<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
( X )QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1997
OR
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ..................... to .............
Commission file number 0-29100
PREMIER RESEARCH WORLDWIDE, LTD.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-3264604
- --------------------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
124 South 15th Street
Philadelphia, PA 19102
- ---------------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
215 - 972 - 0420
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. __x__ Yes _____ No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
The number of shares of Common Stock, $.01 par value, outstanding as of July
31, 1997, was 6,938,400.
<PAGE>
PREMIER RESEARCH WORLDWIDE, LTD AND SUBSIDIARIES
INDEX
-----
Page
----
Part I. Financial Information
Item 1. Financial Statements
Condensed consolidated balance sheets -- 3
June 30, 1997 (unaudited) and December 31, 1996
Condensed consolidated statements of operations 4
(unaudited) -- Three months and six months
ended June 30, 1997 and 1996
Condensed consolidated statements of cash flows 5
(unaudited) -- Six months ended June 30, 1997
and 1996
Notes to condensed consolidated financial 6
statements (unaudited)
Item 2. Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
a.) Exhibits
4.1 Preferred Stock Purchase Agreement
between DLB Systems, Inc. and
Premier Research Worldwide Limited
(excluding all exhibits thereto)
11 Computation of Net Income
per Common Share
27 Financial Data Schedule
b.) Reports on Form 8-K
None
Signatures
<PAGE>
PREMIER RESEARCH WORLDWIDE, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
June 30, 1997 December 31, 1996
------------- -----------------
ASSETS (unaudited)
Current assets:
Cash & cash equivalents $25,593 $ 1,498
Marketable securities 7,358 --
Accounts receivable, net 3,080 2,837
Prepaid expenses and other 933 386
Deferred income taxes 106 106
------- -------
Total current assets 37,070 4,827
Property and equipment, net 1,104 732
Other assets 1,166 189
------- -------
$39,340 $5,748
------- -------
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $650 $ 831
Accrued expenses 1,474 664
Accrued income taxes -- 106
Payable to UM Holdings Ltd.
for income taxes -- 485
Deferred revenue 681 1,146
------- -------
Total current liabilities 2,805 3,232
------- -------
Stockholders' equity:
Common stock, $.01 par value,
15,000,000 shares authorized,
6,938,400 and 4,402,000 shares
issued and outstanding,
respectively 69 44
Additional paid-in capital 36,408 2,273
Retained earnings 58 199
------- -------
Total stockholders' equity 36,535 2,516
------- -------
$39,340 $ 5,748
======= =======
The accompanying notes are an integral part of these statements.
<PAGE>
PREMIER RESEARCH WORLDWIDE, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
--------------------------------- -------------------------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
------------- ------------- ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues $3,059 $4,278 $7,201 $7,186
Less-Reimbursed costs (249) (7) (292) (25)
------ ------ ------ ------
Net revenues 2,810 4,271 6,909 7,161
Costs and expenses:
Direct costs 1,647 1,702 3,068 2,872
Selling, general and administrative 2,502 1,655 4,561 3,203
Depreciation and amortization 148 188 286 391
------ ------ ------ ------
Total costs and expenses 4,297 3,545 7,915 6,466
Income (loss) from operations (1,487) 726 (1,006) 695
Other income, net 430 -- 679 --
Income (loss) before income taxes
and minority interest (1,057) 726 (327) 695
Minority interest in limited
liability company's loss -- 107 -- 208
------ ------ ------ ------
Income before income taxes (1,057) 833 (327) 903
Income taxes provision (benefit) (496) 359 (190) 389
------ ------ ------ ------
Net income (loss) $ (561) $ 474 $ (137) $ 514
====== ====== ====== ======
Income (loss) per share $(0.08) $(0.02)
====== ======
Weighted average shares outstanding 6,938 6,517
====== ======
Pro forma net income per share
(Note 4)
Income before income taxes &
minority interest 726 695
Pro forma income tax provision 305 292
------ ------
Pro forma net income $ 421 $ 403
====== ======
Pro forma net income per share 0.08 0.08
====== ======
Shares used in computing pro
forma net income per share 5,003 5,003
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
PREMIER RESEARCH WORLDWIDE, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Six Months Ended
-----------------------------------------
June 30, 1997 June 30, 1996
------------- -------------
(unaudited)
<S> <C> <C>
Operating activities:
Net income (loss) $ (137) $ 514
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 286 391
Minority interest in limited liability company's loss -- (208)
Gain on sale of equipment -- (2)
Changes in assets and liabilities:
Accounts receivable (243) (401)
Prepaid expenses and other (196) 169
Accounts payable (181) 142
Accrued expenses (190) 18
Accrued income taxes (432) 343
Payable to UM Holdings Ltd. for income taxes (485) --
Deferred revenues (465) 95
------ ------
Net cash provided by (used in) operating activities (2,043) 1,061
------ ------
Investing activities
Purchases of property and equipment (663) (71)
Proceeds from sales of property and equipment -- 64
Net purchases of marketable securities (7,358) --
------ ------
Net cash used in investing activities (8,021) (7)
------ ------
Financing activities:
Net proceeds from the issuance of common stock 34,159 --
Net distributions to UM Holdings Ltd. -- (404)
------ ------
Net cash provided by (used in) financing activities 34,159 (404)
Net increase in cash and cash equivalents 24,095 650
Cash and cash equivalents, beginning of period 1,498 33
------ ------
Cash and cash equivalents, end of period $25,593 $ 683
====== ======
</TABLE>
The accompanying notes are an integral part of these statements
<PAGE>
PREMIER RESEARCH WORLDWIDE, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for fair presentation have
been included. Operating results for the six-month period ended June 30, 1997,
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's S-1
registration statement filed with the Securities and Exchange Commission as part
of its initial public offering on February 3, 1997.
Note 2. Net Income per Share
Net income per share is calculated based on the weighted average shares
outstanding during the periods presented. Due to the net losses for the periods,
common stock equivalents, consisting of common stock options, were not included
as they are anti-dilutive.
Note 3. New Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per Share."
SFAS No. 128 is designed to improve the earnings per share information provided
in financial statements by simplifying the existing computational guidelines,
revising the disclosure requirements and increasing comparability of earnings
per share data on an international basis. This pronouncement is effective for
periods beginning after December 15, 1997, and is not expected to have a
material impact on the Company's reported earnings per share.
Note 4. Pro Forma Net Income Per Share
For the periods ended June 30, 1996, the Company's historical stockholders'
equity and net income does not reflect the conversion of the minority interest
in Premier Research LLC into Common Stock of the Company upon the closing of the
Company's initial public offering in February 1997. Accordingly, historical net
income per share is not considered meaningful and has not been presented.
Pro forma net income excludes the minority interest in the limited liability
company's income or loss. The shares used in computing pro forma net income per
share include the effect of the minority interest conversion as if the
conversion occurred on January 1, 1996. In addition, the shares used in
computing pro forma net income per share also include the dilutive effect of
common stock equivalents outstanding during the periods, consisting of common
stock options, using the treasury stock method.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company is a clinical research organization providing a broad range of
integrated product development services on a global basis to its clients in the
pharmaceutical, biotechnology and medical device industries. The Company's
services include centralized core laboratory testing, clinical trial management,
clinical data management, biostatistical analysis, Phase I clinical research,
health care economics and outcomes research and regulatory affairs services.
The Company's centralized core laboratory contracts are on a fee-for-service
basis and generally have terms from one month to two years. A portion of the
Company's fee typically is paid upon contract execution as a non-refundable
up-front payment, with the remaining amounts billed monthly. Clinical research
service contracts are generally fixed priced, with certain variable components,
and range in duration from a few months to two years. A portion of the Company's
fee typically is paid upon contract execution as a non-refundable up-front
payment, with the balance billed in accordance with contract terms. The
Company's contracts generally may be terminated with or without cause on 30 to
90 days notice. Clients terminate or delay contracts for a variety of reasons,
including, among others, the failure of products being tested to satisfy safety
or efficacy requirements; unexpected or undesirable clinical results of the
product; the client's decision to forego a particular study; insufficient
patient enrollment or investigator recruitment; and production problems
resulting in shortages of required clinical supplies.
Revenues from core laboratory service contracts generally are recognized on a
per procedure basis as the work is performed. Revenues from clinical research
service contracts generally are recognized on a percentage of completion basis
as work is performed. For the three months and six months ended June 30, 1997
the core laboratory services revenues represented 50.6% and 54.0%, respectively,
of total net revenues. The Company regularly subcontracts with third-party
investigators in connection with clinical trials and with other third-party
providers for specialized services. These and other reimbursable costs are paid
by the Company and reimbursed by clients and in accordance with industry
practice, are included in revenues. Since reimbursed costs may vary
significantly from contract to contract and are not meaningful for analyzing
trends in revenues, they are included in gross revenues but excluded from net
revenues. Consistent with industry practice, the Company considers net revenues
its primary measure of growth. The Company has had, and expects to continue to
have, certain clients from which at least 10% of the Company's overall revenue
is generated. The Company believes that such concentration of business is not
uncommon in the clinical research industry.
Results of Operations
Three months ended June 30, 1997 compared to three months ended June 30, 1996
Net revenue decreased $1,461,000, or 34.2%, to $2,810,000 for the three months
ended June 30, 1997, compared to the three months ended June 30, 1996. This
decrease was primarily due to core laboratory revenues for the three months
ended June 30, 1997, being $2,390,000 less than the three months ended June 30,
1996. Core laboratory revenues decreased as several material ECG contracts which
were ongoing in 1996, were completed in early 1997, with a low level of new ECG
contracts in 1997. Partially offsetting the core laboratory revenue decrease
were increased Phase I and clinical trial management revenues of $670,000 and
$227,000, respectively, over the three months ended June 30, 1996. The increase
in Phase I revenues was the result of several large contracts that were
conducted increasing the utilization of the facility and services rendered. The
clinical trial management revenue growth was attributable to the Company's
increased service capabilities developed during the last year.
Direct costs decreased $55,000, or 3.2%, to $1,647,000 for the three months
ended June 30, 1997, compared to the three months June 30, 1996. For the quarter
ended June 30, 1996, the Company paid ECG reading analysis fees of $725,000 to a
professional corporation owned by Joel Morganroth, M.D., the Company's President
and Chief Executive Officer. The Company and Dr. Morganroth have entered into
new employment and consulting agreements effective January 1, 1997; under these
agreements Dr. Morganroth no longer receives ECG reading fees. Offsetting this
decrease, were increases in Phase I direct expenses, and salary and related
expenses in clinical research services. Phase I direct expenses increased
$423,000 for the three months ended June 30, 1997, compared to the three months
ended June 30, 1996, to support the increased level of operations. The Company
<PAGE>
increased the clinical trials and data management staff to support additional
service capabilities. Direct costs as a percentage of net revenues increased to
58.6% for the three months ended June 30, 1997, from 39.9% for the three months
ended June 30, 1996, because Phase I and CTM revenues have higher direct costs
associated with its services.
Selling, general and administrative expenses increased $847,000, or 51.2%, to
$2,502,000 for the three months ended June 30, 1997, compared to the three
months ended June 30, 1996. Salaries and related benefits increased $490,000 for
the second quarter of 1997 due to the Company's decision to double the sales
staff and increase clinical trial and data management personnel. In addition to
the increased sales force, non-salary related sales expenses increased by
$205,000 for the quarter ended June 30, 1997, over June 30, 1996. These expenses
were for sales literature, promotional items, folders, sales sheets and assorted
other sales related material for a new sales campaign. Travel and telephone
expenses increased as a result of the Company's 27% increase in staff from the
quarter ended June 30, 1996, as compared to the quarter ended June 30, 1997.
Depreciation and amortization expense decreased $40,000, or 21.3%, to $148,000
for the quarter ended June 30, 1997, compared to the quarter ended June 30,
1996.
Other income of $430,000 for the three months ended June 30, 1997, resulted from
the interest income on cash, cash equivalents and marketable securities due
primarily from the net proceeds of the Company's initial public offering in
February 1997.
The Company's effective tax rate was a 46.9% benefit for the three months ended
June 30, 1997, versus 42.0% tax for the three months ended June 30, 1996. The
difference was due to the effects of the loss from operations and investments in
tax exempt securities in 1997.
Six months ended June 30, 1997 compared to six months ended June 30, 1996
Net revenue decreased $251,000, or 3.5%, to $6,909,000 for the six months ended
June 30, 1997, compared to the six months ended June 30, 1996. This decrease was
primarily due to core laboratory revenues for the six months ended June 30,
1997, being $2,431,000 less than the six months ended June 30, 1996. Core
laboratory revenues decreased as several material ECG contracts which were
ongoing in 1996, were completed in early 1997, with a low level of new ECG
contracts in 1997. Offsetting most of the core laboratory revenue decrease were
increased Phase I and clinical trial and data management revenues of $1,013,000
and $1,708,000, respectively, over the six months ended June 30, 1996. The
increase in Phase I revenues was the result of several large contracts that were
conducted increasing the utilization of the facility and services rendered. The
clinical trial and data management revenue growth was attributable to the
Company's increased service capabilities developed during the last year.
Direct costs increased $196,000, or 6.8%, to $3,068,000 for the six months ended
June 30, 1997, compared to the six months ended June 30, 1996. For the six
months ended June 30, 1996, the Company paid ECG reading analysis fees of
$1,023,000 to a professional corporation owned by Joel Morganroth, M.D., the
Company's President and Chief Executive Officer. The Company and Dr. Morganroth
have entered into new employment and consulting agreements effective January 1,
1997; under these agreements Dr. Morganroth no longer receives ECG reading fees.
Offsetting this decrease, were increases in Phase I direct expenses and salary
and related expenses in clinical research services. Phase I direct expenses
increased $423,000 for the six months ended June 30, 1997 compared to the six
months ended June 30, 1996 to support the increased level of operations. For the
six months ended June 30, 1997, the Company increased the clinical trials and
data management staff to support additional service capabilities. Direct costs
as a percentage of net revenues increased to 44.4% for the six months ended June
30, 1997, from 40.1% for the six months ended June 30, 1996.
Selling, general and administrative expenses increased $1,358,000, or 42.4%, to
$4,561,000 for the six months ended June 30, 1997, compared to the six months
ended June 30, 1996. This increase is primarily the result of initiating new
sales and marketing campaigns and related expenses, doubling the sales staff,
increased commitment to developing the Company's proprietary software systems,
and additional personnel costs associated with expanding service capabilities.
Selling, general and administrative expenses as a percentage of net revenues
increased to 66.0% for the six months ended June 30, 1997, from 44.7% for the
six months ended June 30, 1996.
<PAGE>
Depreciation and amortization expense decreased $105,000, or 26.9%, to $286,000
for the six months ended June 30, 1997, compared to the six months ended June
30, 1996. The decrease is primarily the result of equipment for the Phase I
facility and clinical laboratory purchased in prior years becoming fully
depreciated in 1997, and the Company's decision to move development of
information technology to personal computers and server-based computer system
from the more expensive VAX systems.
Other income of $679,000 for the six months ended June 30, 1997, resulted from
the interest income on cash, cash equivalents and marketable securities due
primarily from the net proceeds of the Company's initial public offering in
February 1997.
The Company's effective tax was a 58.1% benefit for the six months ended June
30, 1997, versus a 42.0% tax for the six months ended June 30, 1996. The
difference was due to the effects of the loss from operations in 1997 and
investments in tax exempt securities in 1997.
Liquidity and Capital Resources
As of June 30, 1997, the Company had $25.6 million of cash and cash equivalents
and $7.4 million invested in marketable securities. The Company has historically
funded its operations and growth with cash flow from operations. In February
1997, the Company completed an initial public offering of its common stock.
Proceeds of the offering, after expenses, were approximately $34.2 million.
During the six months ended June 30, 1997, the Company used cash in operating
activities of $2.0 million, versus cash provided in the same period of the prior
year. The decrease in operating cash flows is primarily due to an operating loss
and changes in working capital accounts. Capital expenditures totaled $0.7
million in the first half of 1997. Net proceeds from the Company's initial
public offering totalled $34.2 million. The Company used $7.4 million to acquire
marketable securities.
The Company has a line of credit arrangement totaling $1 million with First
Union National, Bank. At June 30, 1997, the Company had no borrowings under the
line of credit.
The Company expects existing cash and cash equivalents, marketable securities,
cash flow from operations, and the borrowings under its line of credit will be
sufficient to meet its foreseeable cash needs for at least the next two years.
Although the Company presently is not a party to any acquisition agreements or
similar arrangements, there may be acquisitions or other growth opportunities
that require additional external financing, and the Company may from time to
time seek to obtain additional funds from the public or private issuances of
equity or debt securities. There can be no assurances that such financings will
be available on terms acceptable to the Company.
DLB Systems
On June 30, 1997, the Company acquired a 14% equity position in a clinical trial
software and service developer, DLB Systems, a subsidiary of Safeguard
Scientifics, Inc. As part of the transaction, the Company has been granted the
option, expiring March 31, 1998, to purchase all of the assets of DLB Systems.
Inflation
The Company believes the effects of inflation generally do not have a material
adverse effect on its results of operations or financial condition.
Cautionary Statement for Forward Looking Information
Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations set forth above may constitute forward
looking statements within the meaning of the Private Security Litigation Reform
Act of 1995. Such statements involve a number of risks and uncertainties such as
competitive factors, technological development, market demand, and the Company's
ability to obtain new contracts and accurately estimate net revenues due to
variability in size, scope and duration of projects, and internal issues of the
sponsoring client. Further information on potential factors that could affect
the Company's financial results can be found in the Company's Registration
statement filed with the Securities and Exchange Commission.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PREMIER RESEARCH WORLDWIDE, LTD
-------------------------------
(Registrant)
Date: August 14, 1997 By: /s/ Joel Morganroth
-------------------------------
Joel Morganroth, MD
President and Chief Executive Officer
Date: August 14, 1997 By: /s/ Fred M. Powell
-------------------------------
Fred M. Powell
Chief Financial Officer
(Principal Financial and Accounting
Officer)
<PAGE>
===============================================================================
PREFERRED STOCK PURCHASE AGREEMENT
BETWEEN
DLB SYSTEMS, INC.
AND
PREMIER RESEARCH WORLDWIDE LIMITED
===============================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
PURCHASE, SALE AND TERMS OF SHARES
1.01. The Preferred Shares........................................... 1
1.02. The Conversion Shares.......................................... 1
1.03. Purchase Price and Closing .................................... 1
1.04. Use of Proceeds................................................ 2
1.05. Representations by the Purchaser............................... 2
1.06. Brokers or Finders............................................. 4
ARTICLE II
CONDITIONS TO PURCHASER'S OBLIGATIONS
2.01. Representations and Warranties ................................ 4
2.02. Documentation at Closing ...................................... 4
2.03. License from Purchaser ........................................ 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.01. Organization and Standing of the Company....................... 6
3.02. Corporate Action .............................................. 6
3.03. Governmental Approvals ........................................ 7
3.04. Litigation .................................................... 7
3.05. Certain Agreements of Officers and Employees .................. 8
3.06. Compliance with Other Instruments ............................. 8
3.07. Title to Assets, Patents ...................................... 9
3.08. Financial Information ......................................... 10
3.09. Taxes ......................................................... 11
3.10. ERISA ......................................................... 11
3.11. Transactions with Affiliates .................................. 11
3.12. Assumptions or Guaranties of Indebtedness of
Other Persons ................................................ 12
3.13. Investments in Other Persons .................................. 12
3.14. Securities Act of 1933 ........................................ 12
3.15. Disclosure .................................................... 12
3.16. Brokers or Finders............................................. 13
3.17. Capitalization; Status of Capital Stock ....................... 13
3.18. Registration Rights............................................ 14
3.19. Insurance ..................................................... 14
3.20. Books and Records ............................................. 14
3.21. Material Agreements ........................................... 14
3.22. Absence of Certain Developments ............................... 15
3.23. Environmental and Safety Laws.................................. 16
3.24. U.S. Real Property Holding Corporation......................... 16
3.25. Business Plan ................................................. 16
3.26. Safeguard ..................................................... 17
3.27. Safeguard Warrants ............................................ 17
(i)
<PAGE>
ARTICLE IV
COVENANTS OF THE COMPANY
4.01. Affirmative Covenants of the Company Other Than
Reporting Requirements........................................ 17
4.02. Negative Covenants of the Company.............................. 20
4.03. Reporting Requirements ........................................ 23
ARTICLE V
REGISTRATION RIGHTS
5.01. General ....................................................... 24
ARTICLE VI
RIGHT OF FIRST REFUSAL; OPTION TO PURCHASE
6.01. Right of First Refusal......................................... 24
6.02. Exercise of Right of First Refusal............................. 25
6.03. Evidence of Termination Right of First Refusal................. 26
6.04. Termination of Right of First Refusal.......................... 26
6.05. Option to Purchase ............................................ 26
6.06. Option Price .................................................. 26
6.07. Special Conditions of Option Purchase ......................... 27
6.08. Termination of Option.......................................... 27
6.09. Joinder by Shareholders ....................................... 27
ARTICLE VII
DEFINITIONS AND ACCOUNTING TERMS
7.01. Certain Defined Terms.......................................... 28
7.02. Accounting Terms .............................................. 33
ARTICLE VIII
MISCELLANEOUS
8.01. No Waiver; Cumulative Remedies ................................ 33
8.02. Amendments, Waivers and Consents .............................. 33
8.03. Addresses for Notices ......................................... 33
8.04. Costs and Expenses ............................................ 34
8.05. Binding Effect; Assignment .................................... 34
8.06. Survival of Representations and Warranties .................... 34
8.07. Prior Agreements .............................................. 34
8.08. Severability .................................................. 34
8.09. Confidentiality ............................................... 35
8.10. Governing Law ................................................. 35
8.11. Headings....................................................... 35
8.12. Counterparts .................................................. 35
8.13. Further Assurances............................................. 35
(ii)
<PAGE>
PREFERRED STOCK PURCHASE AGREEMENT
This Preferred Stock Purchase Agreement made and entered into this 30th day
of June, 1997, by and between DLB SYSTEMS, INC. (the "Company") a Delaware
corporation, and PREMIER RESEARCH WORLDWIDE LIMITED (the "Purchaser"), a
Delaware corporation.
BACKGROUND:
On the terms and subject to the conditions of this Agreement, the Company
has agreed to issue and the Purchaser has agreed to purchase certain shares of
the Company's capital stock.
NOW, THEREFORE, in consideration of the mutual promises contained herein
and intending to be legally bound, the Company and the Purchaser covenant,
agree, represent, and warrant, as appropriate, as follows.
ARTICLE I
PURCHASE, SALE AND TERMS OF SHARES
1.01. The Preferred Shares. The Company has authorized the issuance,
sale and exchange of 210,000 shares (the "Series B Shares") of its authorized
but unissued shares of Series B Convertible Preferred Stock, $.01 par value (the
"Series B Preferred Stock"), at a purchase price of $4.7619 per share and
$1,000,000 in the aggregate for all of the Series B Shares being acquired by
Purchaser hereunder (the "Purchase Price"). The Series B Preferred Stock is
sometimes hereinafter collectively referred to as the "Preferred Stock"; and the
Series B Shares are sometimes hereinafter collectively referred to as the
"Preferred Shares." The designation, rights, preferences and other terms and
provisions of the Preferred Stock are set forth in Exhibit 2.02(a) hereto.
1.02. The Conversion Shares. The Company has authorized and has
reserved and covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of shareholders, a sufficient number of its
authorized but unissued shares of Common Stock to satisfy the rights of
conversion under the Preferred Shares. Any shares of Common Stock issuable upon
conversion of the Preferred Shares (and such shares when issued) are herein
referred to as the "Conversion Shares." The Preferred Shares and Conversion
Shares are sometimes collectively referred to as the "Shares."
1.03. Purchase Price and Closing. At the Closing (as defined
hereinafter), the Company agrees to issue, sell and exchange to the Purchaser
and, in consideration of and in express reliance upon the representations,
warranties, covenants, terms and conditions of this Agreement, the Purchaser
agrees to purchase the Preferred Shares. The closing of the purchase, sale and
exchange of the Preferred Shares to be acquired by the Purchaser from the
Company under this Agreement shall take place
1
<PAGE>
at the offices of Stevens & Lee, 1275 Drummers Lane, Wayne, Pennsylvania at
10:00 a.m. on June 30, 1997, or at such time and date thereafter as the
Purchaser and the Company may agree (the "Closing"). At the Closing, the
Company will deliver to the Purchaser a certificate for the Preferred Shares
registered in the Purchaser's name, against delivery of a certified or bank
cashier's check payable to the order of the Company, or a transfer of funds to
the account of the Company by wire transfer, in an amount equal to the Purchase
Price.
1.04. Use of Proceeds. The Company shall use the Purchase Price
proceeds solely (i) to repay the outstanding principal balance of, and all
accrued interest on, the Safeguard Loan, and (ii) for working capital and
general corporate purposes; provided, however, in no event shall the Purchase
Price proceeds be used by the Company: (i) to reduce outstanding Indebtedness of
the Company other than (a) in the normal course of business as such Indebtedness
becomes due in normal course or (b) the Safeguard Loan; or (ii) make any
payments or distributions to or repay any Indebtedness (whether the same
constitutes a payment in the normal course or a prepayment) owed to, any
Shareholders or other affiliates of the Company, except for payments and
distributions used to repay the Safeguard Loan.
1.05. Representations by the Purchaser.
(a) Investment Representations. Purchaser represents that it
is its present intention to acquire the Shares to be acquired by it for its own
account (and it will be the sole beneficial owner thereof) and that the Shares
are being and will be acquired by it for the purpose of investment and not with
a view to distribution or resale thereof except pursuant to registration under
the Securities Act or exemption therefrom. Purchaser further represents that it
understands and agrees that, until registered under the Securities Act or
transferred pursuant to the provisions of Rule 144 or Rule 144A as promulgated
by the Commission, all certificates evidencing any of the Shares, whether upon
initial issuance or upon any transfer thereof, shall bear a legend, prominently
stamped or printed thereon, reading substantially as follows:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 or applicable state
securities laws. These securities have been acquired for investment
and not with a view to distribution or resale. These securities may
not be offered for sale, sold, delivered after sale,
transferred, pledged or hypothecated in the absence of an effective
registration statement covering such shares under the Act and any
applicable state securities laws, or the availability, in the
opinion of counsel, of an exemption from registration thereunder."
2
<PAGE>
(b) Access to Information. Purchaser or its
representatives during the course of this transaction, and prior to the purchase
of the Preferred Shares, has had the opportunity to ask questions of and receive
answers from management of the Company concerning the terms and conditions of
the offering of the Preferred Shares and the additional information, documents,
records and books relative to its business, assets, financial condition, results
of operations and liabilities (contingent or otherwise) of the Company.
(c) General Access. Purchaser or its representatives has
received and read or reviewed, and is familiar with, this Agreement and the
other agreements executed or delivered herewith, including the terms of the
Preferred Stock, and confirms that all documents, records and books pertaining
to Purchaser's investment in the Company and requested by Purchaser or its
representatives have been made available or delivered to it.
(d) Sophistication and Knowledge. Purchaser or its
representative has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of the purchase of
the Preferred Shares. Purchaser can bear the economic risks of this investment
and can afford a complete loss of its investment.
(e) Transfer Restrictions Imposed by Securities Laws.
Purchaser understands that: the Shares have not been registered under the
Securities Act and applicable state securities laws, and, therefore, cannot be
resold unless they are subsequently registered under the Securities Act and
applicable state securities laws or unless an exemption from such registration
is available; Purchaser is and must be purchasing the Preferred Shares for
investment for its account and not for the account or benefit of others, and not
with any present view toward resale or other distribution thereof. Purchaser
agrees not to resell or otherwise dispose of all or any part of the Shares
purchased by it, except as permitted by law, including, without limitation, any
regulations under the Securities Act and applicable state securities laws; the
Company does not have any present intention and is under no obligation to
register the Shares under the Securities Act and applicable state securities
laws, except as provided in Article V hereof; and Rule 144 or Rule 144A under
the Securities Act may not be available as a basis for exemption from
registration of the Shares thereunder.
(f) Lack of Liquidity. Purchaser has no present need for
liquidity in connection with its purchase of the Preferred Shares.
(g) Suitability and Investment Objectives. The purchase of
the Preferred Shares by Purchaser is consistent with the general investment
objectives of the Purchaser. The Purchaser understands that the purchase of the
Preferred Shares
3
<PAGE>
involves a high degree of risk in view of the fact that, among other things, the
Company is an early-stage enterprise, and there may be no established market for
the Company's capital stock.
(h) Accredited Investor Status. Purchaser is an "Accredited
Investor" as that term is defined in Rule 501 of Regulation D promulgated under
the Securities Act.
(i) Restrictions on Future Investments. Purchaser is not
subject to any provisions in any limited partnership agreement or other
governing instrument that may operate to restrict or limit its ability to make
investments on or after the date hereof in capital stock of the Company.
1.06. Brokers or Finders. Purchaser represents that no Person has or
will have, as a result of the transactions contemplated by this Agreement, any
right, interest or valid claim against or upon the Company for any commission,
fee or other compensation as a finder or broker because of any act or omission
by Purchaser or its respective agents.
ARTICLE II
CONDITIONS TO PURCHASER'S OBLIGATIONS
Purchaser's obligation to purchase and pay for the Preferred Shares is
subject to the following conditions (all of which shall be deemed satisfied or
waived by the Purchaser at or prior to the Closing in the event all of the
transactions contemplated to be effected at the Closing are consummated):
2.01. Representations and Warranties. Each of the representations and
warranties of the Company set forth in Article III hereof shall be true,
accurate and correct, in all material respects, on the date of the Closing.
2.02. Documentation at Closing. The Purchaser shall have received
prior to or at the Closing all of the following materials, each in form and
substance reasonably satisfactory to the Purchaser and its counsel, and each of
the following events shall have occurred, or each of the following documents
shall have been delivered, prior to or simultaneous with the Closing:
(a) A copy of the Certificate of Incorporation of the
Company, as amended and restated in connection herewith (the "Restated
Certificate of Incorporation") to date, together with such evidence as may be
available of the filing thereof; a copy of the resolutions of the Board of
Directors providing for the approval of the Restated Certificate of
Incorporation in the form attached as Exhibit 2.02(a), the approval of this
Agreement, the issuance of the Preferred Shares, and all other agreements or
matters contemplated hereby or executed in connection herewith; a copy of a
consent of stockholders of the Company approving the Restated Certificate of
Incorporation; and a copy of the By-laws of the Company, all of
4
<PAGE>
which have been certified by the Secretary or an Assistant Secretary of the
Company to be true, complete and correct in every particular; and certified
copies of all documents evidencing other necessary corporate or other action and
governmental approvals, if any, required to be obtained at or prior to the
Closing with respect to this Agreement and the issuance of the Preferred Shares.
(b) A certificate of the Secretary or an Assistant Secretary
of the Company which shall certify the names of the officers of the Company
authorized to sign this Agreement, the certificates for the Preferred Shares and
the other documents, instruments or certificates to be delivered pursuant to
this Agreement by the Company or any of its officers, together with the true
signatures of such officers.
(c) A certificate of the President or Chairman and the
Treasurer of the Company stating that the representations and warranties of the
Company contained in Article III hereof are true, accurate and correct, in all
material respects, as of the time of the Closing and that all conditions
required to be performed by the Company prior to or at the Closing have been
performed as of the Closing.
(d) The Company shall have obtained any consents or waivers
necessary to be obtained at or prior to the Closing to execute and deliver this
Agreement, the Preferred Shares and the other agreements and instruments
executed and delivered by the Company in connection herewith and to carry out
the transactions contemplated hereby and thereby, and such consents and waivers
shall be in full force and effect at the Closing. All corporate and other action
and governmental filings necessary to effectuate the terms of this Agreement,
the Preferred Shares and the other agreements and instruments executed and
delivered by the Company in connection herewith shall have been made or taken.
(e) The Restated Certificate of Incorporation shall have
been filed with the Secretary of State of the State of Delaware.
(f) A Certificate of the Secretary of State of the State of
Delaware as to the due incorporation and good standing of the Company shall have
been provided to the Purchaser.
(g) The DLB License Agreement shall have been executed by
the Company in the form of Exhibit 2.02(g) hereto.
(h) A Voting and Stock Restriction Agreement shall have been
executed in the form attached as Exhibit 2.02(h) hereto, pursuant to which,
among other things, the right of Purchaser (as holder of the Preferred Stock) to
elect and
5
<PAGE>
designate one (1) member of the Board of Directors shall be evidenced.
(i) The Marketing Agreement shall have been executed by the
Company in the form of Exhibit 2.02(i) hereto.
(j) An opinion letter issued by counsel to the Company, in
form and substance reasonably satisfactory to the Purchaser, shall have been
delivered to the Purchaser.
(k) The Registration Rights Agreement shall have been
executed by the Company in the form of Exhibit 2.02(k) hereto.
(1) A copy of the financial statements of the Company for
the year ended December 31, 1996, certified without exception or qualification
by the Company's independent auditors, shall have been delivered to the
Purchaser.
2.03. License from Purchaser. As a material inducement for the Company
to enter into this Agreement, the Purchaser covenants and agrees, concurrently
with the Closing hereunder, to enter into the Purchaser License Agreement with
the Company in the form of Exhibit 2.03 hereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants as of the Closing as follows:
3.01. Organization and Standing of the Company. The Company is a duly
organized and validly existing corporation in good standing under the laws of
the State of Delaware and has all requisite corporate power and authority for
the ownership and operation of its properties and for the carrying on of its
business as now conducted and as now proposed to be conducted and to execute and
deliver the Operative Agreements, to issue, sell and deliver the Preferred
Shares and to issue and deliver the Conversion Shares and to perform its other
obligations pursuant hereto and thereto. The Company is duly licensed or
qualified and in good standing as a foreign corporation authorized to do
business in all jurisdictions wherein the character of the property owned or
leased or the nature of the activities conducted by it makes such licensing or
qualification necessary, except where the failure to be so licensed or qualified
would not have a material adverse effect on the business, operations or
financial condition of the Company.
3.02. Corporate Action. The Operative Agreements and the other
agreements executed in connection herewith have been duly authorized, executed
and delivered by the Company and constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their
6
<PAGE>
respective terms. The Voting and Stock Restriction Agreement has been duly
authorized, executed and delivered by the Shareholders and constitutes the
legal, valid and binding obligations of the Shareholders, enforceable against
the several Shareholders in accordance with their respective terms. The
Preferred Shares have been duly authorized. The issuance, sale and delivery of
the Conversion Shares upon conversion of the Preferred Shares have been duly
authorized by all required corporation action; the Preferred Shares have been
validly issued, are fully paid and nonassessable with no personal liability
attaching to the ownership thereof and are free and clear of all liens, charges,
restrictions, claims and encumbrances imposed by or through the Company except
as set forth in this Agreement and the Voting and Stock Restriction Agreement;
and the Conversion Shares have, as of the Closing, been duly reserved for
issuance upon conversion of the Preferred Shares and, when so issued, will be
duly authorized, validly issued, fully paid and nonassessable with no personal
liability attaching to the ownership thereof and will be free and clear of all
liens, charges, restrictions, claims and encumbrances imposed by or through the
Company except as set forth in this Agreement and the Voting and Stock
Restriction Agreement.
3.03. Governmental Approvals. Except as set forth on Exhibit 3.03 and
except for the filing of any notice prior or subsequent to the Closing that may
be required under applicable state and/or Federal securities laws (which, if
required, shall be filed on a timely basis), no authorization, consent,
approval, license, exemption of or filing or registration with any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, is or will be necessary for, or in connection with, the
execution and delivery by the Company of the Operative Agreements, or the offer,
issue, sale, execution or delivery of the Preferred Shares, or for the
performance by the Company of its obligations under the Operative Agreements or
the Shares.
3.04. Litigation. Except as disclosed in Exhibit 3.04, there is no
litigation or governmental proceeding or investigation pending or, to the
knowledge of the Company, threatened against the Company affecting the Company,
its business, or any of its properties or assets, or against any officer, Key
Employee or the holder of more than ten percent (10%) of the capital stock of
the Company relating to the Company or its business, nor, to the best knowledge
of the Company, has there occurred any event or does there exist any condition
on the basis of which any litigation, proceeding or investigation might properly
be instituted. Neither the Company nor, to the best knowledge of the Company,
any officer, Key Employee or holder of more than ten percent (10%) of the
capital stock of the Company is in default with respect to any order, writ,
injunction, decree, ruling or decision of any court, commission, board or other
government agency. There are no actions or proceedings pending or, to the
Company's knowledge, threatened (or any basis
7
<PAGE>
therefor known to the Company) which might result, either in any case or in the
aggregate, in any material adverse change in the business, operations,
Intellectual Property Rights, affairs or financial condition of the Company or
in any of its properties or assets, or which might call into question the
validity of the Operative Agreements, any of the Preferred Shares, or any action
taken or to be taken pursuant hereto or thereto. The foregoing sentences
include, without limiting their generality, actions pending or, to the Company's
knowledge, threatened (or any basis therefor known to the Company) involving the
prior employment or engagement of any of the Company's officers, employees or
consultants or their use in connection with the Company's business of any
information or techniques allegedly proprietary to any of their former employers
or to any other Person. Without limitation to the foregoing representations, a
brief summary of the Company's material litigation and the disposition of such
matters is set forth on Exhibit 3.04.
3.05. Certain Agreements of Officers and Employees.
(a) No officer, employee or consultant of the Company is, or
is now, to the Company's knowledge, expected to be, in violation of any term of
any employment contract, patent disclosure agreement, proprietary information
agreement, noncompetition agreement, nonsolicitation agreement, confidentiality
agreement, or any other similar contract or agreement or any restrictive
covenant, including those set forth on Exhibit 3.05(a), relating to the right of
any such officer, employee, or consultant to be employed or engaged by the
Company because of the nature of the business conducted or to be conducted by
the Company or relating to the use of trade secrets or proprietary information
of others, and to the Company's best knowledge and belief, the continued
employment or engagement of the Company's officers, employees or consultants
does not subject the Company or any Purchaser to any liability with respect to
any of the foregoing matters.
(b) Except as disclosed in Exhibit 3.05(b), no officer,
consultant or Key Employee of the Company whose termination, either individually
or in the aggregate, could have an adverse effect on the Company, has terminated
since January 1, 1997, or to the best knowledge of the Company, has any present
intention of terminating, his employment or engagement with the Company.
3.06. Compliance with Other Instruments. The Company is in compliance
in all respects with the terms and provisions of this Agreement and of its
certificate of incorporation and by-laws, each as amended and/or restated to
date, and in all respects with the material terms and provisions of all
mortgages, indentures, leases, agreements and other instruments by which it is
bound or to which it or any of its properties or assets are subject. The Company
is in compliance in all material respects with all judgments, decrees,
governmental orders, laws, statutes,
8
<PAGE>
rules or regulations by which it is bound or to which it or any of its
properties or assets are subject. Neither the execution, issuance and delivery
of the Operative Agreements or the Preferred Shares, nor the consummation of any
transaction contemplated hereby or thereby, has constituted or resulted in or
will constitute or result in a default or violation of any term or provision of
any of the foregoing documents, instruments, judgments, agreements, decrees,
orders, statutes, rules and regulations. A schedule of Indebtedness of the
Company, excluding the Safeguard Loan, as of the date hereof (including lease
obligations required to be capitalized in accordance with applicable Statements
of Financial Accounting Standards) is attached as Exhibit 3.06.
3.07. Title to Assets, Patents. The Company has good and marketable
title in fee to such of its fixed assets as are real property, and good and
merchantable title to all of its other assets, now carried on its books, which
assets consist of those reflected in the most recent balance sheet of the
Company which forms Exhibit 3.08 attached hereto, or acquired since the date of
such balance sheet (except personal property disposed of since said date in the
ordinary course of business) free of any mortgages, pledges, charges, liens,
security interests or other encumbrances other than (a) any such created in
accordance with the terms of the leases, security agreements and other financing
documents listed in Exhibit 3.07, (b) liens for taxes not yet due and payable,
(c) liens imposed by law and incurred in the ordinary course of business for
obligations not yet due and payable to landlords, carriers, warehousemen,
materialmen and the like, and (d) unperfected purchase money security interests
existing in the ordinary course of business without the execution of a separate
security agreement. The Company enjoys peaceful and undisturbed possession under
all leases under which it is operating, and all said leases are valid and
subsisting and in full force and effect.
The Company owns or has a valid right to use the Intellectual Property
Rights being used to conduct its business as now operated and as now proposed
to be operated (a complete list of licenses and registrations of such
Intellectual Property Rights is attached hereto as Exhibit 3.07); and the
conduct of its business as now operated and as now proposed to be operated does
not and will not conflict with or infringe upon the intellectual property rights
of others. Except as set forth on Exhibit 3.07, no claim is pending or
threatened against the Company and/or its officers, employees and consultants to
the effect that any such Intellectual Property Right owned or licensed by the
Company, or which the Company otherwise has the right to use, is invalid or
unenforceable by the Company. Except pursuant to the terms of any licenses
specified on Exhibit 3.07, the Company has no obligation to compensate any
Person for the use of any such Intellectual Property Rights and the Company has
not granted any Person any license or other right to use any of
9
<PAGE>
the Intellectual Property Rights of the Company, whether requiring payment of
royalties or not.
The Company has taken all reasonable measures to protect and preserve
the security, confidentiality and value of its Intellectual Property Rights,
including its trade secrets and other confidential information. All employees
and consultants of the Company involved in the design, review, evaluation or
development of products or Intellectual Property Rights have executed
nondisclosure and assignment of inventions agreements sufficient to protect the
confidentiality and value of the Company's Intellectual Property Rights and to
vest in the Company exclusive ownership of such Intellectual Property Rights. To
the best knowledge of the Company, all trade secrets and other confidential
information of the Company are presently valid and protectible and are not part
of the public domain or knowledge, nor, to the best knowledge of the Company,
have they been used, divulged or appropriated for the benefit of any person
other than the Company or otherwise to the detriment of the Company. To the best
of the Company's knowledge, no employee or consultant of the Company has used
any trade secrets or other confidential information of any other person in the
course of their work for the Company. The Company is the exclusive owner of all
right, title and interest in its Intellectual Property Rights as purported to be
owned by the Company, and such Intellectual Property Rights are valid and in
full force and effect. Neither the Company, nor any of its employees or
consultants has received notice of, and to the best of the Company's knowledge
after reasonable investigation, there are no claims that the Company's
Intellectual Property Rights or the use or ownership thereof by the Company
infringes, violates or conflicts with any such right of any third party. No
university, hospital, government agency (whether federal or state) or other
organization which has sponsored research and development conducted by the
Company has any claim of right to or ownership of or other encumbrance upon the
Intellectual Property Rights of the Company.
3.08. Financial Information. The financial statements of the Company,
including (i) the Company's Audited Financial Statements from the date of its
incorporation through December 31, 1996 and (ii) the Company's unaudited
Statement of Income and Balance Sheet, as at March 31, 1997 attached hereto as
Exhibit 3.08, present fairly the financial position of the Company as at the
date or dates thereof and the results of operations for the respective periods
then ended, and have been prepared in accordance with generally accepted
accounting principles consistently applied, except, in the case of the financial
statements described in clause (ii), for the absence of footnotes and
normal non-material year-end adjustments (the "Financial Statements"). The
Company does not have, and has no reasonable grounds to know of, any liability,
contingent or otherwise, not adequately reflected in or reserved against in the
Financial Statements. Except as set forth in Exhibit 3.08, since January 1,
1997, (i) there has been no material adverse change in
10
<PAGE>
the business, assets, operations, affairs, prospects or financial condition of
the Company; (ii) neither the business financial condition, operations,
prospects or affairs of the Company nor any of its properties or assets,
including without limitation, its Intellectual Property Rights, have been
materially adversely affected as the result of any legislative or regulatory
change, any revocation or change in any franchise, permit, license or right to
do business, or any other event or occurrence, whether or not insured against;
and (iii) the Company has not entered into any material transaction other than
in the ordinary course of business, made any distribution on its capital stock,
or redeemed or repurchased any of its capital stock, except as set forth on
Exhibit 3.08.
3.09. Taxes. The Company has accurately prepared and timely filed all
federal, state and other tax returns required by law to be filed by it, has paid
or made provision for the payment of all taxes shown to be due and all
additional assessments, and adequate provisions have been made and are reflected
in the Company's financial statements for all current taxes and other charges to
which the Company is subject and which are not currently due and payable. None
of the federal income tax returns of the Company have been audited by the
Internal Revenue Service. The Company knows of no additional assessments,
adjustments or contingent tax liability (whether federal or state) pending or
threatened for any period, nor of any basis for any such assessment, adjustment
or contingency. Neither the Company nor, to the best of the Company's knowledge,
any of its stockholders, has ever filed a consent pertaining to the Company
pursuant to Section 341(f) of the Code relating to collapsible corporations.
The Company's net operating losses for federal income tax purposes, as
set forth in the Financial Statements, are not subject to any limitations
imposed by Section 382 of the Code, and the sale of the Preferred Shares hereby,
as contemplated by this Agreement or by any other agreement, understanding or
commitment, contingent or otherwise, to which the Company is a party or by which
it is otherwise bound will not have the effect of limiting the Company's ability
to use such net operating losses in full to offset such taxable income, except
as set forth on Exhibit 3.09.
3.10. ERISA. The Company makes no contributions to any employee
pension benefit plans for its employees which are subject to ERISA.
3.11. Transactions with Affiliates. Except as set forth in Exhibit
3.11, there are no loans, leases, royalty agreements or other continuing
transactions between (a) the Company or any of its customers or suppliers, and
(b) any officer, employee, consultant or director of the Company or any Person
owning five percent (5%) or more of the capital stock of the Company or any
member of the immediate family of such
11
<PAGE>
officer, employee, consultant, director or stockholder or any corporation or
other entity controlling, controlled by, or under common control with such
officer, employee, consultant, director or stockholder, or a member of the
immediate family of such officer, employee, consultant, director or stockholder.
3.12. Assumptions or Guaranties of Indebtedness of Other Persons. The
Company has not assumed, guaranteed, endorsed or otherwise become directly or
contingently liable on (including, without limitation, liability by way of
agreement, contingent or otherwise, to purchase, to provide funds for payment,
to supply funds to or otherwise invest in the debtor or otherwise to assure the
creditor against loss), any Indebtedness of any other Person except as set forth
in Exhibit 3.12.
3.13. Investments in Other Persons. Except as set forth in Exhibit
3.13, the Company has not made any loans or advances to any Person which is
outstanding on the date of this Agreement in excess of $5,000 in the aggregate,
nor is it committed or obligated to make any such loan or advance, nor does the
Company own any capital stock, assets comprising the business of, obligations
of, or any interest in, any Person. Except as set forth on Exhibit 3.13, the
Company does not have, and has not since its incorporation had, any
Subsidiaries.
3.14. Securities Act of 1933. The Company has complied and will comply
with all applicable federal and state securities laws in connection with the
offer, issuance and sale of the Preferred Shares hereunder and the Company has
complied with all applicable federal and state securities laws in connection
with the offer, issuance or sale of all securities issued by the Company prior
to the date hereof. Neither the Company nor anyone acting on its behalf has or
will sell, offer to sell or solicit offers to buy the Preferred Shares or
similar securities to, or solicit offers with respect thereto from, or enter
into any preliminary conversations or negotiations relating thereto with, any
Person so as to bring the issuance and sale of the Preferred Shares under the
registration provisions of the Securities Act and applicable state securities
laws.
3.15. Disclosure. Neither the Operative Agreements, the Financial
Statements, nor any other agreement, document, certificate, or statement,
whether oral or written, furnished to the Purchaser or their counsel by or on
behalf of the Company in connection with the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein or therein, in
light of the circumstances in which made, not misleading. Projections made in
the business plans and other projections provided to Purchaser are not
considered to be facts for the purpose of this Section. Such projections were
prepared in good faith on the basis of reasonable assumptions, and all such
assumptions which are material to such projections have been disclosed therein.
There is no fact within the knowledge of the
12
<PAGE>
Company or any of its executive officers which has not been disclosed herein or
in writing by them to the Purchaser and which materially adversely affects, or
in the future in their opinion may, insofar as they can now foresee, materially
adversely affect the business, operations, properties, Intellectual Property
Rights, assets or condition, financial or other, of the Company. Without
limiting the foregoing, the Company has no knowledge that there exists, or there
is pending or planned, any patent, invention, device, application or principle
or any statute, rule, law, regulation, standard or code which would materially
adversely affect the business, operations, Intellectual Property Rights, affairs
or financial condition of the Company.
3.16. Brokers or Finders. No Person has or will have, as a result of
the transactions contemplated by this Agreement, any right, interest or valid
claim against or upon the Company for any commission, fee or other compensation
as a finder or broker because of any act or omission by the Company or its
respective agents.
3.17. Capitalization; Status of Capital Stock. As of the Closing, the
Company will have a total authorized capitalization consisting of (i) 1,800,000
shares of Common Stock, $.01 par value, and (ii) 1,500,000 shares of Preferred
Stock, $.01 par value, of which (A) 1,000,000 shares will be designated as
Series A Preferred Stock, and (B) 500,000 shares will be designated as Series B
Preferred Stock. As of the Closing, (i) 200,000 shares of Common Stock will be
issued and outstanding, (ii) 860,000 shares of Series A Preferred Stock will be
issued and outstanding, and, without giving effect to the transactions
contemplated hereby, (iii) no shares of Series B Preferred Stock will be issued
or outstanding. A complete list of the capital stock of the Company which has
been previously issued and the names in which such capital stock is registered
on the stock transfer book of the Company is set forth in Exhibit 3.17 hereto.
All the outstanding shares of capital stock of the Company have been duly
authorized, and are validly issued, fully paid and non-assessable. The Preferred
Shares when issued and delivered in accordance with the terms hereof, will be
duly authorized, validly issued, fully-paid and non-assessable. Except for the
Safeguard Warrants and the 250,000 shares of Common Stock that will be reserved
for issuance upon exercise of stock options as further set forth in Exhibit
3.17, no options, warrants, subscriptions or purchase rights of any nature to
acquire from the Company, or commitments of the Company to issue, shares of
capital stock or other securities are authorized, issued or outstanding, nor is
the Company obligated in any other manner to issue shares or rights to acquire
any of its capital stock or other securities except as contemplated by this
Agreement. None of the Company's outstanding securities or authorized capital
stock or the Preferred Stock are subject to any rights of redemption,
repurchase, rights of first refusal, preemptive rights or other similar rights,
whether contractual, statutory or otherwise, for the benefit of the Company, any
13
<PAGE>
shareholder, or any other Person, except pursuant to the provisions of (i) the
Safeguard Warrants, (ii) the Safeguard Purchase Agreement, and (iii) the Voting
and Stock Restriction Agreement. Except as set forth in Exhibit 3.17, there are
no restrictions on the transfer of shares of capital stock of the Company other
than those imposed by relevant federal and state securities laws and as
otherwise contemplated by or disclosed in this Agreement. Except as set forth in
Exhibit 3.17, there are no agreements, understandings, trusts or other
collaborative arrangements or understandings concerning the voting or transfer
of the capital stock of the Company. The offer and sale of all capital stock and
other securities of the Company issued before the Closing complied with or were
exempt from all applicable federal and state securities laws and no stockholder
has a right of rescission or damages with respect thereto.
3.18. Registration Rights. Except for the rights granted hereunder and
rights granted to Safeguard under the Safeguard Purchase Agreement and the
Safeguard Warrants, no Person has demand or other rights to cause the Company to
file any registration statement under the Securities Act relating to any
securities of the Company or any right to participate in any such registration
statement.
3.19. Insurance. Company carries insurance covering its properties and
business adequate and customary for the type and scope of the properties, assets
and business, and similar to companies of comparable size and condition
similarly situated in the same industry in which the Company operates, but in
any event in amounts sufficient to prevent the Company from becoming a
co-insurer or self-insurer, with provision for reasonable deductibles.
3.20. Books and Records. The books of account, ledgers, order books,
records and documents of the Company accurately and completely reflect all
material information relating to the business of the Company, the location and
collection of its assets, and the nature of all transactions giving rise to the
obligations or accounts receivable of the Company.
3.21. Material Agreements. Except as set forth in Exhibit 3.21, the
Company is not a party to any written or oral contract, instrument, agreement,
commitment, obligation, plan or arrangement, a copy of which would be required
to be filed with the Commission as an exhibit to a registration statement on
Form S-1, Form SB-2 or Form S-18 if the Company were registering securities
under the Securities Act, or any other agreement which could adversely affect
the business, assets, liabilities, Intellectual Property Rights, financial
condition or operations of the Company. The Company, and to the best of the
Company's knowledge, each other party thereto have in all material respects
performed all the obligations required to be performed by them to date, have
received no notice of default and are not in default
14
<PAGE>
under any lease, agreement or contract now in effect to which the Company is a
party or by which it or its property may be bound, the result of which could
cause a material adverse change in the business, assets, liabilities,
Intellectual Property Rights, operations or financial condition of the Company.
Except as set forth in Exhibit 3.21, each of the contracts or agreements listed
in Exhibit 3.21 is in full force and effect with no default, anticipated or
threatened default or failure of performance or observance of any obligations or
conditions contained therein, and none of the foregoing parties nor the Company
has provided any notice of default or of its intention to terminate these
agreements. The Company has supplied to the Purchaser true and complete copies
of each of the contracts or agreements listed in Exhibit 3.21.
3.22. Absence of Certain Developments. Except as provided in Exhibit
3.22, attached hereto, since January 1, 1997 the Company has not:
(a) issued any stock, bonds or other corporate securities or
any rights, options or warrants with respect thereto;
(b) borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities incurred in the
ordinary course of business which are comparable in nature and amount to the
current liabilities incurred in the ordinary course of business during the
comparable portion of its prior fiscal year, as adjusted to reflect the current
nature and volume of the Company's business;
(c) discharged or satisfied any lien or encumbrance or paid
any obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;
(d) declared or made any payment or distribution of cash or
other property to stockholders with respect to its stock, or purchased or
redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock;
(e) mortgaged or pledged any of its assets tangible or
intangible, or subjected them to any liens, charge or other encumbrance, except
liens for current property taxes not yet due and payable;
(f) sold, assigned or transferred any other tangible assets,
or cancelled any debts or claims, except in the ordinary course of business;
(g) sold, assigned or transferred any patents, patent
rights, trademarks, trade names, copyrights, trade secrets or other intangible
assets or intellectual property
15
<PAGE>
rights, or disclosed any proprietary confidential information to any persons
except to customers in the ordinary course of business;
(h) suffered any substantial losses or waived any rights of
material value, whether or not in the ordinary course of business, or suffered
the loss of any material amount of prospective business;
(i) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;
(j) made capital expenditures or commitments therefor that
aggregate in excess of $25,000;
(k) entered into any other transaction other than in the
ordinary course of business, or entered into any other material transaction,
whether or not in the ordinary course of business;
(1) made charitable contributions or pledges in excess of
$5,000;
(m) suffered any material damage, destruction or casualty
loss, whether or not covered by insurance;
(n) experienced any problems with labor or management in
connection with the terms and conditions of their employment; or
(o) effected any two or more events of the foregoing kind
which in the aggregate would be material to the Company.
3.23. Environmental and Safety Laws. To the best of the Company's
knowledge after due investigation, it is not in violation of any applicable
statute, law or regulation relating to the environment or occupational safety
and health, and to the best of its knowledge after due investigation, no
material expenditures will be required in order to comply with any such statute,
law or regulation.
3.24. U.S. Real Property Holding Corporation. The Company is not now
and has never been a "United States Real Property Holding Corporation" as
defined in Section 897(c)(2) of the Code and Section 1.897-2(b) of the
Regulations promulgated by the Internal Revenue Service.
3.25. Business Plans and Projections. All factual information
contained in the business plans and projections provided to Purchaser was when
given and is at the date of this Agreement true, complete and accurate in all
material respects
16
<PAGE>
and not misleading and, without prejudice to the generality of the foregoing,
the financial forecasts contained in the business plans and projections have
been diligently prepared and such assumptions upon which they are based as to
the prospects of the Company have been carefully considered and are honestly
believed to be reasonable, having regard to the information available and to
the market conditions prevailing at the time of their preparation and that the
Purchaser has made due and careful inquiry so as to ascertain (as far as
possible) all such information and conditions which are relevant to the
preparation of the business plans and projections.
3.26. Safeguard. The Company has supplied the Purchaser with copies of
all material written agreements between the Company and Safeguard or its
affiliates. Except as set forth in such agreements or on Exhibit 3.26, there are
no other material agreements, arrangements or understandings, written or oral,
between the Company and Safeguard or its affiliates.
3.27. Safeguard Warrants. The issuance, sale and delivery of the
Series B Preferred Stock and the Conversion Shares will not, due to the
anti-dilution provisions in any outstanding warrant, option or convertible
security issued by the Company and outstanding on the date hereof, result in a
change in the number of shares of the Company's capital stock which may be
acquired under, or the exercise price of, such warrant, option or convertible
security.
ARTICLE IV
COVENANTS OF THE COMPANY
4.01. Affirmative Covenants of the Company Other Than Reporting
Requirements. Without limiting any other covenants and provisions hereof, and
except to the extent the covenants and provisions of (A) this Section 4.01 are
waived in any instance by (i) a majority of the aggregate holders of the Series
B Preferred Stock, voting separately as a class, or (ii) the Series B Director,
or (B) paragraph (e), only with respect to meetings of the Board of Directors to
be held after the expiration of the Option Period, paragraph (i) or paragraph
(1), except with respect to the right of Purchaser to have one (1)
representative on the Board of Directors, of this Section 4.01 are waived in any
instance by (i) a majority of the aggregate holders of the Series A Preferred
Stock, voting separately as a class, or (ii) a majority of the Series A
Directors, voting separately as a class, the Company covenants and agrees that
until the consummation of a Qualified Public Offering, it will perform and
observe the following covenants and provisions, and will cause each Subsidiary,
if and when such Subsidiary exists, to perform and observe such of the following
covenants and provisions as are applicable to such Subsidiary:
(a) Inspection Rights. Permit during normal business hours,
upon reasonable request and notice, Purchaser or
17
<PAGE>
any employees, agents or representatives thereof, to examine and make copies of
and extracts from the records and books of account of, and visit and inspect the
properties, assets, operations and business of the Company and any Subsidiary,
and to discuss the affairs, finances and accounts of the Company and any
Subsidiary with any of its officers, consultants, directors, Key Employees,
attorneys or independent accountants; provided, however, that Purchaser or any
employee, agent or representative thereof, as the case may be, agrees to hold
all information confidential on the terms set forth in Section 8.09 hereof.
(b) Financing. Promptly, fully and in detail, inform the
Board of Directors of any discussions, offers or contracts relating to possible
financing of any material nature for the Company, whether initiated by the
Company or any other Person.
(c) Budgets Approval. Prior to the commencement of each
fiscal year, prepare and submit to, and obtain in respect thereof the approval
of two-thirds of the members of the Board of Directors, a business plan and
monthly operating budget in detail for each fiscal year, monthly operating
expenses and profit and loss projections, quarterly cash flow projections and a
capital expenditure budget for the fiscal year.
(d) New Developments. Cause all technological developments,
patentable or unpatentable inventions, discoveries or improvements by the
Company's or any Subsidiary's employees or consultants to be documented in
accordance with industry practice and, where possible and appropriate, to file
and prosecute United States and foreign patent, copyright, trademark, mask work
or other Intellectual Property Right applications relating to and protecting the
Company's inventions, discoveries or developments on behalf of the Company or
any Subsidiary.
(e) Meetings of Directors and Related Rights. Hold meetings
of the Board of Directors not less than on a quarterly basis; and provide to
Purchaser copies of all notices, reports, minutes and consents at the time and
in the manner as they are provided to the Board of Directors or any committee
thereof.
(f) By-laws; Indemnification. The Company shall at all times
maintain provisions in its By-laws or Certificate of Incorporation indemnifying
all directors against liability to the maximum extent permitted under the laws
of the state of its incorporation.
(g) Corporate Existence. Maintain and cause each of its
Subsidiaries to maintain their respective corporate existence, Intellectual
Property Rights, other rights and
18
<PAGE>
franchises in full force and effect to the extent appropriate in accordance
with good business practice.
(h) Properties, Business, Insurance. Maintain and cause each
of its Subsidiaries to maintain as to their respective properties and business,
with financially sound and reputable insurers, insurance against such casualties
and contingencies and of such types and in such amounts as is customary for
companies of a similar size and financial condition similarly situated within
the same industry.
(i) Expenses of Directors. Promptly reimburse in full each
director of the Company for all of his or her reasonable out-of-pocket expenses
incurred in attending each meeting of the Board of Directors.
(j) Compliance with Laws. Comply, and cause each Subsidiary
to comply, with all applicable laws, rules, regulations and orders,
noncompliance with which could materially adversely affect its business, assets
Intellectual Property Rights, operations or condition, financial or otherwise.
(k) Keeping of Records and Books of Account. Keep, and
cause each Subsidiary to keep, adequate records and books of account, in which
complete entries will be made in accordance with generally accepted accounting
principles consistently applied, reflecting all financial transactions of the
Company and such Subsidiary, and in which, for each fiscal year, all proper
reserves for depreciation, depletion, obsolescence, amortization, taxes, bad
debts and other purposes in connection with its business shall be made.
(1) Size of Board. Fix and maintain the number of Directors
on the Board of Directors of the Company at nine (9) members, including two (2)
representatives of the holders of Common Stock, the chief executive officer of
the Company, five (5) representatives of Safeguard, and one (1) representative
of the Purchaser.
(m) Rule 144A Information. At all times during which the
Company is neither subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act, nor exempt from reporting pursuant to Rule 12g3-2(b) under
the Exchange Act, it will provide as promptly as practicable (in any event not
later than twenty (20) days after initial request) in written form, upon the
written request of Purchaser or a prospective buyer of Shares from Purchaser,
all information required by Rule 144A(d)(4)(i) of the General Regulations
promulgated by the Commission under the Securities Act ("Rule 144A
Information"). The Company further covenants, upon written request, as promptly
as practicable (in any event not later than twenty (20) days after initial
request) to cooperate with and assist Purchaser or any member of the National
Association of Securities Dealers, Inc. system for Private Offerings Resales and
19
<PAGE>
Trading through Automated Linkage ("PORTAL") in applying to designate and
thereafter maintain the eligibility of the Shares for trading through PORTAL.
The Company's obligations under this Section 4.01(k) shall at all times be
contingent upon the Purchaser's obtaining from a prospective purchaser
an agreement to take all reasonable precautions to safeguard the Rule 144A
Information from disclosure to anyone other than a Person who will assist such
purchaser in evaluating the purchase of the Shares.
4.02. Negative Covenants of the Company. The Company covenants and
agrees that until the consummation of a Qualified Public Offering, it will,
unless waived pursuant to clauses (i), (ii), (iii) or (iv) below, comply with
and observe the following negative covenants and provisions, and cause each
Subsidiary to comply with and observe such of the following covenants and
provisions as are applicable to such Subsidiary, if and when such Subsidiary
exists, and will not, without the written consent or written waiver of any one
of the following: (i) a majority of the aggregate holders of the Series A
Preferred Stock, (ii) a majority of the aggregate holders of the Series B
Preferred Stock, (iii) a majority of the Series A Directors or (iv) the Series B
Director (except that, with respect to the provisions of paragraphs (a), (c),
(e) and (g), the holders of the Series A Preferred Stock and the Series A
Directors may so consent or waive compliance only after the expiration of the
Option Period):
(a) Dealings with Affiliates. Enter into any transaction
after the date hereof, including, without limitation, any loans or extensions of
credit or royalty agreements with any employee, consultant, officer or director
of the Company or any Subsidiary or holder of five percent (5%) of any class
of capital stock of the Company or any Subsidiary, or any member of their
respective immediate families or any corporation or other entity directly or
indirectly controlled by one or more of such employees, consultants, officers,
directors or five percent (5%) stockholder or members of their immediate
families on terms less favorable to the Company or any Subsidiary than it would
obtain in a transaction between unrelated parties except in the case of any
transaction or series of transactions entered into in the ordinary course of
business and involving less than $5,000 in the aggregate.
(b) Issuance of Equity Securities. Authorize or issue, or
obligate itself to issue, any additional shares or capital stock of the Company
of any class, provided, however, that the provisions of this Section 4.02(b)
shall not apply to the issuance of: up to 250,000 shares of Common Stock or
options or warrants exercisable therefor, including the Options, issued on or
after the date hereof to directors, officers, employees or consultants of the
Company and any Subsidiary pursuant to any qualified or non-qualified stock
option plan or agreement, employee stock ownership plan, employee benefit plan,
stock purchase agreement, stock plan, stock
20
<PAGE>
restriction agreement, or consulting agreement or such other options,
arrangements, agreements or plans existing on the date hereof.
(c) Compensation to Officers. Except as otherwise approved
by the Board of Directors during any calendar year, pay to any officer or senior
manager compensation (including salary and bonus) which exceeds, compensation
customarily paid to management in companies of similar size, of similar
maturity, and in similar businesses.
(d) Maintenance of Ownership of Subsidiaries. Sell or
otherwise dispose of any shares of capital stock of any Subsidiary, except to
another Subsidiary, or permit any Subsidiary to issue, sell or otherwise dispose
of any shares or rights to acquire any of its capital stock or the capital stock
of any Subsidiary, except to the Company or another Subsidiary; provided,
however, that the Company may liquidate, merge or consolidate any Subsidiary or
Subsidiaries into or with itself, provided that the Company is the surviving
entity, or into or with another Subsidiary or Subsidiaries, or the Company may
sell all or a portion of any Subsidiary to the Company or any other Subsidiary,
provided that after giving effect to the transaction, the Subsidiary continues
to remain a member of the Company's "consolidated group" for tax and accounting
purposes.
(e) Transfer of Technology. Transfer, sell, dispose of,
assign, lease, license or donate any ownership or interest in, or material
rights relating to, and of its technology, or other Intellectual Property Rights
to any Person or entity which is not a member of the "consolidated group" of the
Company and its Subsidiaries; provided, however, that this Section shall not
apply to transfers or licenses of technology or Intellectual Property Rights (i)
accomplished in the ordinary course of business as presently conducted or
proposed to be conducted or (ii) pursuant to the consummation of a Proposed Sale
Transaction.
(f) Restriction on Indebtedness. The Company covenants that
it will not, and will not permit any of its Subsidiaries to, incur, create, or
assume any Indebtedness other than the following:
(i) Indebtedness existing on the date hereof and listed
on Exhibit 3.06 and renewals, replacements and refinancing thereof that do
not increase the aggregate amount of Indebtedness of the Company and its
Subsidiaries taken as a whole; the Safeguard Loan; and Indebtedness
contemplated by the Business Plan or in a budget or projection approved by
a majority of the Board of Directors, including at least two Series A
Directors.
(ii) guarantees by the Company of Indebtedness incurred
by Subsidiaries of the Company,
21
<PAGE>
provided that the Indebtedness guaranteed pursuant to this subsection (ii)
shall not exceed $100,000 at any time outstanding with respect to any one
Subsidiary or $250,000 in the aggregate at any time outstanding with
respect to all Subsidiaries;
(iii) Indebtedness of a Subsidiary owing to the Company
or to another Subsidiary; or
(iv) additional Indebtedness not to exceed an aggregate
of $50,000 incurred in any fiscal quarter, and not to exceed in the
aggregate $250,000 at any time, determined on a consolidated basis
(including guarantees permitted by clause (ii) of this Section 4.02(f).
(g) Conduct of Business. The Company covenants that it will
not, and will not permit any of its Subsidiaries to, engage in any business
other than the business engaged in by each of them on the date hereof and any
businesses or activities substantially similar or related thereto other than as
contemplated by any business plan of the Company which has been approved by the
Board of Directors.
(h) Assumptions or Guaranties of Indebtedness of Other
Persons. Assume, guarantee, endorse or otherwise become directly or contingently
liable on, or permit any Subsidiary to assume, guarantee, endorse or otherwise
become directly or contingently liable on (including, without limitation,
liability by way of agreement, contingent or otherwise, to purchase, to provide
funds for payment, to supply funds to or otherwise invest in the debtor or
otherwise to assure the creditor against loss) any Indebtedness of any other
Person, except for guaranties by endorsement of negotiable instruments for
deposit or endorsement of negotiable instruments for deposit or collection in
the ordinary course of business, and except for the guaranties of the permitted
obligations of any wholly-owned Subsidiary.
(i) Investments in Other Corporations or Entities. Make or
permit any Subsidiary to make, any loan or advance to any Person, or purchase,
otherwise acquire, or permit any Subsidiary to purchase or otherwise acquire,
the capital stock, assets comprising the business of, obligations of, or any
interest in, any other corporation or entity which will not be operated as a
wholly-owned Subsidiary, except:
(i) investments by the Company or a Subsidiary in
evidences of indebtedness issued or fully guaranteed by the United States
of America and having a maturity of not more than one year from the date
of acquisition;
(ii) investments by the Company or a Subsidiary in
certificates of deposit, notes, acceptances
22
<PAGE>
and repurchase agreements having a maturity of not more than one year from
the date of acquisition issued by a bank organized in the United States
having capital, surplus and undivided profits of at least $50,000,000;
(iii) investments by the Company or a Subsidiary in the
highest-rated commercial paper having a maturity of not more than one year
from the date of acquisition;
(iv) investments by the Company or a Subsidiary in "Money
Market" fund shares, or in money market accounts fully insured by the
Federal Deposit Insurance Corporation and sponsored by banks and other
financial institutions, provided that the investments consist principally
of the types of investments described in clauses (i), (ii) or (iii) of
this Section 4.02(h); or
(v) loans or advances from a Subsidiary to the Company or
from the Company to a Subsidiary, other than in the normal course of
business.
(j) Amendments. Amend the Certificate of Incorporation or
By-laws of the Company.
4.03. Reporting Requirements. Until the consummation of the Initial
Public Offering, the Company will furnish the following to Purchaser.
(a) Monthly and Quarterly Reports. As soon as available and
in any event within 30 days after the end of each calendar month, consolidated
and consolidating balance sheets of the Company and its Subsidiaries as of the
end of such month and consolidated and consolidating statements of income and
retained earnings and a summary statement of monthly cash flow of the Company
and its Subsidiaries for such month and for the period commencing at the end of
the previous fiscal year and ending with the end of such month, setting forth in
each case in comparative form the corresponding figures for the corresponding
period of the preceding fiscal year, and including comparisons to the monthly
budget or business plan of the Company and an analysis of the variances from the
budget or plan of the Company, prepared in accordance with generally accepted
accounting principles consistently applied; and, as soon as available and in any
event within 30 days after the end of each fiscal quarter, a consolidated and
consolidating statements of cash flows of the Company and its Subsidiaries for
such quarter and for the corresponding period of the prior fiscal year, prepared
in accordance with generally accepted accounting principles consistently
applied;
(b) Annual Reports. As soon as available and in any event
within 90 days after the end of each fiscal year of the Company, a copy of the
annual audit report for such year
23
<PAGE>
for the Company and its Subsidiaries, including therein consolidated and
consolidating balance sheets of the Company and its Subsidiaries as of the end
of such fiscal year and consolidated and consolidating statements of income and
retained earnings and statements of cash flow of the Company and its
Subsidiaries for such fiscal year, setting forth in each case in comparative
form the corresponding figures for the preceding fiscal year, all such
consolidated statements to be duly certified by the chief financial officer of
the Company and an independent public accountant of recognized national standing
approved by a majority of the Board of Directors;
(c) Budgets and Operating Plan. As soon as available and in
any event before the beginning of each fiscal year of the Company, a business
plan and monthly and quarterly operating budgets for the forthcoming fiscal
year, and as soon as available and in any event within 30 days after the end of
each calendar month, monthly comparisons against the business plan and monthly
operating budgets;
(d) Notice of Adverse Changes. Promptly after the occurrence
thereof and in any event within five (5) business days after each occurrence
notice of any material adverse change in the business, assets, Intellectual
Property Rights, management, operations or financial condition of the Company;
and
(e) Reports and Other Information. Promptly upon receipt,
publication, commencement or occurrence provide to Purchaser copies of all
consulting reports, notices of all material actions, suits or proceedings,
copies of all accountant's reviews, and reports to management, and such other
information as the Company shall make available to the Board of Directors or
Shareholders or the Purchaser shall reasonably request.
ARTICLE V
REGISTRATION RIGHTS
5.01. General. The Company has granted to the Purchaser certain
registration rights pursuant to the Registration Rights Agreement.
ARTICLE VI
RIGHT OF FIRST REFUSAL; OPTION TO PURCHASE
6.01. Right of First Refusal. In the event that, during the First
Refusal Period, (i) the Company or Safeguard receives a bona-fide offer (an
"Offer") from a Person other than the Purchaser (an "Offeror") to purchase the
Company pursuant to (A) an acquisition of all, or substantially all, of the
Company's assets (and a simultaneous assumption of the Company's liabilities),
(B) an acquisition of issued and outstanding capital stock of the Company (and
securities convertible into any
24
<PAGE>
such capital stock) having in the aggregate at least a majority of the total
voting power of the issued and outstanding capital stock of the Company, or (C)
a merger, consolidation, or similar transaction (all of the foregoing
transactions being collectively referred to herein as a "Proposed Sale
Transaction"), and (ii) the Company or Safeguard (collectively, the "Selling
Party"), as appropriate, desire to enter into and complete the Proposed Sale
Transaction with the Offeror, the Selling Party shall furnish the Purchaser with
written notice (a "Sale Notice") of its or their desire to enter into and
complete the Proposed Sale Transaction. The Sale Notice shall contain the
following information: (i) the price, terms, and conditions of the Proposed Sale
Transaction; (ii) such information as shall be reasonably necessary to enable
the Purchaser to establish that the Offer is bona-fide; (iii) a true, correct,
and complete copy of the letter of intent, agreement of sale, or other document
setting forth the terms and conditions of the Proposed Sale Transaction
(together with any all agreements, documents, and instruments relating and
pertaining thereto); and (iv) if any of the non-monetary terms of the Proposed
Sale Transaction cannot, by their nature, be matched (such as, by way of example
but not limitation, terms relating to the exchange of stock or other property or
the provisions of unique services), the Sale Notice shall contain a reasonable
quantification in Dollars ($) of the value of such terms (such value to be
determined in good faith by the Board of Directors), which shall constitute part
of the price offered in connection with the Proposed Sale Transaction for
purposes of the Right of First Refusal.
6.02. Exercise of Right of First Refusal. During the period of thirty
(30) days immediately following the giving of a Sale Notice (the "Acceptance
Period"), the Purchaser shall have the opportunity of exercising the right to
purchase the Company at the same price and under precisely the same terms and
conditions recited in the Sale Notice. During the Acceptance Period, the
Purchaser shall have the right to make inquiries of the Company, the Board of
Directors, and Safeguard with respect to the Proposed Sale Transaction and the
Company, the Board of Directors, and Safeguard shall promptly respond to any and
all such inquiries. If Purchaser desires to exercise the Right of First Refusal
pursuant to this Section 6.02, Purchaser shall furnish written notice to the
Selling Party of Purchaser's exercise of the Right of First Refusal prior to the
expiration of the Acceptance Period (the "Purchaser's Acceptance"), and the
parties shall have ninety (90) days from the date of the Purchaser's Acceptance
to (i) negotiate and execute a legally binding agreement of sale (the "Agreement
of Sale") having the terms and conditions recited in the Sale Notice and (ii)
consummate the purchase and sale contemplated by the Agreement of Sale. The
Purchaser, the Company and Safeguard shall negotiate the Agreement of Sale in
good faith. If (a) the Purchaser's Acceptance is not received by the Selling
Party prior to the expiration of the Acceptance Period or (b) the parties fail
to consummate the purchase and sale contemplated by the
25
<PAGE>
Agreement of Sale within ninety (90) days of the date of the Purchaser's
Acceptance, all rights of the Purchaser with respect to the Right of First
Refusal shall cease, terminate, and expire automatically and an agreement of
sale may be made with, or a sale may be made to, such Offeror according to terms
and conditions no less favorable to the Selling Party as those set forth in the
Sale Notice and at a price not less than that stated in the Sale Notice;
provided, however, that Purchaser shall be offered by such Offeror the
opportunity to participate in such sale upon the same terms and conditions as
those offered to the Selling Party. If no such sale is made to such Offeror,
then the terms and conditions of the Right of First Refusal granted pursuant to
this Article VI shall remain in full force for the remainder of the First
Refusal Period.
6.03. Evidence of Termination Right of First Refusal. If Purchaser
does not elect to exercise the Right of First Refusal by giving notice of
Purchaser's acceptance in the manner set forth in Section 6.02, and the Right of
First Refusal has expired pursuant to the provisions hereof, Purchaser covenants
and agrees to execute and deliver a written statement evidencing the termination
of the Right of First Refusal.
6.04. Termination of Right of First Refusal. Notwithstanding anything
contained herein to the contrary, the Right of First Refusal shall cease and
terminate immediately prior to the effectiveness of the registration statement
with respect to the Initial Public Offering, but expressly conditioned upon the
completion of the Initial Public Offering.
6.05. Option to Purchase. In addition to the Right of First Refusal
but subject to the terms and conditions of this Agreement, in connection with
the transactions contemplated hereby, the Company and Safeguard hereby grant to
the Purchaser a non-assignable and non-transferable right and option (the
"Option") to purchase the Company pursuant to an Asset Purchase. The Option
shall be exercisable in whole (but not in part) upon written notice to the
Company at any time prior to the expiration of the Option Period.
6.06. Option Price. The purchase price due and payable by the
Purchaser to the Company in connection with an Asset Purchase completed by
reason of the Purchaser's exercise of the Option pursuant hereto shall be equal
to the following (the "Option Price"): (i) the greater of (A) $7,500,000, or (B)
(x) the aggregate cumulative gross revenues of the Company for the nine (9)
month period ending as at the close of the fiscal month of the Company
immediately preceding the date on which the Option was exercised, multiplied by
(y) one and one-third (1 1/3) minus (ii) $1,000,000. The Option Price shall be
due and payable to the Company, simultaneously with the closing of the Asset
Purchase, and shall be paid by Purchaser's delivery of a certified or bank
cashiers check or by wire transfer of immediately available funds.
26
<PAGE>
6.07. Special Conditions of Option Purchase. In addition to the terms
and conditions of purchase herein set forth, the following conditions shall be
satisfied prior to or concurrently with the closing of any purchase of the
Company being completed by reason of the Purchaser's exercise of the Option:
(a) (i) the Purchaser shall assume all of the liabilities of
the Company, whether known, unknown, absolute, accrued, contingent or otherwise,
except for (A) all outstanding Indebtedness of the Company to Safeguard up to an
aggregate amount of $1,400,000 and (B) all outstanding Indebtedness of the
Company to Institutional Lenders up to an aggregate amount of $1,000,000, and
(ii) the Purchaser shall tender (or cause to be tendered) all Shares to the
Company for no consideration and all rights of Purchaser (and its assigns) as a
Shareholder shall cease and terminate.
(b) the parties (including Safeguard) shall have negotiated
in good faith and entered into such agreements documents, and instruments which
are reasonably necessary to evidence the Asset Purchase and the completion
thereof in accordance with the provisions hereof, all of which agreements,
documents, and instruments shall contain representations, warranties, covenants,
and conditions which are customary for transactions of that type and which shall
otherwise be reasonably satisfactory to the parties thereto.
6.08. Termination of Option. Notwithstanding anything contained herein
to the contrary, the Option shall cease and terminate immediately prior to the
effectiveness of the registration statement with respect to the Initial Public
Offering, but expressly conditioned upon the completion of the Initial Public
Offering.
6.09. Joinder by Shareholders. Safeguard has executed the Consent and
Joinder to this Agreement to evidence its intent to be bound by the provisions
of this Article VI, to the extent that such provisions are applicable to them as
a shareholder of the Company. The Company and Safeguard shall cause any Person
who becomes a Shareholder during the period between the Closing and the
expiration of the First Refusal Period to execute a counterpart of the Consent
and Joinder to this Agreement as a condition of such Person's acquisition of
shares of the Company's outstanding capital stock.
27
<PAGE>
ARTICLE VII
DEFINITIONS AND ACCOUNTING TERMS
7.01. Certain Defined Terms. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"Accredited Investor" shall have the meaning assigned to that term in
Rule 501 under the Securities Act.
"Acceptance Period" shall have the meaning ascribed to it in Section
6.02.
"Asset Purchase" shall mean a transaction, pursuant to which the
Purchaser shall (i) purchase all of the Company's assets, and (ii)
simultaneously with such purchase, assume all of the Company's liabilities,
whether known, unknown, absolute, accrued, contingent or otherwise, except as
set forth in Section 6.07(a)(i).
"Agreement" means this Preferred Stock Purchase Agreement as from time
to time amended and in effect between the parties, including all Exhibits
hereto.
"Board of Directors" means the board of directors of the Company as
constituted from time to time.
"Closing" shall have the meaning ascribed to it in Section 1.03.
"Commission" means the Securities and Exchange Commission or any other
federal agency then administering the Securities Act or Exchange Act.
"Common Stock" includes (a) the Company's Common Stock, $.01 par
value, as authorized on the date of this Agreement, (b) any other capital stock
of any class or classes (however designated) of the Company authorized on or
after the date hereof, the holders of which shall have the right, without
limitation as to amount, either to all or to a share of the balance of current
dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and the holders of which
shall ordinarily, in the absence of contingencies or in the absence of any
provision to the contrary in the Company's Certificate of Incorporation, be
entitled to vote for the election of a majority of directors of the Company
(even though the right so to vote has been suspended by the happening of such a
contingency or provision), and (c) any other securities into which or for which
any of the securities described in (a) or (b) may be converted or exchanged
pursuant to a plan of recapitalization, reorganization, merger, sale of assets
or otherwise.
28
<PAGE>
"Company" shall have the meaning ascribed to it in the heading of this
Agreement.
"Consolidated" and "consolidating" when used with reference to any
term defined herein mean that term as applied to the accounts of the Company and
its Subsidiaries consolidated in accordance with generally accepted accounting
principles consistently applied throughout reporting periods.
"Conversion Shares" shall have the meaning ascribed to it in Section
1.02.
"DLB License Agreement" means the Evaluation Licensing Agreement
dated the Closing Date between the Company and the Purchaser pursuant to which
the Company is granting to Purchaser a limited use license for the Company's
software products.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar federal statute, and the rules and regulations of the Commission
(or of any other Federal agency then administering the Exchange Act) thereunder,
all as the same shall be in effect at the time.
"First Refusal Period" shall mean the period commencing on the Closing
hereunder and ending on that date which is nine (9) months subsequent thereto.
"Indebtedness" means (i) any liability for borrowed money or evidenced
by a note or similar obligation given in connection with the acquisition of any
property or other assets (other than trade accounts payable incurred in the
ordinary course of business); (ii) all guaranties, endorsements and other
contingent obligations, in respect of Indebtedness of others, whether or not the
same are or should be reflected in the Company's balance sheet (or the notes
thereto), except guaranties by endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of business; and
(iii) the present value of any lease payments due under leases required to be
capitalized in accordance with applicable Statements of Financial Accounting
Standards, determined by discounting all such payments at the interest rate
determined in accordance with applicable Statements of Financial Accounting
Standards.
"Initial Public Offering" means the first underwritten public offering
of Common Stock of the Company for the account of the Company and offered on a
"firm commitment" or "best efforts" basis pursuant to an offering registered
under the Securities Act with the Commission on Form S-1, Form SB-2, or their
then equivalents.
29
<PAGE>
"Institutional Lenders" means, collectively, any bank or financial
institution which serves as lender to the Company.
"Intellectual Property Rights" means any and all, whether domestic or
foreign, patents, patent applications, patent right, trade secrets, confidential
business information, formula, processes, laboratory notebooks, algorithms,
copyrights, mask works, claims of infringement against third parties, licenses,
permits, license rights, contract rights with employees, consultants and third
parties, trademarks, trademark rights, inventions and discoveries, and other
such rights generally classified as intangible, intellectual property assets in
accordance with generally accepted accounting principles.
"Key Employee" means and includes the Chairman, President, Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer, or any
other individual so designated by the Board of Directors or by the Investor
Director.
"Marketing Agreement" means the Value-Added Marketing Agreement dated
the Closing Date pursuant to which the Company is granting to the Purchaser a
non-exclusive right to market the Company's products to end-users in combination
with Purchaser's services.
"Offer" shall have the meaning ascribed to it in Section 6.01.
"Offeror" shall have the meaning ascribed to it in Section 6.01.
"Operative Agreements" means, collectively, this Agreement, the Voting
and Stock Restriction Agreement, the Registration Rights Agreement, the DLB
License Agreement, the Purchaser License Agreement and the Marketing Agreement.
"Option" shall have the meaning ascribed to it in Section 6.05.
"Option Period" shall mean the period commencing on the Closing and
ending on that date which is nine (9) months subsequent thereto; provided,
however, notwithstanding the foregoing, the Option Period shall immediately
cease and terminate upon Purchaser's failure to exercise its Right of First
Refusal with respect to any Sale Notice issued pursuant to Section 6.01, except
as otherwise provided in the last sentence of Section 6.02.
"Option Price" shall have the meaning ascribed to it in Section 6.06.
"Options" means those options to purchase up to 250,000 shares of
Common Stock as described in Exhibit 3.05.
30
<PAGE>
"Person" means an individual, corporation, partnership, joint venture,
trust, university, or unincorporated organization, or a government, or any
agency or political subdivision thereof.
"Preferred Shares" shall have the meaning ascribed to it in Section
1.01.
"Proposed Sale Transaction" shall have the meaning ascribed to it in
Section 6.01.
"Purchaser" shall have the meaning ascribed to it in the heading of
this Agreement.
"Purchaser License Agreement" means the Master Software License
Agreement described in Section 2.03 hereof.
"Purchaser's Acceptance" shall have the meaning ascribed to it in
Section 6.02.
"Qualified Public Offering" means a fully underwritten, firm
commitment public offering pursuant to an effective registration under the
Securities Act covering the offer and sale by the Company of its Common Stock in
which the aggregate gross proceeds to the Company exceed $10,000,000 and in
which the price per share of such Common Stock equals or exceeds $3.00 (such
price subject to equitable adjustment in the event of any stock split, stock
dividend, combination, reorganization, reclassification or other similar event).
"Registration Rights Agreement" means the agreement to be entered into
at the Closing among the Company, Safeguard and the Purchaser pursuant to which
the Company is granting rights to Safeguard and the Purchaser with respect to
the registration under the Securities Act of shares of the Company's capital
stock held by Safeguard and the Purchaser.
"Right of First Refusal" means the rights granted to the Purchaser
under Sections 6.01 and 6.02.
"Safeguard" means Safeguard Scientifics, Inc., a Pennsylvania
corporation.
"Safeguard Loan" shall mean the loan made by Safeguard to the Company
on June 26, 1997 in the principal amount of $200,000.
"Safeguard Purchase Agreement" shall mean the Preferred Stock Purchase
Agreement dated as of August 30, 1995, between the Company and Safeguard,
pursuant to which, among other things, Safeguard purchased 650,000 shares of
Series A Preferred Stock, on the terms and conditions set forth therein.
"Safeguard Warrants" shall mean, collectively, (i) the Warrant dated
August 30, 1995 executed by the Company in favor of
31
<PAGE>
Safeguard, under which Safeguard has the right to purchase up to 140,000 shares
of the Common Stock on the terms and conditions set forth therein, (ii) the
Warrant dated August 30, 1995 executed by the Company in favor of Safeguard,
under which Safeguard has the right to purchase up to 510,000 shares of the
Common Stock, on the terms and conditions set forth therein, (iii) the Warrant
dated August 19, 1996, executed by the Company in favor of Safeguard, under
which Safeguard has the right to purchase up to 210,000 shares of the Common
Stock on the terms and conditions set forth therein, and (iv) the Warrant dated
April 4, 1997 executed by the Company in favor of Safeguard, under which
Safeguard has the right to purchase up to 80,000 shares of Common Stock on the
terms and conditions set forth therein.
"Sale Notice" shall have the meaning ascribed to it in Section 6.01.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Commission (or of
any other Federal agency then administering the Securities Act) thereunder, all
as the same shall be in effect at the time.
"Series A Directors" means the five directors of the Company who are
representatives of the holders of the outstanding Series A Preferred Stock.
"Series A Preferred Stock" means the Series A Preferred Stock of the
Company, $.01 par value, having the rights, powers, privileges and preferences
set forth in Exhibit 2.02(a) hereto.
"Series B Director" means the director of the Company who is a
representative of the Purchaser.
"Series B Preferred Stock" means the Series B Preferred Stock of the
Company, $.01 par value, having the rights, powers, privileges and preferences
set forth in Exhibit 2.02(a) hereto.
"Series B Shares" shall have the meaning ascribed to it in Section
1.01.
"Shares" means, collectively, the Preferred Shares and the Conversion
Shares.
"Shareholder" means, collectively, Safeguard and all of the other
holders of shares of the outstanding capital stock of the Company, except for
executives of Safeguard who have been granted and hold only shares of Series A
Preferred Stock pursuant to a certain long-term incentive plan maintained by
Safeguard.
"Subsidiary" or "Subsidiaries" means any Person of which the Company
and/or any of its other Subsidiaries (as herein defined) directly or indirectly
owns at the time at least fifty
32
<PAGE>
percent (50%) of the outstanding voting shares of every class of such
corporation or trust other than directors' qualifying shares.
"Voting and Stock Restriction Agreement" means the Voting and Stock
Restriction Agreement to be entered into at the Closing among the Purchaser, the
Company and Safeguard.
7.02. Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with generally accepted accounting
principles consistently applied, and all financial data submitted pursuant to
this Agreement shall be prepared in accordance with such principles.
ARTICLE VIII
MISCELLANEOUS
8.01. No Waiver; Cumulative Remedies. No failure or delay on the part
of any party to this Agreement in exercising any right, power or remedy
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy hereunder.
The remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
8.02. Amendments, Waivers and Consents. Any provision in the Agreement
to the contrary notwithstanding, and except as hereinafter provided, changes in,
termination or amendments of or additions to this Agreement may be made, and
compliance with any covenant or provision set forth herein may be omitted or
waived, only if the Company shall obtain consent thereto in writing from the
Purchaser. Any waiver or consent may be given subject to satisfaction of
conditions stated therein and any waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
8.03. Addresses for Notices. All notices, requests, demands and other
communications provided for hereunder shall be in writing (including telegraphic
communication) and mailed, telegraphed or delivered to each applicable party at
the address set forth in Exhibit 1.01 hereto or at such other address as to
which such party may inform the other parties in writing in compliance with the
terms of this Section.
If to Purchaser: at Purchaser's address for notice as set forth in the
register maintained by the Company, or at such other address as shall be
designated by Purchaser in a written notice to the other parties complying as to
delivery with the terms of this Section.
If to the Company: at the address set forth on page 1 hereof, or at
such other address as shall be designated by the
33
<PAGE>
Company in a written notice to the Purchaser complying as to delivery with the
terms of this Section.
All such notices, requests, demands and other communications shall,
when mailed (which mailing must be accomplished by first class mail, postage
prepaid; electronic facsimile transmission; express overnight courier service;
or registered or certified mail, return receipt requested) or telegraphed, and
shall be considered to be delivered three (3) days after dispatch.
8.04. Costs and Expenses. Each party hereto shall be responsible for
any and all costs and expenses incurred by such party in connection with the
transactions described herein and contemplated hereby.
8.05. Binding Effect; Assignment. This Agreement shall be binding upon
and inure to the benefit of the Company and the Purchasers and their respective
successors and assigns, except that the Company shall not have the right to
delegate its obligations hereunder or to assign its rights hereunder or any
interest herein without the prior written consent of the Purchaser.
8.06. Survival of Representations and Warranties. All representations
and warranties made in this Agreement, the Shares, or any other instrument or
document delivered in connection herewith or therewith, shall survive the
execution and delivery hereof or thereof.
8.07. Prior Agreements. This Agreement, the terms of the Series B
Preferred Stock, and the other agreements executed and delivered herewith
constitute the entire agreement between the parties and supersedes any prior
understandings or agreements concerning the subject matter hereof.
8.08. Severability. The provisions of this Agreement, the Voting and
Stock Restriction Agreement, and the terms of the Series B Preferred Stock are
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of a provision
contained in this Agreement, the Voting and Stock Restriction Agreement, or the
terms of the Series B Preferred Stock shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement, the Voting and Stock Restriction Agreement, or the terms of the
Series B Preferred Stock; but this Agreement, the Voting and Stock Restriction
Agreement, and the terms of the Series B Preferred Stock shall be reformed and
construed as if such invalid or illegal or unenforceable provision, or part of a
provision, had never been contained herein, and such provisions or part reformed
so that it would be valid, legal and enforceable to the maximum extent possible.
34
<PAGE>
8.09. Confidentiality. Purchaser agrees that it will keep confidential
and will not disclose or divulge any confidential, proprietary or secret
information which Purchaser may obtain from the Company pursuant to financial
statements, reports and other materials submitted by the Company to Purchaser
pursuant to this Agreement, or pursuant to visitation or inspection rights
granted hereunder, unless such information is known, or until such information
becomes known, to the public; provided, however, that Purchaser may disclose
such information (i) on a confidential basis to its attorneys, accountants,
consultants and other professionals to the extent necessary to obtain their
services in connection with its investment in the Company, (ii) to any
prospective purchaser of any Preferred Shares or Conversion Shares from such
Purchaser as long as such prospective purchaser agrees in writing to be bound by
the provisions of this Section 8.09, (iii) to any affiliate or partner of such
Purchaser and (iv) as required by applicable law.
8.10. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of Delaware, and
without giving effect to choice of laws provisions.
8.11. Headings. Article, section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
8.12. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
8.13. Further Assurances. From and after the date of this Agreement,
upon the request of Purchaser or the Company, the
35
<PAGE>
Company and Purchaser shall execute and deliver such instruments, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement and the
Shares.
IN WITNESS WHEREOF, the parties hereto have caused this Preferred
Stock Purchase Agreement to be executed as of the date first above written.
DLB SYSTEMS, INC., a Delaware
corporation
By: /s/ John M. Ryan
---------------------------------
Name: John M. Ryan
Title: Chairman
"Company"
PREMIER RESEARCH WORLDWIDE LIMITED,
a Delaware corporation
By: /s/ Joel Morganroth
-----------------------------------
Name: Joel Morganroth
Title: CEO
"Purchaser"
36
<PAGE>
CONSENT AND JOINDER
The undersigned, intending to be legally bound and as a material
inducement for the Purchaser to enter into the foregoing Preferred Stock
Purchaser Agreement (the "Agreement"), hereby consents to and approves of the
Agreement and the Company's completion of all transactions described therein
and contemplated thereby and agrees to be bound by the provisions of Article VI
of the Agreement as if the undersigned was an original signatory thereof.
The undersigned, in furtherance of the foregoing, covenants and
agrees to execute and deliver any and all agreements, documents, and instruments
reasonably necessary to further evidence the provisions of this Consent and
Joinder.
This Consent and Joinder shall be binding upon the undersigned and its
successors and assigns, except for employees of Safeguard who hold shares of the
Company's Series A Preferred Stock (and no other shares of the Company's
outstanding capital stock) pursuant to certain long-term incentive plans
maintained by Safeguard.
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Consent and Joinder this 30th day of June, 1997.
SAFEGUARD SCIENTIFICS (DELAWARE),
INC.
By /s/ Steven Rosard
--------------------------------------------
Name: Steven Rosard
Title: VP
37
<PAGE>
EXHIBIT 11
PREMIER RESEARCH WORLDWIDE, LTD. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
------------------------------ -----------------------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income (loss) $ (561) $ (137)
======== ========
Average shares outstanding 6,938 6,517
Net effect of dilutive stock options-based on
treasury stock method using average market price 0 0
-------- --------
Weighted average share 6,938 6,517
======== ========
Net income per common share $ (0.08) $ (0.02)
======== ========
Pro forma net income $ 421 $ 403
======= =======
Pro forma weighted average shares assuming the conversion of
the minority interest in the limited liability company into
Common Stock of the Company as if it had converted as of
January 1, 1996 instead of at the closing of the initial
public offering 5,003 5,003
======= =======
Pro forma net income per common share $ 0.08 $ 0.08
======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
FINANCIAL STATEMENTS FOR THE QUARTER ENDED JUNE 30, 1997.
</LEGEND>
<S> <C>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 25,593
<SECURITIES> 7,358
<RECEIVABLES> 3,217
<ALLOWANCES> (137)
<INVENTORY> 0
<CURRENT-ASSETS> 37,070
<PP&E> 7,172
<DEPRECIATION> 6,068
<TOTAL-ASSETS> 39,340
<CURRENT-LIABILITIES> 2,805
<BONDS> 0
0
0
<COMMON> 69
<OTHER-SE> 36,535
<TOTAL-LIABILITY-AND-EQUITY> 39,340
<SALES> 2,810
<TOTAL-REVENUES> 2,810
<CGS> 0
<TOTAL-COSTS> 4,297
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,057)
<INCOME-TAX> (496)
<INCOME-CONTINUING> (561)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (561)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
