delaware.
7.2. Survival. The representations, warranties, covenants and agreements
--------
made herein shall survive the Closing of the transactions contemplated hereby,
notwithstanding any investigation made by the Purchaser. All statements as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of the Company pursuant hereto or in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder as of the date of such certificate or instrument.
7.3. Successors and Assigns. Except as otherwise expressly provided herein,
----------------------
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
7.4. Entire Agreement. This Agreement and the other documents delivered
----------------
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof and they
supersede, merge and render void every other prior written and/or oral
understanding or agreement among or between the parties hereto.
7.5. Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be delivered personally,
mailed by first class mail, postage prepaid, or delivered by courier or
overnight delivery, addressed (a) if to a Purchaser, at such Purchaser's address
set forth in the Schedule of Purchasers, or at such other address as such
Purchaser shall have furnished to the Company in writing or (b) if to the
Company, at ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, or at
such other address as the Company shall have furnished to the Purchaser in
writing. Notices that are mailed shall be deemed received five (5) days after
deposit in the United States mail.
7.6. Severability. In case any provision of this Agreement shall be found
------------
by a court of law to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions of this Agreement shall
not in any way be affected or impaired thereby.
7.7. Finder's Fees and Other Fees.
----------------------------
(a) The Company (i) represents and warrants that it has retained no
finder or broker in connection with the transactions contemplated by this
Agreement and, (ii) hereby agrees to indemnify and to hold Purchasers harmless
from and against any liability for commission or compensation in the nature of a
finder's fee to any broker or other person or firm (and the costs and expenses
of defending against such liability or asserted liability) for which the
Company, or any of its employees or representatives, is responsible.
(b) Each Purchaser (i) represents and warrants that it has retained no
finder or broker in connection with the transactions contemplated by this
Agreement and (ii) hereby agrees to indemnify and to hold the Company harmless
from and against any liability for any
13
commission or compensation in the nature of a finder's fee to any broker or
other person or firm (and the costs and expenses of defending against such
liability or asserted liability) for which Purchaser, or any of its employees or
representatives, are responsible.
7.8. Expenses. The Company and the Purchasers shall each bear their own
--------
expenses and legal fees in connection with the consummation of this transaction;
provided, however, that the Company will pay the reasonable fees, up to $10,000,
of special counsel for the Purchasers, together with disbursements and expenses
incurred by special counsel.
7.9. Titles and Subtitles. The titles of the sections and subsections of
--------------------
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
7.10. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
7.11. Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to the Company or to any holder of any securities
issued or to be issued hereunder shall impair any such right, power or remedy of
the Company or such holder, nor shall it be construed to be a waiver of any
breach or default under this Agreement, or an acquiescence therein, or of or in
any similar breach or default thereafter occurring; nor shall any delay or
omission to exercise any right, power or remedy or any waiver of any single
breach or default be deemed a waiver of any other right, power or remedy or
breach or default theretofore or thereafter occurring. All remedies, either
under this Agreement, or by law otherwise afforded to the Company or any holder,
shall be cumulative and not alternative.
14
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
ELECTRONIC SUBMISSION
PUBLISHING SYSTEMS, INC.
By: /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇,
President
PURCHASERS:
ADOBE VENTURES L.P.
By: it general partner,
H&Q Adobe Ventures Management L.P.,
By: its general partner,
H&Q Adobe Ventures Management Corp.,
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇
---------------------------------
Title: Attorney-in-Fact
------------------------------
H&Q ESPS INVESTORS L.P.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇
---------------------------------
Title: Attorney-in-Fact
------------------------------
15
LIST OF SCHEDULES
Schedule A - Schedule of Purchasers
LIST OF EXHIBITS
Exhibit A - Certificate of Amendment
Exhibit B - Schedule of Exceptions
Exhibit C - Rights Amendment
SCHEDULE A
----------
Schedule of Purchasers
Purchaser Number of Series A Shares
--------- -------------------------
Adobe Ventures L.P. 2,500,000*
H&Q ESPS Investors L.P. 1,500,000
---------
TOTAL 4,000,000
Note: All correspondence with and notices to the above Purchasers should be
addressed to: H&Q Ventures, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ Attn:
▇▇▇▇▇▇▇▇ ▇'▇▇▇▇▇
* Partial payment for these shares to be in the form of cancellation of
indebtedness in the amount of $1,541,936.72, representing $1,500,000 in
principal repayment and $41,936.72 in interest payments.
EXHIBIT A
---------
CERTIFICATE OF AMENDMENT
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ELECTRONIC SUBMISSION PUBLISHING SYSTEM, INC.
Pursuant to Section 242 of the General Corporation Law
of the State of Delaware
The undersigned, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, President of Electronic Submission
Publishing System, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), in accordance with
the provisions of Section 242 thereof, certifies as follows:
1. That the amendment to the Corporation's Amended and Restated
Certificate of Incorporation set forth below has been approved by the
Corporation's Board of Directors and stockholders and was duly adopted in
accordance with the provisions of Section 242 of the General Corporation Law of
the State of Delaware.
2. That the first full paragraph of Article IV of the Corporation's
Certificate of Incorporation which reads as follows:
"The Corporation is authorized to issue two classes of shares to be
designated respectively "Series A Preferred Stock" and "Common Stock."
The total number of shares of Series A Preferred Stock authorized is
2,000,000, having a par value of $0.001 per share. The total number
of shares of Common Stock authorized is 4,000,000, having a par value
of $0.001 per share."
is hereby amended to read in full as follows:
"The Corporation is authorized to issue two classes of shares to be
designated respectively "Series A Preferred Stock" and "Common Stock."
The total number of shares of Series A Preferred Stock authorized is
6,000,000, having a par value of $0.001 per share. The total number
of shares of Common Stock authorized is 10,000,000, having a par value
of $0.001 per share."
IN WITNESS WHEREOF, this Certificate of Amendment has been executed on
behalf of the Corporation by its President on this ____________ day of February
1997.
ELECTRONIC SUBMISSION PUBLISHING
SYSTEM, INC.
By:
---------------------------------
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇,
President
EXHIBIT B
---------
SCHEDULE OF EXCEPTIONS
----------------------
Pursuant to Section 3 of the Agreement concerning purchase of Series A Preferred
Stock dated February, 26, 1997 (the "Agreement") between Electronic submission
Publishing Systems, Inc. (the "Company"), Adobe Ventures L.P. and H&Q ESPS
Investors L.P., the Company hereby delivers this Schedule of Exceptions (the
"Schedule"). The section numbers in the Schedule correspond to the section
numbers in the Agreement. Any information disclosed under any section in the
Schedule is deemed to be disclosed and incorporated in any other section of the
Schedule where such disclosure would be appropriate. Capitalized terms used in
the Schedule, unless otherwise specified, have the same meanings given them in
the Agreement.
Section 3.1 Organization in Good Standing See exhibit I
3.2 Corporate Power No exceptions
3.3 Subsidiaries No exceptions
3.4 Capitalization See exhibit II
3.5 (a) Authorization No exceptions
3.5 (b) Valid Issuance No exceptions
3.5 (c) No Preemptive Right No exceptions
3.6 Patents, Trademarks See exhibit III; VAR
agreements for exceptions, no
other exceptions
3.7 Compliance with Other Instruments, None
Burdensome, etc. No exceptions
3.8 Proprietary Agreements Employees See exhibit IV for exceptions
3.9 Litigation, etc. See exhibit V
3.10 Governmental Consent, etc. No exceptions
3.11 Offering No exceptions
3.12 Taxes No exceptions
3.13 Title All ESPS assets have been
pledged as security for bridge
loans from Adobe Ventures L.P.
Also, all equipment under
capital leases ($8,171, at
1/31/97, see exhibit VI) are
pledged as security. (No
other exceptions)
3.14 Material Contracts & Commitments See Exhibit VI
3.15 Financial Statements See Exhibits VII and VIII
3.16 Absence of Changes No exceptions
3.17 Outstanding Indebtness No exceptions
3.18 Registration Rights No exceptions
3.19 Certain Transactions ESPS is indebted to the
stockholder, Adobe Ventures,
L.P. for bridge loans
amounting to $1.5 million -
see exhibit A (No other
exceptions)
3.20 Corporate Documents:
Minute books No exceptions
3.21 Employee Benefit Plan ESPS 401(k) profit sharing
plan employer's tax I.D.
▇▇-▇▇▇▇▇▇▇
3.22 Environmental & Safety Laws No exceptions
3.23 Insurance No exceptions
3.24 Labor Agreements & Actions No exceptions
3.25 Section 83(b) elections No exceptions
3.26 Disclosure No exceptions
Exhibit I
Exception to Section 3.1
Organization in Good Standing
ESPS has a small office (2 employees) in Crawley, U.K. We are doing business as
a non-resident company through a branch of ESPS which does not require
registration and is not subject to taxation.
Exhibit II
Exception to Section 3.4 Capitalization
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, as a part of the ESPS/▇▇▇▇▇▇ settlement, has granted to the
CEO of ESPS his proxy to vote his common stock in matters solely related to the
election of directors.
The proxy will terminate upon the earliest to occur of (i) the closing of ESPS's
first public offering registered under the Securities Act of 1933, as amended,
or (ii) upon stockholder approval of any merger or consolidation of ESPS any
other corporation in which more than 50% of the voting control of ESPS is
transferred to a party or parties not affiliated with ESPS or any stockholder of
ESPS, provided that, if such merger or consolidation is not consummated, the
proxy shall be deemed restored and reinstated to full force and effect.
Exhibit III
Exceptions to Section 3.6 Patents and Trademarks
ESPS has entered into the following Value Added Reseller License Agreements
and/or Distributor Agreements (VAR's) for embedded technology within CoreDossier
in the normal course of business:
Date of
Company Agreement Term Financial Obligation
------- --------- ---- --------------------
Versant 12/31/96 3 years 2.5% on future sales which
includes Versant Technology
and $41,900.00 royalty
payment on past sales plus
$39,500.00 for inventory of
licenses.
Ambia Corporation 1/20/97 1 year $20.00 per seat which uses
Ambia Technology
Nobelnet, Inc. 12/20/96 unlimited $10,000.00 RPC NT
Distribution License
$10,000.00 RPC Windows
Distribution License
Tools & Techniques, Inc. In Process 1 year $8,750.00 per license for
every D2 sale
Exhibit IV
Exceptions to Section 3.8 Proprietary Agreement Employees
INVENTIONS
----------
NAME NON COMPETE PROPRIETARY
---- ----------- -----------
RIGHTS AGMT.
-----------
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▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
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Moon Chung X X
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▇▇▇▇▇ ▇▇▇▇▇ X
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▇▇▇▇▇▇ ▇▇▇▇▇▇ (▇▇▇)
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▇▇▇ ▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇▇▇▇ X
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Notes
-----
X, indicates the absence of this document
Blank, indicates that the document has been executed
Exhibit V
Exception to Section 3.9 Litigation, Etc.
ESPS and two employees, ▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, were approached by
Dolphin Inc. in June, 1996 for a possible breach of non-competition agreements
executed by Dolphin and the two ESPS employees. This disagreement was quickly
settled out of court.
Exhibit VI
Material Contracts & Commitments
ELECTRONIC SUBMISSION PUBLISHING SYSTEMS, INC.
Unpaid Bills by Vendor
As of February 11, 1997
Type Date Num Due Date Aging Open Balance
---------------------------- ----------- --------- ------------- ---------- ----------------------
AIRBORNE
▇▇▇▇ 01/22/97 02/21/97 123.25
Total AIRBORNE ------
123.25
▇▇▇▇ ATLANTIC
▇▇▇▇ 01/21/97 02/20/97 199.45
▇▇▇▇ 01/21/97 02/20/97 401.14
Total ▇▇▇▇ ATLANTIC ------
600.59
DaVinci Graphics
▇▇▇▇ 02/06/97 03/08/97 253.34
▇▇▇▇ 02/07/97 03/09/97 567.10
Total DaVinci Graphics ------
820.44
DELL COMPUTERS
▇▇▇▇ 01/29/97 02/28/97 4,545.60
Total DELL COMPUTERS --------
4,545.60
DIGITAL EXPRESSWAY
▇▇▇▇ 01/29/97 02/28/97 1,553.96
Total DIGITAL EXPRESSWAY --------
1,553.96
EASTERN TELEPHONE
▇▇▇▇ 01/30/97 03/01/97 809.14
Total EASTERN TELEPHONE ------
809.14
Federal Express
▇▇▇▇ 01/29/97 02/28/97 99.05
▇▇▇▇ 01/29/97 02/28/97 58.00
Total Federal Express ------
157.05
FOX, ROTHSCHILD, O'BRIEN
& ▇▇▇▇▇▇▇
▇▇▇▇ 10/31/96 11/10/96 93 38,726.99
▇▇▇▇ 11/30/96 12/30/96 43 5,713.62
▇▇▇▇ 12/31/96 01/30/97 12 1,483.15
---------
Type Date Num Due Date Aging Open Balance
---------------------------- ----------- --------- ------------- ---------- ----------------------
Total FOX, ROTHSCHILD, 45,923.76
O'BRIEN & ▇▇▇▇▇▇▇
▇▇ CAPITAL
▇▇▇▇ 01/20/97 02/19/97 1,674.80
▇▇▇▇ 01/20/97 02/19/97 1,081.20
Total GE CAPITAL --------
2,756.00
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇ 01/21/97 02/20/97 156.40
Total ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ & ------
FRIEDENRICH 156.40
HEWLETT-▇▇▇▇▇▇▇
▇▇▇▇ 01/22/97 02/21/97 615.96
Total HEWLETT-PACKARD ------
615.96
IMPERIAL PREMIUM FINANCE, INC.
▇▇▇▇ 02/01/97 02/26/97 871.92
Total IMPERIAL PREMIUM ------
FINANCE, INC. 871.92
JUDGE COURIERS
▇▇▇▇ 01/25/97 02/24/97 64.50
Total JUDGE COURIERS -----
64.50
McFRANK AND ▇▇▇▇▇▇▇▇
ADVERTISING AGENCY
▇▇▇▇ 01/29/97 02/28/97 480.00
Total McFRANK AND ▇▇▇▇▇▇▇▇ ------
480.00
ADVERTISING AGENCY
MICRO WAREHOUSE
▇▇▇▇ 01/22/97 02/21/97 96.95
▇▇▇▇ 01/23/97 02/22/97 268.85
▇▇▇▇ 01/30/97 03/01/97 2,643.71
Total MICRO WAREHOUSE --------
3,009.51
OLSTEN STAFFING SERVICES
▇▇▇▇ 04/26/96 06/25/96 231 420.37
▇▇▇▇ 04/26/96 06/25/96 231 90.95
Total OLSTEN STAFFING SERVICES ------
511.32
Type Date Num Due Date Aging Open Balance
---------------------------- ----------- --------- ------------- ---------- ----------------------
PAYCHEX, INC.
▇▇▇▇ 01/22/97 02/21/97 836.80
Total PAYCHEX, INC. ------
836.80
PHILADELPHIA NEWSPAPERS,
INC.
▇▇▇▇ 01/29/97 02/28/97 1,590.42
Total PHILADELPHIA --------
1,590.42
NEWSPAPERS, INC.
▇▇▇▇▇▇▇
▇▇▇▇ 01/29/97 02/28/97 857.18
Total STAPLES ------
857.18
WOLF BLOCK, ▇▇▇▇▇▇ &
▇▇▇▇▇-▇▇▇▇▇
General Journal
▇▇▇▇ 10/31/96 AJE-4 (5,337.75)
▇▇▇▇ 07/30/96 08/14/96 181 884.88
Total WOLF BLOCK, ▇▇▇▇▇▇ & 09/19/96 10/19/96 115 383.05
---------
▇▇▇▇▇-▇▇▇▇▇ (4,069.82)
---------
TOTAL
62,213.98
=========
ESPS
Exhibit VI (Continued)
Material Contracts and Commitments
Lease Commitments
-----------------
Capital Lease Obligations at 1/31/97:
------------------------------------
. Hewlett Packard $6,454
. Computer Lease 627
. Telephone Lease 1,090
------
Total $8,171
======
Operating Lease Obligation at 1/31/97:
-------------------------------------
ESPS leases its office space under an operating lease. Future minimum lease
payments as of January 31, 1997 for Fiscal Year Ending 3/31 are:
. 1997 $ 11,980
. 1998 79,800
. 1999 82,300
. 2000 24,300
--------
Total $198,380
========
Customer Contracts (Future ESPS Revenue)
----------------------------------------
. Maintenance (as of 1/31/97) $ 000
------
AMI (2 years) 356
▇▇▇▇▇▇▇ (1 year) 80
Agouron (1 year) 23
RPR (1 year) ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇ (1 year) 40
------
Total $ 664
======
. Software Licenses
RPR $1,100
DuPont Merck 200
Dura 200
------
Total $1,500
======
Financial Statements
Electronic Submission
Publishing Systems, Inc.
Year ended March 31, 1996 and
for the Period April 29, 1994
(date of inception) to March 31, 1995
Electronic Submission Publishing Systems, Inc.
Financial Statements
Year ended March 31, 1996 and for the Period April 29, 1994
(date of inception) to March 31, 1995
Contents
Unaudited Financial Statements
Balance Sheets................................... 2
Statements of Operations......................... 3
Statements of Stockholders' Equity............... 4
Statements of Cash Flows......................... 5
Notes to Financial Statements.................... 6
Electronic Submission Publishing Systems, Inc.
Balance Sheets
March 31
1996 1995
---------------------------
Assets
Current assets:
Cash and cash equivalents $ 871,004 $ 435,354
Other current assets 14,702 12,017
---------------------------
Total current assets 885,706 447,371
Property and equipment:
Computer equipment 289,987 97,129
Computer software 56,068 23,299
Furniture, fixtures, and office equipment 127,479 18,458
---------------------------
Accumulated depreciation 473,534 138,886
124,413 23,361
---------------------------
349,121 115,525
Other assets 27,504 39,004
---------------------------
Total assets $ 1,262,331 $ 601,900
===========================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses
Capital lease obligations--current $ 207,364 $ 28,961
Deferred revenue--current 10,391 8,781
Total current liabilities 238,999 -
456,754 37,742
---------------------------
Capital lease obligations, less current portion
Deferred revenue, less current portion 6,317 16,708
13,667 -
Stockholders' equity:
Series A convertible preferred stock, $0.001 par
value:
Authorized shares--2,000,000
Issued and outstanding shares--2,000,000 in 1996
and 1,000,000 in 1995 and (liquidation
preference of $2,000,000 at March 31, 1996
and $1,000,000 at March 31, 1995): 2,000 1,000
Common stock $0.001 par value
Authorized shares--4,000,000
Issued shares--1,000,000 1,000 1,000
Outstanding shares--588,600 in 1996 and 1,000,000
in 1995
Additional paid-in capital 1,972,729 980,494
Accumulated deficit (1,189,314) (435,044)
Less treasury stock, at cost--411,400 shares (822) -
---------------------------
Total stockholders' equity
785,593 547,450
---------------------------
Total liabilities and stockholders' equity
$ 1,262,331 $ 601,900
===========================
See accompanying notes.
Electronic Submission Publishing Systems, Inc.
Statements of Operations
Year ended April 29, 1994
March 31, to March 31,
1996 1995
-------------------------------------------
Revenues:
Licensing $ 720,500 $ 100,000
Maintenance 27,334 -
Consulting 4,488 2,310
-------------------------------------------
Total operating revenue 752,322 102,310
Operating expenses:
Research and development 795,834 208,029
General administrative 633,464 302,032
Marketing and sales 95,101 32,473
-------------------------------------------
Total operating expenses 1,524,399 542,534
Total operating loss (772,077) (440,224)
Other:
Interest income 21,640 6,965
Interest expense (3,833) (1,785)
-------------------------------------------
17,807 5,180
-------------------------------------------
Net loss $ (754,270) $(435,044)
===========================================
See accompanying notes.
Electronic Submission Publishing Systems, Inc.
Statements of Stockholders' Equity
Year ended March 31, 1996 and
for the Period April 29, 1994
to March 31, 1995
Series A Convertible Additional
Preferred Stock Common Stock Treasury Paid-in
Shares Amount Shares Amount Stock Capital
-----------------------------------------------------------------------------------------------------------------
Issuance of common stock on April 29, 1994 1,000,000 $1,000 $ - $ 1,000
Issuance of Series A Convertible Preferred 1,000,000 $1,000 999,000
Stock
Stock Issuance costs (19,506)
------------------------------------------------------------------
Net loss
Balance at March 31, 1995 1,000,000 1,000 1,000,000 1,000 - 980,494
Issuance of Series A Convertible preferred 1,000,000 1,000 999,000
stock
Stock issuance costs (6,765)
Purchase of treasury stock (411,400) - (822)
Net loss
------------------------------------------------------------------
Balance at March 31, 1996 2,000,000 $2,000 588,600 $1,000 $(822) $1,972,729
==================================================================
Total
Accumulated Stockholders'
Deficit Equity
----------------------------
Issuance of common stock on April 29, 1994 $ 2,000
Issuance of Series A Convertible Preferred 1,000,000
Stock
Stock Issuance costs (19,506)
Net loss $ (435,044) (435,044)
----------------------------
Balance at March 31, 1995 (435,044) 547,450
Issuance of Series A Convertible preferred 1,000,000
stock
Stock issuance costs (6,765)
Purchase of treasury stock (822)
Net loss (754,270) (754,270)
----------------------------
Balance at March 31, 1996 $(1,189,314) $ 785,593
============================
See accompanying notes.
Electronic Submission Publishing Systems, Inc.
Statements of Cash Flows
Year ended April 29, 1994
March 31, to March 31,
1996 1995
------------------------------------------------
Operating activities
Net loss $ (754,270) $(435,044)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 101,052 23,361
Amortization 1,000 917
Changes in assets and liabilities:
Other current assets 7,815 (12,017)
Other assets - (34,921)
Accounts payable and accrued expenses 178,403 28,961
Deferred revenue 252,666 -
------------------------------------------------
Net cash used in operating activities (213,334) (428,743)
Investing activities
Acquisition of property and equipment (334,648) (108,488)
Organization expense - (5,000)
------------------------------------------------
Net cash used in investing activities (334,648) (113,488)
Financing activities
Proceeds from issuance of common stock - 2,000
Proceeds from issuance of bridge loan - 200,000
Proceeds from the issuance of preferred stock 1,000,000 800,000
Stock issuance costs (6,765) (19,506)
Purchase of treasury stock (822) -
Payments of capital lease obligations (8,781) (4,909)
------------------------------------------------
Net cash provided by financing activities 983,632 977,585
------------------------------------------------
Net increase in cash and cash equivalents 435,650 435,354
Cash and cash equivalents, beginning of period 435,354 -
------------------------------------------------
Cash and cash equivalents, end of period $ 871,004 $ 435,354
------------------------------------------------
Supplemental disclosures of cash flow information
Capital lease obligations incurred $ - $ 30,398
------------------------------------------------
Conversion of bridge loan to preferred stock $ - $ 200,000
------------------------------------------------
See accompanying notes.
5
Electronic Submission Publishing Systems, Inc.
Notes to Financial Statements
Year ended March 31, 1996 and
for the Period April 29, 1994 to March 31, 1995
1. Business
Electronic Submission Publishing Systems, Inc. (the "Company"), a Delaware
corporation, was founded in April 1994 and is a systems developer and integrator
of comprehensive electronic publishing solutions designed to manage, generate,
publish and distribute high quality regulatory submissions. The Company's
initial concentration has been directed to the pharmaceutical industry.
Revenues of approximately $648,000 were from one customer during the year ended
March 31, 1996. The Company came out of the development stage during the year
ended March 31, 1996.
2. Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principals requires management to make estimates and assumptions that
affect that amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue from software licenses upon acceptance by the
customer. Maintenance and service fee income is recognized as income ratably
over the life of the maintenance contracts. Consulting income is recognized as
the services are performed.
Cash and Cash Equivalents
The Company considers as cash equivalents all highly liquid investments with an
original maturity of three months or less.
Income Taxes
The Company accounts for income taxes under the liability method. The liability
method provides that deferred tax assets and liabilities are recorded based on
the difference between the tax basis of assets and liabilities and their
carrying amounts for financial reporting purposes, referred to as "temporary
differences."
6
Electronic Submission Publishing Systems, Inc.
Notes to Financial Statements (continued)
2. Accounting Policies (continued)
Property and Equipment
Property and equipment is recorded at cost. Depreciation is computed using
accelerated methods over the estimated useful lives of the related assets which
range from five to seven years.
Capitalized Software Costs
Financial accounting standards provide for the capitalization of certain
software development costs after technological feasibility of the software is
established. No such costs have been capitalized because the impact on the
financial statements would be immaterial.
Reclassification
Certain balances in fiscal year 1995 financial statements have been reclassified
to conform with current year presentation.
3. Obligations Under Capital Lease
The Company has entered into agreements to lease certain assets which have been
accounted for as capital leases and are included in property and equipment at
March 31, 1996 and 1995.
1996 1995
------------------------------------------------
Equipment under capital lease $ 30,398 $30,398
Less accumulated depreciation (14,976) (4,000)
------------------------------------------------
$ 15,422 $26,398
------------------------------------------------
7
Electronic Submission Publishing Systems, Inc.
Notes to Financial Statements (continued)
3. Obligations Under Capital Lease (continued)
Future minimum lease payments subsequent to March 31, 1996 under the
aforementioned capital lease agreements (including interest ranging from 13% to
22% per annum) are as follows:
1997 $12,295
1998 6,682
------------
Total minimum lease payments 18,977
Less amount representing interest 2,269
------------
Present value of net minimum lease payments 16,708
Less current obligations under capital lease 10,391
------------
Obligations under capital lease, less current portion $ 6,317
------------
4. Capital Stock
The holders of the Series A convertible preferred stock are entitled to
noncumulative dividends at a rate of $.08 per share prior to any payment of
dividends on common stock.
Each share of preferred stock is convertible into one share of common stock,
subject to adjustment in certain circumstances, and has a liquidation preference
of $1.00 per share. Conversion is at the option of the stockholders until such
time, if ever, that the Company consummates a public offering at a designated
price and from which the Company receives proceeds of at least $10,000,000 at
which time such conversion becomes mandatory. The preferred stock has voting
rights equal to its common stock conversion ratio.
Stock Options
During 1995, the Company adopted a stock option plan whereby the Company may
grant either incentive or nonqualified stock options to purchase the Company's
common stock. The incentive stock options are to be granted at no less than
fair market value at the date of grant, and the nonqualified stock options are
to be granted at no less than eighty-five percent of the fair market value of
the shares at the date of grant. The fair market value is determined by the
Board of Directors. Twenty-five percent of the option shares are exercisable on
the first anniversary of the date of grant or the participant's hire date,
whichever is earlier. The additional amounts become exercisable at varying
rates from 6.25% to 9.40% on the last day of each quarter thereafter. The
Company has authorized 1,411,400 shares to be issued under the plan. There are
468,400 options available for grant at March 31, 1996. No options were
exercised during fiscal
8
Electronic Submission Publishing Systems, Inc.
Notes to Financial Statements (continued)
4. Capital Stock (continued)
Stock Options (continued)
1996. Subsequent to March 31, 1996, an additional 174,000 options were granted
at the fair market value as determined by the Board of Directors.
Number
of Shares Price per share
-----------------------------------
Granted 101,000 $ 0.10
Exercised -
-----------------------------------
Outstanding at March 31, 1995 101,000 0.10
Granted 963,000 .10-.11
Exercised -
Canceled (121,000) .10
-----------------------------------
Outstanding at March 31, 1996 943,000 $.10-.11
-----------------------------------
5. Income Taxes
The Company has a deferred tax asset resulting from net operating loses and
research and development tax credits of approximately $510,000. The Company has
recorded a valuation allowance equal to the deferred tax asset.
For federal income tax purposes, the Company has approximately $1,167,000 of net
operating loss carryforwards and $20,000 of research and development tax credit
carryforwards which begin to expire in 2010. Certain limitations imposed by the
Internal Revenue Code may limit the use of the net operating loss if the Company
undergoes a change in control as defined. For state income tax purposes, the
Company has approximately $732,000 of operating losses which begin to expire in
1997.
9
Electronic Submission Publishing Systems, Inc.
Notes to Financial Statements (continued)
6. Commitments
The Company leases its office space under an operating lease. Future minimum
lease payments as of March 31, 1996 are as follows:
1997 $76,700
1998 79,800
1999 82,300
2000 24,300
Rent expense was approximately $43,000 during the year ended March 31, 1996 and
$23,000 during the period ended March 31, 1995.
7. Subsequent Event
Subsequent to March 31, 1996, the Company obtained a $500,000 equipment line of
credit from a leasing company expiring March 31, 1997. The line is secured by
equipment owned by the Company and equipment to be purchased and bears interest
at 21%.
10
ESPS
----
January 1997
------------
Financial Review
----------------
Item Page
---- -----
. Executive Overview 2-4
. Balance Sheet Comparison (Sch 1) 5
. Statement of Operations Comparison (Sch 2) 7
. Statement of Cash Flows Comparison (Sch 3) 9
Executive Overview
------------------
Financial Performance ($000)
January YTD
Actual Budget Var Actual Budget Var
-------------------------------- ------------------------------------
Revenue 74 100 -26 653 444 209
Profit/(Loss) (241) (178) (63) (2,416) (2,089) (327)
Cash Balance 237 469 (232)
Highlights
This month was spent meeting the demands (installations, regulatory filing
support, training and software upgrades) made by new customers. Revenue of $74k
was ($26k/26%) under Budget and includes $29k of maintenance and $45k of
customer support for Agouron. Absent this month is new software licensing
revenue. Operating expenses totaled $308k and were $31k/11% higher than
expected. Details of spending by department follow. This combination of
revenue shortfall and overspending pushed our loss to $241k ($63k/35%) above
budget.
Our cash position at month end is $237k, $232k or 49% below Plan. Anticipated
investor funding remains $500k below Budget, which more than offsets our cash
short fall.
Balance Sheet
The accounts receivable balance of $487k represents ▇▇▇▇▇▇▇▇ to AMI; for $334k,
two years maintenance, Agouron; for $45k customer support and Dura; for $108k a
50% advance on our software license. Other current assets now include $40k of
Versant licenses held as inventory and $11k of prepaid Versant maintenance.
Equity funding has been replaced with bridge loans of $1.5 million, $500k short
of Plan. All Company assets are currently pledged for these bridge loans which
has prevented us from using our equipment leasing line of credit. Our payables
and accrued expense position are higher than expected due to the inclusion of
the Versant invoice, for royalties, maintenance and license inventory totaling
$93k. Deferred revenue, both current and long term is composed of $335k for
licensing (RPR; $135k, DuPont Merck; $100k and Dura; $100k) and $664k for
maintenance (AMI; $356k, ▇▇▇▇▇▇▇; $80k, Agouron; $23k, RPR; $165k and DuPont
Merck $40k).
Statement of Operations
Revenue:
2
Revenue for the month of $74k ($29k, maintenance and $45k, customer support) is
$26k or 26% below budget. Expected pilot revenue (software licensing) of $60k
did not materialize. Management is making every effort to maximize this year's
revenue by expediting installations and acceptances for those customer's where
it is possible. Our deferred revenue position of $999k speaks well for the
future.
Expenses:
Cost of revenue of $1k represents the amortization of prepaid Versant
maintenance. Budgeted, was the monthly write-off of capitalized development
costs that has been discounted due to immateriality.
Our Research & Development costs for the month were $91k, $12k over budget, all
of which can be associated with excess depreciation. This excess is almost
completely offset by a similar savings in G & A.
Regulatory departmental costs were $43k for the month. This level of spending
is $29k higher than planned and due primarily to travel and payroll overruns.
Excess travel costs of $13k are expected to continue, as Regulatory personnel
support our customers base. The excess payroll of $11k is offset with similar
savings in the Quality Assurance and G & A Departments (budgeted staff have been
reassigned to Regulatory).
Quality Assurance spending was $28k for the month, a $16k or 36% savings. These
savings are due to assigning budgeted employees to other departments and reduced
staff levels.
G&A spending of $94k is right on budget.
Marketing & Sales costs of $50k for the month were $20k or 67% over budget.
Most of the overspending is the result of higher than expected payroll costs.
Cash Flow
Our cash position at month end was $234k, which is $232k below Plan. This cash
short fall can be directly linked to the remaining $500k of budgeted investor
funding which has yet to take place. Cash provided by operations for the month
was $5k but $264k higher than expected. This excess is directly related to the
increases in our deferred revenue position caused by Dura and AMI cash advances.
3
Personnel
Headcount
Actual Budgeted
Software Development (R&D) 12 13
Q & A (Systems Support/Documentation) 6 9
Regulatory (Customer Support) 6 2
Sales & Marketing 4 3
G & A 4 5
----------------------------
Total 32 32
4
SCH 1
-----
Electronic Submission Publishing Systems, Inc.
----------------------------------------------
Balance Sheets Actual Budget Var.
-------------- Actual-
January 1997 Budget
--------------
Assets
Current assets:
Cash and cash equivalents $ 236,968 $ 469,144 ($232,176)
Accounts Receivable $ 486,812 $ 60,000 $ 426,812
Other current assets $ 52,640 $ 10,516 $ 42,124
--------------------------------------------
Total current assets 776,420 $ 533,660 $ 236,760
Property and equipment
Computer equipment $ 455,008
Computer software $ 94,342
Furniture, fixtures, and office equipment $ 155,950
--------------------------------------------
$ 705,300 $ 711,981 ($6,681)
Accumulated depreciation $ 260,459 $ 249,939 $ 10,520
--------------------------------------------
Computer Software (net) $ 444,841 $ 462,042 ($17,201)
Other Assets $ 0 $ 117,871 ($117,871)
$ 31,503 $ 36,421 ($4,918)
--------------------------------------------
Total assets $ 1,252,764 $ 1,155,994 $ 96,770
============================================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 375,530 $ 229,927 $ 145,603
Bridge Loan Payable $ 1,500,000 $ 0 $ 1,500,000
Capital lease obligations - current $ 8,172 $ 48,551 ($40,379)
Deferred revenue - current $ 841,812 $ 79,167 $ 762,645
--------------------------------------------
Total current liabilities $ 2,725,514 $ 357,645 $ 2,357,869
Capital lease obligations, less current portion $ 0 $ 69,602 ($69,602)
Deferred revenue, less current portion $ 157,569 $ 0 $ 157,569
Stockholders' equity
Series A convertible preferred stock $0.001 par value:
Authorized shares 2,000,000
Issues and outstanding 2,000,000 $ 2,000 $ 3,980,495 ($3,978,495)
Common Stock, $0.001 par value:
Authorized 4,000,000
Issued and outstanding 533,600 $ 1,000 $ 588 $ 412
Additional paid in capital $ 1,972,730 $ 588 $ 1,972,142
Accumulated ($3,605,227) ($3,272,924) ($332,303)
Less treasury stock, at cost, 411,400 shares ($822) $ 0 ($822)
--------------------------------------------
Total Stockholders' Equity ($1,630,319) $ 708,747 ($2,339,066)
--------------------------------------------
Total liabilities and stockholders' equity $ 1,252,764 $ 1,155,994 $ 95,770
============================================
SCH 1
-----
Electronic Submission Publishing Systems, Inc.
---------------------------------------------- Prior Var. Actual Comments
Balance Sheets Month Actual- 1985 (Var. from
-------------- Prior Budget)
January 1997 Month
--------------
Assets
Current assets:
Cash and cash equivalents $ 242,835 ($5,865) $ 249,801 (1)
Accounts Receivable $ 300,000 $ 186,612 $ 0 (2)
Other current assets $ 52,282 $ 358 $ 6,493 (3)
-------------------------------- --------------
Total current assets $ 595,115 $ 181,305 $ 256,294
Property and equipment
Computer equipment $ 450,463 $ 4,545 $ 0
Computer software $ 90,885 $ 3,457 $ 0
Furniture, fixtures, and office equipment $ 153,825 $ 2,125 $ 0
-------------------------------- --------------
$ 695,173 $ 10,127 $ 408,484
Accumulated depreciation $ 245,472 $ 14,987 $ 72,537
-------------------------------- --------------
Computer Software (net) $ 469,701 ($4,860) $ 335,947
Other Assets $ 0 $ 0 $ 0 (4)
$ 31,503 $ 0 $ 38,422
-------------------------------- --------------
Total assets $ 1,076,319 $ 176,445 $ 630,663
================================ ==============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 342,731 $ 32,799 $ 2,315 (5)
Bridge Loan Payable $ 1,500,000 $ 0 $ 0 (6)
Capital lease obligations - current $ 9,081 ($909) $ 4,937 (7)
Deferred revenue - current $ 613,178 $ 228,634 $ 0 (8)
-------------------------------- --------------
Total current liabilities $ 2,464,990 $ 260,524 $ 7,252
Capital lease obligations, less current portion $ 0 $ 0 $ 3,230 (7)
Deferred revenue, less current portion $ 0 $ 157,569 $ 0 (8)
Stockholders' equity
Series A convertible preferred stock $0.001 par value:
Authorized shares 2,000,000
Issues and outstanding 2,000,000 $ 2,000 $ 0 $ 1,980,434 (9)
Common Stock, $0.001 par value:
Authorized 4,000,000
Issued and outstanding 533,600 $ 1,000 $ 0 $ 588
Additional paid in capital $ 1,972,730 $ 0 $ 588 (9)
Accumulated ($3,363,579) ($241,646) ($1,361,489) (10)
Less treasury stock, at cost, 411,400 shares ($822) $ 0 $ 0
-------------------------------- --------------
Total Stockholders' Equity ($1,368,671) ($241,646) $ 620,181
-------------------------------- --------------
Total liabilities and stockholders' equity $ 1,076,319 $ 176,445 $ 630,663
================================ ==============
5
Footnotes
---------
(1) See Statement of Cash Flows Analysis (Sch. 3).
(2) Billed AMI one month earlier than budgeted for maintenance renewal ($334k),
plus unbudgeted billing to Agouron for Customer Support ($45k) and
unexpected billing to Dura for 50% of software license ($108k). Versus
budget receivable of one month pilot ($60k).
(3) Includes $40k of Versant licenses held in inventory for customer evaluation
and $11k for one year of prepaid Versant maintenance. Both unbudgeted.
Budgeted $10k of prepaid insurance.
(4) No longer capitalizing software development cost due to immateriality.
(5) Unbudgeted Versant VAR agreement payable at $93k caused most of the
variance.
(6) Bridge Loan prior to permanent equity financing.
(7) Have not yet used equipment financing as anticipated for capital additions.
(8) Actual includes licenses (paid in advance) of $335k and maintenance of
$564k. Budgeted includes only maintenance for ▇▇▇▇▇▇▇ & AMI.
Licenses: Maintenance:
RPR $100k AMI (regular) $ 41k
Dupont Merck $135k AMI (2 yrs in advance) $315k
Dura $100k ▇▇▇▇▇▇▇ (regular) $ 80k
Agouron (regular) $ 23k
RPR (1 yr. in advance) $165k
DuPont Merck (1 yr. in advance) $ 40k
(9) classification difference between Preferred Stock and Additional Paid in
Capital. However, remaining variance of $2m due to delay in equity
financing. See (6) above.
(10) See Statement of Operations (Sch. 2).
6
Sch 2
-----
Electronic Submission Publishing
-------------------------------- MONTH QUARTER TO DATE
Systems, Inc.
------------- ACTUAL BUDGET VAR ACTUAL BUDGET VAR
Statements of Operations Actual- Actual-
------------------------ ------- -------
January 1997 Budget Budget
------------ ------ ------
Revenue:
Licensing $ 0 $ 60,000 ($60,000)
Maintenance $ 28,937 $ 40,000 ($11,063)
Consulting $ 45,014 $ 0 $ 45,014
Total operating income $ 73,951 $ 100,000 ($26,049) Quarter to Date
same as
Month to Date
Operating expenses:
Cost of revenue $ 1,018 $ 16,075 ($15,057)
Research and development $ 91,394 $ 78,999 $ 12,395
Regulatory $ 42,578 $ 14,063 $ 28,515
Quality Assurance $ 28,228 $ 44,054 ($15,826)
General and $ 84,224 $ 93,969 $ 255
administrative
Marketing and sales $ 50,453 $ 30,033 $ 20,420
Total operating expenses $ 307,895 $ 277,193 $ 30,702
Total operating loss ($233,944) ($177,193) ($56,751)
Other:
Interest income $ 244 $ 0 $ 244
Interest expense ($7,590) ($747) ($6,843)
($7,346) ($747) ($6,599)
Net Loss ($241,290) ($177,940) ($63,350)
Sch 2
-----
Electronic Submission Publishing
-------------------------------- YTD
Systems, Inc.
------------- ACTUAL BUDGET VAR Comments
Statements of Operations Actual-
------------------------ -------
January 1997 Budget
------------ ------
Revenue:
Licensing $ 345,200 $ 60,000 $ 285,200 (1)
Maintenance $ 262,478 $ 383,333 ($120,855) (2)
Consulting $ 45,014 $ 0 $ 45,014 (3)
Total operating income $ 652,692 $ 443,333 $ 209,359
Operating expenses:
Cost of revenue $ 72,433 $ 139,387 ($66,954) (4)
Research and development $ 831,707 $ 536,528 $ 295,179 (5)
Regulatory $ 274,184 $ 137,813 $ 136,371 (6)
Quality Assurance $ 301,909 $ 403,429 ($101,520) (7)
General and $ 1,033,017 $ 949,491 $ 83,526 (8)
administrative
Marketing and sales $ 523,958 $ 357,210 $ 166,748 (9)
Total operating expenses $ 3,037,208 $ 2,523,858 $ 513,350
Total operating loss ($2,384,516) ($2,080,525) ($303,991)
Other:
Interest income $ 3,343 $ 0 $ 3,343
Interest expense ($34,743) ($8,465) ($26,278) (10)
($31,400) ($8,465) ($22,935)
Net Loss ($2,415,916) ($2,088,990) ($326,926)
Footnotes & Comments
--------------------
(1) Month, budget anticipated a pilot @ $60k which did not occur. YTD actual,
Agouron $194k and AMI $151k versus this months pilot.
(2) Month and YTD variances; increased revenue recognition period from 12 to 15
months.
(3) Month and YTD variances; unbudgeted Customer Support Services for Agouron.
(4) Month, Budget anticipated authorization of capitalized software cost which
was discontinued. Actual, is the amortization of prepaid Versant
maintenance which was not anticipated. YTD variance, unexpected Versant
royalty expense for existing install base versus budgeted write-off of
capitalized software costs.
(5) YTD variance, primarily due to $102k excess depreciation expenses, offset by
equal savings in G & A and $102k overspend in payroll due to not
capitalizing software development costs.
7
(6) Month variance due to travel and P/R overruns, $13k and $11k respectively.
YTD, travel and P/R higher than expected by $57k and $41k respectively.
P/R overruns are offset by savings in other departments due to shifting
staff.
(7) Month, and YTD savings due to reduced staff levels in Department. Partially
offset by overruns in Regulatory staffing (Shifting of Staffing between
departments).
(8) Month spending on Plan. YTD variance due to consulting and legal expense
overruns partially offset by savings in management bonus plan.
(9) Monthly variance due to payroll overrun. YTD variance due to overspends in
product launch and trade shows.
(10) Month and YTD did not budget for Bridge Loan interest.
8
SCH 3
-----
Electronic Submission Publishing Systems, Inc.
---------------------------------------------- Month Var. Quarter to date Var.
Statements of Cash Flows
------------------------ Actual Budget Actual- Actual Actual-
January 1997 Budget Budget
------------
Operating Activities
Net loss ($241,290) ($177,940) ($63,350)
Adjustments to reconcile net
loss to net cash used
in operating activities:
Depreciation $ 14,987 $ 13,364 $ 1,623 Quarter to Date
same as
Month to Date
Amortization $ 83 $ 500 ($417)
Changes in assets and
liabilities:
Other current assets ($358) ($206) ($152)
Accounts receivable ($186,812) ($60,000) ($126,812)
Other assets ($83) $ 0 ($83)
Accounts payable and $ 32,441 ($35,011) $ 67,452
accrued expenses
Deferred Revenue $ 386,203 $ 0 $ 386,203
--------------------------------------
Net Cash used in operating $ 5,171 ($259,293) $ 264,464
activities
Investing Activities
Acquisition of property and ($10,127) ($5,000) ($5,127)
equipment
Capitalization of software $ 0 $ 16,075 ($16,075)
development costs
Organization expense $ 0 $ 0 $ 0
--------------------------------------
($10,127) $ 11,075 ($21,202)
Financing Activities
Purchase of treasury stock $ 0 $ 0 $ 0
Proceeds from the issuance $ 0 $ 0 $ 0
of preferred stock ($909) $ 3,591 ($4,500)
(Payments)/Proceeds of
capital lease obligations $ 0 $ 0 $ 0
Stock issuance costs $ 0 $ 0 $ 0
Proceeds from the issuance
of common stock $ 0 $ 0 $ 0
Proceeds from the issuance --------------------------------------
of bridge loans ($909) $ 3,591 ($4,500)
Net increase in cash and --------------------------------------
cash equivalents ($5,865) ($244,627) $ 238,762
Cash and cash equivalents,
beginning of period $ 242,833 $ 713,771 ($470,938)
Cash and cash equivalents, --------------------------------------
end of period $ 236,968 $ 469,144 ($232,176)
======================================
SCH 3
-----
Electronic Submission Publishing Systems, Inc.
---------------------------------------------- YTD Var.
Statements of Cash Flows
------------------------ Actual Budget Actual- Comments
January 1997 Budget
------------
Operating Activities
Net loss ($2,415,558) ($2,088,990) ($326,568) (1)
Adjustments to reconcile net
loss to net cash used
in operating activities:
Depreciation $ 135,443 $ 126,820 $ 8,623
Amortization $ 30,345 $ 5,000 $ 25,345
Changes in assets and
liabilities:
Other current assets ($37,937) ($1,707) ($36,230) (2)
Accounts receivable ($486,212) ($60,000) ($426,212) (3)
Other assets ($4,828) ($3,183) ($1,645)
Accounts payable and $ 107,582 $ 1,786 $ 105,796 (4)
accrued expenses
Deferred Revenue $ 746,715 ($139,221) $ 885,936 (5)
--------------------------------------------
Net Cash used in operating ($1,924,450) ($2,159,495) $ 235,045
activities
Investing Activities
Acquisition of property and ($230,917) ($265,000) $ 34,083 (6)
equipment
Capitalization of software $ 29,867 ($64,272) $ 94,139 (7)
development costs
Organization expense $ 0 $ 0 $ 0
--------------------------------------------
($201,050) ($329,272) $ 128,222
Financing Activities
Purchase of treasury stock $ 0 $ 0 $ 0
Proceeds from the issuance $ 0 $ 2,000,000 ($2,000,000) (8)
of preferred stock
(Payments)/Proceeds of ($8,536) $ 86,907 ($95,443) (9)
capital lease obligations
Stock issuance costs $ 0 $ 0 $ 0
Proceeds from the issuance $ 0 $ 0 $ 0
of common stock
Proceeds from the issuance
of bridge loans $ 1,500,000 $ 0 $ 1,500,000 (8)
--------------------------------------------
$ 1,491,464 $ 2,086,907 ($595,443)
--------------------------------------------
Net increase in cash and ($634,036) ($401,860) ($232,176)
cash equivalents
Cash and cash equivalents, $ 871,004 $ 871,004 $ 0
beginning of period --------------------------------------------
Cash and cash equivalents, $ 236,968 $ 469,144 ($232,176)
end of period ============================================
Footnotes & Comments
--------------------
(1) See Statement of Operations (Sch 2).
(2) YTD, unbudgeted investment in Versant inventory of licenses.
(3) Month, increase in our receivable position due to billing of (AMI; $334k
maintenance, Agouron; $45k customer support, Dura; $107k software license)
versus last month's receivable from RPR of $300k. YTD variance represents
investment in receivables due to this months billing as previously
described.
9
(4) Month, variance due to increase in payables and accruals as opposed to
budgeted decrease. YTD, variance due to much larger increase in this
position than budgeted.
(5) Month, variance due to additions of Dura; license deferral $100k and AMI;
two years maintenance deferral $315k. Both additions net of normal monthly
revenue. YTD, variance due to advance payments by customers not
anticipated in budget.
(6) Monthly variance due to slight CapX overspend, however, YTD still under
spent by $34k.
(7) No capitalization of software development costs as anticipated by Budget.
(8) Anticipated Equity funding replaced with Bridge Loans and $500k under
funded.
(9) Month and YTD variances; anticipated using equipment financing line of
credit as a source of cash. To date have not used the line but only paid
off old leases.
10
EXHIBIT C
---------
RIGHTS AMENDMENT
ELECTRONIC SUBMISSION PUBLISHING SYSTEM, INC.
AMENDMENT NO. 1 TO
RIGHTS AGREEMENT
This Amendment No. 1 to Rights Agreement is entered into as of
February 24, 1997 by and among Electronic Submission Publishing Systems, Inc., a
Delaware corporation (the "Company") and the undersigned holders of the Series A
Preferred Stock of the Company (the "Series A Holders"). Unless defined herein,
capitalized terms shall have the meanings given them in that certain Rights
Agreement dated July 5, 1994 between the Company and the Series A Holders (the
"Rights Agreement").
RECITAL
-------
1. Section 4.4 of the Rights Agreement provides that the Company and
the Series A Holders can amend the Rights Agreement.
2. The Company and the Series A Holders now wish to amend the Rights
Agreement to increase the number of shares of the Company's Common Stock
issuable by the Company to employees and consultants that are excluded from the
definition of New Securities for purposes of Section 2 of the Rights Agreement.
AGREEMENT
---------
1. Section 2.3 of the Rights Agreement is amended and restated to
read in full as follows:
2.3. Except as set forth below, "New Securities" shall mean any
Equity Securities, whether now authorized or not, and rights, options
or warrants to purchase said Equity Securities. Notwithstanding the
foregoing, "New Securities" does not include (i) Common Stock (or
options, warrants or other rights to purchase the same) issued to the
Founders or employees, officers, consultants or directors of the
Company at any time after July 5, 1994 up to a total of 3,000,000
shares (as adjusted for stock splits, combinations, dividends,
distributions or recapitalizations); (ii) securities offered to the
public generally pursuant to a registration statement under the
Securities Act; (iii) securities issued pursuant to the acquisition of
another corporation by the Company by merger, purchase of
substantially all of the assets or other reorganization whereby the
Company or its shareholders own not less than fifty-one (51%) percent
of the voting power of the surviving or successor corporation; (iv)
the Conversion Stock; (v) warrant or warrants for the purchase of
shares of capital stock of the Company (and stock issued upon exercise
of such warrant or warrants) which have been unanimously
approved by the Board of Directors of the Company and issued in
connection with an equipment lease, equipment financing or bank line
financing; or (vi) stock issued in connection with any stock split,
stock dividend or recapitalization by the Company.
2. Except as amended hereby, the Rights Agreement shall remain in
full force and effect.
The foregoing agreement is hereby executed as of the date first above
written.
ELECTRONIC SUBMISSION PUBLISHING
SYSTEMS, INC.
By: /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇,
President
ADOBE VENTURES L.P.
By: Its general partner,
H&Q Adobe Ventures Management L.P.
By: Its general partner,
H&Q Adobe Ventures Management Corp.
By: /s/ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇
------------------------------------
Title: Attorney-in-Fact
------------------------------------
H&Q ESPS INVESTORS, L.P.
By: /s/ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇
------------------------------------
Title: Attorney-in-Fact
------------------------------------
POWER OF ATTORNEY
GENERAL
BY THIS POWER OF ATTORNEY:
THE UNDERSIGNED of the County of
--------------------------------------------------------
(Name or names of person or persons giving this power hereinafter referred
to as Principal)
SAN FRANCISCO State of CALIFORNIA ,
-------------------------------------------------- ------------------
does appoint each of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
---------------------------------------------------------
its true and lawful attorneys.
In principal's name, and for principal's use and benefit, said attorneys
are authorized hereby:
(1) to demand, ▇▇▇ for, collect, and receive all money, debts, accounts
legacies, bequests, interest, dividends, annuities, and demands as are now or
shall hereafter become due, payable, or belonging to principal, and to take all
lawful means, for the recovery thereof and to compromise the same, and give
discharges for the same;
(2) to buy and sell land, make contracts of every kind relative to land, any
interest therein or the possession thereof, and to take possession and exercise
control over the use thereof;
(3) to buy, sell, exchange, mortgage, hypothecate, assign, transfer, and in
any manner deal in and with goods, wares, and merchandise, chooses in action,
and to make, do and transact all and every kind of business of whatever nature;
(4) to execute, acknowledge and deliver contracts of sale, escrow
instructions, deeds, leases including leases for minerals and hydrocarbon
substances and assignments of leases, covenants, agreements and assignments of
agreements, mortgages and assignments of mortgages, conveyances in trust to
secure indebtedness or other obligations, and assign the beneficial interest
thereunder, subordinations of liens or encumbrances, bills of lading, bills,
bonds, notes, receipts, evidences of debt, releases and satisfactions of
mortgages, requests to reconvey deeds of trust, partial or full, judgments, and
other debts, and other instruments in writing of whatever kind and nature, all
upon such terms and conditions and under such covenants as said attorneys shall
approve.
GIVING AND GRANTING to said attorneys full power and authority to do all and
every act and thing whatsoever requisite and necessary to be done relative to
any of the foregoing as fully to all intents and purposes as principal might or
could do if personally present.
All that said attorneys shall lawfully do or cause to be done under the
authority of this power of attorney is expressly approved.
H&Q ESPS Investors, L.P.
Dated 11/20/95 by: H&Q Management Corporation
---------------------
STATE OF CALIFORNIA }
COUNTY OF SAN FRANCISCO }
On November 20, 1995 , before me, By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
--------------------------- ---------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
President
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇ (name, title of officer), personally
-------------------
appeared /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
---------------------------------
[] personally known to me - OR - [] proved to me on the basis of
satisfactory evidence to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized
capacity(ies), and that by his/her/their signature(s) on the instrument
the person(s), or the entity upon behalf of which the person(s) acted,
executed the instrument.
WITNESS my hand and official seal.
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
---------------------------------------------
Signature
POWER OF ATTORNEY
GENERAL
BY THIS POWER OF ATTORNEY:
THE UNDERSIGNED of the County of
----------------------------------------------------------
(Name or names of person or persons giving this power hereinafter referred
to as Principal)
SAN FRANCISCO State of CALIFORNIA ,
-------------------------------------------- --------------------------
does appoint each of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
-----------------------------------------------------------
its true and lawful attorneys.
In principal's name, and for principal's use and benefit, said attorneys are
authorized hereby:
(1) to demand, ▇▇▇ for, collect, and receive all money, debts, accounts
legacies, bequests, interest, dividends, annuities, and demands as are now or
shall hereafter become due, payable, or belonging to principal, and to take all
lawful means, for the recovery thereof and to compromise the same, and give
discharges for the same;
(2) to buy and sell land, make contracts of every kind relative to land, any
interest therein or the possession thereof, and to take possession and exercise
control over the use thereof;
(3) to buy, sell, exchange, mortgage, hypothecate, assign, transfer, and in
any manner deal in and with goods, wares, and merchandise, chooses in action,
and to make, do and transact all and every kind of business of whatever nature;
(4) to execute, acknowledge and deliver contracts of sale, escrow
instructions, deeds, leases including leases for minerals and hydrocarbon
substances and assignments of leases, covenants, agreements and assignments of
agreements, mortgages and assignments of mortgages, conveyances in trust to
secure indebtedness or other obligations, and assign the beneficial interest
thereunder, subordinations of liens or encumbrances, bills of lading, bills,
bonds, notes, receipts, evidences of debt, releases and satisfactions of
mortgages, requests to reconvey deeds of trust, partial or full, judgments, and
other debts, and other instruments in writing of whatever kind and nature, all
upon such terms and conditions and under such covenants as said attorneys shall
approve.
GIVING AND GRANTING to said attorneys full power and authority to do all and
every act and thing whatsoever requisite and necessary to be done relative to
any of the foregoing as fully to all intents and purposes as principal might or
could do if personally present.
All that said attorneys shall lawfully do or cause to be done under the
authority of this power of attorney is expressly approved.
Adobe Ventures, L.P.
Dated December 19, 1994 by: H&Q Adobe Ventures Management
--------------------- L.P., General Partner
STATE OF CALIFORNIA }
COUNTY OF SAN FRANCISCO }
On December 19, 1994, before me, By: /s/ ▇▇▇▇▇▇▇▇ ▇'▇▇▇▇▇
-------------------- -------------------------------
▇▇▇▇▇▇▇▇ ▇'▇▇▇▇▇
President
▇▇▇▇▇ ▇▇▇▇▇▇▇ (name, title of officer), personally
--------------------
appeared ▇▇▇▇▇▇▇▇ ▇'▇▇▇▇▇
-------------------------------
[] personally known to me - OR - [] proved to me on the basis of
satisfactory evidence to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized
capacity(ies), and that by his/her/their signature(s) on the instrument
the person(s), or the entity upon behalf of which the person(s) acted,
executed the instrument.
WITNESS my hand and official seal.
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------------------
Signature