XIONICS DOCUMENT TECHNOLOGIES INC, S-1/A, 1996-09-04

XIONICS DOCUMENT TECHNOLOGIES INC
S-1/A, 1996-09-04
DURABLE GOODS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 4, 1996

REGISTRATION NO. 333-4613
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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PRE-EFFECTIVE AMENDMENT NO. 5

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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XIONICS DOCUMENT TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 5008 04-3186685
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
</TABLE>

70 BLANCHARD ROAD
BURLINGTON, MA 01803
(617) 229-7000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

------------------------

ROBERT E. GILKES
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
XIONICS DOCUMENT TECHNOLOGIES, INC.
70 BLANCHARD ROAD
BURLINGTON, MA 01803
(617) 229-7000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

------------------------

COPIES OF ALL COMMUNICATIONS TO:

<TABLE>
<S> <C> <C>
MICHAEL P. O'BRIEN, ESQ. CAROLYN E. RAMM, ESQ. PAUL V. ROGERS, ESQ.
BINGHAM, DANA & GOULD LLP XIONICS DOCUMENT TECHNOLOGIES, INC. HALE AND DORR
150 FEDERAL STREET 70 BLANCHARD ROAD 60 STATE STREET
BOSTON, MA 02110 BURLINGTON, MA 01803 BOSTON, MA 02109
(617) 951-8000 (617) 229-7000 (617) 526-6000
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement is declared effective.

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. / /

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / __________________

If this form is a post-effective amendment filed pursuant to Rule 462(b)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / / __________________

If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

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<PAGE> 2

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy, nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.

SUBJECT TO COMPLETION, DATED SEPTEMBER 4, 1996

3,000,000 SHARES

[LOGO]

COMMON STOCK

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Of the 3,000,000 shares of Common Stock offered hereby, 2,500,000 shares
are being sold by the Company and 500,000 shares are being sold by the Selling
Stockholder. See "Principal and Selling Stockholders." The Company will not
receive any of the proceeds from the sale of shares by the Selling Stockholder.

Prior to this offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price will be between $10.00 and $12.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Common Stock has been approved for quotation and trading on
the Nasdaq National Market under the symbol "XION."

SEE "RISK FACTORS" COMMENCING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.

------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
=====================================================================================================
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS
TO DISCOUNTS AND TO TO SELLING
PUBLIC COMMISSIONS (1) COMPANY (2) STOCKHOLDER
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............ $ $ $ $
- -----------------------------------------------------------------------------------------------------
Total (3)............ $ $ $ $
=====================================================================================================
<FN>

(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities under the Securities Act of 1933,
as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $1,000,000.
(3) The Company and the Selling Stockholder have granted to the Underwriters a
30-day option to purchase up to 450,000 additional shares of Common Stock
solely to cover over-allotments, if any. If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions,
Proceeds to Company and Proceeds to Selling Stockholder will be $ ,
$ , $ and $ , respectively. See "Underwriting."
</TABLE>

------------------------

The shares of Common Stock are offered by the several Underwriters, subject
to receipt and acceptance by them and to their right to reject any order in
whole or in part. It is expected that delivery of the shares of Common Stock
will be made at the offices of Adams, Harkness & Hill, Inc., Boston,
Massachusetts, on or about , 1996.

ADAMS, HARKNESS & HILL, INC. SOUNDVIEW FINANCIAL GROUP, INC.

The date of this Prospectus is , 1996.
<PAGE> 3

PICTURES

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

2
<PAGE> 4
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus. Investors should carefully consider the
risk factors related to the purchase of Common Stock of the Company. See "Risk
Factors."

THE COMPANY

Xionics Document Technologies, Inc. ("Xionics" or the "Company") designs,
develops and markets advanced embedded systems technology for use in mainstream
office devices such as printers, copiers and scanners. The Company offers
integrated, modular software products, along with firmware and silicon
technology products, that enable the high-speed capture, processing, printing,
copying and display of complex electronic documents both locally and across
networks. Xionics provides standards-based technology around which its customers
can design, develop and market differentiated products in a timely manner.

Currently, the Company markets both printer software and image accelerator
products. The Company's IPS-Print software products allow printers to convert
commands generated by a software application such as a word-processing program
into marks on the printed page; this page description language software is
compatible with the industry's PostScript and PCL standards. IPS-Print provides
the Company's OEM customers with a number of key benefits including improved
price/performance, reduced time and risk to market and architectural
efficiencies. In addition to IPS-Print, Xionics markets a family of scan,
display and print accelerators. These products incorporate imaging technologies
such as data compression/decompression, digital signal processing and digital
image enhancement, and are used to accelerate the high-volume scanning, display
and printing of business transaction records. See "Business -- The Xionics
Solution."

Building on its core competencies in the areas of print and imaging and on
its existing relationships with office device manufacturers, the Company is
developing an expanded version of IPS into what it believes will be an advanced
comprehensive solution that meets design requirements for higher-performance and
cost-effective controllers for multifunction peripheral devices ("MFPs"). MFPs
combine several paper-handling functions (e.g. printing, copying, scanning
and/or faxing) in one device. Currently, the market for MFP devices has been
limited by the technical inability of OEMs to produce a device meeting
mainstream office requirements for price, performance and quality.

The Company markets and sells its products worldwide primarily through a
direct sales force and through value-added resellers and distributors. As of
August 1, 1996, the Company had licensed its printer software products to over
35 OEMs including Hewlett-Packard Company, Seiko Epson Corporation, Sharp
Corporation and Xerox Corporation, and had more than 20 distributors of its
imaging products. In March 1996, the Company expanded its relationship with
Hewlett-Packard by licensing certain of its page description technology,
including its version of the PostScript page description language, to Hewlett-
Packard. The Company will continue to cultivate relationships with other major
OEMs in an effort to leverage the OEMs' ability to bring significant investment
and marketing resources to the distribution of new products. As of August 1,
1996 the Company had 168 full-time employees, including 101 in product
development. See "Business -- Sales and Marketing," "-- Customers" and "--
Employees."
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<PAGE> 5
- -------------------------------------------------------------------------------
THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by:
The Company ................................. 2,500,000 shares
The Selling Stockholder ..................... 500,000 shares
Common Stock to be outstanding after the
offering........................................ 10,044,923 shares(1)(2)
Use of proceeds................................... Net proceeds to the Company estimated to
be approximately $24.6 million, to be
used to repay certain indebtedness of the
Company, for working capital and other
general corporate purposes. See "Use of
Proceeds."
Nasdaq National Market symbol..................... XION
<FN>
- ---------------
(1) Based on the number of shares of Common Stock outstanding as of July 31,
1996. Excludes 3,817,790 shares of Common Stock reserved for issuance under
the Company's stock option and purchase plans, of which 2,529,472 shares
were subject to outstanding options as of July 31, 1996 at a weighted
average exercise price of $0.66 per share. See "Capitalization" and
"Management -- Stock Option Plans."
(2) Reflects the conversion, upon the completion of this offering, of all
outstanding shares of the Company's Convertible Preferred Stock into
5,823,989 shares of Common Stock.
</TABLE>

<TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------ ------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue................................... $ 8,078 $8,691 $9,131 $15,577 $23,809
Cost of revenue............................... 3,615 3,895 2,896 4,681 5,791
------- ------ ------ ------- -------
Gross profit.................................. 4,463 4,796 6,235 10,896 18,018
Operating expenses:
Research and development.................... 682 958 1,308 6,235 10,037
Selling, general and administrative......... 5,700 3,755 4,674 6,901 9,395
Charge for purchased research and
development................................ -- -- -- 3,492 --
------- ------ ------ ------- -------
Income (loss) from operations................. (1,919) 83 252 (5,733) (1,414)
Other income (expense), net................... 346 5 (9) (292) (119)
------- ------ ------ ------- -------
Net income (loss)............................. $(1,573) $ 88 $ 243 $(6,025) $(1,533)
======= ====== ====== ======= =======
Pro forma net loss per common and common
equivalent share(1)......................... $ (0.18)
=======
Pro forma weighted average number of common
and common equivalent shares outstanding.... 8,308
=======
Supplemental pro forma net loss per common and
common equivalent share(2).................. $ (0.16)
=======
Supplemental pro forma weighted average number
of common and common equivalent shares
outstanding................................. 8,521
=======
</TABLE>
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<PAGE> 6
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<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 2,116 $2,116 $26,600
Working capital...................................... 992 992 25,525
Total assets......................................... 9,905 9,905 34,389
Long-term debt, net of current maturities............ 2,658 2,658 564
Redeemable preferred stock........................... 8,231 -- --
Stockholders' equity (deficit)....................... (6,570) 1,661 26,236
<FN>

- ---------------

(1) Computed on the basis described in Note 1 of Notes to Consolidated Financial
Statements included elsewhere in this Prospectus.
(2) Computed on the basis described in Note 1 of Notes to Consolidated Financial
Statements, adjusted for the increase in the number of shares of Common
Stock issued pursuant to the proposed offering sufficient to generate
proceeds for the payment of $2.2 million of a secured promissory note
payable upon the consummation of the offering.
(3) Adjusted to give effect to the transactions and events described in the last
paragraph of this Prospectus Summary. In addition, the pro forma statements
reflect the credit to additional paid-in capital of all accumulated
dividends on the Class C Redeemable Convertible Preferred Stock and the
Class D Preferred Stock. See "Certain Transactions."
(4) Adjusted to give effect to the sale of 2,500,000 shares of Common Stock by
the Company offered hereby at an assumed initial public offering price of
$11.00 per share and the application of the estimated net proceeds therefrom
to the repayment of $2.1 million in principal amount and $90,000 of accrued
interest payable on the secured promissory note payable to Phoenix
Technologies Ltd. See "Use of Proceeds" and "Capitalization."
</TABLE>

----------------------------

Except as otherwise noted, all information in this Prospectus (i) assumes
no exercise of the Underwriters' over-allotment option, (ii) assumes the
conversion of all issued Class A Convertible Preferred Stock, Class C Redeemable
Convertible Preferred Stock and Class B Common Stock of the Company into Class A
Common Stock, (iii) reflects the redesignation of all shares of Class A Common
Stock as "Common Stock," and (iv) has been adjusted to give effect to the
amendment and restatement of the Company's Certificate of Incorporation
effective as of the closing of this offering. See "Capitalization," "Description
of Capital Stock," "Underwriting" and "Certain Transactions."
- --------------------------------------------------------------------------------
5
<PAGE> 7

RISK FACTORS

The following risk factors should be considered carefully in addition to
the other information in this Prospectus before purchasing the Common Stock
offered by this Prospectus.

Operating Losses; Accumulated Deficit. The Company reported net losses of
approximately $6.0 million and $1.5 million for the fiscal years ended June 30,
1995 and 1996, respectively, although it reported net income of approximately
$243,000 for the fiscal year ended June 30, 1994. Losses have resulted in an
accumulated deficit of approximately $11.4 million as of June 30, 1996. There
can be no assurance that the Company will achieve profitability on a quarterly
or annual basis in the future. See "Selected Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Potential Fluctuations in Quarterly Results. The Company has in the past
experienced, and may in the future experience, significant fluctuations in
quarterly operating results, which have been and may be caused by many factors,
including: the timing of introductions of new products or product enhancements
by the Company, its original equipment manufacturer ("OEM") customers or its
competitors; personnel changes; the size and timing of individual orders;
product returns from the Company's distribution channels; the types of products
sold and the range of gross margins attributable to each type of product;
software bugs or other product quality problems; competition and pricing;
customer order deferrals in anticipation of new products or product
enhancements; changes in operating expenses; and general economic conditions. A
substantial portion of the Company's operating expenses are related to
personnel, development of new products, facilities and marketing programs. The
level of spending for such expenses cannot be adjusted quickly and is based, in
significant part, on the Company's expectations of future revenue. If actual
revenue levels are below management's expectations, the Company's business,
results of operations and financial condition may be materially adversely
affected. Furthermore, the Company has often recognized a substantial portion of
its revenue in the last month of a quarter, with such revenue frequently
concentrated in the last weeks or days of a quarter. As a result, because one or
more key orders that are scheduled to be booked and shipped at the end of a
quarter may be delayed until the beginning of the next quarter, revenue for
future quarters is not predictable with any significant degree of accuracy. For
these reasons, the Company believes that period-to-period comparisons of its
results of operations are not necessarily meaningful and should not be relied
upon as indicators of future performance. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

Relationship with Hewlett-Packard; Right of First Refusal. Since September
1994, the Company has had a significant relationship with Hewlett-Packard
Company ("Hewlett-Packard") pursuant to which the Company supplies printer
software and related technology and support. For the four fiscal quarters ended
September 30, 1995, December 31, 1995, March 31, 1996 and June 30, 1996, revenue
from the Company's licensing and support arrangements with Hewlett-Packard
accounted for 5.6%, 4.6%, 34.5% and 53.0%, respectively, of the Company's net
revenue. For the fiscal year ended June 30, 1996, revenue from the Company's
licensing and support arrangements with Hewlett-Packard accounted for
approximately 30.0% of the Company's net revenue. The Company expects that
revenue from its relationship with Hewlett-Packard will continue to represent a
material percentage of the Company's net revenue for the foreseeable future. Any
termination or material deterioration of the Company's relationship with
Hewlett-Packard would have a material adverse effect on the business, results of
operations and financial condition of the Company. See "Business -- Customers."

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<PAGE> 8

performance milestones. Hewlett-Packard has the right to terminate the HP
Agreement upon a failure by the Company to comply with any of the provisions of
the HP Agreement that is not cured within 30 days, and upon the commencement of
certain bankruptcy or insolvency proceedings involving the Company. Any material
failure by the Company to meet the performance milestones or any termination of
the HP Agreement by Hewlett-Packard would have a material adverse effect on the
business, results of operations and financial condition of the Company. See
"Business -- Customers" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

Pursuant to the HP Agreement, the Company has granted to Hewlett-Packard a
right of first refusal if the Company proposes to enter into or participate in a
"control transaction" with a third party. "Control transactions" include, among
other things, certain mergers or consolidations, sales or exclusive licenses of
certain assets or intellectual property of the Company, and sales of stock,
share exchanges or other transactions that constitute a change in control of the
Company. The right of first refusal will expire on the earlier of the first
anniversary of the effective date of the Registration Statement of which this
Prospectus is a part or September 30, 1998. The existence of the right of first
refusal may discourage third parties from entering into "control transactions"
with the Company, and may have a negative impact on the trading price of the
Common Stock. See "Business -- Customers."

Dependence on Market Success of Third Parties; Significant Customers. A
material portion of the Company's customers are, and the Company expects that a
material portion of its customers will continue to be, OEMs. The Company's
revenue is dependent, among other things, upon the ability of these customers to
develop and sell products to end users. Factors affecting the ability of the
Company's OEM customers to develop and sell their products include competition,
their ability to develop products that meet user requirements at acceptable
prices, patent and other intellectual property issues, and overall economic
conditions. The Company's business, results of operations and financial
condition could be materially adversely affected if its OEM customers are
unsuccessful in developing and/or selling their products. There are certain
additional risks associated with OEM relationships, including whether sufficient
priority will be given by the Company's OEM partners to marketing products which
incorporate the Company's products and whether such OEM partners will continue
to offer such products. The loss of one or more of the Company's OEM partners or
the inability to establish additional relationships with OEM partners could have
a material adverse effect on the Company's business, results of operations and
financial condition. Lexmark International Group, Inc. ("Lexmark"), royalty
payments from which accounted for 8.6% of the Company's net revenue for the
fiscal year ended June 30, 1996, is not required to include the Company's
printer software products in its printers after December 31, 1996. The Company
has received no indication that the Company will receive royalties from Lexmark
after that date. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Customers."

Sales to the Company's three largest OEM customers, Hewlett-Packard,
Lexmark and Xerox, accounted for approximately 20.8% and 45.0% of the Company's
net revenue for the fiscal years ended June 30, 1995 and 1996, respectively.
There can be no assurance that the Company's major customers will place
additional orders of similar magnitude in future quarters, or that the Company
will obtain orders of similar magnitude from other customers. The Company's
business, results of operations and financial condition could be materially
adversely affected if any present or future OEM customer were to reduce its
level of orders, were to experience financial, operational or other difficulties
that resulted in a reduction of orders to the Company or were to delay paying or
fail to pay amounts due the Company from such customer. See
"Business -- Customers."

Technological Change; Difficulties and Risks Associated with New Product
Development and Introduction. Since its inception, the Company has derived
substantially all of its revenue from the sale of software, hardware and related
technologies that enable the printing and imaging of complex electronic
documents. Such products (including those currently under development) are
expected to continue to account for all or a substantial portion of the
Company's future revenue. The Company expects that revenue from sales of its
imaging products will decrease as a percentage of total revenue over time.

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<PAGE> 9

The market for the Company's products is characterized by rapidly changing
technology, evolving industry standards and frequent new product introductions.
The Company's near-term success and future growth are substantially dependent
upon continuing market acceptance of its existing products, and on the Company's
ability to develop new products to meet changing customer requirements and
emerging industry standards. In addition, there can be no assurance that
products or technologies of the Company's competitors will not render the
Company's products or technologies noncompetitive or obsolete.

The Company's future success is dependent to a significant degree on its
ability to develop its embedded technology for multifunction peripheral devices
("MFPs") in the time frame required by its OEM customers, and to develop such
technology to provide the quality, throughput, speed and data handling
capability required by its OEM customers. To date, the Company has not completed
development of its embedded MFP technology, which will require the Company to
complete development of an advanced core application-specific integrated
circuit, or ASIC. The required advanced core ASIC is a significantly more
complex ASIC than those previously developed by the Company. There can be no
assurance that the Company will be successful in developing such technology,
that unanticipated problems or delays in future development and production will
not be encountered or that, once developed, the Company's embedded MFP
technology will meet its performance specifications under all conditions or for
all anticipated applications. The market success of entities providing embedded
software products for paper handling devices has historically been largely
determined by their success in becoming one of the industry standards. This has
often been accomplished by being one of the first companies to successfully
market a particular product. Management believes that the Company's ability to
be one of the first companies to successfully develop MFP technologies will
largely determine its future success in the MFP market. Therefore, any failure
by the Company to be one of the first companies to successfully market its MFP
technology could have a material adverse effect on the business, results of
operations and financial condition of the Company. See "Business -- Strategy."

Significance of Developing Market. The market for MFPs is new and rapidly
evolving. The Company's future success is dependent to a significant degree upon
broad market acceptance of the type of MFP products on which the Company is
focusing its development efforts. This success will be dependent in part on the
ability of the Company's OEM customers to develop MFP products that provide the
functionality, performance, speed and network connectivity demanded by the
market at acceptable price points, and to convince end users to adopt MFP
products for office and desktop use. There can be no assurance that the market
for MFP products will develop, that the Company's OEM customers will be
successful in developing MFP products that gain market acceptance, that the
Company will be able to offer in a timely manner, if at all, its MFP technology
or that the Company's OEM customers will choose the Company's products for use
in their MFP products. The failure of any of these events to occur would have a
material adverse effect on the business, results of operations and financial
condition of the Company. See "Business -- Developing Market for Multifunction
Peripheral Devices."

Competition. The market for embedded systems technology for office devices
is highly competitive. The Company has numerous competitors whose products
compete with one or more of the Company's products. The embedded printer systems
software products of Adobe Systems Incorporated ("Adobe"), which is
significantly larger than the Company and has significantly greater resources
and name recognition than the Company, compete directly against certain of the
products of the Company in the market for embedded printer systems software. In
addition, the Company's document imaging acceleration products compete with
similar products sold by a small number of competitors. As the Company enters
new markets, including the market for embedded MFP technologies, it expects to
encounter competition from additional competitors, many of whom may also have
greater resources and name recognition than the Company. In addition, the
rapidly evolving nature of the markets in which the Company currently competes
and expects to compete in the future may attract other entrants as they perceive
opportunities, and the Company's competitors may foresee the course of market
developments more accurately than the Company. Increased or unanticipated
competition may result in price reductions, reduced profit margins or loss of
market share, any of which could materially adversely affect the Company's
business, results of operations and financial condition. There can be no
assurance that the Company will be able to compete

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<PAGE> 10

successfully against current or future competitors, or that competitive
pressures faced by the Company will not have a material adverse effect on the
business, results of operations and financial condition of the Company. See
"Business -- Competition."

Termination of Relationship with Adobe; Increased Competition. On May 16,
1996, the Company and Adobe terminated an agreement pursuant to which Adobe and
the Company were collaborating to incorporate certain Adobe software products
into the Company's embedded MFP technology under development. The relationship
was terminated by mutual agreement of the parties after it became apparent that
the two companies' strategic directions had diverged, and that competition
between them in the market for PostScript and PostScript-compatible printer
software had intensified. In addition, on May 16, 1996, the Company redeemed all
of the stock of the Company held by Adobe that had been acquired by Adobe in
December 1995 in connection with such agreement. Adobe, which competes with the
Company in the sale of certain of the Company's core software products, is
significantly larger than the Company and has significantly greater resources
and name recognition than the Company. As a result of the termination of the
technology and investment arrangements between Adobe and the Company, Adobe may
compete more directly with the Company, and may enter into one or more
arrangements with competitors of the Company to develop products to compete with
the Company's proposed MFP products. There can be no assurance that Adobe will
not be able to develop a product that competes with, or is more competitive
than, the Company's embedded systems technology for MFP devices, or that Adobe
will not be able to develop such a product in a shorter time frame. Because of
Adobe's greater resources and name recognition, there can be no assurance that
the Company will be able to compete effectively with Adobe. The potential
increased competition in the development of embedded systems technology for MFP
devices as well as in the Company's existing printer software business could
have a material adverse effect on the business, results of operations and
financial condition of the Company. See "Business -- Competition" and "Certain
Transactions."

Effect of Rapid Growth on Existing Resources. The Company has grown
rapidly in recent years. A continuing period of rapid growth could place a
significant strain on the Company's management, operations and other resources.
The Company's ability to manage its growth will require it to continue to invest
in its operational, financial and management information systems, and to
attract, retain, motivate and effectively manage its employees. The inability of
the Company's management to manage growth effectively would have a material
adverse effect on the business, results of operations and financial condition of
the Company.

Proprietary Technology and Product Protection. The Company's success
depends on its ability to maintain the proprietary and confidential aspects of
its products as they are released. The Company seeks to use a combination of
patents, copyrights, employee non-disclosure agreements and other means to
establish and protect its proprietary rights. The Company holds two patents,
which will expire in 2011 and 2013, respectively. There can, however, be no
assurance that the precautions taken by the Company adequately protect the
Company's technology. In addition, many of the Company's competitors have
obtained or developed, and may be expected to obtain or develop in the future,
patents, copyrights or other proprietary rights that cover or affect products
that perform functions similar to those performed by products offered by the
Company. The inability of the Company for any reason to protect existing
technology or otherwise acquire necessary technology could prevent distribution
or licensing of the Company's products, which would have a material adverse
effect on the business, results of operations and financial condition of the
Company. See "Business -- Intellectual Property."

Potential Infringement of Proprietary Technology. Although the Company
believes that its products do not infringe patents or other proprietary rights
of third parties, there can be no assurance that the Company is aware of all
patents or other proprietary rights that may be infringed by the Company's
products, that any infringement does not exist or that infringement may not be
alleged by third parties in the future. If infringement is alleged, there can be
no assurance that the necessary licenses would be available on acceptable terms,
if at all, or that the Company would prevail in any related litigation. Patent
litigation can be extremely protracted and expensive even if the Company
ultimately prevails, and

9
<PAGE> 11

involvement in such litigation could have a material adverse effect on the
business, results of operations and financial condition of the Company. See
"Business -- Intellectual Property."

Dependence on Distributors. The Company has derived a material portion of
its revenue from sales of its scan, display and print accelerator products
through independent distributors. The Company expects that sales of these
products through its distributors will continue to account for a substantial
portion of its revenue for the foreseeable future. The Company currently
maintains distribution agreements with, among others, Law Cypress Distributing
Co. ("Law Cypress") and Tech Data Corporation. Sales to these two distributors
accounted for 17.0% and 14.0% of the Company's net revenue in fiscal 1995 and
fiscal 1996, respectively. Each of the Company's distributors can cease
marketing the Company's products with limited notice and with little or no
penalty. There can be no assurance that the Company's independent distributors
will continue to offer the Company's products or that the Company will be able
to recruit additional or replacement distributors. The loss of one or more of
the Company's major distributors could have a material adverse effect on the
Company's business, operating results and financial condition. Many of the
Company's distributors offer competitive products manufactured by third parties.
There can be no assurance that the Company's distributors will give priority to
the marketing of the Company's products as compared to competitors' products.
Any reduction or delay in sales of the Company's products by its distributors
would have a material adverse effect on the business, results of operations and
financial condition of the Company. See "Business -- Customers."

Dependence on Outside Suppliers. The Company relies on various suppliers
of components for its products. Many of these components are standard and
generally available from multiple sources. However, there can be no assurance
that alternative sources of such components will be available at acceptable
prices or in a timely manner. Any shortages or interruptions in the supply of
any of the components used in the Company's products, or the inability of the
Company to procure these components from alternate sources on acceptable terms,
would have a material adverse effect on the Company's business, operating
results and financial condition. In addition, the ASIC technology for the
Company's embedded systems technology for MFP devices, which is being developed
by the Company in cooperation with IBM Microelectronics Division ("IBM
Microelectronics"), will be available only from IBM Microelectronics. Although
the Company believes it could develop other sources for this custom component,
no alternative source currently exists and the process could take several months
or longer. Therefore, the inability or refusal of IBM Microelectronics to
continue to supply this component could have a material adverse effect on the
business, results of operations and financial condition of the Company. See
"Business -- Operations."

Dependence on Key Personnel. The Company is largely dependent upon the
skills and efforts of its senior management and other officers and key
employees. The Company does not have employment agreements with any of its
officers or key employees providing for their employment for any specific term.
The loss of key personnel or the inability to hire or retain qualified personnel
could have a material adverse effect on the business, results of operations and
financial condition of the Company. See "Management."

International Activities. Revenue from sales to the Company's customers
outside the United States accounted for 42.1%, 43.2% and 24.6% of the Company's
net revenue for the fiscal years ended June 30, 1994, June 30, 1995 and June 30,
1996, respectively. The Company expects sales to customers located outside the
United States to increase in significance as it expands its international
marketing and distribution efforts for its OEM products. The international
market for products such as those produced and proposed to be produced by the
Company is highly competitive and the Company expects to face substantial
competition in this market from established and emerging companies. Risks
inherent in the Company's international business activities also include
currency restrictions and fluctuations, the imposition of government controls,
export license requirements, restrictions on the export of critical technology,
political and economic instability, tailoring of products to local requirements,
trade restrictions, changes in tariffs and taxes, difficulties in staffing and
managing international operations, longer accounts receivable payment cycles and
the burdens of complying with a wide variety of foreign laws and regulations.
There can be no assurance that any of these factors will not have a material
adverse effect on the business, results of operations and financial condition of
the Company.

10
<PAGE> 12

No Prior Public Market; Determination of Public Offering Price; Possible
Volatility of Stock Price. Before this offering, there was no public market for
the Common Stock, and there can be no assurance that an active trading market
will develop or be sustained. The initial public offering price will be
determined by negotiation between the Company and the representatives of the
Underwriters based on several factors, including prevailing market conditions
and recent operating results of the Company, and may not be indicative of the
market price of the Common Stock after this offering. The trading price of the
Common Stock could also be subject to significant fluctuations in response to
variations in quarterly results of operations, announcements of new products by
the Company or its competitors, other developments or disputes with respect to
proprietary rights, general trends in the industry, overall market conditions
and other factors. In addition, the stock market historically has experienced
extreme price and volume fluctuations which have particularly affected the
market price of securities of many high technology companies, and which have
sometimes been unrelated to the operating performance of such companies. These
market fluctuations may adversely affect the market price of the Common Stock.
See "Underwriting."

Shares Eligible for Future Sale. Sales of substantial amounts of shares of
the Company's Common Stock in the public market following this offering could
adversely affect the market price of the Common Stock. On the date of this
Prospectus, only the 3,000,000 shares offered hereby will be eligible for sale
in the public market and no additional shares will be eligible for immediate
sale in the public market pursuant to Rule 144(k) under the Securities Act of
1933, as amended (the "Securities Act"). Approximately 90,154 additional shares
of Common Stock, which are not subject to 180-day lock-up agreements (the
"Lock-up Agreements") with the representatives of the Underwriters or the
Company, will be eligible for sale in the public market in accordance with Rule
144 or Rule 701 under the Securities Act beginning 90 days after the date of
this Prospectus. Upon expiration of the Lock-up Agreements 180 days after the
date of this Prospectus, approximately 4,225,678 shares of Common Stock will be
eligible for sale in the public market, subject to the provisions of Rule 144
under the Securities Act. In addition, promptly upon expiration of the Lock-up
Agreements, the Company intends to register approximately 3,817,790 shares of
Common Stock issuable under its employee and director stock option plans and
employee stock purchase plan. At July 31, 1996, 1,861,002 shares of Common Stock
were issuable pursuant to vested options under the Company's employee stock
option plans. In addition, the holders of approximately 6,407,204 shares of
Common Stock will have certain rights to registration of these shares under the
Securities Act. See "Shares Eligible for Future Sale" and "Underwriting."

Unspecified Use of Proceeds. The principal purposes of this offering are
to increase the Company's working capital and financial flexibility, to
facilitate future access by the Company to public equity markets and to provide
increased visibility, credibility and name recognition for the Company in a
marketplace where many of its competitors are publicly held companies. The
Company intends to use the net proceeds to repay certain indebtedness and for
working capital and other general corporate purposes. A portion of the proceeds
may be used for the acquisition and/or development of complementary products,
technologies and/or businesses. The Company has not as yet identified specific
uses for a majority of the net proceeds, and, pending such uses, the Company
expects that it will invest such net proceeds in short-term, interest-bearing
investment-grade securities. Accordingly, the Company's management will have
broad discretion as to the use of such net proceeds without any action or
approval of the Company's stockholders. See "Use of Proceeds."

Control by Existing Stockholders. Upon the completion of this offering,
the current officers, directors and principal stockholders of the Company will
beneficially own approximately 59.4% of the outstanding shares of the Common
Stock of the Company. Accordingly, such persons, if they act together, will have
effective control over the Company through their ability to control the election
of directors and all other matters that require action by the Company's
stockholders, irrespective of how other stockholders may vote. Such persons
could prevent or delay a change in control of the Company which may be favored
by a majority of the remaining stockholders. Such ability to prevent or delay
such a change in control of the Company also may have an adverse effect on the
market price of Common Stock. See

11
<PAGE> 13

"Management -- Executive Officers and Directors," "Principal Stockholders" and
"Description of Capital Stock."

Dividends. The Company intends to retain all available funds for use in
the operation and expansion of its business and therefore does not anticipate
that any cash dividends will be declared or paid in the foreseeable future.
Under the terms of the Company's working capital and term loan credit
facilities, the Company is prohibited from declaring or paying dividends on its
Common Stock. See "Dividend Policy" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

Effect of Anti-takeover Provisions. Certain provisions of the Company's
Amended and Restated Certificate of Incorporation (the "Charter") and Amended
and Restated By-laws (the "By-laws") and of Delaware law could have the effect
of making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, control of the Company. Such provisions
could limit the price that investors might be willing to pay in the future for
Common Stock. These provisions will require that the Company have a Board of
Directors comprised of three classes of directors with staggered terms of
office, provide for the issuance of "blank check" preferred stock by the Board
of Directors without stockholder approval, require super-majority approval to
amend certain provisions in the Charter and By-laws, require that all
stockholder actions be taken at duly called annual or special meetings and not
by written consent, and impose various procedural and other requirements that
could make it more difficult for stockholders to effect certain corporate
actions. Furthermore, the Company is subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law, which prohibits the Company
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
first becomes an "interested stockholder," unless the business combination is
approved in a prescribed manner. The application of Section 203 could also have
the effect of delaying or preventing a change of control of the Company. See
"Description of Capital Stock."

Dilution. Purchasers of Common Stock in the offering will experience
immediate and substantial dilution of $8.50 per share, assuming an initial
public offering price of $11.00 per share, in net tangible book value per share
of Common Stock from the initial public offering. See "Dilution."

12
<PAGE> 14

THE COMPANY

The Company was incorporated in Delaware on December 30, 1992 under the
name Xionics International Holdings, Inc., although a predecessor to the Company
was formed prior to 1985. In May 1995, the Company changed its name to Xionics
Document Technologies, Inc. Unless the context otherwise requires, references
herein to the "Company" refer to Xionics Document Technologies, Inc. and its
wholly-owned subsidiaries. The Company's executive offices are at 70 Blanchard
Road, Burlington, Massachusetts 01803. Its telephone number is 617-229-7000.

The following are trademarks of the Company: Xionics[Registered
Trademark], Intelligent Peripheral System, Lightning, PeripheralPower,
PowerLightning, PowerTools, XipApp, XipChannel, XipChip, XipPower,
XipPrint[Registered Trademark] and XipView[Registered Trademark]. This
Prospectus also includes trademarks and trade names of companies other than
Xionics. PostScript[Trademark] is a trademark of Adobe Systems Incorporated
which may be registered in certain jurisdictions. All other company or product
names are trademarks or registered trademarks of their respective owners.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered by the Company hereby at an assumed initial public offering
price of $11.00 per share, after deducting the underwriting discount and
estimated offering expenses payable by the Company, are estimated to be
approximately $24.6 million. The principal purposes of this offering are to
increase the Company's working capital and financial flexibility, to facilitate
future access by the Company to public equity markets, and to provide increased
visibility, credibility and name recognition for the Company in a marketplace
where many of its competitors are publicly held companies. The Company will not
receive any of the proceeds from the sale of shares by Phoenix Technologies Ltd.
(the "Selling Stockholder"). See "Principal and Selling Stockholders."

The Company expects to use approximately $2.2 million of the net proceeds
to prepay the outstanding indebtedness, including accrued interest payable, of
the Company to the Selling Stockholder under a promissory note issued in
connection with the purchase by the Company of certain assets of the Peripherals
Division of the Selling Stockholder in October 1994. The promissory note bears
interest at a rate of 8.0% per annum, payable quarterly, and will mature on
October 15, 2001. The Company plans to use the remaining proceeds of this
offering for working capital and other general corporate purposes, including the
possible acquisition and/or development of complementary products, technologies
and/or businesses. While the Company continually evaluates potential
acquisitions, the Company has no present agreements or commitments with respect
to any acquisitions, nor are any negotiations regarding any acquisitions
currently ongoing. Pending such uses, the net proceeds of this offering will be
invested in short-term, interest-bearing investment-grade securities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on Common Stock.
The Company currently intends to retain future earnings, if any, to fund the
development and growth of its business and does not anticipate paying any cash
dividends on Common Stock in the foreseeable future. The Board of Directors of
the Company intends to review this policy from time to time, after taking into
account various factors such as the Company's financial condition, results of
operations, current and anticipated cash needs and plans for expansion. Under
the terms of the Company's working capital and term loan credit facilities, the
Company is currently prohibited from paying dividends on Common Stock.

13
<PAGE> 15

<TABLE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
30, 1996 on an actual, pro forma and pro forma as adjusted basis to reflect the
application of the estimated net proceeds from the sale of 2,500,000 shares of
Common Stock offered by the Company hereby at an assumed initial public offering
price of $11.00 per share. The capitalization information set forth in the table
below is qualified by the more detailed Consolidated Financial Statements and
Notes thereto included elsewhere in this Prospectus, and should be read in
conjunction with such Consolidated Financial Statements and Notes.
<CAPTION>

JUNE 30, 1996
----------------------------------------
PRO FORMA
PRO AS
ACTUAL FORMA(1) ADJUSTED(2)
-------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Term loans, current portion................................................ $ 323 $ 323 $ 323
======== ======== ========
Term loans, net of current portion......................................... $ 564 $ 564 $ 564
Secured promissory note payable to stockholder............................. 2,094 2,094 --
Redeemable convertible preferred stock:
Class B redeemable preferred stock, $.01 par value --
Authorized, issued and outstanding -- none (no shares pro forma or pro
forma as adjusted)..................................................... -- -- --
Class C redeemable convertible preferred stock, $.01 par value --
Authorized -- 2,779,615 shares
Issued and outstanding -- 2,698,938 shares, stated at liquidation
value, at June 30, 1996 (no shares pro forma or pro forma as
adjusted).............................................................. 8,231 -- --
Class D preferred stock, $.01 par value --
Authorized, issued and outstanding -- none (no shares pro forma or pro
forma as adjusted)..................................................... -- -- --
Stockholders' equity (deficit):
Preferred stock, $.01 par value --
Authorized -- 10,000,000 shares pro forma
Issued and outstanding -- none (no shares pro forma or pro forma as
adjusted).............................................................. -- -- --
Class A convertible preferred stock, $.01 par value --
Authorized -- 3,603,305 shares
Issued and outstanding -- 3,125,051 shares at June 30, 1996 (no shares
pro forma or pro forma as adjusted).................................... 3,607 -- --
Common stock, $.01 par value --
Authorized -- 40,000,000 shares pro forma
Issued and outstanding -- no shares at June 30, 1996, (7,768,986
shares pro forma and 10,268,986 shares pro forma as adjusted).......... -- 78 103
Common stock, class A --
Authorized -- 20,000,000 shares
Issued -- 1,386,066 at June 30, 1996
Outstanding -- 1,161,755 at June 30, 1996
(no shares pro forma or pro forma as adjusted)......................... 14 -- --
Common stock, class B --
Authorized -- 10,000,000 shares
Issued and outstanding -- 558,931 shares at June 30, 1996 (no shares
pro forma or pro forma as adjusted).................................... 6 -- --
Additional paid-in capital............................................... 1,313 13,092 37,642
Accumulated deficit...................................................... (11,357) (11,357) (11,357)
Treasury stock, 224,311 shares of common stock........................... (151) (151) (151)
-------- -------- --------
Total stockholders' equity (deficit).............................. (6,570) 1,661 26,236
-------- -------- --------
Total capitalization.............................................. $ 4,319 $ 4,320 $ 26,801
======== ======== ========
<FN>

- ---------------

(1) Adjusted to give effect to (i) the automatic conversion upon the completion
of this offering of the Class C Redeemable Convertible Preferred Stock and
the Class A Convertible Preferred Stock into 5,823,989 shares of Class A
Common Stock, (ii) the automatic conversion upon the completion of this
offering of all outstanding shares of Class B Common Stock into 558,931
shares of Class A Common Stock and (iii) the redesignation of all shares of
Class A Common Stock as "Common Stock." In addition, the pro forma
statements reflect a credit to additional paid-in capital of all accumulated
dividends on the Class C Redeemable Convertible Preferred Stock.
(2) Adjusted to give effect to the sale of 2,500,000 shares of Common Stock by
the Company offered hereby at an assumed initial public offering price of
$11.00 per share and the application of the estimated net proceeds therefrom
and to the repayment of $2,094,000 of principal and $90,000 of accrued
interest payable on a secured promissory note payable to Phoenix
Technologies Ltd.
</TABLE>

14
<PAGE> 16

DILUTION

The pro forma net tangible book value of the Company's Common Stock as of
June 30, 1996 was approximately $541,000 or $0.07 per share. The pro forma net
tangible book value per share represents the Company's total tangible assets
less total liabilities, divided by the total number of shares of Common Stock
outstanding after giving effect to (i) the automatic conversion of the Class C
Redeemable Convertible Preferred Stock, the Class A Convertible Preferred Stock
and the Class B Common Stock into shares of Class A Common Stock, and (ii) the
redesignation of all shares of Class A Common Stock as "Common Stock." In
addition, the pro forma net tangible book value per share reflects the credit to
additional paid-in capital of all accumulated dividends on the Class C
Redeemable Convertible Preferred Stock.

<TABLE>
After giving effect to the sale by the Company of the 2,500,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$11.00 per share, and the receipt of the net proceeds therefrom, the as adjusted
pro forma net tangible book value of the Company as of June 30, 1996 would have
been approximately $25.1 million or $2.50 per share. This represents an
immediate increase in pro forma net tangible book value of $2.43 per share to
existing stockholders and an immediate dilution in net tangible book value of
$8.50 per share to purchasers of Common Stock in this offering, as illustrated
in the following table:
<CAPTION>

<S> <C> <C>
Assumed initial public offering price per share............................ $11.00
Pro forma net tangible book value per share as of June 30, 1996.......... $0.07
Increase per share attributable to new stockholders...................... 2.43
-----
As adjusted pro forma net tangible book value per share at June 30, 1996
after offering........................................................... 2.50
------
Dilution per share to new stockholders..................................... $ 8.50
======
</TABLE>

<TABLE>
The following table summarizes, as of July 31, 1996, after giving effect to
the transactions described in the first paragraph above, the number of shares of
Common Stock purchased from the Company, the total consideration paid and the
average price per share paid by existing stockholders and by new stockholders:
<CAPTION>

SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE PAID
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders................. 7,544,923 75.1% $12,531,821 31.3% $ 1.66
New stockholders...................... 2,500,000 24.9 27,500,000 68.7 11.00
---------- ----- ----------- -----
Total....................... 10,044,923 100.0% $40,031,821 100.0%
========== ===== =========== =====
</TABLE>

The foregoing table assumes no exercise of any stock options subsequent to
July 31, 1996. As of July 31, 1996, an aggregate of 3,817,790 shares of Common
Stock were reserved but unissued under the Company's stock option and purchase
plans and options to purchase an aggregate of 2,529,472 shares at a weighted
average exercise price of $0.66 per share were outstanding. To the extent such
options are exercised, there will be further dilution to new stockholders.

The sale of shares by the Selling Stockholder in this offering will reduce
the number of shares held by existing stockholders to 7,044,923 shares or
approximately 70.1% of the Company's outstanding Common Stock immediately after
the offering (66.9% if the Underwriters' over-allotment option is exercised in
full), and will increase the number of shares held by new stockholders to
3,000,000 shares or 29.9% of the Company's outstanding Common Stock immediately
after the offering (3,450,000 shares or 33.1% if the Underwriters'
over-allotment option is exercised in full). See "Principal and Selling
Stockholders."

15
<PAGE> 17

SELECTED CONSOLIDATED FINANCIAL DATA

The Selected Consolidated Financial Data set forth below with respect to the
Balance Sheet Data at June 30, 1995 and at June 30, 1996 and the Statement of
Operations Data for each of the three years in the period ended June 30, 1996,
have been derived from the Consolidated Financial Statements of the Company
included elsewhere in this Prospectus that have been audited by Arthur Andersen
LLP, independent certified public accountants, as indicated by their report
thereon contained elsewhere herein. The Balance Sheet Data as of June 30, 1993
and 1994 has been derived from consolidated financial statements of the Company
not included in this Prospectus that have been audited by Arthur Andersen LLP,
independent certified public accountants. The Statement of Operations Data for
the two fiscal years ended June 30, 1992 and 1993 and the Balance Sheet Data as
of June 30, 1992 are derived from the Company's unaudited Consolidated Financial
Statements not included herein. The Selected Consolidated Financial Data should
be read in conjunction with the Consolidated Financial Statements and Notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------
1992 1993 1994 1995 1996
------- ------ ------ ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:

Net revenue.............................................................. $ 8,078 $8,691 $9,131 $15,577 $23,809
Cost of revenue.......................................................... 3,615 3,895 2,896 4,681 5,791
------- ------ ------ ------- -------
Gross profit............................................................. 4,463 4,796 6,235 10,896 18,018
Operating expenses:
Research and development............................................... 682 958 1,308 6,235 10,037
Selling, general and administrative.................................... 5,700 3,755 4,674 6,901 9,395
Charge for purchased research and development.......................... -- -- -- 3,492 --
------- ------ ------ ------- -------
Income (loss) from operations............................................ (1,919) 83 252 (5,733) (1,414)
Other income (expense), net.............................................. 346 5 (9) (292) (119)
------- ------ ------ ------- -------
Net income (loss)........................................................ $(1,573) $ 88 $ 243 $(6,025) $(1,533)
======= ====== ====== ======= =======
Pro forma net loss per common and common equivalent share(1)(2).......... $ (0.18)
=======
Pro forma weighted average number of common and common equivalent shares
outstanding(2)......................................................... 8,308
=======
Supplemental pro forma net loss per common and common equivalent
share(3)............................................................... $ (0.16)
=======
Supplemental pro forma weighted average number of common and common
equivalent shares outstanding.......................................... 8,521
=======
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1996
JUNE 30, --------------------
------------------------------------- PRO
1992 1993 1994 1995 ACTUAL FORMA(4)
------ ------ ------ ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:

Cash and cash equivalents..................................... $1,344 $ 408 $ 851 $ 1,226 $ 2,116 $2,116
Working capital............................................... 528 (508) (493) 517 992 992
Total assets.................................................. 2,888 1,808 2,639 7,179 9,905 9,905
Long-term debt, net of current maturities..................... -- 184 -- 4,849 2,658 2,658
Redeemable preferred stock.................................... -- 1,868 2,055 2,276 8,231 --
Stockholders' equity (deficit)................................ 307 (367) (122) (5,377) (6,570) 1,661
<FN>

- ---------------
(1) Reflects the conversion, upon the completion of this offering, of all
outstanding shares of the Company's Convertible Preferred Stock into
5,823,989 shares of Common Stock.
(2) Computed on the basis described in Note 1 of Notes to Consolidated Financial
Statements included elsewhere in this Prospectus.
(3) Computed on the basis described in Note 1 of Notes to Consolidated Financial
Statements, adjusted for the increase in the number of shares of Common
Stock issued pursuant to the proposed offering sufficient to generate
proceeds for the payment of $2.2 million of a secured promissory note
payable upon the consummation of the offering.
(4) Adjusted to give effect to the transactions and events described in the last
paragraph of the Prospectus Summary. In addition, the pro forma statements
reflect the credit to additional paid-in capital of all accumulated
dividends on the Class C Redeemable Convertible Preferred Stock. See
"Certain Transactions."
</TABLE>

16
<PAGE> 18

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Xionics Document Technologies, Inc. designs, develops and markets advanced
embedded systems technology for use in mainstream office devices such as
printers, copiers and scanners. The Company began in the late 1980's to develop
and introduce new document imaging technology used to accelerate the high-volume
capture, display and printing of business records. In October 1994, the Company
acquired certain assets of the Peripherals Division of Phoenix Technologies Ltd.
("Phoenix"), including page description language interpreters, printer operating
systems software, network connectivity solutions and other core printer
technologies (the "Acquisition"). The Acquisition was accounted for as a
purchase in accordance with Accounting Principles Board Opinion No. 16.
Approximately $3.5 million of the purchase price was allocated to the purchase
of incomplete research and development projects and was charged to expense as of
the Acquisition date.

The Company derives its revenue primarily from sales of its printer
software products, which include revenue from software licenses, royalties,
engineering services and maintenance, and from sales of its image acceleration
products. Software license revenue consists of the Company's charges for
licensed source code, which generally includes initial non-refundable fees which
are recognized as revenue upon the shipment of the source code, provided there
are no significant vendor obligations. Royalty revenue is generally earned as a
percentage of net revenue from unit sales by licensees of products that
incorporate the Company's software, and is generally recognized as earned in the
Company's financial statements in the quarter in which amounts due to the
Company have been determined using estimates based upon historical payments.
Engineering services revenue is derived from fees paid for porting of the
Company's software to customer-specific printer controllers. Payments under
maintenance contracts are due at the beginning of the contract; however, revenue
is recognized ratably over the term of the contract, which is typically twelve
months.

The Company generates a significant portion of its revenue from customers
located outside of the United States. Such revenue accounted for 42.1%, 43.2%
and 24.6% of the Company's revenue for the fiscal years ended June 30, 1994,
1995 and 1996, respectively. The Company's export revenue is primarily
denominated and collected in United States dollars.

In March 1996, the Company entered into an amendment of its preexisting
development and license agreement with Hewlett-Packard. Under the amended
agreement (the "HP Agreement"), the Company licensed certain of its page
description technology, including its version of the PostScript page description
language, to Hewlett-Packard. Revenue from the HP Agreement will be recognized
by the Company over three years using percentage of completion contract
accounting. Payments under the HP Agreement include the Company's charges for
source code access, engineering services, license rights and ongoing maintenance
and support. Upon execution of the HP Agreement, the Company received a $6.0
million non-refundable initial payment, of which approximately $2.0 million was
recorded as revenue in the quarter ended March 31, 1996, and approximately $4.0
million was recorded as revenue in the quarter ended June 30, 1996. The
remaining future payments under the HP Agreement are contingent upon the
satisfaction of performance milestones by the Company. Although the Company has
met these performance milestones through the date of this Prospectus, there can
be no assurance that the Company will continue to meet these performance
milestones. Hewlett-Packard has the right to terminate the HP Agreement upon a
failure by the Company to comply with any of the provisions of the HP Agreement
that is not cured within 30 days, and upon the commencement of certain
bankruptcy or insolvency proceedings involving the Company.

A substantial portion of the Company's operating expenses are related to
research and development. In addition to expenses for the ongoing development of
printer systems products, the Company has committed significant resources to the
development of multifunction peripheral technology from which the Company does
not expect to recognize any material revenue in the short term. The Company
intends

17
<PAGE> 19

to continue to increase the amount of its research and development, and selling,
general and administrative expenses.

The Company had no provision for income taxes for fiscal 1995 or 1996 due
to net losses incurred in those periods. As of June 30, 1996, the Company had
available net operating loss carryforwards of approximately $3.6 million for
federal income tax reporting purposes, expiring at various dates beginning in
2003. In addition, the Company had available net operating loss carryforwards of
approximately $1.2 million for foreign income tax reporting purposes. These
carryforwards may be used to offset future taxable income, if any.

<TABLE>
RESULTS OF OPERATIONS

The following table summarizes the Company's significant operating results
as a percentage of net revenue for each of the periods indicated.
<CAPTION>

YEAR ENDED JUNE 30,
---------------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Net revenue.............................................. 100.0% 100.0% 100.0%
Cost of revenue.......................................... 31.7 30.1 24.3
----- ----- -----
Gross profit............................................. 68.3 69.9 75.7
Operating expenses:
Research and development............................... 14.3 40.0 42.2
Selling, general and administrative.................... 51.2 44.3 39.5
Charge for purchased research and development.......... -- 22.4 --
----- ----- -----
Income (loss) from operations............................ 2.8 (36.8) (5.9)
Other expense, net....................................... 0.1 1.9 0.5
------ ----- -----
Net income (loss)........................................ 2.7% (38.7)% (6.4)%
===== ===== =====
</TABLE>

FISCAL YEARS ENDED JUNE 30, 1996 AND JUNE 30, 1995

Revenue. Revenue increased 52.6% to $23.8 million for fiscal 1996 compared
to $15.6 million for fiscal 1995. This increase resulted primarily from growth
in sales of the Company's printer software products, including approximately
$6.0 million of revenue recognized under the HP Agreement. In addition, revenue
from sales of the Company's printer software products was included for the
entire twelve month period ended June 30, 1996, compared to only nine months
during fiscal 1995 because of the date of the Acquisition, accounting for an
increase of approximately $2.4 million.

Gross Profit. Cost of revenue consists primarily of costs associated with
components, subcontracted manufacturing, labor and overhead for quality
assurance, warehousing and shipping of the Company's imaging products, and costs
associated with non-recurring engineering services. In addition, cost of revenue
includes amortization of acquired intangibles and the cost of providing services
and maintenance. Gross profit increased 65.1% to $18.0 million for fiscal 1996
from $10.9 million for fiscal 1995. Gross margin increased to 75.7% for fiscal
1996 compared to 69.9% for fiscal 1995. These increases were attributable
primarily to increased sales of higher-margin Intelligent Peripheral System
("IPS") products and related engineering services, primarily related to the HP
Agreement, partially offset by a reduction in gross margin attributable to the
Company's image acceleration products. In addition, gross profit from sales of
the Company's printer software products was included for the entire twelve month
period ended June 30, 1996, compared to only nine months during fiscal 1995
because of the date of the Acquisition.

Research and Development. Research and development expenses consist
primarily of personnel costs, costs of engineering contractors and outside
consultants, engineering supplies, computer equipment depreciation and overhead
costs, all of which are associated with development of the Company's IPS, MFP
and imaging technologies. Research and development expenses increased 61.3% to
$10.0 million for fiscal 1996 from $6.2 million in fiscal 1995. The higher
expense level resulted primarily from increased

18
<PAGE> 20

expenditures relating to the Company's MFP technology, which is currently in
development, partially offset by a small reduction in expenditures relating to
the Company's image acceleration products. In addition, research and development
expenses for the Company's IPS products were included for the entire twelve
month period ended June 30, 1996 compared to only nine months during fiscal 1995
because of the date of the Acquisition. As a percentage of revenue, research and
development expenses increased to 42.2% for fiscal 1996 from 40.0% for fiscal
1995.

Selling, General and Administrative. Selling, general and administrative
expenses include personnel and related overhead costs for sales, marketing,
finance, human resources and general management. Selling, general and
administrative expenses increased 36.2% to $9.4 million for fiscal 1996 from
$6.9 million in fiscal 1995. The higher expense level resulted primarily from
increased staffing and additional expenses attributable to rent, overhead and
professional fees. In addition, selling, general and administrative expenses for
the Company's IPS products were included for the entire twelve month period
ended June 30, 1996 compared to only nine months during fiscal 1995 because of
the date of the Acquisition. As a percentage of revenue, selling, general and
administrative expenses decreased to 39.5% for fiscal 1996 from 44.3% for fiscal
1995.

Charge for Purchased Research and Development. Purchased research and
development expense relating to the Acquisition totaled approximately $3.5
million and was charged to expense as of the Acquisition date. This expense
represents the estimated fair value related to the incomplete research and
development projects determined by independent appraisal. The development of
these projects had not yet reached technological feasibility and the technology
had no alternative future use. The technology acquired in the Acquisition has
required substantial additional development by the Company.

Other Expense, Net. Other expense, net is comprised primarily of interest
expense attributable to the interest payable on the Company's indebtedness,
interest income earned on cash and cash equivalents, and gains and losses on
foreign currency translation and transactions. Other expense, net decreased
59.2% to $119,000 for fiscal 1996 from $292,000 for fiscal 1995. This decrease
resulted primarily from a decrease in interest expense and an increase in
interest and other income.

FISCAL YEARS ENDED JUNE 30, 1995 AND JUNE 30, 1994

Revenue. Revenue increased 71.4% to $15.6 million for fiscal 1995 compared
to $9.1 million for fiscal 1994. This increase resulted, in part, from a small
increase in sales of the Company's XipPrint product line included in its
document image acceleration products. In addition, revenue from sales of the
Company's printer software products, which commenced upon completion of the
Acquisition in October 1994, were included in fiscal 1995 and not in fiscal
1994.

Gross Profit. Gross profit increased 75.8% to $10.9 million for fiscal
1995 from $6.2 million for fiscal 1994. Gross margin increased to 69.9% for
fiscal 1995 compared to 68.3% for fiscal 1994. This increase was attributable
primarily to sales of the Company's higher-margin IPS products and related
engineering services, all of which commenced upon completion of the Acquisition
in October 1994. This was offset, in part, by a reduction in gross margin
attributable to the Company's image acceleration products.

Research and Development. Research and development expenses increased
376.9% to $6.2 million for fiscal 1995 from $1.3 million for fiscal 1994. The
higher expense level resulted primarily from research and development
expenditures relating to the Company's IPS product line acquired as part of the
Acquisition and to the Company's MFP technology which is currently in
development. This increase was partially offset by a small reduction in
expenditures attributable to the Company's image acceleration products. As a
percentage of revenue, research and development expenses increased to 40.0% for
fiscal 1995 from 14.3% for fiscal 1994.

Selling, General and Administrative. Selling, general and administrative
expenses increased 46.8% to $6.9 million for fiscal 1995 from $4.7 million for
fiscal 1994. The higher expense level resulted primarily from increased staffing
upon completion of the Acquisition in October 1994, and additional expenses
attributable to rent, overhead and professional fees. As a percentage of
revenue, selling, general and administrative expenses decreased to 44.3% for
fiscal 1995 from 51.2% for fiscal 1994.

19
<PAGE> 21

Charge for Purchased Research and Development. Purchased incomplete
research and development expense relating to the Acquisition totaled
approximately $3.5 million and was charged to expense as of the Acquisition
date.

Other Expense, Net. Other expense, net increased to $292,000 for fiscal
1995 from $9,000 for fiscal 1994. This increase resulted primarily from interest
expense on the promissory note issued in October 1994 by the Company to Phoenix
in connection with the Acquisition.

SELECTED QUARTERLY RESULTS OF OPERATIONS

<TABLE>
The following table sets forth certain unaudited quarterly operating
information for each of the eight quarters ending with the quarter ended June
30, 1996. In the opinion of management, this information has been prepared on
the same basis as the audited consolidated financial statements of the Company
and reflects all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of this information in accordance with
generally accepted accounting principles. This information should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Prospectus. The results of operations for
any quarter are not necessarily indicative of the results to be expected for any
future period.
<CAPTION>

THREE MONTHS ENDED
---------------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1994 1994 1995 1995 1995 1995 1996 1996
--------- -------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue........................ $2,153 $ 4,213 $4,394 $4,818 $ 3,999 $ 4,874 $6,663 $8,273
Cost of revenue.................... 756 1,101 1,319 1,506 1,164 1,481 1,637 1,509
------ ------- ------ ------ ------- ------- ------ ------
Gross profit....................... 1,397 3,112 3,075 3,312 2,835 3,393 5,026 6,764
Operating expenses:
Research and development......... 562 1,974 1,828 1,871 1,960 2,133 2,254 3,690
Selling, general and
administrative................. 996 2,041 1,839 2,025 2,356 2,273 2,403 2,363
Charge for purchased research and
development.................... -- 3,492 -- -- -- -- -- --
------ ------- ------ ------ ------- ------- ------ ------
Income (loss) from operations...... (161) (4,395) (592) (584) (1,481) (1,013) 369 711
Other expense (income), net........ 25 26 142 100 125 8 19 (33)
------ ------- ------ ------ ------- ------- ------ ------
Net income (loss).................. $ (186) $(4,421) $ (734) $ (684) $(1,606) $(1,021) $ 350 $ 744
====== ======= ====== ====== ======= ======= ====== ======
</TABLE>

<TABLE>
The following table sets forth certain unaudited quarterly results of
operations expressed as a percentage of net revenue for each of the eight
quarters ending with the quarter ended June 30, 1996.
<CAPTION>

THREE MONTHS ENDED
---------------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1994 1994 1995 1995 1995 1995 1996 1996
--------- -------- -------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF NET REVENUE:
Net revenue........................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue.................... 35.1 26.1 30.0 31.3 29.1 30.4 24.6 18.2
----- ------ ----- ----- ----- ----- ----- -----
Gross profit....................... 64.9 73.9 70.0 68.7 70.9 69.6 75.4 81.8
Operating expenses:
Research and development......... 26.1 46.9 41.6 38.8 49.0 43.8 33.8 44.6
Selling, general and
administrative................. 46.3 48.4 41.9 42.0 58.9 46.6 36.1 28.6
Charge for purchased research and
development.................... -- 82.9 -- -- -- -- -- --
----- ------ ----- ----- ----- ----- ----- -----
Income (loss) from operations...... (7.5) (104.3) (13.5) (12.1) (37.0) (20.8) 5.5 8.6
Other expense (income), net........ 1.2 0.6 3.2 2.1 3.1 0.1 0.3 (0.4)
----- ------ ----- ----- ----- ----- ----- -----
Net income (loss).................. (8.7)% (104.9)% (16.7)% (14.2)% (40.1)% (20.9)% 5.2% 9.0%
===== ====== ===== ===== ===== ===== ===== =====
</TABLE>

20
<PAGE> 22

The Company has in the past experienced, and may in the future experience,
significant fluctuations in quarterly operating results, which have been and may
be caused by many factors, including: the timing of introductions of new
products or product enhancements by the Company, its OEM customers or its
competitors; personnel changes; seasonal fluctuations in purchasing patterns;
the size and timing of individual orders; product returns from the Company's
distribution channels; the types of products sold and the range of gross margins
attributable to each type of product; software bugs or other product quality
problems; competition and pricing; customer order deferrals in anticipation of
new products or product enhancements; changes in operating expenses; and general
economic conditions. A substantial portion of the Company's operating expenses
are related to personnel, development of new products, facilities and marketing
programs. The level of spending for such expenses cannot be adjusted quickly and
is based, in significant part, on the Company's expectations of future revenue.
Consequently, operating results for a given period could be disproportionately
affected by any shortfall in expected revenue. In addition, fluctuations in
revenue from quarter to quarter will likely have significant impact on the
Company's results of operations.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations to date principally through cash
flows from operating activities, private placements of debt and equity
securities and proceeds from borrowings under an equipment line of credit.

As of June 30, 1996, the Company had cash and cash equivalents of $2.1
million, an increase of $900,000 from the $1.2 million of cash and cash
equivalents held at June 30, 1995. In addition, as of June 30, 1996, the Company
had short-term investments of $645,000. During fiscal 1996, the Company's
principal sources of cash were funds generated from operations, including an
initial nonrefundable $6.0 million payment under the HP Agreement, and private
placements of equity securities. On December 22, 1995, the Company issued
1,000,000 shares of the Company's Class D Preferred Stock to Adobe for an
aggregate purchase price of $4.5 million. The principal uses of cash during
fiscal 1996 were expenditures to fund engineering development and purchases of
computers, furniture and equipment and to repurchase shares of Common Stock from
a former executive. On May 16, 1996, the Company repurchased all of the
outstanding shares of capital stock of the Company held by Adobe. The
consideration for the repurchase included $4.5 million in cash, the original
price paid by Adobe for such capital stock.

At present, the Company has available a $4.0 million working capital
revolving line of credit and a $2.0 million term loan facility with a bank, both
of which are secured by substantially all assets of the Company. The working
capital line of credit terminates on December 1, 1997, and no term loan will be
made after June 30, 1997. Each term loan under the term loan facility is
required to be repaid over 36 months from the date such term loan is funded.
Under the loan facilities, the Company is required to comply with certain
restrictive covenants, including debt to worth, capital base, quick ratio and
profitability. The interest rate for the working capital line of credit is the
bank's prime rate plus 0.5%; the interest for the term loan facility is the
bank's prime rate plus 1.0%. Upon completion of this offering, the interest rate
for the working capital line of credit will be the bank's prime rate, and the
interest rate for the term loan facility will be the bank's prime rate plus
0.5%. As of June 30, 1996, the outstanding borrowings under the working capital
line of credit and term loan facility were $0 and $887,000, respectively. Under
the terms of the working capital and term loan facilities, the Company is
prohibited from declaring or paying dividends on its Common Stock. The Company
was in compliance with or had received a waiver of non-compliance of all
covenants of the working capital and term loan facilities as of June 30, 1996.
While the Company may in the future use private placements of its securities as
a source of liquidity, it has no present intention to do so.

The Company believes that the net proceeds of this offering, together with
its existing cash and cash equivalent balances, funds generated from operations
and available borrowings under its lines of credit will be sufficient to finance
the Company's operations for at least the next 12 months. In the event the
Company acquires one or more businesses or products, the Company's capital
requirements could increase substantially, and there can be no assurance that
additional capital will be available on terms acceptable to the Company, if at
all.

21
<PAGE> 23

BUSINESS

INDUSTRY BACKGROUND

General Market

Electronic devices for handling paper -- printers, copiers, scanners and
fax machines -- are ubiquitous in the office environment today. According to
Giga Information Group, United States sales of these office devices exceeded $28
billion in 1995 and are expected to grow to more than $32 billion by 1998.
Growth and change within this market are driven by several factors.
Technology-driven changes in the way work is performed in the office tend to
increase demand for some types of devices, while decreasing demand for others.
For example, as electronic mail becomes more widespread, documents are
increasingly distributed electronically and then printed, rather than printed,
copied or faxed and then manually distributed. These trends may account for
increased market share for printers, especially high-speed laser, color and
networked printers, compared to other office devices. In addition, users are
demanding greater speed and throughput, higher-quality output, color capability
and network connectivity, all at lower costs. Furthermore, manufacturers of
office devices have an increasing need to meet de facto industry standards in
areas such as page rendering technology, networking and Internet protocols.
These market trends put office device manufacturers under constant pressure to
improve and innovate in order to gain and hold market share.

A few large international companies with worldwide product distribution,
such as Canon, Hewlett-Packard, Kodak, Panasonic and Xerox, dominate the market
for office devices that handle paper. Hewlett-Packard, for example, supplied 61%
of laser printers sold in the United States in 1995, according to International
Data Corporation ("IDC"). These original equipment manufacturers ("OEMs")
compete fiercely with one another both within and across product categories. In
order to meet user demand for improved and lower-cost office devices, these
companies must continually try to reduce their product cost and time to market
while adding features and functions that differentiate their products from those
of competitors. The Company believes that these OEMs increasingly rely on
outside suppliers to provide core, enabling software and hardware technologies
around which the OEMs can develop these differentiated products.

Among these core, enabling technologies are print and imaging technologies.
Print technologies include page rendering techniques and system-level embedded
software, which are critical in the printer marketplace and useful in other
product categories. Imaging technologies include digital image acceleration,
processing and enhancement, which are critical in the market for copiers,
scanners and fax machines. Printer vendors are increasingly driven by
competition and market forces (including competition for the very profitable
aftermarket for consumable supplies such as paper and toner) to add traditional
copier features such as paper handling and onboard scanners to their devices.
For similar reasons, copier manufacturers are adding printer-like features such
as network connectivity and page rendering applications. As a result, the
markets for products in these two categories are converging.

Printer Market

Printer manufacturers must differentiate their products while still
adhering to industry standards for applications interfaces and communications
protocols. In particular, printer OEMs must incorporate industry-standard
page-rendering techniques. Page rendering is the process by which a printer
converts commands generated by a software application such as a word-processing
program into marks on a printed page. This process is carried out by a software
program known as a page description language interpreter, which is usually
embedded in the printer controller. This software interprets a set of
instructions from the

22
<PAGE> 24

application that describe the electronic appearance of a page (including
detailed information about the placement of each character, line, curve or
image), and then instructs the print engine exactly where to mark the page. The
format in which these instructions are given is known as a page description
language ("PDL").

Two industry standards for PDLs, each with particular strengths, have
become firmly established over the past decade and continue to evolve. The PCL
language was developed by Hewlett-Packard for use in its own printers. The
PostScript language was originated by Adobe, which does not itself manufacture
printers but licenses its PostScript software to printer OEMs. Other companies
have implemented compatible versions of both of these standard PDLs. The main
strength of the PCL language is the rendering of text-intensive documents at
high speeds using comparatively little memory, while the main benefit of the
PostScript language is the rendering of pages containing both text and complex
graphic images with high mathematical precision. The PostScript language has
thus traditionally been used primarily in graphic arts and desktop publishing
applications, with comparatively low penetration of the broader office market.
PCL, on the other hand, is widely used in offices for printing text-intensive
business documents. According to IDC, PCL or PCL-compatible languages were the
primary languages used in approximately 70% of all laser printers sold in the
United States in 1995, while PostScript or PostScript-compatible languages were
the primary languages used in approximately 25% of all laser printers sold in
the United States in 1995. Certain printer OEMs are including
PostScript-compatible capability without significant extra cost in devices that
traditionally have used only PCL in response to users' increasing desire to
print business documents rich in graphical content such as complex fonts,
photographs and other scanned or digitized images.

A number of other trends are also driving growth in the printer market. The
desire for color in documents has produced a corresponding demand for color
laser printers, which must be able to handle much more data than monochrome
printers. Furthermore, users continually demand improvements in speed and output
resolution. Only four years ago, office printers typically printed in a range of
6 to 8 pages per minute at an output resolution of 300 dots per inch; acceptable
speeds today are in the range of 12 to 30 pages per minute, and acceptable
output resolution is generally considered to be 600 dots per inch. Finally, the
number of network-connected printers has increased and is expected to continue
to grow. According to IDC, 62% of laser printers sold in the United States in
1995 were connected to local or external computer networks. This percentage is
expected to increase to 78% by 1999, according to IDC.

All of these trends present significant technological challenges to printer
OEMs that in many cases lie outside the OEMs' primary area of expertise. To meet
such challenges, the Company believes that these OEMs are increasingly turning
to third parties to provide system-level printer software technologies including
PDL interpreters.

Imaging Market

Manufacturers of copiers, scanners and fax machines are also continually
subject to user demand for better output quality and higher speeds. The OEMs
that manufacture these devices are responding by deploying imaging technologies
such as acceleration through data compression, digital image processing and
digital image enhancement to improve performance and quality. These technologies
are evolving from methods first employed by the dedicated scanner and display
systems used in back-office document imaging applications such as credit card
voucher clearing and check truncation, and increasingly are being deployed in
mainstream office imaging devices. Xerox, for example, has introduced a line of
digital copiers that use these technologies to produce image-enhanced copies,
rather than the photography-based techniques of traditional analog copiers. The
Company believes that, as these imaging technologies advance, copier OEMs, much
like printer OEMs, rely on third parties to provide many of the relevant core
technologies around which these manufacturers can build special or
differentiated features.

23
<PAGE> 25

Developing Market for Multifunction Peripheral Devices

The convergence in features of printers and copiers and advancements in
image processing technologies have set the stage for another change in the
market for office devices. This market has long consisted of a variety of
devices performing a single dedicated function. A market is now emerging for
multifunctional peripheral devices ("MFPs") which combine several paper-handling
functions (e.g. printing, copying, scanning, and/or faxing) in one device and
thus offer advantages such as increases in productivity and reductions in
capital and operating expenses. These devices also generally offer the network
connectivity which is frequently absent from traditional single-function
devices. Giga Information Group projects that the United States market for MFPs
will grow from 923,000 units in 1995 to approximately 6 million units in 1998.

To date, OEMs have generally introduced two kinds of MFPs: low-end devices
priced below $1,500, and higher-end devices priced at over $9,000. The
lower-priced devices use a single device controller which is shared by the
device's processing functions, can only perform one function at a time and
yields correspondingly low performance and output quality. Although these
devices are becoming accepted in the home and small-office market, which
tolerates slow speeds and low resolutions, they are not capable of meeting the
requirements of the office market. At the other end of the market, higher-priced
MFPs contain several expensive device controllers, one for each separate
function. These devices are considered too expensive to be sold in volume into
the office market, which generally expects a price range of about $3,000 to
$8,000 for office devices with these types of functions. The Company believes
that no currently available MFP device priced less than $8,000 meets office
users' requirements for performance and quality.

To meet MFP performance requirements at price points appropriate for the
office market, the Company believes that OEMs must solve a central technological
problem: how to achieve concurrent functioning (for example, receiving a fax and
making a copy at the same time) on a single device controller. Critical design
obstacles to solving this problem include providing sufficient bandwidth to
support concurrent functions at an affordable cost, maximizing image processing
speed on the single device controller and managing data flow through the device
so that separate functions will not interfere with one another. A single device
controller providing concurrent multiple functions must be designed to meet
performance requirements without exceeding acceptable prices.

THE XIONICS SOLUTION

Xionics provides advanced embedded systems technology for mainstream office
devices such as printers, copiers and scanners. The Company's products enable
the high-speed capture, processing, printing, copying and display of complex
electronic documents both locally and across networks. The Company has existing
relationships with more than 35 OEM customers, including Hewlett-Packard, Sharp
and Xerox. Xionics believes that it meets OEMs' needs by providing
standards-based enabling technology that helps these OEMs bring differentiated
products to market quickly.

The Company markets its printer software products as an integrated,
scalable, modular device controller architecture called the Xionics Intelligent
Peripheral System ("IPS"). IPS is comprised of Xionics' embedded printer
software, which includes compatible implementations of PostScript and PCL page
description language interpreters, as well as a printer operating system and
device management services. IPS provides OEMs with sophisticated embedded
software solutions for a broad spectrum of monochrome and color printer
products.

IPS provides the Company's OEM customers with the following key benefits:

- Improved price/performance. With the IPS printer architecture and its
industry-standard PDL components, OEMs are able to increase their
printers' performance at a reasonable cost by reducing memory
requirements and adding functions such as PostScript capability.

- Reduced time and risk to market. With the pre-integrated PDL
interpreters, image processing, device services and other components
provided in IPS, OEMs are able to rapidly combine IPS with

24
<PAGE> 26

their devices. Further, Xionics' technology allows OEMs to avoid
expensive in-house development work and, accordingly, reduces time to
market.

- Product differentiation. With Xionics' IPS application programming
interface ("API"), OEMs can readily customize their products with such
features as differentiated front panel controls and paper handling and
finishing capabilities. Xionics also provides OEMs with a source code
license for its printer software, further facilitating customization and
the addition of product-differentiating features.

- Efficiencies associated with scalable, modular, extensible
architecture. With the scalable, modular, extensible IPS architecture,
OEMs can use IPS in whole families of monochrome and color printers with
a range of price and performance targets.

In addition to IPS, Xionics markets a family of scan, display and print
accelerators for document imaging systems. These products incorporate advanced
imaging technologies, such as compression/decompression, digital signal
processing and digital image enhancement, to provide sophisticated image
accelerator products at attractive prices.

Building on its core competencies in the areas of print and imaging, the
Company is developing an expanded version of IPS into what it believes will be a
comprehensive solution that will meet design requirements for higher-performance
and cost-effective controllers for MFPs. The Company's IPS technology is being
expanded to include an enhanced software dataflow engine to allow true
concurrent operation of multiple functions on a single device controller,
industry-standard network software and a specially-designed ASIC which will
provide a reduced-instruction-set-computing ("RISC") processor core and the
hardware assist necessary to achieve the very high speed and bandwidth that MFP
devices require. The IPS technology is also being expanded to include an
enhanced API which will enable OEMs to customize the print, copy, scan and fax
core services that will be provided by IPS.

STRATEGY

Xionics' objective is to become the world's leading supplier of embedded
systems technology for single-function and multifunction office devices. Key
elements of the Company's strategy to achieve this objective are:

Attain Leadership in the Printer Software Market. The Company believes it
has become a leader in developing core PDL technologies and believes it can
extend that leadership position through continued investment in its IPS printer
architecture and through developing and enhancing new and existing relationships
with market-leading OEMs. In addition, the Company believes its position in the
embedded printer systems market has been reinforced by its ongoing relationship
with Hewlett-Packard. The Company intends to enhance the IPS embedded printer
architecture and its various software components as needed to meet evolving
industry standards.

Leverage and Expand Core Technologies. The Company believes it has certain
core competencies in printer software and imaging technologies. Xionics has
invested and is continuing to invest significant resources in development
activities aimed at extending its printer software products. These printer
software products, along with the Company's imaging technologies, are the main
building blocks for the MFP-specific extensions to IPS currently under
development. The Company is developing its IPS architecture to include functions
that enable the use of printers and MFPs as peripherals attached to the World
Wide Web and to corporate intranets.

Expand OEM Customer Relationships. The Company markets its IPS products
primarily to OEMs, which allows Xionics to leverage OEMs' ability to bring
significant investment and marketing resources to the distribution of products
with wide market acceptance. The Company believes that the sharing of
marketplace and technology vision between the Company and its OEM customers
facilitates mutual innovation. Additionally, close cooperation in the
integration and testing cycles for new products promotes timely market entry for
OEMs' devices.

25
<PAGE> 27

Foster Product Development Partnerships. In order to supply competitive
product offerings while remaining focused on its core competencies, the Company
obtains certain components through strategic relationships with partners that
possess complementary technologies. For example, the Company secures digital
font technology through relationships with the AGFA Division of Bayer Corp.,
Bitstream Inc. and others. Xionics is also participating in IBM
Microelectronics' core-plus-ASIC program, in which the parties are working
jointly to develop and produce, to Xionics' proprietary design, a family of
microcontroller chips designed specifically for the processing needs of MFPs.
The Company also expects to offer NEST technology from Novell, Inc. ("Novell")
to assure full integration with Novell's widely used Netware network operating
system.

Develop MFP Technology. Building on its base of existing printer and
imaging technology, the Company will seek to establish its MFP product,
currently in development, as a leading integrated, scalable, ASIC-assisted
software technology for MFPs. The IPS architecture, as the Company is extending
it for MFPs, is designed to provide the massive image data throughput required
for MFPs, at price points available only with high levels of ASIC support. The
Company intends to capitalize on its existing relationships with major printer
and imaging OEMs, which are also expected to be leading manufacturers in the MFP
market, to establish IPS as the preferred core technology solution for MFPs.

26
<PAGE> 28

CORE TECHNOLOGIES AND PRODUCTS

Core Technologies. Xionics offers integrated, modular software products,
along with firmware and silicon technology products, that enable the high-speed
capture, processing, printing, copying and display of complex electronic
documents both locally and across networks. These products are licensed to major
OEMs that incorporate Xionics' products in their office devices sold to end
users. The products incorporate relevant industry standards and include an API
that enables OEMs to create the applications and features necessary to
differentiate their products in a competitive marketplace. The following chart
shows the Company's core technologies and products, including products under
development:

[ART]

Intelligent Peripheral System. The Intelligent Peripheral System consists
of a modular, layered software system based on Xionics' dataflow architecture
for providing processing and control of printers. The dataflow architecture
permits the direction of multiple parallel data streams through a system of
software-defined and hardware-executed pipelines. The central element is a
realtime, multitasking core services system which controls conventional RISC
processors in printer-only configurations. The Company's MFP-oriented IPS
offering under development will include an expanded core services system that
will control the XipChip parallel image data processing ASIC being developed by
the Company. XipChip, when completed, is expected to provide the massive
bandwidth required to drive advanced MFPs. In

27
<PAGE> 29

addition, the Company is developing its IPS architecture to include functions
that enable the use of printers and MFPs as peripherals attached to the World
Wide Web and to corporate intranets.

IPS, delivered as a series of software developer packages, includes an
embedded applications layer for providing one or more of the four standard
functions of print, scan, copy and fax. The embedded applications control the
core services through the XipPower API. OEMs may modify the applications
provided with IPS or incorporate their own value-added applications through the
XipPower API interface and access to certain source code.

IPS-PRINT ARCHITECTURE

[ART]

IPS-Print. IPS-Print is a software developer package that contains page
rendering application components and supporting embedded system service
components needed to build printer controllers. The package includes Xionics'
compatible implementations of software interpreters for the PostScript and PCL
page description languages. Each Xionics PDL interpreter can render color and
Asian-font pages as well as standard monochrome output. IPS-Print includes a
patented method for significantly reducing the amount of printer memory
necessary for rendering complex pages.

Sales of printer software products are generally based upon negotiated
non-exclusive license agreements. Typical terms include a one-time source code
license fee, royalties based on published prices for units sold by the OEM and
non-recurring engineering fees.

IPS-MFP Products Under Development. IPS-MFP is being developed as a
software developer package that includes all of the components of IPS-Print plus
additional components, including the Company's XipChip ASIC, that are being
designed to allow OEMs to build high-performance, cost-effective controllers for
multifunction peripheral devices. The additional software components being
developed will include embedded applications for copy, scan and fax functions
plus the extended core system services needed to support the concurrent
operation of MFP applications. When completed, IPS-MFP is expected to include
XipChannel, a built-in device driver system which, without modification, will
permit existing single-

28
<PAGE> 30

function personal computer applications to work with MFP devices and to
communicate with them through a single cable. IPS-MFP is being designed to
include XipApp, an image and document management software development toolkit,
that would allow OEMs to create their own MFP product extensions and
enhancements.

IPS-MFP, when completed, will be available with the Company's XipChip ASIC.
XipChip, currently under development, is designed as an advanced core ASIC which
contains an industry standard RISC processor to run supervisor and embedded
application tasks, a high-speed parallel data cache, a high-speed memory access
controller, and seven parallel processing channels to handle image data input,
processing, output, device control, compression/decompression, memory to memory
operations and onboard peripheral device interfaces. XipChip is intended to
provide sustained, aggregate image data bandwidth in excess of 240 megabytes per
second through its seven concurrently operating processing channels.

The Company believes that its IPS-MFP products under development will be
shipped in OEM customer products near the end of the second calendar quarter of
1997. However, there can be no assurance that the Company will be successful in
developing IPS-MFP or XipChip, that unanticipated problems or delays in future
development and production will not be encountered, or that, once completed,
IPS-MFP or XipChip will meet their performance specifications under all
conditions or for all anticipated applications.

Document Imaging Products. In addition to IPS, Xionics markets a family of
scan, display and print accelerators to providers of turnkey document imaging
systems. These products incorporate imaging technologies such as data
compression/decompression, digital image processing and digital image
enhancement, and are used to accelerate the high-volume capture, display and
printing of business transaction records in compressed form for applications
such as credit card voucher clearing and check truncation.

Xionics' family of Turbo, Lightning and PowerLightning scan accelerator
boards plug into standard PC bus slots. They drive high performance dual-sided
production scanners for converting scanned data to enhanced, network-resident
image files for use in document imaging applications. These scan accelerator
products range in list price from $895 to $5,395.

Xionics' XipView family of display accelerators plug into standard PC bus
slots and drive high resolution, large diagonal, fast refresh display devices.
XipView allows virtually simultaneous display and manipulation of complex
images, thereby increasing user productivity and decreasing user fatigue. These
display accelerator products range in list price from $895 to $2,821.

Xionics' XipPrint II family of plug-in accelerators allows Hewlett-Packard
printers to decompress, rotate and print complex image files at the full rated
speed of the printer. This technology will also be built into the IPS-MFP
product under development. The list prices of XipPrint II range from $795 to
$995.

The Company expects that revenue from sales of its imaging products will
decrease as a percentage of total revenue over time.

SALES AND MARKETING

The Company markets and sells its products worldwide to OEMs, value-added
resellers ("VARs") and distributors. The Company maintains separate sales forces
for its printer software and imaging product lines. As of August 1, 1996, the
direct OEM sales force had a staff of 11 people, and the direct imaging sales
force had a staff of eight people. Both sales forces are based at the Company's
headquarters in Burlington, Massachusetts. The Company maintains additional
sales offices in Tokyo, Japan, and Maidenhead, England.

OEM Sales. The Company seeks to enhance its relationships with existing
OEM accounts and to obtain new customers through a dedicated account management
program and through worldwide new business development efforts. Sales account
executives each work with a limited number of OEM customers to focus on
partnership building. Due to the technical nature of the Company's products,
each account executive is assigned an applications engineer, who works with the
customer's engineering team

29
<PAGE> 31

to promote the adoption of the Company's products. Additionally, senior Company
executives are active participants in all significant OEM relationships.

OEM product marketing and business development is provided by a staff of
ten people based at the Company's headquarters in Burlington, Massachusetts. To
support the Company's sales efforts, an active events marketing program is
maintained with dedicated symposiums in the United States and Japan and trade
show participation. In addition, the Company's marketing communications group
manages public relations efforts, produces and distributes marketing and product
support materials and maintains a World Wide Web site.

Document Imaging Product Sales. The Company's document imaging products
are primarily sold by distributors. The Company's sales force provides training,
pricing and product information to distributors, and will also make direct
customer calls to large volume purchasers. The sales force encourages
independent software vendors and system integrators to support Xionics'
products. Marketing activities include key trade show attendance, direct
telephone response and selective advertising.

CUSTOMERS

The Company's customers include OEMs that manufacture laser printers,
copiers and scanners as well as distributors and VARs of document imaging
products and certain direct imaging end users. As of August 1, 1996, the Company
had licensed its products for office devices to over 35 OEMs, and had over 20
distributors of its document imaging products. In the fiscal year ended June 30,
1995, Xerox and Law Cypress accounted for approximately 12.3% and 8.8%,
respectively, of the Company's net revenue. For the fiscal year ended June 30,
1996, Hewlett-Packard accounted for approximately 30.0% of the Company's net
revenue.

Since September 1994, the Company has had a significant relationship with
Hewlett-Packard to supply printer software and related technology and support.
For the four fiscal quarters ended September 30, 1995, December 31, 1995, March
31, 1996, and June 30, 1996, revenue from Hewlett-Packard accounted for 5.6%,
4.6%, 34.5%, and 53.0%, respectively, of the Company's net revenue. The Company
expects that revenue from its relationship with Hewlett-Packard will continue to
represent a material percentage of the Company's total revenue for the
foreseeable future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

In March 1996, the Company entered into an amendment of its preexisting
agreement with Hewlett-Packard. Under the amended agreement (the "HP
Agreement"), the Company licensed certain of its page description technology,
including its version of the PostScript page description language, to Hewlett-
Packard. Payments under the HP Agreement include the Company's charges for
source code access, engineering services, license rights and ongoing maintenance
and support. Future payments under the HP Agreement are contingent upon the
satisfaction of performance milestones by the Company. Although the Company has
met the performance milestones required to be met through the date of this
Prospectus, there can be no assurance that the Company will continue to meet
these performance milestones. Hewlett-Packard has the right to terminate the HP
Agreement upon a failure by the Company to comply with any of the provisions of
the HP Agreement that is not cured within 30 days, and upon the commencement of
certain bankruptcy or insolvency proceedings.

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<PAGE> 32

A representative list of the Company's customers follows. In the Company's
1994, 1995 and 1996 fiscal years, aggregate net revenue recorded by the Company
from these listed customers represented 50.5%, 54.1% and 73.6%, respectively, of
the Company's net revenue.

<TABLE>
<S> <C>
OEM CUSTOMERS VARS AND DISTRIBUTORS
Canon Inc. Appropriate Technology plc (Aptec)
Fuji Xerox Co., Ltd. Bell & Howell Ltd.
Hewlett-Packard Company Computer Technology Deutschland
IBM Printer Systems, Inc. GmbH (C-2000)
Kyushu Matsushita Electric Co., Ltd. Cranel, Inc.
(Panasonic) Dicom AG
Lexmark International Group, Inc. Law Cypress Distributing Co.
Nihon Unisys Corporation Papelaco Telematica
Oce Printing System GmbH Tech Data Corporation
Olivetti Lexicon S.p.A.
Ricoh Co. Ltd. END USERS
Seiko Epson Corporation Abbey National plc
Sharp Corporation Defense Finance and Accounting Service
Xerox Corporation Mackenzie Financial Corporation
</TABLE>

For the fiscal year ended June 30, 1996, Lexmark accounted for 8.6% of the
Company's net revenue. Under Lexmark's existing agreement with the Company,
Lexmark is not required to include the Company's printer software products in
its printers after December 31, 1996. The Company has received no indication
that the Company will receive royalties from Lexmark after that date.

The Company provides ongoing maintenance and support of its products on a
contract basis. Maintenance service includes updates of the licensed software
and support is provided in the form of telephonic and electronic mail response
to customer questions. Engineering services are available for a fee either on a
project-specific or general as-needed basis.

RESEARCH AND DEVELOPMENT

The Company's principal research and development activities are located at
the Company's headquarters in Burlington, Massachusetts. As of August 1, 1996,
the Company employed 101 software and hardware design engineers, project
managers and support staff. The primary activities of these employees are new
product development, enhancement of existing products, product testing and
technical documentation development. A substantial majority of the Company's
expenses for research and development are allocated to ongoing development of
the Company's IPS printer software products and the enhanced systems technology
for MFP products. A portion of the development staff is engaged in future
technology development in such areas as Internet and corporate intranet
applications, advanced color imaging and next-generation ASICs. The Company has
developed significant tools and methodologies for the automation of testing, bug
tracking and technical document management. The Company's total research and
development expense for fiscal years 1994, 1995 and 1996 was $1.3 million, $6.2
million and $10.0 million, respectively. The Company anticipates that it will
continue to commit substantial resources to research and development.

Through Xionics Document Technologies GmbH ("Xionics GmbH"), a wholly owned
subsidiary located in Dortmund, Germany, the Company has a dedicated ASIC design
staff working in conjunction with the Heinz Nixdorf Institute of the University
of Paderborn, Germany, to produce the XipChip ASIC technology. In 1995, the
Company acquired this entity in order to gain access to the experience of its
principal in the design, development and deployment of complex silicon
technology to be used in products under development. The Company is
participating in IBM Microelectronics' core-plus-ASIC program. Xionics and IBM
Microelectronics are working jointly to produce, to Xionics' proprietary design,
a family of microcontroller chips designed specifically for the processing needs
of MFPs.

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<PAGE> 33

COMPETITION

The market for the Company's products is highly competitive, and many of
the Company's competitors have significantly more resources than the Company.
Principal competitive factors include brand identity, features, price,
performance, ease of integration, service and time to market.

In the market for embedded printer system software, the Company has one
primary competitor, Adobe, which has significantly greater resources than the
Company. Adobe was the developer of the PostScript page description language,
which acquired a significant brand name image. Recently Adobe announced that its
largest customer for its page description language, Hewlett-Packard, will
discontinue the use of Adobe PostScript in some of its future printer products.
A few other competitors also exist in this area. In addition, certain large OEMs
develop their own proprietary PDL components as an alternative to purchasing
commercially available products such as those sold by the Company.

The Company has recently terminated an agreement with Adobe pursuant to
which Adobe and the Company were collaborating to incorporate certain Adobe
software products into the Company's MFP technology under development. The
Company believes that Adobe, which has significantly greater resources than the
Company, may compete directly with the Company in the development of MFP
products, and may enter into one or more arrangements for developing MFP
products with the Company's competitors. There can be no assurance that Adobe
will not be able to develop a product that competes with, or is more competitive
than, the Company's embedded systems technology for MFP devices, or that Adobe
will not be able to develop such a product in a shorter time frame. See "Risk
Factors -- Termination of Relationship with Adobe; Increased Competition."

The market for a comprehensive MFP controller solution is in the
development stage. The Company has a number of potential competitors for its
IPS-MFP product in development, many with significantly greater resources than
the Company, including Adobe. Specifically, it is expected that one of the
leading solution-oriented ASIC foundries, such as LSI Logic Corporation or
Integrated Device Technology, Inc., will attempt to formulate a solution. Other
companies reportedly are or could be developing MFP systems solutions. The OEMs
now in the market with MFP products have developed much of their base MFP
technology internally, and the Company expects to continue to compete with these
in-house development groups.

The Company's document image acceleration products compete with similar
products sold by a small number of competitors.

INTELLECTUAL PROPERTY

The Company possesses two United States patents. The United States Patent
and Trademark Office has allowed two additional patent applications of the
Company, on which patents are expected to issue within the next several months.
In addition to its patents, the Company also relies on a combination of
copyright, trademark and trade secret laws, employee and third-party
non-disclosure agreements, and license agreements for the protection of its
intellectual property. The source code for the Company's products is protected
as an unpublished work under the copyright laws as they currently exist. Despite
these precautions unauthorized third parties may be able to copy or
reverse-engineer all or portions of the Company's products.

The Company believes that neither its existing products nor those under
development infringe any existing patents. There can be no assurance, however,
that the Company is aware of all patents that might be infringed by its
products, or that third parties will not claim such infringement by the Company
with respect to current or future products. If infringement is alleged, the
Company may seek to obtain a license to use the subject technology. There can be
no assurance that the necessary licenses will be available to the Company on
acceptable terms, if at all, or that the Company would prevail in any related
legal proceeding.

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<PAGE> 34

OPERATIONS

The Company's operations consist primarily of materials planning and
procurement, quality control and final product configuration and testing. The
Company designs the significant hardware subassemblies for certain of its
products and uses several independent third-party contract assembly companies to
perform printed circuit board assembly. The Company configures and tests the
hardware and software in combinations to meet a wide variety of customer
requirements. For other products, independent third-party subcontractors perform
complete turnkey manufacturing. The Company has an in-house software duplication
facility which reproduces the Company's OEM software products on magnetic tape
or other media for delivery to OEMs.

The Company expects IBM Microelectronics to be its sole source of supply
for its XipChip ASIC. Although the Company believes it could develop other
sources for this custom component, no alternative source currently exists, and
identifying an alternative source and obtaining such components from the
alternative source could take several months or longer.

EMPLOYEES

As of August 1, 1996, Xionics had 168 full-time employees. The Company
employs 101 people in product development, 29 in sales and marketing, 18 in
manufacturing and operations, and 20 in accounting and administrative functions.
The Company hires temporary employees on an as-needed basis to meet development
goals. None of the employees is represented by a labor union or is subject to a
collective bargaining agreement. The Company believes that its employee
relations are good.

FACILITIES

The Company's principal administrative, sales, marketing and research and
development facility is located in a leased facility with approximately 62,000
square feet of space in Burlington, Massachusetts. This facility is leased
through December 1999. Xionics' European sales activities are conducted from a
leased facility in Maidenhead, England and its Japanese sales activities are
conducted from a leased office in Tokyo, Japan. The Company conducts certain of
its research and development activities at a leased facility in Dortmund,
Germany. The Company believes that its facilities are adequate for its current
needs and for its future needs at least through the end of its 1998 fiscal year.

LEGAL PROCEEDINGS

As of the date of this Prospectus, the Company is not a party to any legal
proceedings the outcome of which, in the opinion of management, is likely to
have a material adverse effect on the Company's business, results of operations
or financial condition.

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<PAGE> 35

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- -------------------------------------------
<S> <C> <C>
Robert E. Gilkes.......................... 57 Chairman of the Board, Chief Executive
Officer and President
Robert Downs.............................. 49 Chief Operating Officer -- Imaging
Gerard T. Feeney.......................... 38 Vice President -- Finance, Chief Financial
Officer, Treasurer and Secretary
Gary Ambrosino............................ 40 Vice President -- Sales and Marketing
John W. Devine, III....................... 53 Vice President -- Human Resources
Rosemary E. Grande........................ 38 Vice President -- Product Development
Edward B. Mallen.......................... 47 Vice President -- Worldwide Sales
Frank P. Monaco........................... 49 Vice President -- Research and Development
Richard A. D'Amore........................ 42 Director
Ronald D. Fisher.......................... 48 Director
Paul R. Low............................... 63 Director
David R. Skok............................. 40 Director
Thomas A. St. Germain..................... 58 Director
</TABLE>

Mr. Gilkes has served as a Director of the Company since November 1994 and
as President and Chief Executive Officer of the Company since January 1995. He
was elected Chairman of the Board of the Company in April 1996. From September
1986 until September 1993, Mr. Gilkes served as Chairman and Chief Executive
Officer of Tadpole Technology plc, a public company based in Cambridge, England
which is a manufacturer of portable workstations. During the 20 years prior to
1986 Mr. Gilkes worked for IBM UK Ltd. and subsequently held senior general
management positions with MSI Data Corporation and Unilever plc. Mr. Gilkes was
educated at Oxford University, England and also holds an honors degree from
Cambridge University, England.

Mr. Downs has served as Chief Operating Officer -- Imaging of the Company
since June 1996. From January 1996 until June 1996, he served as Chief Operating
Officer of the Company; from January 1995 until January 1996, he served as Vice
President -- Operations of the Company; from November 1994 through June 1995 he
served as Chief Operating Officer of the Company; and from November 1993 until
November 1994, he served as President and Chief Operating Officer of the
Company. From March 1989 until August 1993, Mr. Downs was Vice President and
General Manager of the Peripherals Division of Phoenix Technologies Ltd.
("Phoenix"). Mr. Downs has over 25 years of experience in the high technology
industry.

Mr. Feeney has served as Vice President -- Finance, Chief Financial
Officer, Treasurer and Secretary of the Company since June 1993. From October
1991 until June 1993, Mr. Feeney served as Vice President -- Finance and
Operations. From September 1986 until April 1991, Mr. Feeney served as Chief
Financial Officer at IMG, Inc., a software company, and prior to that held
various positions with Analog Devices, Inc., an integrated circuit manufacturer.
Mr. Feeney has over 17 years of experience in the high technology industry.

Mr. Ambrosino has served as Vice President -- Sales and Marketing of the
Company since August 1996. From June 1996 until August 1996, Mr. Ambrosino
served as Vice President -- Strategic Marketing of the Company; from May 1996
until June 1996, as Vice President -- Product Marketing of the Company; from
January 1995 until May 1996 as Vice President -- Multifunction Products of the
Company; and from March 1994 until January 1995 as Director of OEM Sales of the
Company. From November 1992 until March 1994, Mr. Ambrosino was a private high
technology consultant and from September 1991 to November 1992 he was President
and Chief Executive Officer of Symbiotics, Inc., a designer of network-oriented
programming tools. From September 1988 to September 1991, he was President of
The Instruction Set International, Inc., a software services company. Mr.
Ambrosino has over 17 years of experience in the high technology industry.

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<PAGE> 36

Mr. Devine has served as Vice President -- Human Resources of the Company
since July 1995 and as Director of Human Resources from January 1995 until July
1995. From January 1991 until January 1995, Mr. Devine served as principal of a
human resources consulting company, Devine & Associates.

Ms. Grande has served as Vice President -- Product Development of the
Company since July 1995. From November 1994 until June 1995, she served as
General Manager of the Company's printer software division. From August 1993
until November 1994, Ms. Grande served as General Manager of the Peripherals
Division of Phoenix and from April 1992 until July 1993 she served as Senior
Director of Marketing at Phoenix. From April 1989 until April 1992, she held
other marketing positions at Phoenix. Ms. Grande has over 15 years of experience
in the high technology industry.

Mr. Mallen has served as Vice President -- Worldwide Sales of the Company
since July 1995. From August 1993 until November 1994, he served as Vice
President -- Imaging Sales and from November 1994 until June 1995 as General
Manager -- Imaging. From August 1991 until August 1993, Mr. Mallen served as
Vice President of Software Products at Xerox Imaging Systems, a manufacturer of
optical character recognition hardware and software products, and from August
1988 until August 1991 as Vice President of U.S. Sales for Interleaf
Corporation, a supplier of integrated document management software for business
solutions. Mr. Mallen has over 20 years of experience in the high technology
industry.

Mr. Monaco has served as Vice President -- Research and Development of the
Company since January 1996. From November 1994 until January 1996, he served as
Vice President -- Engineering of the Company. From November 1988 until November
1994, Mr. Monaco served as Senior Director of Engineering of the Peripherals
Division of Phoenix. Mr. Monaco has over 22 years of experience in the high
technology industry.

Mr. D'Amore has served as a Director of the Company since June 1993. Mr.
D'Amore has been a general partner of North Bridge Venture Partners since 1992
and of Hambro International Venture Funds since 1982, both venture capital
investing firms. Mr. D'Amore is also a director of Math Soft, Inc., Solectron
Corporation and Veeco Instruments, Inc.

Mr. Fisher has served as a Director of the Company since November 1994. Mr.
Fisher has been Vice Chairman of SOFTBANK Holdings Inc., a global technology
infrastructure provider, since October 1995. From January 1990 until June 1994,
Mr. Fisher was President and Chief Executive Officer of Phoenix. Since June
1994, Mr. Fisher has served as Chairman of the Board of Phoenix. Mr. Fisher is a
director of MICOM Communications Corp., Black Box Corporation, MicroTouch
Systems, Inc., and Phoenix Technologies Ltd.

Dr. Low has served as a Director of the Company since October 1995. Dr. Low
has been President and Chief Executive Officer of PRL Associates, a technology
consulting company, since June 1992. Previously, Dr. Low was Vice President and
General Manager of IBM Microelectronics, IBM's silicon design and fabrication
division, and a member of IBM's Management Board from June 1990 to June 1992.
Dr. Low is a director of Applied Materials, Inc., Integrated Packaging Assembly
Corp., Network Computing Devices, Inc., Number Nine Visual Technology
Corporation, Solectron Corporation, and Veeco Instruments, Inc.

Mr. Skok has served as a Director of the Company since November 1995. Mr.
Skok was President and Chief Executive Officer of Watermark Software, Inc., an
imaging software company, from January 1993 until June 1996. From September 1990
until December 1992, Mr. Skok was Chairman of the Board and Chief Executive
Officer of the Company.

Mr. St. Germain has served as a Director of the Company since March 1996.
Mr. St. Germain has served as Senior Vice President, Chief Financial Officer and
Treasurer of Summa Four, Inc., a telecommunications company, since May 1993.
From August 1984 until April 1993, Mr. St. Germain was Senior Vice President,
Chief Financial Officer, Treasurer and Secretary of Vicor Corporation, a power
systems manufacturing company.

The Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee reviews the Company's accounting
practices, internal accounting controls and financial results and oversees the
engagement of the Company's independent auditors. The members of the Audit

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<PAGE> 37

Committee are Mr. D'Amore and Dr. Low. The Compensation Committee reviews and
recommends to the Board of Directors the salaries, bonuses and other forms of
compensation for executive officers of the Company and administers various
compensation and benefit plans. The members of the Compensation Committee are
Messrs. D'Amore and Fisher. None of the members of the Audit Committee or the
Compensation Committee is a past or current officer or employee of the Company.
The Board of Directors does not maintain a nominating committee or a committee
performing similar functions.

The Company's Charter will provide that the Board of Directors be
classified into three classes, with the members of the respective classes
serving for staggered three-year terms. The first class will consist of Messrs.
Gilkes and St. Germain, the second of Messrs. Skok and Fisher and the third of
Mr. D'Amore and Dr. Low, with the initial terms of the directors comprising the
classes expiring upon the election and qualification of directors at the annual
meetings of stockholders held following the fiscal years of the Company ending
June 30, 1997, 1998 and 1999, respectively. At each annual meeting of
stockholders, directors will be re-elected or elected for full three-year terms.
See "Description of Capital Stock -- Certain Provisions of the Company's Amended
and Restated Certificate of Incorporation and By-Laws."

The current and continuing directors of the Company were nominated and
elected in accordance with the Second Amended and Restated Shareholder
Agreement, dated as of August 25, 1995, which will terminate upon the closing of
this offering.

Executive officers of the Company are appointed by the Board of Directors
on an annual basis and serve until their successors have been duly elected and
qualified. There are no family relationships among any of the executive officers
or directors of the Company.

DIRECTOR COMPENSATION

The Company does not compensate its directors for attendance at meetings or
reimburse their expenses in connection therewith. The Company has granted
options to purchase 30,000 shares of Common Stock under the 1995 Stock Option
Plan to each of Mr. D'Amore, Mr. Fisher and Dr. Low, and an option to purchase
10,000 shares of Common Stock under the 1996 Stock Option Plan to Mr. St.
Germain.

The Company has also entered into a consulting agreement dated as of March
25, 1996 with Mr. St. Germain pursuant to which Mr. St. Germain has agreed to
provide investor relations services in exchange for compensation consisting of
$1,000 per consulting day and the option referred to above. The Agreement is
terminable by either party upon 90 days notice, and by the Company without
notice subject to a $15,000 termination payment.

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<PAGE> 38
<TABLE>

EXECUTIVE COMPENSATION

The following table sets forth certain information regarding the Company's
Chief Executive Officer and each of the four most highly compensated other
executive officers (the "Named Executive Officers") during the fiscal year ended
June 30, 1996, except as otherwise indicated.
SUMMARY COMPENSATION TABLE

<CAPTION>
LONG-TERM
COMPENSATION
------------
NUMBER OF
SHARES
UNDERLYING
OPTIONS
NAME AND PRINCIPAL POSITION SALARY BONUS GRANTED(#)
- --------------------------- ------ ----- ----------
<S> <C> <C> <C>
Robert E. Gilkes............................... $240,000 $55,000 300,000
Chairman of the Board, Chief Executive
Officer and President
Robert Downs................................... 137,500 37,500 --
Chief Operating Officer -- Imaging
Gary Ambrosino................................. 124,500 45,000 100,000
Vice President -- Sales and Marketing
Edward B. Mallen............................... 125,000 50,000 --
Vice President -- Worldwide Sales
Rosemary E. Grande............................. 118,750 45,000 --
Vice President -- Product Development
</TABLE>

<TABLE>
Options granted to the Named Executive Officers during the fiscal year
ended June 30, 1996 are set forth in the following table. For disclosure
regarding the terms of stock options, see "Management -- Stock Option Plans." No
stock appreciation rights ("SARs") were granted during fiscal 1996.

OPTION GRANTS IN LAST FISCAL YEAR

<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------
NUMBER OF PERCENT OF
SHARES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES PRICE EXPIRATION
NAME GRANTED(#) IN FISCAL 1996 ($/SHARE) DATE
- ---- ---------- -------------- --------- ----------
<S> <C> <C> <C> <C>
Robert E. Gilkes............................ 300,000 33.2% $0.68 2005
Robert Downs................................ -- -- -- --
Gary Ambrosino.............................. 100,000 11.1 0.68 2005
Edward B. Mallen............................ -- -- -- --
Rosemary E. Grande.......................... -- -- -- --
</TABLE>

37
<PAGE> 39

There were no SARs outstanding during fiscal 1996 or subsequently
thereafter. The following table sets forth certain information regarding the
number of shares of Common Stock received upon exercise of options during the
last fiscal year, the aggregate dollar value realized upon exercise and the
total number of unexercised options held by each of the Named Executive Officers
as of June 30, 1996:

<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF OPTIONS AT IN-THE-MONEY OPTIONS
SHARES FISCAL YEAR-END(#) AT FISCAL YEAR-END(1)
ACQUIRED IN VALUE -------------------------------- -----------------------------
NAME EXERCISE REALIZED EXERCISABLE(2) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Gilkes.... -- -- 105,040 234,960 $1,091,682 $2,437,818
Robert Downs........ -- -- 162,090 120,930 1,750,572 1,306,044
Gary Ambrosino...... 1,000 $200 26,540 112,460 280,695 1,173,006
Edward B. Mallen.... -- -- 120,672 102,293 1,303,258 1,104,765
Rosemary E. Grande.. -- -- 43,240 71,760 466,992 775,008

- ---------------
<FN>
(1) There was no public trading market for Common Stock on June 30, 1996.
Accordingly, solely for purposes of this table, the values in these columns
have been calculated on the basis of the assumed initial public offering
price of $11.00 per share (rather than a determination of the fair market
value of Common Stock on June 30, 1996), less the applicable option exercise
price.

(2) All stock options granted by the Company during fiscal 1995 automatically
become immediately exercisable upon completion by the Company of the public
offering of Common Stock contemplated hereby. With respect to each of the
above Named Executive Officers, an additional 24,960, 120,930, 24,960,
102,293 and 71,760 options will by virtue of the public offering become
immediately exercisable by Mr. Gilkes, Mr. Downs, Mr. Ambrosino, Mr. Mallen
and Ms. Grande, respectively.
</TABLE>

STOCK OPTION PLANS

1996 Stock Option Plan. The Company's 1996 Stock Option Plan (the "1996
Plan") was approved by the Board of Directors on February 14, 1996 and was
adopted by the Company's stockholders on July 12, 1996. The aggregate number of
shares of Common Stock available for awards under the 1996 Plan is 950,000
shares. The 1996 Plan provides for the grant or award of stock options ("Stock
Options") to purchase shares of Common Stock of the Company. Stock Options
granted under the 1996 Plan may be incentive stock options or non-statutory
options. The purpose of the 1996 Plan is to attract and retain outstanding
employees through the incentives of stock ownership. Any employee of the Company
(including officers), and any consultant to and any director of the Company, is
eligible to receive Stock Options under the 1996 Plan. As of July 31, 1996,
220,063 of the 950,000 shares reserved for issuance under the 1996 Plan were
subject to outstanding Stock Options at a weighted average exercise price of
$4.13 per share.

The 1996 Plan is administered by the Board of Directors. Subject to the
provisions of the 1996 Plan, the Board of Directors has the authority to
designate participants and to determine whether Stock Options granted are
incentive stock options or not, the number of shares to be covered by each Stock
Option, the price of the exercise of the Stock Option, the time at which Stock
Options are exercisable or may be settled, the method of payment and any other
terms and conditions of the awards. All Stock Options are evidenced by Stock
Option Agreements between the Company and the participant.

While the Board of Directors determines the prices at which Stock Options
may be exercised under the 1996 Plan, the exercise price of an incentive Stock
Option under the 1996 Plan shall be at least 100% of the fair market value (as
determined under the terms of the 1996 Plan) (or 110% of the fair market value
if the grantee is deemed to own 10% or more of the outstanding voting stock of
the Company) of a share of Common Stock on the date of grant. Stock Options must
be exercised by the tenth anniversary of the date of grant, or if the grantee
owns 10% or more of the outstanding voting stock of the Company, by the fifth
anniversary of the date of grant.

38
<PAGE> 40

1995 Stock Option Plan. The Company's 1995 Stock Option Plan (the "1995
Plan"), effective January 1, 1995, was approved by the Board of Directors on
June 1, 1995 and adopted by the Company's stockholders in December 1995. The
1995 Plan provides for the grant or award of Stock Options, which may be
incentive stock options or non-statutory stock options. The 1995 Plan contains
substantially identical terms to those contained in the 1996 Plan. As of July
31, 1996, 1,707,435 of the 1,758,843 shares of Common Stock reserved for
issuance under the 1995 Plan were subject to outstanding Stock Options at a
weighted average exercise price of $0.38 per share. The Board of Directors also
administers the 1995 Plan.

1993 Stock Option Plan. The Company's 1993 Stock Option Plan (the "1993
Plan") was approved by the Company's Board of Directors and stockholders on
August 27, 1993. The 1993 Plan provided for the grant or award of Stock Options,
which may be either incentive stock options or non-statutory options. The 1993
Plan contains substantially identical terms to those contained in the 1996 and
1995 Plans. As of July 31, 1996, 601,974 of the 734,397 shares of Common Stock
reserved for issuance under the 1993 Plan were subject to outstanding stock
options at a weighted average exercise price of $0.20 per share. The Board of
Directors also administers the 1993 Plan.

Director Stock Option Plan. The Company's 1996 Director Stock Option Plan
(the "Directors' Plan") was approved by the Board of Directors and adopted by
the Company's stockholders on July 12, 1996. The Directors' Plan will be
administered by the Compensation Committee of the Board. Under the Directors'
Plan, on the business day immediately following each annual meeting of the
stockholders of the Company, commencing with the first annual meeting of
stockholders after June 30, 1997, each person who is then a non-employee
director of the Company will be eligible to receive an option to purchase such
number of shares of Common Stock as determined by the Compensation Committee at
an exercise price equal to the fair market value of the Common Stock on the date
the option is granted. The aggregate number of shares reserved for issuance
under the Directors' Plan is 350,000. The Directors' Plan is intended to attract
and retain non-employee directors on the Company's Board of Directors.

1996 Employee Stock Purchase Plan. The Company's 1996 Employee Stock
Purchase Plan (the "Stock Purchase Plan") was approved by the Board of Directors
and adopted by the Company's stockholders on July 12, 1996. The Stock Purchase
Plan will be administered by the Compensation Committee of the Board. The Stock
Purchase Plan is intended to qualify as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code of 1986, as amended. The Compensation
Committee may grant options to purchase shares of Common Stock to employees
eligible under the Stock Purchase Plan who may acquire shares of the Company's
Common Stock through payroll deductions. The purchase price for the Company's
Common Stock purchased under the Stock Purchase Plan is 85% of the lesser of the
fair market value of the shares on the date the option was granted or the date
the option is exercised. A total of 200,000 shares of Common Stock have been
reserved for issuance under the Stock Purchase Plan, the purpose of which is to
attract and retain outstanding employees through the incentives of stock
ownership.

401(k) Plan. Effective as of January 1, 1992, the Company adopted the
401(k) Plan, an employee profit-sharing plan pursuant to Section 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code"), which plan was amended
and restated effective as of January 1, 1995. Under the 401(k) Plan, as amended
in 1995, eligible participants may defer portions of their salaries for future
receipt and the Company may match up to 50% of the deferral contribution made by
such participant up to a maximum deferral contribution of 6% of a participant's
compensation during the previous fiscal year. The Board of Directors establishes
the amount of the Company's matching contribution for each fiscal year after the
close of the fiscal year, within the limits imposed by the 401(k) Plan.

39
<PAGE> 41

CERTAIN TRANSACTIONS

On August 25, 1995, the Company issued an aggregate of 2,662,636 shares of
its Class C Redeemable Convertible Preferred Stock for aggregate consideration
of $7,748,270 (including par value of converted preferred stock and cancelled
indebtedness) at a purchase price of $2.91 per share (the "Class C Preferred
Stock Financing"). The following 5% or greater stockholders were purchasers of
the Class C Redeemable Convertible Preferred Stock in the amounts indicated:
Hambro International Venture Fund II (766,078 shares); Hambro International
Venture Fund Offshore II (156,908 shares); Monument Trust Company (122,585
shares); and Phoenix Technologies Ltd. (653,707 shares). The consideration for
the Class C Redeemable Convertible Preferred Stock included cash, cancellation
of indebtedness and conversion of the Company's Class B Redeemable Preferred
Stock. The automatic conversion of each share of Class C Redeemable Convertible
Preferred Stock into one share of Class A Common Stock will occur immediately
prior to the closing of this offering. Pursuant to the Class C Preferred Stock
Financing, Phoenix received an option to convert $340,000 of the principal
amount of a secured promissory note, dated August 25, 1995, into 116,979 shares
of Class C Redeemable Convertible Preferred Stock of the Company at a conversion
price of $2.91 per share. On May 9, 1996, Phoenix exercised the foregoing option
and the Company issued an additional 116,979 shares of Class C Redeemable
Convertible Preferred Stock to Phoenix. On June 28, 1996, the Company canceled
the 116,979 shares of Class C Redeemable Convertible Preferred Stock issued to
Phoenix and in exchange therefor issued 80,677 shares of Class B Common Stock
and 36,302 shares of Class C Redeemable Convertible Preferred Stock to Phoenix.
Upon completion of this offering, the 2,698,938 shares of Class C Redeemable
Convertible Preferred Stock outstanding as of July 31, 1996 will convert into
2,698,938 shares of Common Stock, or 26.9% of the outstanding Common Stock of
the Company.

On February 1, 1996, the Company settled an indemnification claim against
Phoenix arising under the Asset Purchase Agreement, dated September 30, 1994,
pursuant to which the Company purchased the Peripherals Division of Phoenix
("Asset Purchase Agreement"). Pursuant to the settlement arrangement, Phoenix
agreed to cancel $565,000 of indebtedness under the promissory note issued by
the Company to Phoenix in connection with the Asset Purchase Agreement. The
promissory note was restated effective January 1, 1996 to reflect the reduction.

On May 24, 1996, the Company settled an additional indemnification claim
against Phoenix relating to a third party patent infringement claim against
certain technology acquired by the Company under the Asset Purchase Agreement.
Pursuant to the settlement agreement, Phoenix agreed to pay a portion of the fee
for a license under the subject patent and the Company agreed to release Phoenix
from any additional indemnification obligations relating to that claim.

Pursuant to an Amended and Restated Registration Rights Agreement, dated as
of December 22, 1995, the Company granted registration rights to certain
stockholders of the Company, including Hambro International Venture Fund II,
Hambro International Venture Fund Offshore II, Monument Trust Company, Phoenix
Technologies Ltd., Mytech Funds, L.P., PUSH Incorporated, ADD Venture
Associates, L.P., and ADD Venture Associates II, L.P. See "Shares Eligible for
Future Sale -- Registration Rights."

Peter Santeusanio, the former Chairman of the Board, President and Chief
Executive Officer of the Company, resigned from the Company as of February 15,
1995. Pursuant to a Severance Agreement, dated as of March 23, 1995, the Company
agreed to pay Mr. Santeusanio's salary and certain benefits for the period from
that date through February 15, 1996, to provide continuing health, dental and
life insurance coverage through February 15, 1997, and to provide Mr.
Santeusanio certain periodic financial information regarding the Company.
Pursuant to the Severance Agreement, the Company paid a total of $93,750 to Mr.
Santeusanio during fiscal 1996 as post-termination salary and benefits. On
August 28, 1995, the Company repurchased from Mr. Santeusanio 370,370 shares of
Class A Common Stock at a price of $0.68 per share, for an aggregate repurchase
price of $250,000.

On May 16, 1996, the Company terminated a technology agreement with Adobe
and repurchased from Adobe 1,000,000 shares of Class D Preferred Stock for
consideration that included $4.5 million in cash, which was the amount initially
paid for the shares by Adobe. The technology and stock ownership arrangements
between the Company and Adobe had been entered into as of December 22, 1995.

40
<PAGE> 42

As of July 31, 1996, the Company had two classes of Preferred Stock
outstanding: 3,125,051 shares of Class A Convertible Preferred Stock and
2,698,938 shares of Class C Redeemable Convertible Preferred Stock. The
automatic conversion of each share of Class A Convertible Preferred Stock and
Class C Redeemable Convertible Preferred Stock into one share of Class A Common
Stock will occur immediately prior to the closing of this offering. As of July
31, 1996, the Company had two classes of common stock outstanding: 1,162,003
shares of Class A Common Stock and 558,931 shares of Class B Common Stock. The
automatic conversion of each share of Class B Common Stock into one share of
Class A Common Stock will occur immediately prior to the closing of this
offering. Upon the closing of this offering, all shares of Class A Common Stock
will be redesignated as "Common Stock."

The Company has adopted a policy that all future transactions between the
Company and its officers, directors and affiliates must be on terms no less
favorable to the Company than those that could be obtained from unrelated third
parties, and must be approved by a majority of the disinterested members of the
Company's Board of Directors.

41
<PAGE> 43

PRINCIPAL AND SELLING STOCKHOLDERS

<TABLE>
The following table sets forth, as of July 31, 1996, and as adjusted to
reflect the sale by the Company of 2,500,000 shares of Common Stock in this
offering, certain information with respect to the beneficial ownership of the
Common Stock by: (i) each person known by the company to beneficially own more
than 5% of the Common Stock; (ii) each director of the Company; (iii) each of
the Named Executive Officers; and (iv) all directors and executive officers of
the Company as a group. The Company believes that the beneficial owners of the
Common Stock listed below, based on information furnished by such owners, have
sole voting and investment power with respect to such shares, except as noted
below.

<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER THE
OFFERING(1)(2) NUMBER OFFERING(2)
---------------------- OF SHARES --------------------
NAME AND ADDRESS OF 5% STOCKHOLDERS NUMBER PERCENT OFFERED NUMBER PERCENT
- ----------------------------------- ------------ ------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Hambro International.................... 2,539,087(3) 33.7% -- 2,539,087 25.3%
Venture Fund II
404 Wyman Street -- Suite 365
Waltham, MA 02154
Hambro International.................... 520,054(4) 6.8 -- 520,054 5.2
Venture Fund Offshore II
404 Wyman Street -- Suite 365
Waltham, MA 02154
Monument Trust Company.................. 929,324 12.3 -- 929,324 9.3
14 New Street
St. Peter Port
Guernsey, Channel Islands, U.K.
Phoenix Technologies Ltd................ 1,955,381 25.9 500,000 1,455,381 14.5
2770 De La Cruz Boulevard
Santa Clara, CA 95050
Mytech Funds, L.P....................... 516,085 6.8 -- 516,085 5.1
c/o Mr. and Mrs. Frank C. Pao
Penthouse No. 1
10 Rowes Wharf
Boston, MA 02110

DIRECTORS AND NAMED EXECUTIVE OFFICERS
- --------------------------------------
Robert E. Gilkes........................ 145,000(5) 1.9% -- 145,000 1.4%
Robert Downs............................ 283,021(5) 3.6 -- 283,021 2.7
Rosemary E. Grande...................... 115,000(5) 1.5 -- 115,000 1.1
Gary Ambrosino.......................... 58,750(5) * -- 58,750 *
Edward B. Mallen........................ 222,965(5) 2.9 -- 222,965 2.2
Richard A. D'Amore(6)................... 3,064,766(5) 40.6 -- 3,064,766 30.5
Ronald D. Fisher(7)..................... 1,961,006(5) 26.0 -- 1,461,066 14.5
Paul R. Low............................. 5,625(5) * -- 5,625 *
Thomas A. St. Germain................... 5,000(5) * -- 5,000 *
David R. Skok (8)....................... 929,324 12.3 -- 929,324 9.3
All directors and executive officers as
a group (13 persons).................. 7,043,894 81.5 -- 6,543,894 58.7

- ---------------
<FN>
* Less than 1%

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power
with respect to the shares. Shares of Common Stock subject to options
currently exercisable or exercisable within 60 days following July 31, 1996,
are deemed outstanding for computing the share ownership and percentage of
the person holding such options, but are not deemed outstanding for
computing the percentage of any other person.
</TABLE>
42
<PAGE> 44

(2) The number of shares of Common Stock deemed outstanding prior to this
offering includes (i) 1,162,003 shares of Common Stock outstanding as of
July 31, 1996; (ii) an aggregate of 5,323,989 shares of Common Stock
issuable upon the conversion of Class A Convertible Preferred Stock and
Class C Redeemable Convertible Preferred Stock; (iii) an aggregate of
558,931 shares of Common Stock issuable upon the conversion of Class B
Common Stock; (iv) 500,000 shares to be sold by the Selling Stockholder in
this offering; and (v) 1,861,002 shares issuable pursuant to options held by
persons which may be exercised within 60 days after July 31, 1996 or which
become immediately exercisable upon completion of this offering. The number
of shares of Common Stock deemed outstanding after this offering includes an
additional 2,500,000 shares of Common Stock that are being offered for sale
by the Company in this offering.

(3) Does not include 520,054 shares held by Hambro International Venture Fund
Offshore II, which is under common control, or 5,625 shares which Richard A.
D'Amore, general partner of Hambro International Venture Fund II, may
acquire upon the exercise of stock options granted to him by the Company.

(4) Does not include 2,539,087 shares held by Hambro International Venture Fund
II, which is under common control, or 5,625 shares which Richard A. D'Amore,
general partner of Hambro International Venture Fund Offshore II, may
acquire upon the exercise of stock options granted to him by the Company.

(5) Includes shares of Common Stock subject to options which were exercisable as
of July 31, 1996, options which become immediately exercisable upon
completion of this offering and options which will be exercisable within 60
days of July 31, 1996.

(6) Includes 2,539,087 shares held by Hambro International Venture Fund II and
520,054 shares held by Hambro International Venture Fund Offshore II. Mr.
D'Amore is a general partner of Hambro International Venture Fund II and
Hambro International Venture Fund Offshore II and as such may be deemed to
beneficially own all such shares. Mr. D'Amore disclaims beneficial ownership
of all such shares held by Hambro International Venture Fund II and Hambro
International Venture Fund Offshore II.

(7) Includes 1,955,381 shares held by Phoenix Technologies Ltd. Mr. Fisher is
Chairman of the Board of Phoenix Technologies Ltd. and as such may be deemed
to beneficially own all such shares. Mr. Fisher disclaims beneficial
ownership of such shares held by Phoenix Technologies Ltd.

(8) Includes 929,324 shares held by Monument Trust Company. Mr. Skok is
beneficiary under a trust agreement of which Monument Trust Company is the
trustee, and as such Mr. Skok may be deemed the beneficial owner of all
shares held by Monument Trust Company. Mr. Skok disclaims beneficial
ownership of all such shares.

43
<PAGE> 45

DESCRIPTION OF CAPITAL STOCK

Upon the closing of this offering, the authorized capital stock of the
Company will consist of 40,000,000 shares of Common Stock, par value $.01 per
share, and 10,000,000 shares of Preferred Stock, par value $.01 per share.

COMMON STOCK

As of July 31, 1996, a total of 1,720,934 shares of Class A Common Stock
and Class B Common Stock were outstanding. Based upon the number of shares
outstanding as of that date and giving effect to the issuance of the shares of
Common Stock offered by the Company pursuant to this offering, the conversion of
all Class A Convertible Preferred Stock and Class C Redeemable Convertible
Preferred Stock into Class A Common Stock, the conversion of all Class B Common
Stock into Class A Common Stock, and the redesignation of Class A Common Stock
as "Common Stock," there will be 10,044,923 shares of Common Stock outstanding
upon the closing of the offering. After this offering, the Company will cease to
have the authority to issue any shares of Class B Common Stock.

Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders. Holders of Common Stock do not have
cumulative voting rights. Accordingly, holders of a majority of the shares of
Common Stock entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared by the Board of Directors out
of funds legally available therefor, subject to any preferential dividend rights
of any outstanding Preferred Stock. Upon the liquidation, dissolution or winding
up of the Company, the holders of Common Stock are entitled to receive ratably
the net assets of the Company available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding Preferred Stock.
Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in this offering will be, when issued and paid for,
validly issued, fully paid and nonassessable. The rights, preferences and
privileges of holders of Common Stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of Preferred
Stock which the Company may designate and issue in the future. Upon the closing
of this offering, there will be no shares of Preferred Stock outstanding.

PREFERRED STOCK

The Board of Directors will be authorized, subject to certain limitations
prescribed by law, without further stockholder approval, to issue from time to
time up to an aggregate of 10,000,000 shares of Preferred Stock in one or more
series and to fix or alter the designations, preferences, rights and any
qualifications, limitations or restrictions on the shares of each such series
thereof, including the dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption (including sinking fund provisions),
redemption price or prices, liquidation preferences and the number of shares
constituting any series or designations of such series. The issuance of
Preferred Stock may have the effect of delaying, deferring or preventing a
change of control of the Company. The rights, preferences and privileges of
holders of the Common Stock are subject to, and may be adversely affected by,
the rights of the holders of shares of any series of Preferred Stock which the
Company may designate and issue in the future. The Company has no current plan
to issue any shares of Preferred Stock.

DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS

The Amended and Restated Certificate of Incorporation of the Company (the
"Charter") provides for the division of the Board of Directors into three
classes as nearly equal in size as practicable with staggered three-year terms,
effective upon consummation of this offering. See "Management -- Board of
Directors." A director may be removed only for cause and then only by the vote
of a majority of the shares entitled to vote for the election of directors.

The Charter empowers the Board of Directors, when considering a tender
offer or merger or acquisition proposal, to take into account factors in
addition to potential economic benefits to stockholders. Such factors may
include (i) comparison of the proposed consideration to be received by
stockholders in relation to the then current market price of the Company's
capital stock, the estimated

44
<PAGE> 46

current value of the Company in a freely negotiated transaction or the estimated
future value of the Company as an independent entity and (ii) the impact of such
a transaction on the employees, suppliers and customers of the Company and its
effect on the communities in which the Company operates.

The Charter and the Amended and Restated By-laws ("By-laws") provide that,
effective upon consummation of the offering, any action required or permitted to
be taken by the stockholders of the Company may be taken only at a duly called
annual or special meeting of the stockholders and that special meetings may be
called only by the Chairman of the Board of Directors, the President or a
majority of the entire Board of Directors of the Company. These provisions could
have the effect of delaying until the next annual stockholders meeting
stockholder actions which are favored by the holders of a majority of the
outstanding voting securities of the Company, including actions to remove
directors. These provisions may also discourage another person or entity from
making a tender offer for the Company's Common Stock, because such person or
entity, even if it acquired all or a majority of the outstanding voting
securities of the Company, would be able to take action as a stockholder (such
as electing new directors or approving a merger) only at a duly called
stockholders meeting, and not by written consent.

The Delaware General Corporation Law ("DGCL") provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case may
be, requires a greater percentage. The Charter requires the affirmative vote of
a majority of the entire Board of Directors or the holders of at least 66 2/3%
of the outstanding voting stock of the Company to amend or repeal any of the
foregoing Charter provisions or to reduce the number of authorized shares of
Common Stock and Preferred Stock. A 66 2/3% vote is also required to amend or
repeal the Company's By-Laws. Such stockholder vote would in either case be in
addition to any separate class vote that might in the future be required
pursuant to the terms of any Preferred Stock that might be outstanding at the
time any such amendments are submitted to stockholders. The By-Laws may also be
amended or repealed by a majority vote of the Board of Directors.

The By-Laws provide that for nominations for the Board of Directors or for
other business to be properly brought by a stockholder before an annual meeting
of stockholders, the stockholder must first have given timely notice thereof in
writing to the Secretary of the Company. To be timely, a stockholder's notice
generally must be delivered not later than 120 days in advance of the first
anniversary of the date that the Company's proxy statement to stockholders is
delivered in connection with the prior year's annual meeting of stockholders or
90 days prior to the date of the meeting if no such proxy statement was
delivered to the stockholders. The notice must contain, among other things,
certain information about the stockholder delivering the notice and, as
applicable, background information about each nominee or a description of the
proposed business to be brought before the meeting. Business transacted at a
special meeting is limited to the purposes for which the meeting is called.

The foregoing provisions could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from attempting
to acquire, control of the Company. See "Risk Factors--Effect of Anti-takeover
Provisions."

The Charter contains certain provisions permitted under the DGCL relating
to the liability of directors. These provisions eliminate a director's liability
for monetary damages for a breach of fiduciary duty, except in certain
circumstances involving certain wrongful acts, such as the breach of a
director's duty of loyalty or acts or omissions which involve intentional
misconduct or a knowing violation of law. The Charter and By-laws also contain
provisions indemnifying the directors and officers of the Company to the fullest
extent permitted by the DGCL. The Company expects to obtain, prior to the
consummation of the offering, a directors and officers liability insurance
policy which provides for indemnification of its directors and officers against
certain liabilities incurred in their capacities as such, which may include
liabilities under the Securities Act of 1933, as amended (the "Securities Act").
The Company believes that these provisions will assist the Company in attracting
and retaining qualified individuals to serve as directors.

The Company is subject to the provisions of Section 203 of the DGCL.
Subject to certain exceptions, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination"

45
<PAGE> 47

with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
interested stockholder attained such status with the approval of the Board of
Directors or unless the business combination is approved in a prescribed manner.
A "business combination" includes certain mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to certain exceptions, an "interested stockholder" is a person who,
together with his or her affiliates and associates, owns, or owned within three
years prior, 15% or more of the corporation's voting stock.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is The First National
Bank of Boston.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have 10,044,923 shares
of Common Stock outstanding (assuming no exercise of outstanding options). Of
these shares, the 3,000,000 shares sold in the offering made by this Prospectus
will be freely tradeable without restriction or further registration under the
Securities Act, except that any shares purchased by "affiliates" of the Company,
as that term is defined in Rule 144 ("Rule 144") under the Securities Act
("Affiliates"), may generally be sold only in compliance with the limitations of
Rule 144 described below.

LOCK-UP AGREEMENTS

As of the closing of this offering, certain security holders, all executive
officers and directors and virtually all employees of the Company, who in the
aggregate hold, following the offering, 6,954,769 shares of Common Stock and
options to purchase 2,463,472 shares of Common Stock, have agreed, pursuant to
lock-up agreements (the "Lock-up Agreements"), that they will not, without the
prior written consent of the representatives of the Underwriters, offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock beneficially
owned by them for a period of 180 days after the date of this Prospectus.

SALES OF RESTRICTED SHARES

The 7,044,923 shares of outstanding Common Stock which are not being sold
in this offering are deemed "Restricted Shares" under Rule 144. Of the
Restricted Shares, 422,639 shares may be eligible for sale in the public market
immediately after this offering pursuant to Rule 144(k) under the Securities
Act; all of these shares are subject to Lock-up Agreements. Approximately
3,118,344 additional Restricted Shares may be eligible for sale in the public
market in accordance with Rule 144 or Rule 701 under the Securities Act
beginning 90 days after the date of this Prospectus; all except 90,154 of these
shares are subject to Lock-up Agreements. Upon expiration of the Lock-up
Agreements, approximately 4,225,678 shares of Common Stock, including those
shares previously described in this paragraph, will be available for sale in the
public market, subject to the provisions of Rule 144 or 144(k) under the
Securities Act. The remaining 2,819,245 Restricted Shares will be eligible for
sale in the public market in accordance with Rule 144 at various dates
thereafter.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an Affiliate, who has beneficially owned
Restricted Shares for at least two years is entitled to sell, within any
three-month period, a number of such shares that does not exceed the greater of
(i) one percent of the then outstanding shares of Common Stock (approximately
100,449 shares immediately after this offering) or (ii) the average weekly
trading volume in the Common Stock in the over-the-counter market during the
four calendar weeks preceding the date on which notice of such sale is filed. In
addition, under Rule 144(k), a person who is not an Affiliate and has not been
an Affiliate for at least three months prior to the sale and who has
beneficially owned Restricted Shares for at least three years may resell such
shares without compliance with the foregoing requirements. In meeting the two-
and three-year holding periods

46
<PAGE> 48

described above, a holder of Restricted Shares can include the holding periods
of a prior owner who was not an Affiliate.

Rule 701 under the Securities Act provides that shares of Common Stock
acquired on the exercise of employee stock options may be resold by persons
other than Affiliates beginning 90 days after the date of this Prospectus,
subject only to the manner of sale provisions of Rule 144, and by Affiliates
under Rule 144 without compliance with its two-year minimum holding period,
subject to certain limitations.

OPTIONS

As of July 31, 1996, options to purchase a total of 2,529,472 shares of
Common Stock were outstanding (of which options to purchase 1,861,002 shares are
exercisable upon the completion of the offering pursuant to the stock option
agreements under which they were granted) under the 1996, 1995 and 1993 Stock
Option Plans; 2,463,472 of the total shares issuable pursuant to such options
are subject to Lock-up Agreements. See "Management -- Stock Option Plans." As of
July 31, 1996, an additional 738,318 shares were available for future issuance
under the 1996, 1995 and 1993 Stock Option Plans.

The Company intends to file one or more registration statements on Form S-8
under the Securities Act to register all shares of Common Stock subject to
outstanding stock options as well as Common Stock reserved for issuance under
the 1993 Stock Option Plan, the 1995 Stock Option Plan, the 1996 Stock Option
Plan, the 1996 Director Stock Option Plan and the 1996 Employee Stock Purchase
Plan. The Company presently intends to file these registration statements
promptly upon the expiration of the Lock-up Agreements, and such registration
statements are expected to become effective upon the filing thereof. Shares
covered by these registration statements will thereupon be eligible for sale in
the public markets.

REGISTRATION RIGHTS

The holders (the "Rightsholders") of approximately 6,407,204 shares of
Common Stock (the "Registrable Shares") have certain rights with respect to the
registration of such shares for sale under the Securities Act under the terms of
an Amended and Restated Registration Rights Agreement among the Company and the
Rightsholders (the "Registration Rights Agreement"). The Registration Rights
Agreement provides that in the event the Company proposes to register any of its
securities under the Securities Act at any time or times, the Rightsholders,
subject to certain exceptions, shall be entitled to include Registrable Shares
in such registration. However, the managing underwriter of any such offering
that is underwritten may exclude for marketing reasons some or all of such
Registrable Shares from such registration. The Rightsholders have, subject to
certain conditions and limitations, additional rights to require the Company to
prepare and file a registration statement under the Securities Act with respect
to their Registrable Shares if Rightsholders holding not less than 50% of the
Registrable Shares then outstanding so request. The Company is generally
required to bear the expenses of all such registrations, except underwriting
discounts and commissions.

47
<PAGE> 49

UNDERWRITING
<TABLE>
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholder have agreed to sell to each of the
Underwriters named below, and each of such Underwriters, for whom Adams,
Harkness & Hill, Inc. and SoundView Financial Group, Inc., are acting as
representatives (the "Representatives"), has severally agreed to purchase from
the Company and the Selling Stockholder the respective numbers of shares of
Common Stock set forth opposite each Underwriter's name below:

<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
- ----------- ------------
<S> <C>
Adams, Harkness & Hill, Inc. .................................................
SoundView Financial Group, Inc. ..............................................
---------
Total.................................................................... 3,000,000
=========
</TABLE>

Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all shares offered hereby, if any
are taken.

The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and in part to certain securities dealers at such
price less a concession not in excess of $ per share. The Underwriters
may allow, and such dealers may reallow, a concession not in excess of
$ per share to certain brokers and dealers. After the shares of Common
Stock are released for sale to the public, the offering price and other selling
terms may from time to time be varied by the Representatives.

The Company and the Selling Stockholder have granted the Underwriters an
option exercisable for 30 days after the date of this Prospectus to purchase up
to an aggregate of 450,000 additional shares of Common Stock to cover
over-allotments, if any. If the Underwriters exercise their over-allotment
option, the Underwriters have severally agreed, subject to certain conditions,
to purchase approximately the same percentage thereof that the number of shares
to be purchased by each of them, as shown in the foregoing table, bears to the
3,000,000 shares of Common Stock offered hereby. The Underwriters may exercise
such option only to cover over-allotments in connection with the sale of the
3,000,000 shares of Common Stock offered hereby.

The Company has agreed not to offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock for a period of 180 days after the date of
this Prospectus without the prior written consent of the Representatives, except
for the shares of Common Stock offered hereby and except that the Company may
issue securities pursuant to the Company's stock option plans. The Company's
officers, directors and certain other holders of Common Stock, including the
Selling Stockholder, who will hold in the aggregate 6,954,769 shares of Common
Stock following the offering, have agreed with the Underwriters or the Company
not to offer, sell, contract to sell or otherwise dispose of any shares of
Common Stock owned beneficially by them, other than as a bona fide gift or gifts
to or in trust for a person or entity who or which agrees in writing to be bound
by the foregoing restrictions for a period of 180 days after the date of this
Prospectus, without the prior written consent of the Representatives.

The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.

Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price will be negotiated among the Company
and the Representatives. Among the factors to be considered in determining the
initial public offering price of the Common Stock, in addition to prevailing
market conditions, are the Company's historical performance, estimates of the
business potential and

48
<PAGE> 50

earnings prospects of the Company, an assessment of the Company's management and
the consideration of the above factors in relation to market valuation of
companies in related businesses.

The Common Stock has been approved for quotation and trading on the Nasdaq
National Market under the symbol "XION."

The Company and the Selling Stockholder have agreed to indemnify the
several Underwriters against or contribute to losses arising out of certain
liabilities, including liabilities under the Securities Act.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Bingham, Dana & Gould LLP, Boston, Massachusetts.
Certain legal matters will be passed upon for the Underwriters by Hale and Dorr,
Boston, Massachusetts.

EXPERTS

The Consolidated Financial Statements and related schedule of the Company
and its subsidiaries included in this Prospectus and elsewhere in this
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.

REPORTS TO STOCKHOLDERS

The Company intends to furnish its stockholders with annual reports
containing audited financial statements and to furnish or make available
quarterly reports for the first three fiscal quarters of each fiscal year
containing certain unaudited interim financial information.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus, which constitutes part of the Registration Statement,
omits certain of the information contained in the Registration Statement and the
exhibits and schedules thereto on file with the Commission pursuant to the
Securities Act and the rules and regulations of the Commission thereunder. The
Registration Statement, including exhibits and schedules thereto, may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, DC 20549, and at
the Commission's regional offices at Seven World Trade Center, 13th Floor, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and copies may be obtained at prescribed rates from the
Public Reference Section of the Commission at its principal office in
Washington, D.C. Statements contained in this Prospectus as to the contents of
any contract or other document are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.

49
<PAGE> 51

XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES

<TABLE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<CAPTION>
PAGE
----
<S> <C>
Xionics Document Technologies, Inc. and Subsidiaries:
Report of Independent Public Accountants............................................ F-2
Consolidated Balance Sheets as of June 30, 1995 and 1996 and Pro forma June 30, 1996
(unaudited)...................................................................... F-3
Consolidated Statements of Operations for the Years Ended June 30, 1994, 1995 and
1996............................................................................. F-4
Consolidated Statements of Redeemable Preferred Stock and Stockholders' Equity
(Deficit) for the Years Ended June 30, 1994, 1995 and 1996 and Pro forma June 30,
1996 (unaudited)................................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended June 30, 1994, 1995 and
1996............................................................................. F-8
Notes to Consolidated Financial Statements.......................................... F-9
The Peripherals Division of Phoenix Technologies Ltd.:
Report of Independent Public Accountants............................................ F-22
Condensed Statements of Revenue and Direct Costs for the Years Ended September 30,
1993 and 1994.................................................................... F-23
Notes to Condensed Financial Statements............................................. F-24
</TABLE>

F-1
<PAGE> 52

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
Xionics Document Technologies, Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheets of Xionics
Document Technologies, Inc. (a Delaware corporation) and subsidiaries as of June
30, 1995 and 1996, and the related consolidated statements of operations,
redeemable preferred stock and stockholders' equity (deficit) and cash flows for
each of the three years in the period ended June 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Xionics Document
Technologies, Inc. and subsidiaries as of June 30, 1995 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1996, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Boston, Massachusetts
July 23, 1996 (except with respect to the
matter discussed in Note 6, as to
which the date of this opinion
is August 21, 1996)

F-2
<PAGE> 53

XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JUNE 30, PRO FORMA
------------------------- JUNE 30,
1995 1996 1996
----------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED)
(NOTE 1)
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 1,226,364 $ 2,115,859 $2,115,859
Short-term investments..................................................... -- 644,613 644,613
Accounts receivable, less reserves of approximately $204,000 and $140,000
at June 30, 1995 and 1996................................................ 3,534,404 2,398,033 2,398,033
Inventories................................................................ 908,039 1,020,035 1,020,035
Prepaid expenses and other current assets.................................. 278,722 398,264 398,264
---------- ---------- ----------
Total current assets................................................... 5,947,529 6,576,804 6,576,804
---------- ---------- ----------
Property and equipment, net.................................................... 720,051 2,169,091 2,169,091
Acquired intangibles, net of accumulated amortization of approximately $326,500
and $605,833 at June 30, 1995 and 1996....................................... 473,500 194,167 194,167
Deferred offering costs........................................................ -- 926,439 926,439
Other assets................................................................... 37,500 38,000 38,000
---------- ---------- ----------
$ 7,178,580 $ 9,904,501 $9,904,501
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Term loans, current portion................................................ $ -- $ 322,667 $ 322,667
Accounts payable........................................................... 1,786,832 1,988,470 1,988,470
Other accrued expenses..................................................... 1,236,762 1,122,870 1,122,870
Accrued payroll............................................................ 345,427 382,039 382,039
Accrued offering costs..................................................... -- 400,000 400,000
Deferred revenue........................................................... 1,483,173 1,368,833 1,368,833
Secured promissory notes payable to a shareholder, current portion......... 350,000 -- --
Senior subordinated promissory notes payable to stockholders............... 228,355 -- --
---------- ---------- ----------
Total current liabilities.............................................. 5,430,549 5,584,879 5,584,879
---------- ---------- ----------
Term loans, net of current portion............................................. -- 564,166 564,166
---------- ---------- ----------
Secured promissory notes payable to a stockholder, net of current portion...... 4,849,000 2,094,000 2,094,000
---------- ---------- ----------
Commitments (Note 9)
Redeemable preferred stock:
Class B Redeemable Preferred Stock, $.01 par value--
Authorized--1,867,877 shares at June 30, 1995. None at June 30, 1996
Issued and outstanding--1,867,877 shares, stated at liquidation value, at
June 30, 1995.......................................................... 2,275,827 -- --
Class C Redeemable Convertible Preferred Stock, $.01 par value--
Authorized--2,779,615 shares
Issued and outstanding--2,698,938 shares, stated at liquidation value, at
June 30, 1996.......................................................... -- 8,231,410 --
Class D Redeemable Preferred Stock, $.01 par value--
Authorized--1,100,000 shares
Issued and outstanding--None at June 30, 1995 and 1996................... -- -- --
Stockholders' equity (deficit):
Preferred Stock, $.01 par value--
Authorized--10,000,000 shares pro forma
Issued and outstanding--none (no shares pro forma)....................... -- -- --
Class A Convertible Preferred Stock, $.01 par value--
Authorized--3,603,305 shares
Issued and outstanding--3,603,305 and 3,125,051 shares at June 30, 1995
and 1996, respectively................................................. 4,835,771 3,606,658 --
Common Stock, $.01 par value--
Authorized--40,000,000 shares pro forma
Issued--7,768,986 shares pro forma....................................... -- -- 77,690
Common Stock, Class A, $.01 par value--
Authorized--20,000,000 shares
Issued and outstanding--1,327,293 and 1,386,066 shares at June 30, 1995
and 1996, respectively................................................. 13,273 13,861 --
Common Stock, Class B, $.01 par value--
Authorized--10,000,000 shares
Issued and outstanding--None at June 30, 1995 and 558,931 shares at June
30, 1996............................................................... -- 5,589 --
Additional paid-in capital................................................. (401,487) 1,312,381 13,092,209
Accumulated deficit........................................................ (9,824,353) (11,357,030) (11,357,030)
Treasury stock, at cost--224,311 shares of Class A Common Stock at June 30,
1996..................................................................... -- (151,413) (151,413 )
---------- ---------- ----------
Total stockholders' equity (deficit)................................... (5,376,796) (6,569,954) 1,661,456
---------- ---------- ----------
$ 7,178,580 $ 9,904,501 $9,904,501
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-3
<PAGE> 54

XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES

<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS

<CAPTION>
FOR THE YEARS ENDED JUNE 30,
--------------------------------------------
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
Net revenue........................................ $9,130,824 $15,577,249 $23,809,322
Cost of revenue.................................... 2,896,009 4,681,539 5,791,055
---------- ----------- -----------
Gross profit.................................. 6,234,815 10,895,710 18,018,267
Operating expenses:
Research and development...................... 1,308,402 6,235,034 10,037,240
Selling, general and administrative........... 4,674,313 6,901,394 9,394,876
Charge for purchased research and
development................................. -- 3,492,000 --
---------- ----------- -----------
Income (loss) from operations............ 252,100 (5,732,718) (1,413,849)
Other income (expense):
Interest expense.............................. (16,817) (312,881) (286,613)
Interest income............................... -- 35,789 163,686
Other income (expense)........................ 7,778 (15,115) 4,099
---------- ----------- -----------
Net income (loss)........................ $ 243,061 $(6,024,925) $(1,532,677)
========== =========== ===========
Pro forma net loss per common and common
equivalent share................................. $ (0.18)
===========
Pro forma weighted average number of common and
common equivalent shares outstanding............. 8,308,357
===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-4
<PAGE> 55

XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES

<TABLE>
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)

<CAPTION>
REDEEMABLE PREFERRED STOCK
------------------------------------------------------------------------------
CLASS C
CLASS B REDEEMABLE CLASS D
REDEEMABLE CONVERTIBLE (REDEEMABLE)
------------------------ ------------------------ ------------------------
NUMBER LIQUIDATION NUMBER LIQUIDATION NUMBER LIQUIDATION
OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE
---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1993.................... 1,867,877 $1,867,877 -- $ -- -- $ --
Issuance of Common Stock................ -- -- -- -- -- --
Accretion of Class B Redeemable
Preferred Stock dividend.............. -- 186,788 -- -- -- --
Net income.............................. -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance, June 30, 1994.................... 1,867,877 2,054,665 -- -- -- --
Issuance of Class A Convertible
Preferred Stock....................... -- -- -- -- -- --
Accretion of Class B Redeemable
Preferred Stock dividend.............. -- 221,162 -- -- -- --
Net loss................................ -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance, June 30, 1995.................... 1,867,877 2,275,827 -- -- -- --
Accretion of Class B Redeemable
Preferred Stock dividend.............. -- 34,769 -- -- -- --
Issuance of Class C Redeemable
Convertible Preferred Stock, net of
issuance costs of $25,651............. (1,867,877) (2,310,596) 2,662,636 7,738,951 -- --
Conversion of Class A Convertible
Preferred Stock to Class B Common
Stock................................. -- -- -- -- -- --
Stock repurchase........................ -- -- -- -- -- --
Issuance of Class D Redeemable
Preferred Stock....................... -- -- -- -- 1,000,000 4,500,000
Exercise of stock options............... -- -- -- -- -- --
Exercise of stock options, issued from
treasury.............................. -- -- -- -- -- --
Issuance of treasury stock.............. -- -- -- -- -- --
Related party forgiveness of debt....... -- -- -- -- -- --
Accretion of Class C Redeemable
Convertible and Class D Redeemable
Preferred Stock dividend.............. -- -- -- 386,947 -- 90,000
Repurchase of Class D Preferred Stock... -- -- -- -- (1,000,000) (4,590,000)
Noncash compensation charge............. -- -- -- -- -- --
Conversion of secured promissory notes
payable to a stockholder to Class C
Redeemable Convertible Preferred
Stock................................. -- -- 116,979 340,000 -- --
Conversion of Class C Redeemable
Convertible Preferred Stock to
Class B Common Stock.................. -- -- (80,677) (234,488) -- --
Net loss................................ -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance, June 30, 1996.................... -- -- 2,698,938 8,231,410 -- --
Pro forma adjustments (Note 1(l))....... -- -- (2,698,938) (8,231,410) -- --
---------- ---------- ---------- ---------- ---------- ----------
Pro Forma Balance, June 30, 1996
(Unaudited)............................. -- $ -- -- $ -- -- $ --
========== ========== ========== ========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-5
<PAGE> 56

XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT) -- (CONTINUED)

<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
------------------------------------------------------------------------
CLASS A
CONVERTIBLE CLASS A CLASS B
PREFERRED STOCK COMMON STOCK COMMON STOCK
------------------------ --------------------- ---------------------
NUMBER LIQUIDATION NUMBER $.01 NUMBER $.01
OF SHARES VALUE OF SHARES PAR VALUE OF SHARES PAR VALUE
---------- ----------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1993............... 2,418,610 $ 1,789,771 1,317,293 $ 13,173 -- $ --
Issuance of Common Stock........... -- -- 10,000 100 -- --
Accretion of Class B Redeemable
Preferred Stock dividend......... -- -- -- -- -- --
Net income......................... -- -- -- -- -- --
---------- ----------- ---------- -------- -------- -------
Balance, June 30, 1994............... 2,418,610 1,789,771 1,327,293 13,273 -- --
Issuance of Class A Convertible
Preferred Stock.................. 1,184,695 3,046,000 -- -- -- --
Accretion of Class B Redeemable
Preferred Stock dividend......... -- -- -- -- -- --
Net loss........................... -- -- -- -- -- --
---------- ----------- ---------- -------- -------- -------
Balance, June 30, 1995............... 3,603,305 4,835,771 1,327,293 13,273 -- --
Accretion of Class B Redeemable
Preferred Stock dividend......... -- -- -- -- -- --
Issuance of Class C Redeemable
Convertible Preferred Stock, net
of issuance costs of $25,651..... -- -- -- -- -- --
Conversion of Class A Convertible
Preferred Stock to Class B
Common Stock..................... (478,254) (1,229,113) -- -- 478,254 4,783
Stock repurchase................... -- -- -- -- -- --
Issuance of Class D Redeemable
Preferred Stock.................. -- -- -- -- -- --
Exercise of stock options.......... -- -- 58,773 588 -- --
Exercise of stock options, issued
from treasury.................... -- -- -- -- -- --
Issuance of treasury stock......... -- -- -- -- -- --
Related party forgiveness of
debt............................. -- -- -- -- -- --
Accretion of Class C Redeemable
Convertible and Class D
Redeemable Preferred Stock
dividend......................... -- -- -- -- -- --
Repurchase of Class D Redeemable
Preferred Stock.................. -- -- -- -- -- --
Noncash compensation charge........ -- -- -- -- -- --
Conversion of secured promissory
notes payable to a stockholder
to Class C Redeemable Convertible
Preferred Stock.................. -- -- -- -- -- --
Conversion of Class C Redeemable
Convertible Preferred Stock to
Class B Common Stock............. -- -- -- -- 80,677 806
Net loss........................... -- -- -- -- -- --
---------- ----------- ---------- -------- -------- -------
Balance, June 30, 1996............... 3,125,051 3,606,658 1,386,066 13,861 558,931 5,589
Pro forma adjustments (Note
1(l))............................ (3,125,051) (3,606,658) (1,386,066) (13,861) (558,931) (5,589)
---------- ----------- ---------- -------- -------- -------
Pro Forma Balance, June 30, 1996
(Unaudited)........................ -- $ -- -- $ -- -- $ --
========== =========== ========== ======== ======== =======
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-6
<PAGE> 57

XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES

<TABLE>
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT) -- (CONTINUED)

<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
-----------------------------------------------------------------------------------------
COMMON STOCK TREASURY STOCK TOTAL
--------------------- ADDITIONAL --------------------- STOCKHOLDERS'
NUMBER $.01 PAID-IN ACCUMULATED NUMBER EQUITY
OF SHARES PAR VALUE CAPITAL DEFICIT OF SHARES COST (DEFICIT)
--------- --------- ----------- ------------ --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1993 -- $ -- $ 4,565 $ (4,042,489) -- $ -- $(2,234,980)
Issuance of Common Stock... -- -- 1,898 -- -- -- 1,998
Accretion of Class B
Redeemable Preferred
Stock dividend........... -- -- (186,788) -- -- -- (186,788)
Net income................. -- -- -- 243,061 -- -- 243,061
--------- ------- ----------- ------------ -------- --------- -----------
Balance, June 30, 1994....... -- -- (180,325) (3,799,428) -- -- (2,176,709)
Issuance of Class A
Convertible Preferred
Stock.................... -- -- -- -- -- -- 3,046,000
Accretion of Class B
Redeemable Preferred
Stock dividend........... -- -- (221,162) -- -- -- (221,162)
Net loss................... -- -- -- (6,024,925) -- -- (6,024,925)
--------- ------- ----------- ------------ -------- --------- -----------
Balance, June 30, 1995....... -- -- (401,487) (9,824,353) -- -- (5,376,796)
Accretion of Class B
Redeemable Preferred
Stock dividend........... -- -- (34,769) -- -- -- (34,769)
Issuance of Class C
Redeemable Convertible
Preferred Stock, net of
issuance costs of
$25,651.................. -- -- (25,651) -- -- -- (25,651)
Conversion of Class A
Convertible Preferred
Stock to Class B Common
Stock.................... -- -- 1,224,330 -- -- -- --
Stock repurchase........... -- -- -- -- 370,370 (250,000) (250,000)
Issuance of Class D
Redeemable Preferred
Stock.................... -- -- -- -- -- -- --
Exercise of stock
options.................. -- -- 11,169 -- -- -- 11,757
Exercise of stock options,
issued from treasury..... -- -- (54,946) -- (116,429) 78,587 23,641
Issuance of treasury
stock.................... -- -- -- -- (29,630) 20,000 20,000
Related party forgiveness
of debt.................. -- -- 565,000 -- -- -- 565,000
Accretion of Class C
Redeemable Convertible
and Class D Redeemable
Preferred Stock
dividend................. -- -- (476,947) -- -- -- (476,947)
Repurchase of Class D
Redeemable Preferred
Stock.................... -- -- 90,000 -- -- -- 90,000
Noncash compensation
charge................... -- -- 182,000 -- -- -- 182,000
Conversion of secured
promissory notes payable
to a stockholder to Class
C Redeemable Convertible
Preferred Stock.......... -- -- -- -- -- -- --
Conversion of Class C
Redeemable Convertible
Preferred Stock to Class
B Common Stock........... -- -- 233,682 -- -- -- 234,488
Net loss................... -- -- -- (1,532,677) -- -- (1,532,677)
--------- ------- ----------- ------------ -------- --------- -----------
Balance, June 30, 1996....... -- -- 1,312,381 (11,357,030) 224,311 (151,413) (6,569,954)
Pro forma adjustments
(Note 1(l))................ 7,768,963 77,690 11,779,828 -- -- -- 8,231,410
--------- ------- ----------- ------------ -------- --------- -----------
Pro Forma Balance, June 30,
1996 (Unaudited)........... 7,768,963 $77,690 $13,092,209 $(11,357,030) 224,311 $(151,413) $ 1,661,456
========= ======= =========== ============ ======== ========= ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-7
<PAGE> 58

XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS

<CAPTION>
FOR THE YEARS ENDED JUNE 30,
-----------------------------------------
1994 1995 1996
--------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................. $ 243,061 $(6,024,925) $(1,532,677)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities--
Charge for purchased research and
development................................ -- 3,492,000 --
Depreciation and amortization................ 132,236 408,030 782,390
Noncash compensation charge.................. -- -- 182,000
Loss on disposal of property and equipment... -- 10,429 --
Changes in assets and liabilities--
Accounts receivable.......................... (223,969) 203,032 1,136,371
Inventories.................................. (115,246) (720,087) (111,996)
Prepaid expenses and other current assets.... (3,277) (176,912) (119,542)
Accounts payable............................. (175,199) 1,017,315 201,638
Other accrued expenses....................... 558,313 199,949 (113,892)
Accrued payroll.............................. 205,320 140,107 36,612
Deferred revenue............................. (67,184) 982,961 (114,340)
--------- ----------- -----------
Net cash provided by (used in) operating
activities............................ 554,055 (468,101) 346,564
--------- ----------- -----------
Cash flows from investing activities:
Increase in short-term investments................ -- -- (644,613)
Increase in other assets.......................... -- (37,500) (500)
Net cash acquired in connection with the
Peripherals Division acquisition................ -- 197,000 --
Proceeds from sale of property and equipment...... -- 23,866 --
Purchases of property and equipment............... (176,077) (419,018) (984,097)
--------- ----------- -----------
Net cash used in investing activities... (176,077) (235,652) (1,629,210)
--------- ----------- -----------
Cash flows from financing activities:
Issuance of Class A Convertible Preferred Stock... -- 750,000 --
Issuance of Class C Redeemable Convertible
Preferred Stock, net of issuance costs.......... -- -- 3,274,349
Issuance of Class D Redeemable Preferred Stock.... -- -- 4,500,000
Issuance of treasury stock........................ -- -- 20,000
Repayment of term loans........................... -- -- (81,167)
Borrowings (repayments) of senior subordinated
promissory notes payable to stockholders........ 64,850 (20,759) --
Borrowings (repayments) of secured promissory
notes payable to a stockholder.................. -- 350,000 (300,000)
Stock repurchase.................................. -- -- (250,000)
Repurchase of Class D Redeemable Preferred
Stock........................................... -- -- (4,500,000)
Proceeds from exercise of stock options........... -- -- 35,398
Deferred offering costs........................... -- -- (526,439)
--------- ----------- -----------
Net cash provided by financing
activities............................ 64,850 1,079,241 2,172,141
--------- ----------- -----------
Net increase in cash and cash equivalents.............. 442,828 375,488 889,495
Cash and cash equivalents, beginning of period......... 408,048 850,876 1,226,364
--------- ----------- -----------
Cash and cash equivalents, end of period............... $ 850,876 $ 1,226,364 $ 2,115,859
========= =========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-8
<PAGE> 59

XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

Xionics Document Technologies, Inc. and subsidiaries (the Company) designs,
develops and markets advanced embedded systems technology for use in mainstream
office devices such as printers, copiers, fax machines and scanners. The
Company's products enable the high-speed capture, processing, printing, copying
and display of complex electronic documents, both locally and across networks.

The Company is subject to a number of risks common to companies in similar
stages of development, including dependence on key individuals, competition from
substitute products and larger companies, the need for adequate financing to
fund future operations, and the continued successful development and marketing
of its products and services.

The accompanying consolidated financial statements reflect the application
of certain significant accounting policies as described below and elsewhere in
the notes to consolidated financial statements.

(a) Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, Xionics Holdings Limited
(Limited), Xionics Document Technologies GmbH and Xionics Kabushiki Kaisha.
Xionics International Limited (Xionics UK) is a wholly owned subsidiary of
Limited. All material intercompany accounts and transactions of the consolidated
companies have been eliminated in consolidation.

(b) Revenue Recognition

Net revenue includes software license fees, hardware products, services,
software maintenance and royalty revenue. Revenue from software and hardware
product sales is recognized upon shipment of the product to customers, provided
that there are no significant obligations remaining and collectibility of the
revenue is probable. The Company provides for estimated hardware products
returns upon shipment of the hardware products. The Company recognizes revenue
from software license fees, services and maintenance in accordance with the
provisions of the American Institute of Certified Public Accountants, Statement
of Position No. 91-1 (SOP 91-1), Software Revenue Recognition. Revenue from
software maintenance contracts is recognized ratably as it is earned over the
term of the contract, generally one year. Unearned software maintenance revenue
is included in deferred revenue. In addition, deferred revenue includes certain
prepaid royalties and advanced billings under software development contracts for
services not yet performed. Service revenue and royalty revenue are recognized
as the service is performed and the royalty earned. The Company recognizes
revenue under software development contracts as services are provided for per
diem contracts or by using the percentage-of-completion method of accounting
based on the ratio of hours incurred to the total estimated hours for individual
fixed-price contracts. Provisions for any estimated losses on uncompleted
contracts are made in the period in which such losses become probable. There
were no contract loss provisions at June 30, 1995 or 1996.

The Company provides a one-year warranty with the sale of its hardware
products. The Company estimates and accrues for the costs of providing these
warranties upon shipment of the products.

(d) Research and Development Costs

Research and development costs are charged to operations as incurred.
Statement of Financial Accounting Standards (SFAS) No. 86, Accounting for the
Costs of Computer Software To Be Sold, Leased or Otherwise Marketed, requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon completion of
a working model. Costs incurred by the

F-9
<PAGE> 60

XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company between completion of the working model and the point at which the
product is ready for general release have not been material. Through June 30,
1996, all research and development costs have been expensed.

(e) Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of
three months or less at the time of purchase to be cash equivalents. Cash
equivalents consist primarily of investments in money market funds. In
accordance with SFAS No. 115, Accounting for Investments in Certain Debt and
Equity Securities, the Company's cash equivalents are classified as
held-to-maturity securities.

(f) Short-Term Investments

As of June 30, 1996, the Company had $644,613 invested in securities
consisting of corporate stocks and bonds. In accordance with SFAS No. 115, the
Company has classified its short-term investments as available-for-sale. These
securities have been recorded at cost, which approximates market value at June
30, 1996.

(g) Inventories

<TABLE>
Inventories, which include material, labor and manufacturing overhead, are
stated at the lower of cost (first-in, first-out) or market and consist of the
following:

<CAPTION>
JUNE 30,
------------------------
1995 1996
-------- ----------
<S> <C> <C>
Raw materials....................................................... $602,706 $ 493,660
Finished goods...................................................... 305,333 526,375
-------- ----------
$908,039 $1,020,035
======== ==========
</TABLE>

(h) Property and Equipment

<TABLE>
The Company records property and equipment at cost and provides for
depreciation and amortization on a straight-line basis over the estimated useful
lives of the assets, as follows:

<CAPTION>
JUNE 30,
ESTIMATED --------------------------
USEFUL LIFE 1995 1996
------------ ---------- ----------
<S> <C> <C> <C>
Asset Classification
Computer equipment............................... 3-5 Years $ 801,503 $2,525,394
Furniture and fixtures........................... 3-7 Years 369,704 564,865
Machinery and equipment.......................... 3-5 Years 42,567 75,612
---------- ----------
1,213,774 3,165,871
Less--Accumulated depreciation and amortization....... 493,723 996,780
---------- ----------
$ 720,051 $2,169,091
========== ==========
</TABLE>

(i) Deferred Offering Costs

As of June 30, 1996, the Company had incurred approximately $926,000 in
costs related to the Company's proposed initial public offering. These costs
have been capitalized as deferred offering costs in the accompanying
consolidated balance sheet. Upon completion of the Company's proposed initial
public offering, the deferred offering costs will be reclassified to additional
paid-in capital as a reduction to the proceeds from the offering.

F-10
<PAGE> 61

XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(j) Foreign Currency Translation

The Company follows the translation principles established by SFAS No. 52,
Foreign Currency Translation. Changes in exchange rate gains and losses relating
to the remeasurement of financial statements of the Company's subsidiaries,
whose functional currency is the U.S. dollar, are immaterial for all periods
presented and are included in other income (expense) in the accompanying
consolidated statements of operations.

(k) Concentration of Credit Risk

SFAS No. 105, Disclosure of Information About Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk, requires disclosures of any significant off-balance-sheet and credit risk
concentrations. The Company has no significant off-balance-sheet concentration
of credit risk such as foreign exchange contracts, option contracts or other
foreign hedging arrangements. The Company maintains the majority of cash
balances with one financial institution. The Company's accounts receivable
credit risk is not concentrated within any geographic area. As of June 30, 1996,
one customer accounted for approximately 24% of accounts receivable.

<TABLE>
The following summarizes significant customers:

<CAPTION>
PERCENTAGE
NUMBER OF OF
CUSTOMERS NET REVENUE
--------- ------------
<S> <C> <C>
Fiscal year ended
June 30, 1994...................... 2 17.1%, 11.3%
June 30, 1995...................... 1 12.3%
June 30, 1996...................... 1 25.1%
</TABLE>

(l) Unaudited Pro Forma Presentation

The unaudited pro forma consolidated balance sheet as of June 30, 1996
reflects (1) the automatic conversion, upon the amendment and restatement of the
Company's Certificate of Incorporation effective as of the closing of the
proposed initial public offering, of the Class C Redeemable Convertible
Preferred Stock and the Class A Convertible Preferred Stock into 5,823,989
shares of Class A Common Stock; and (2) the conversion, upon the amendment and
restatement of the Company's Certificate of Incorporation effective as of the
closing of the proposed initial public offering, of all issued shares of Class B
into Class A Common Stock; and (3) the redesignation, upon the amendment and
restatement of the Company's Certificate of Incorporation effective as of the
closing of the proposed initial public offering, of all shares of Class A Common
Stock as "Common Stock." In addition, the pro forma statement reflects the
accumulated dividends related to the Class C Redeemable Convertible Preferred
Stock being credited to additional paid-in capital because upon the automatic
conversion of the Class C Preferred Stock, the accumulated dividends are not
converted or paid to the Preferred Stockholders.

(m) Pro Forma Net Loss per Common and Common Equivalent Share

For the year ended June 30, 1996, pro forma net loss per common and common
equivalent share was based on the weighted average number of common and common
equivalent shares outstanding during the period, computed in accordance with the
treasury stock method. The pro forma weighted average number of common and
common equivalent shares assumes that all series of Preferred Stock had been
converted into Common Stock as of the original issuance dates and that Common
Stock options issued subsequent to May 27, 1995 have been outstanding for the
periods presented, computed in accordance with the treasury stock method and an
assumed initial public offering price of $11.00. Historical net income (loss)
per share data have not been presented, as such information is not considered to
be relevant or meaningful.

F-11
<PAGE> 62

XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(n) Management Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

(o) Postretirement Benefits

The Company has no obligations under SFAS No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions, as it does not currently offer
such benefits.

(p) New Accounting Standards

In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets To Be Disposed Of, which is effective for fiscal years beginning after
December 15, 1995. The Company elected early adoption of SFAS No. 121 for the
year ended June 30, 1996. The adoption of this standard did not have a material
effect on the Company's financial position or results of operations.

In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation. The Company has determined that it will continue to account for
stock-based compensation under Accounting Principles Board (APB) Opinion No. 25
and elect the disclosure-only alternative under SFAS No. 123. The Company will
be required to disclose the pro forma net income or loss and per share amounts
in the notes to the consolidated financial statements using the fair-value-based
method of SFAS No. 123 beginning in the year ending June 30, 1997, with
comparable disclosures for the year ending June 30, 1996. The Company has not
yet determined the impact of these pro forma disclosures.

(q) Noncash Investing and Financing Activities

<TABLE>
The following table summarizes the supplemental disclosure of the Company's
noncash transactions for the periods indicated.

<CAPTION>
FOR THE YEARS ENDED JUNE 30,
-----------------------------------------
1994 1995 1996
-------- --------- ----------
<S> <C> <C> <C>
Supplemental disclosure of noncash transactions:
Issuance of Common Stock........................ $ 1,998 $ -- $ --
======== ======== ==========
Accretion of Preferred Stock dividends.......... $186,788 $221,162 $ 421,716
======== ======== ==========
Conversion of Class A Convertible Preferred
Stock to Class B Common Stock................. $ -- $ -- $1,229,113
======== ======== ==========
Conversion of Class C Redeemable Convertible
Preferred Stock to Class B Common Stock....... $ -- $ -- $ 234,488
======== ======== ==========
Related party forgiveness of debt............... $ -- $ -- $ 565,000
======== ======== ==========
Acquisition of property and equipment under term
loans......................................... $ -- $ -- $ 968,000
======== ======== ==========
Conversion of secured promissory notes payable
to a stockholder to Class C Redeemable
Convertible Preferred Stock................... $ -- $ -- $ 350,000
======== ======== ==========
</TABLE>

F-12
<PAGE> 63

XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
<TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
1994 1995 1996
-------- ---------- ----------
<S> <C> <C> <C>
In connection with the issuance of Class C
Redeemable Convertible Preferred Stock (Note
7(b)), the following were converted to Class C
Redeemable Convertible Preferred Stock--
Class B Redeemable Preferred Stock......... $ -- $ -- $2,310,596
Secured promissory notes payable to a
stockholder.............................. -- -- 1,900,000
Senior subordinated promissory notes
payable to stockholders.................. -- -- 228,355
-------- ----------- ----------
Total noncash conversion.............. $ -- $ -- $4,438,951
======== =========== ==========
In connection with the acquisition of the
Peripherals Division (Note 2), the following
noncash transactions occurred--
Fair value of assets acquired.............. $ -- $(6,948,000) $ --
Issuance of Class A Convertible Preferred
Stock.................................... -- 2,296,000 --
Issuance of secured promissory notes
payable to a stockholder................. -- 4,849,000 --
======== =========== ==========
Cash acquired, net of $53,000 paid for
direct costs of acquisition.............. $ -- $ 197,000 $ --
======== =========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest.......................... $ 14,605 $ 185,320 $ 236,297
======== =========== ==========
Cash paid for income taxes...................... $ 3,184 $ 5,955 $ 14,580
======== =========== ==========
</TABLE>

(2) ACQUISITION OF THE PERIPHERALS DIVISION

<TABLE>
In October 1994, the Company acquired the Peripherals Division of Phoenix
Technologies Ltd. (Phoenix). This acquisition was accounted for as a purchase in
accordance with APB Opinion No. 16, Business Combinations. To fund the purchase,
the Company issued a $4,849,000 secured promissory note payable to Phoenix, with
principal payable quarterly, as defined, beginning in January 1997. Interest is
at an annual rate of 8%, payable quarterly, beginning in January 1995. The note
matures on October 15, 2001. In addition, the Company issued 892,986 shares of
Class A Convertible Preferred Stock to Phoenix, valued at $2.57 per share,
representing approximately 15% of the fully diluted Common Stock of the Company.
In addition to this acquisition, the Company simultaneously sold to Phoenix, in
a separate sale of stock, 291,709 shares of Class A Convertible Preferred Stock
at $2.57 per share for total proceeds of $750,000, representing an additional
approximate 4.9% of the fully diluted Common Stock of the Company. The aggregate
purchase price of approximately $7,198,000 (which consisted of a $4,849,000 note
payable, $2,296,000 of stock and $53,000 of direct acquisition costs) was
allocated based on the fair value of the tangible and intangible assets acquired
as follows:

<S> <C>
Cash.................................................................. $ 250,000
Current assets........................................................ 2,610,000
Property and equipment................................................ 46,000
Acquired intangibles.................................................. 800,000
Purchased incomplete research and development......................... 3,492,000
----------
$7,198,000
==========
</TABLE>

In connection with the purchase price allocation, the Company obtained an
independent appraisal of the intangible assets acquired. The Company did not
acquire any liabilities in connection with this asset acquisition. Acquired
intangibles include acquired technology, consisting of acquired software source

F-13
<PAGE> 64

XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

code, royalty agreements and an assembled work force. These intangibles are
being amortized over their estimated useful lives of 15 to 84 months. The
portion of the purchase price allocated to the purchased incomplete research and
development projects that had not yet reached technological feasibility and did
not have a future alternative use, totaling $3,492,000, was charged to expense
as of the acquisition date. The amount allocated to the purchased incomplete
research and development projects represents the estimated fair value related to
these projects determined by an independent appraisal. Proven valuation
procedures and techniques were utilized in determining the fair market value of
each intangible asset. To bring these projects to technological feasibility,
high-risk developmental and testing issues needed to be resolved, which required
substantial additional effort and testing.

The accompanying unaudited pro forma consolidated condensed statements of
operations for the years ended June 30, 1995 and 1994 reflect the results of
operations of the Company as though the Peripherals Division of Phoenix had been
acquired on the first day of each of the years presented and had been accounted
for as a purchase. The unaudited pro forma consolidated condensed financial
information presented is not necessarily indicative of either the results of
operations that would have occurred had the acquisition taken place at the
beginning of each of the periods presented or of future results of operations of
the combined operations.

<TABLE>
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED JUNE 30, 1995
(UNAUDITED)
<CAPTION>
HISTORICAL
-------------------------------------------
XIONICS PERIPHERALS PRO FORMA
DOCUMENT DIVISION OF PHOENIX -----------------------------
TECHNOLOGIES, INC. TECHNOLOGIES LTD. (a) ADJUSTMENTS CONSOLIDATED
------------------- --------------------- ------------ -------------
<S> <C> <C> <C> <C>
Net revenue............. $15,577,249 $2,097,411 $ -- $17,674,660
Cost of revenue......... 4,681,539 128,212 108,833 (b) 4,918,584
----------- ---------- ----------- -----------
Gross profit............ 10,895,710 1,969,199 (108,833) 12,756,076
Operating expenses...... 16,628,428 -- 1,929,000 (c) 18,557,428
----------- ---------- ----------- -----------
Income (loss) from
operations............ (5,732,718) 1,969,199 (2,037,833) (5,801,352)
Interest expense........ (312,881) -- (96,980)(d) (409,861)
Interest income......... 35,789 -- -- 35,789
Other income
(expense)............. (15,115) -- -- (15,115)
----------- ---------- ----------- -----------
Net income (loss)....... $(6,024,925) $1,969,199 $(2,134,813) $(6,190,539)
=========== ========== =========== ===========
Pro forma net loss per
common and common
equivalent share...... $ (0.75)
===========
Pro forma weighted
average common and
common equivalent
share................. 8,308,357
===========
</TABLE>

F-14
<PAGE> 65

XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

- ---------------

(a) Represents three months ended September 30, 1994.

(b) A pro forma adjustment is made to cost of revenue to record additional
amortization expense on the intangibles acquired in connection with the
acquisition of the Peripherals Division as if the acquisition had occurred
at the beginning of the period presented.

(c) A pro forma adjustment is made to record estimated operating expenses for
the three months ended September 30, 1994, calculated using a monthly rate
of $643,000.

(d) A pro forma adjustment is made to record additional interest expense for the
three months ended September 30, 1994 as if the debt issued to Phoenix in
connection with the acquisition of the Peripherals Division were issued at
the beginning of the period presented.

<TABLE>
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED JUNE 30, 1994
(UNAUDITED)

<S> <C>
Net revenue.................................................................. $17,977,305
Income (loss) from operations................................................ (278,920)
Other income (expense)....................................................... (396,959)
-----------
Net income (loss)............................................................ $ (675,879)
===========

- ---------------

The above pro forma consolidated condensed statement of operations for the
year ended June 30, 1994 reflects only nine months of operations for the
Peripherals Division of Phoenix. Adjustments have been made to the historical
income (loss) from operations to record estimated operating expenses for the
twelve months ended June 30, 1994, plus an additional amortization expense of
$435,332 related to the intangibles acquired in connection with the acquisition
of the Peripherals Division as if the acquisition had occurred at the beginning
of the period presented. In addition, a pro forma adjustment was made to
historical other income (expense) to record additional interest expense for the
twelve months ended June 30, 1994 as if the debt issued to Phoenix in connection
with the acquisition of the Peripherals Division was issued at the beginning of
the period presented.

</TABLE>

(3) INCOME TAXES

The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under SFAS No. 109, deferred taxes are determined
based on the difference between the financial statement and tax bases of assets
and liabilities, as measured by the current tax rates. There was no effect on
net income or the financial position of the Company as a result of adopting the
provisions of SFAS No. 109 as of the date of the adoption or for the periods
presented.

At June 30, 1996, the Company had available net operating loss
carryforwards (NOLs) of approximately $3,570,000 for United States federal
income tax reporting purposes, expiring at various dates beginning in 2003 and
subject to review by the Internal Revenue Service.

The Company's foreign subsidiaries have available NOLs of approximately
$1,200,000 for foreign income tax reporting purposes at the subsidiary level.
These carryforwards may be used to offset future foreign subsidiary taxable
income, if any.

F-15
<PAGE> 66

XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Tax Reform Act of 1986 (the Reform Act) limits the amount of domestic
net operating loss and credit carryforwards that companies may utilize in any
one year in the event of cumulative changes in ownership over a three-year
period in excess of 50%. The Company has completed several financings since the
effective date of the Reform Act and does not believe that its ability to
utilize its domestic NOLs is limited as of June 30, 1996; however, that
conclusion is subject to review by the Internal Revenue Service. In the event a
change has occurred, the Company does not believe the change will have a
material impact on its ability to fully utilize its NOLs.

<TABLE>
The components of deferred income tax assets and liabilities and the
valuation allowance are as follows:
<CAPTION>
JUNE 30,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Assets --
Operating loss carryforwards..................................... $ 1,556,653 $ 1,604,800
Temporary differences--
Intangibles and acquired incomplete research and
development................................................ 1,492,960 1,430,382
Allowance for doubtful accounts............................... 81,600 29,241
Inventory valuation allowance................................. 92,748 163,550
Allowance for sales returns................................... 80,000 80,000
Other temporary differences................................... 284,901 170,140
----------- -----------
Total gross deferred tax asset........................... 3,588,862 3,478,113
Less -- Valuation allowance...................................... (3,588,862) (3,478,113)
----------- -----------
Net deferred tax asset........................................... $ -- $ --
=========== ===========
</TABLE>

The Reform Act also expanded the corporate alternative minimum tax (AMT).
Under the Reform Act, the Company's federal tax liability is the greater of its
regular tax or AMT liability. The Company has recorded no income tax provision
for any period presented due to the utilization of NOLs in the year ended June
30, 1994 and the NOLs incurred in all other periods presented. Because the level
of future taxable income is uncertain, the Company has recorded a valuation
allowance equal to the net deferred tax asset. The valuation allowance increased
by approximately $2,776,000 as of June 30, 1995. The current decrease of
$110,749 in the valuation allowance is mainly due to the utilization of the
foreign NOLs.

(4) SECURED PROMISSORY NOTES PAYABLE TO A STOCKHOLDER

In connection with the acquisition of the Peripherals Division of Phoenix,
the Company issued a $4,849,000 secured promissory note payable to Phoenix (see
Note 2). Additionally, in April 1995, the Company issued a $350,000 secured
promissory note payable to Phoenix. As discussed in Note 7(b), $1,550,000 of the
original note payable and the $350,000 additional note payable were converted to
Class C Redeemable Convertible Preferred Stock on August 25, 1995.

On August 25, 1995, the Company issued a $3,299,000 new secured promissory
note payable to Phoenix. Interest was payable quarterly at an annual rate of 8%
beginning in October 1995, and the principal balance will be due commencing with
the calendar quarter ending December 31, 1996, continuing for the next 19
successive calendar quarters, in various amounts as defined. The maturity date
of this note is October 15, 2001.

On January 1, 1996, the above note for $3,299,000 was canceled and a new
secured promissory note payable to Phoenix was entered into by the Company for
$2,734,000. The Company reduced the principal with Phoenix (a related party) by
$565,000 and recorded the reduction as additional paid-in capital. Interest is
payable quarterly at an annual rate of 8% beginning in April 1996, and the
principal balance will

F-16
<PAGE> 67

XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

be due in 12 quarterly installments beginning in September 1998 in amounts as
defined. The maturity date of this note is October 15, 2001. On May 9, 1996,
Phoenix converted $340,000 of principal into 116,979 shares of Class C
Redeemable Convertible Preferred Stock. In addition, on May 28, 1996, the
Company paid $300,000 of principal to Phoenix. At June 30, 1996, $2,094,000 is
outstanding under this note.

(5) SENIOR SUBORDINATED PROMISSORY NOTES PAYABLE TO STOCKHOLDERS

Senior subordinated promissory notes payable issued to various stockholders
are payable in 12 equal monthly installments beginning in July 1994, with
interest payments at 10% annually beginning in December 1993. At June 30, 1995,
$228,355 remained outstanding under the notes. This amount was converted to
Class C Redeemable Convertible Preferred Stock on August 25, 1995 (see Note
7(b)).

(6) REVOLVING LINE OF CREDIT AND TERM LOAN FACILITY

On September 27, 1995, the Company entered into a $2,000,000 revolving line
of credit (the Line) and a $1,000,000 term loan facility with a bank. Borrowings
under the Line bear interest at the prime rate (8.25% at June 30, 1996) plus
.5%. The Line expires on December 31, 1996. The term loan facility enables the
Company to borrow up to $1,000,000 at the prime rate (8.25% at June 30, 1996)
plus 1% for qualified equipment purchases, as defined. Each term loan is
repayable over 36 months, and no term loan will be made after December 1, 1996.
At June 30, 1996, the Company has borrowed a total of $968,000 under the term
loan facility. Borrowings under the Line and term loan facility are secured by
substantially all assets of the Company, as defined. The Company is restricted
in the payment of any dividends under the Line and term loan facility. In
addition, the Company is required to comply with certain restricted covenants,
including debt to worth, capital base, quick ratio and profitability. The
Company was in compliance with or had received a waiver of noncompliance for all
covenants as of June 30, 1996. The outstanding borrowings under the line and
term loan facility were $0 and $886,833, respectively, as of June 30, 1996.

On August 21, 1996, the Company amended its revolving line of credit and
term loan facility. The Modification Agreement permits the Company to borrow up
to $4,000,000 under the Line and up to $2,000,000 under the term loan facility.
Under the Modification Agreement, the Line will expire on December 1, 1997 and
no term loan will be made after June 30, 1997. Upon the completion of the
Company's proposed initial public offering, the interest rate for the Line will
be reduced to the bank's prime rate, and the interest rate for the term loan
facility will be reduced to the bank's prime rate plus .5%.

(7) REDEEMABLE CONVERTIBLE PREFERRED STOCK

(a) Rights and Privileges

The holders of the Preferred Stock are entitled to the following rights,
privileges and preferences:

CONVERSION

All classes of the Preferred Stock are convertible into Common Stock at the
rate of one share of Common Stock for each share of Convertible Preferred Stock,
adjustable for certain dilutive events. Conversion is at the option of the
Preferred Stockholder and is also required by the Company upon the closing of an
initial public offering of the Company's Common Stock with gross proceeds to the
Company of at least $15,000,000.

All shares of Class C Redeemable Convertible Preferred Stock shall
automatically be converted into Common Stock immediately upon conversion of at
least 60% of the original Class C Redeemable Convertible Preferred Stock
outstanding as of the original issue date, as defined, for Class C Redeemable
Convertible Preferred Stock and subject to a minimum price per share, as
defined.

F-17
<PAGE> 68

XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

VOTING RIGHTS

The holders of all classes of the Preferred Stock shall be entitled to vote
on all matters and are entitled to the number of votes equal to the number of
shares of Common Stock into which the Preferred Stock is convertible.

In addition, holders of the Class A Convertible Preferred Stock and Class C
Redeemable Convertible Preferred Stock have the right to consent to certain
corporate transactions. The holders of the Class C Redeemable Convertible
Preferred Stock and Class D Preferred Stock have special voting rights together
as a single, separate class, as a requirement for the merger or consolidation,
or sale of other disposition of all or any substantial part of the assets of the
corporation, and for the liquidation, dissolution or winding up of the
corporation.

The holders of the Class D Preferred Stock had special voting rights as a
single, separate class as a requirement for any amendment to or waiver of any
provisions of the Certificate of Incorporation or By-laws of the Corporation
that affect the Class D holders, as defined.

DIVIDENDS

Class D Preferred Stockholders were entitled to dividends of 8% per annum.
Class C Redeemable Convertible Preferred Stockholders are entitled to dividends
of 6% per annum.

The Class B Preferred Stockholders were entitled to receive cumulative
dividends, which accrued daily on each share of Class B Preferred Stock at a
rate of 10% per annum. The dividend accretion totaled $442,719 as of August 25,
1995, when all shares of Class B Preferred Stock were converted to Class C
Preferred Stock.

LIQUIDATION PREFERENCE

Upon a liquidation, dissolution or winding up of the Company, the holders
of each share of Class C Preferred Stock will be entitled to $2.91 per share
plus any unpaid dividend. After payment to the Class C Preferred Stockholders,
the holders of the Class A Preferred Stock and Class A and Class B Common Stock
shall be entitled to share ratably in all remaining distributable assets of the
Company.

REDEMPTION

The holders of the Class C Preferred Stock have a redemption right that
requires the Company to repurchase outstanding shares of the Preferred Stock.
The Class C stockholders may require the Company to repurchase up to 25% of the
shares outstanding per year, during the election period, as defined, beginning
on September 1, 1998, with the redemption date on March 31, 1999. If redemption
occurs in 1999, the Class C Preferred Stockholders may require the Company to
repurchase no more than 50% of the outstanding shares as of the first redemption
date. If the redemption date occurs in 2000 or any year thereafter, up to 100%
of all shares of Class C Preferred Stock outstanding may be required to be
repurchased.

The Class C stockholders may require the Company to repurchase up to 25% of
the shares outstanding per year, during the election period, as defined,
beginning on September 1, 2000, with the redemption date on March 31, 2001. If
redemption occurs in 2001, the Class C Preferred Stockholders may require the
Company to repurchase no more than 50% of the outstanding shares as of the first
redemption date. If the redemption date occurs in 2002 or any year thereafter,
up to 100% of all shares of Class C and Preferred Stock outstanding may be
required to be repurchased. The redemption price per share shall be equal to
$2.91 for each share of Class C Preferred Stock plus all accrued dividends.

F-18
<PAGE> 69

XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(b) Issuance of Class C Redeemable Convertible Preferred Stock

In August 1995, the Company authorized 2,779,615 shares of Class C
Redeemable Convertible Preferred Stock. The Company issued 2,662,636 shares of
Class C Redeemable Convertible Preferred Stock at $2.91 per share for total
consideration of $7,738,951. The consideration consisted of $3,300,000 in cash,
conversion of $1,900,000 of the Phoenix Technologies Ltd. notes, conversion of
the senior subordinated promissory note payable to stockholders of $228,355 and
the surrender of 1,867,877 shares of the Class B Redeemable Preferred Stock with
a liquidation preference of $2,310,596. The Class B Redeemable Preferred Stock
was canceled promptly after this transaction was completed.

In December 1995, the Company issued 1,000,000 shares of Class D Preferred
Stock to Adobe Systems Incorporated at $4.50 per share, for total proceeds of
$4,500,000. On May 17, 1996, the Company repurchased from Adobe Systems
Incorporated 1,000,000 shares of Class D Preferred Stock at a purchase price of
$4.50 per share for an aggregate purchase price of $4,500,000. The accreted
dividends which were accrued and unpaid were credited to additional paid-in
capital.

(8) STOCKHOLDERS' EQUITY (DEFICIT)

(a) Authorized Capital Stock

For the year ended June 30, 1996, the Board of Directors approved and the
Company's stockholders adopted an amendment to the Company's certificate of
incorporation to authorize the issuance of 37,482,920 shares of stock,
consisting of 3,603,305 shares of Class A Convertible Preferred Stock, $.01 par
value; 2,779,615 shares of Class C Redeemable Convertible Preferred Stock, $.01
par value; 1,100,000 shares of Class D Preferred Stock, $.01 par value;
20,000,000 shares of Class A Common Stock, $.01 par value; and 10,000,000 shares
of Class B Common Stock, $.01 par value.

(b) Common Stock

At June 30, 1996, 9,092,027 shares of Common Stock were reserved for the
conversion of the Company's Preferred Stock based on a conversion ratio of one
share of Convertible Preferred Stock in exchange for one share of Common Stock
and the exercise of stock options.

As of June 30, 1996, all restrictions have lapsed under the restricted
stock purchase agreement. In August 1995, the Company repurchased 370,370 shares
of Class A Common Stock from a former officer/stockholder at $.68 per share for
an aggregate purchase price of $250,000.

(d) Stock Options

In fiscal 1994, the Company established the 1993 Stock Option Plan (the
1993 Plan), and in 1995, the Company established the 1995 Stock Option Plan (the
1995 Plan). The plans provide for the grant of incentive stock options and
nonqualified stock options. Options granted under the plans vest over various
periods and expire no later than 10 years from the date of grant. All of the
shares of Common Stock reserved for issuance under the 1993 Plan and 1995 Plan
are subject to outstanding stock options at June 30, 1996.

The Company's 1996 Stock Option Plan (the 1996 Plan) was approved by the
Board of Directors in February 1996 and was adopted by the Company's
stockholders on July 12, 1996. The 1996 Plan provides for the grant or award of
stock options, restricted stock and other performance awards (collectively, the
Awards), which may or may not be denominated in shares of Common Stock or other
securities. Stock options granted under the 1996 Plan may be either incentive
stock options or nonqualified options. The

F-19
<PAGE> 70

XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

purpose of the 1996 Plan is to attract and retain outstanding employees through
the incentive of stock ownership. Any employee of the Company, including
officers and directors, is eligible to receive Awards.

The 1996 Plan has been and will be administered by the Board of Directors
(the Board). Subject to the provisions of the 1996 Plan, the Board has the
authority to designate participants, determine the types of Awards to be
granted, the number of shares to be covered by each Award, the time at which
each Award is exercisable or may be settled, the method of payment and any other
terms and conditions of the Awards. All Awards shall be evidenced by an Award
Agreement between the Company and the participant.

While the Board determines the prices at which options and other Awards may
be exercised under the 1996 Plan, the exercise price of an option shall be at
least 100% of the fair market value (as determined under the terms of the 1996
Plan) of a share of Common Stock on the date of grant. The aggregate number of
shares of Common Stock available for Awards under the 1996 Plan is 950,000.

<TABLE>
Stock option activity is summarized as follows:

<CAPTION>
NUMBER EXERCISE PRICE
OF SHARES PER SHARE
--------- ---------------
<S> <C> <C>
Options granted, fiscal 1994.............. 1,051,084 $ 0.20
--------- -----------
Outstanding, June 30, 1994................ 1,051,084 0.20
Granted.............................. 1,375,302 0.20
Terminated........................... (506,236) 0.20
--------- -----------
Outstanding, June 30, 1995................ 1,920,150 0.20
Granted.............................. 902,270 0.20-6.50
Terminated........................... (139,129) 0.20-1.84
Exercised............................ (175,202) 0.20-0.68
--------- -----------
Outstanding, June 30, 1996................ 2,508,089 $0.20-$6.50
========= ===========
Exercisable, June 30, 1996................ 978,233 $0.20-$1.84
========= ===========
</TABLE>

(9) COMMITMENTS

(a) Operating Leases

The Company leases office facilities and certain equipment under operating
leases which expire at various dates through June 2000. Rent expense for all
operating leases charged to operations was approximately $218,000, $532,000 and
$871,000 for the years ended June 30, 1994, 1995 and 1996, respectively.

<TABLE>
Future minimum lease payments under operating leases as of June 30, 1996
are approximately as follows:

<CAPTION>
FISCAL YEAR AMOUNT
----------- ----------
<S> <C>
1997....................................................... $1,239,000
1998....................................................... 1,201,000
1999....................................................... 1,158,000
2000....................................................... 444,000
Thereafter................................................. --
----------
$4,042,000
==========
</TABLE>

F-20
<PAGE> 71

XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(b) Minimum License Fees

During May 1995, the Company entered into a Patent License Agreement (the
Agreement) for the use of certain technology in its products. Under this
Agreement, the Company is required to make minimum license fee payments of
$80,000 per quarter through the quarter ended December 2002. Under the terms of
the Agreement, the Company may prepay up to 50% of the minimum license fees on a
discounted basis.

(10) RETIREMENT PLAN

Effective January 1992, the Company adopted the Xionics 401(k) Retirement
Plan (the Plan). The Company has elected, at its discretion, to contribute 50%
of the first 6% of pay contributed to the Plan. The Company's contributions to
the Plan were approximately $33,000 and $91,000 for the years ended June 30,
1994 and 1995, respectively. There were no contributions for the year ended June
30, 1996.

(11) REVENUES BY GEOGRAPHIC DESTINATION

<TABLE>
Revenues by geographic destination and as a percentage of total revenues
are as follows:

<CAPTION>
FOR THE YEAR ENDED JUNE 30,
----------------------------------------
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
United States............................. $5,288,382 $ 8,849,901 $17,953,949
Europe.................................... 3,589,081 4,328,967 3,231,597
Asia...................................... 193,694 2,184,291 1,939,619
Other..................................... 59,667 214,090 684,157
---------- ----------- -----------
$9,130,824 $15,577,249 $23,809,322
========== =========== ===========

United States............................. 57.9% 56.8% 75.4%
Europe.................................... 39.3 27.8 13.6
Asia...................................... 2.1 14.0 8.1
Other..................................... 0.7 1.4 2.9
---------- ----------- -----------
100.0% 100.0% 100.0%
========== =========== ===========
</TABLE>

F-21
<PAGE> 72

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Xionics Document Technologies, Inc.:

We have audited the accompanying condensed statements of revenue and direct
costs of the Peripherals Division of Phoenix Technologies Ltd. (the "Division")
for the years ended September 30, 1993 and 1994. These condensed financial
statements are the responsibility of the Division's management. Our
responsibility is to express an opinion on these condensed financial statements
based on our audits.

In our opinion, the condensed statements referred to above present fairly,
in all material respects, the net revenue and direct costs of the Division's
operations for the years ended September 30, 1993 and 1994 in conformity with
generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Boston, Massachusetts
May 17, 1996

F-22
<PAGE> 73

PERIPHERALS DIVISION OF PHOENIX TECHNOLOGIES LTD.

<TABLE>
CONDENSED STATEMENTS OF REVENUE AND DIRECT COSTS
FOR THE YEARS ENDED SEPTEMBER 30, 1993 AND 1994
<CAPTION>
1993 1994
----------- -----------
<S> <C> <C>
Net revenue........................................................ $9,748,000 $9,384,000
---------- ----------
Direct costs:
Nonpayroll cost of revenue.................................... 570,000 567,000
Payroll costs................................................. 6,018,000 6,081,000
---------- ----------
Total direct costs....................................... 6,588,000 6,648,000
---------- ----------
Net excess of revenue over direct costs.................. $3,160,000 $2,736,000
========== ==========
</TABLE>

The accompanying auditors' report and condensed notes should
be read in conjunction with these condensed financial statements.

F-23
<PAGE> 74

PERIPHERALS DIVISION OF PHOENIX TECHNOLOGIES LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS OF REVENUE AND DIRECT COSTS
FOR THE YEARS ENDED SEPTEMBER 30, 1993 AND 1994

(1) NATURE OF OPERATIONS

The Division designs, develops and supplies printer emulation software,
page description languages and controller hardware designs for the printer
industry. The Division imaging software architecture enables original equipment
manufacturers ("OEMs") to design and manufacture printers that can support
multiple page description languages, printer emulations and font technologies.

(2) BASIS OF PRESENTATION

The condensed statements of revenues and direct costs have been prepared
for the Division from the accounting records of Phoenix which historically did
not break out the business of the Division. The condensed statements of revenue
and direct costs include the revenue and costs directly attributable to the
business of the Division. Full historical financial statements, including
certain general and administrative expenses and other indirect expenses,
interest expense and income taxes, have not been presented due to the fact that
management believes it is not practicable to determine that portion which is
attributable to the Division. Management of the acquirer (see Note 6) believes
the basis of reporting all other expenses in the condensed statements of revenue
and direct costs to be reasonable; however, the amounts could differ from
amounts that would be determined if the Division business were operated on a
stand-alone basis. In addition, centralized cash accounts for the majority of
cash disbursements were not reflected in the Division's accounting records. As a
result, only limited statement of cash flow information was available (see Note
5). Certain financial statements and information including notes required in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted because no separate accounting records
were maintained for the Division. The Company believes that the disclosures made
are adequate to make the information presented not misleading.

(3) REVENUE RECOGNITION

The Division recognizes revenue in accordance with the American Institute
of Certified Public Accountants' Statement of Position 91-1, Software Revenue
Recognition, as follows:

- Software Source Code -- When a customer licenses source code ("the
Product"), revenue is recognized upon shipment of the Product to the
customer, provided there are no significant obligations remaining and
collectibility of the revenue is probable.

- Royalty Revenue -- Once the purchased source code is incorporated into a
customer's product, a per unit royalty is received by the Division.
Revenue is recognized as earned based on customer units shipped.

- Nonrecurring Engineering Services -- When the Division engineers
customize the Product to customer specifications, revenue is recognized
using the percentage-of-completion method or as the services are
rendered, depending on the length of time required for the customization.

- Maintenance Revenue -- Revenue from software maintenance agreements is
recognized ratably over the life of the maintenance agreement, which is
generally one year.

(4) DIRECT COSTS

Nonpayroll Cost of Revenues

Non payroll cost of revenue consists of royalty payments that the Division
is required to make to certain vendors who sold certain technology to the
Division.

F-24
<PAGE> 75

PERIPHERALS DIVISION OF PHOENIX TECHNOLOGIES LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS OF REVENUE AND DIRECT COSTS
FOR THE YEARS ENDED SEPTEMBER 30, 1993 AND 1994 -- (CONTINUED)

Payroll Costs

As discussed in Note 2, during the years presented in the condensed
statements of revenue and direct costs, the Division was a division of Phoenix.
Phoenix kept records of all costs (other than royalty payments made included in
non payroll cost of revenue and direct payroll costs) at the corporate level
only. Therefore, amounts related to other indirect costs are not available.

<TABLE>
(5) SUPPLEMENTAL STATEMENT OF CASH FLOW INFORMATION FOR THE YEAR ENDED SEPTEMBER
30, 1994

<S> <C>
Cash received from customers.................................... $8,826,000
Cash paid for direct costs...................................... 6,250,000
Cash paid for property and equipment............................ --
</TABLE>

(6) SALE OF THE DIVISION TO XIONICS DOCUMENT TECHNOLOGIES, INC.

In October 1994, substantially all of the assets of the Division were
acquired by Xionics Document Technologies, Inc.

F-25
<PAGE> 76

GLOSSARY

In this Prospectus, the following terms have the meanings indicated below,
unless the context otherwise requires.

Application-Specific Integrated Circuit, or ASIC: A custom-designed
semiconductor chip which performs hardware functions dedicated to carrying out a
specific application.

Controllers: Printed circuit boards containing all of the circuitry,
ASIC's and embedded systems software necessary to enable a computer peripheral
device to interpret and execute instructions sent to it by the computer to which
it is connected.

Integrated Controller Architecture: A controller design in which the
software modules that control the device are integrated with one another,
meaning that they are designed to work together.

Intelligent Peripheral System, or IPS: The Company's product which
provides an integrated, modular, scalable architecture for controllers for
computer peripheral devices.

Modular Controller Architecture: A controller design in which the software
programs that control the device are organized into modules, which may operate
either independently or jointly.

Reduced-Instruction-Set Computing ("RISC") Processor Core: A form of
central processing unit architecture utilized in high-performance workstations
and personal computers.

Scalable Controller Architecture: A controller design which may be scaled
up or down, through the addition or deletion of software modules, to handle the
control of more or less complex devices.

System-Level Embedded Software or System Software: Computer program
instructions that direct the basic functioning of a computer or computer
peripheral device.

G-1
<PAGE> 77

XIONICS' IPS ARCHITECTURE KEY OEM BENEFITS

REDUCED TIME-TO-MARKET EXTENSIBLE SOFTWARE

ARCHITECTURE FACILITATES
OEM
PARTNERS DIFFERENTIATED PRODUCTS

OEM MAINSTREAM OFFICE QUALITY
PRODUCTS AND PERFORMANCE

SHORTEN PRODUCTION CYCLE NETWORK CONNECTIVITY

INTEGRATED SOLUTION SPEEDS
TIME-TO-MARKET

- -------------------------------------------------------------------------------
TRADITIONAL OFFICE PRINTERS HAVE UNDERGONE A GRADUAL TRANSFORMATION FROM
SIMPLE, PRINT-ONLY PRODUCTS TO MORE ADVANCED, PRODUCTIVITY-ORIENTED DEVICES
SUPPORTING A RANGE OF DOCUMENT FINISHING OPTIONS. XIONICS' IPS IS A KEY
ENABLING TECHNOLOGY THAT IS BEING DESIGNED TO FACILITATE THE CONTINUED
EVOLUTION OF THESE PRODUCTS INTO NETWORK-CONNECTED PERIPHERALS WITH INTEGRATED
PRINT, COPY, SCAN AND FAX CAPABILITIES.
- -------------------------------------------------------------------------------

SCALABLE
TECHNOLOGIES

[ARTWORK]

The artwork shows a semicircle graph indicating the transition in the office
device market from basic printers and standalone copiers to multifunction
peripherals.

CAPABILITY
MULTIFUNCTION PERIPHERALS

<PAGE> 78
===============================================================================

NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.

------------------------

<TABLE>
TABLE OF CONTENTS

<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
The Company........................... 13
Use of Proceeds....................... 13
Dividend Policy....................... 13
Capitalization........................ 14
Dilution.............................. 15
Selected Consolidated Financial Data.. 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 22
Management............................ 34
Certain Transactions.................. 40
Principal and Selling Stockholders.... 42
Description of Capital Stock.......... 44
Shares Eligible for Future Sale....... 46
Underwriting.......................... 48
Legal Matters......................... 49
Experts............................... 49
Reports to Stockholders............... 49
Additional Information................ 49
Index to Consolidated Financial
Statements.......................... F-1
Glossary.............................. G-1
</TABLE>

------------------------

UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
================================================================================

================================================================================

3,000,000 SHARES

[LOGO]

COMMON STOCK

------------------
PROSPECTUS

------------------

ADAMS, HARKNESS & HILL, INC.

SOUNDVIEW FINANCIAL GROUP, INC.

, 1996

================================================================================
<PAGE> 79

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

<TABLE>
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

Expenses of the Registrant in connection with the issuance and distribution
of the securities being registered, other than the underwriting discount, are
estimated as follows:

<S> <C>
SEC Registration Fee............................................ $ 14,276
NASD Fees....................................................... $ 4,640
Nasdaq National Market Listing Fees............................. $ 45,777
Printing and Engraving Expenses................................. $ 100,000
Legal Fees and Expenses......................................... $ 300,000
Accountants' Fees and Expenses.................................. $ 500,000
Expenses of Qualification Under State Securities Laws,
Including Attorneys' Fees..................................... $ 20,000
Transfer Agent and Registrar's Fees............................. $ 2,000
Miscellaneous Costs............................................. $ 13,307
----------
Total......................................................... $1,000,000
==========
</TABLE>

- ---------------

ITEM 14. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES

Section 145 of the Delaware General Corporation Law empowers a Delaware
corporation to indemnify its officers and directors and certain other persons to
the extent and under the circumstances set forth therein.

The Amended and Restated Certificate of Incorporation of the Company and
the Amended and Restated By-Laws of the Company, copies of which are filed
herein as Exhibits 3.1 and 3.2, provide for indemnification of officers and
directors of the Company and certain other persons against liabilities and
expenses incurred by any of them in certain stated proceedings and under certain
stated conditions.

The Company intends to maintain insurance for the benefit of its directors
and officers insuring such persons against certain liabilities, including
liabilities under the securities laws.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

On June 30, 1993, in connection with the reorganization of the Registrant,
the Registrant entered into a Stock Purchase and Exchange Agreement dated as of
such date (the "Agreement") with certain of the stockholders of Xionics
Holdings, Limited ("Limited"). Pursuant to the terms of this Agreement, the
Registrant issued shares of its capital stock to the following stockholders for
the consideration described herein. The Registrant issued 1,773,009 shares of
Class A Convertible Preferred Stock and 1,311,276 shares of Class B Redeemable
Preferred Stock to Hambro International Venture Fund II ("HIVF II"). In
consideration for such shares, HIVF II exchanged 288,384 common shares and
827,117 preference shares of Limited, and agreed to cancel $1,797,831.92 in
certain indebtedness of Limited to HIVF II. Under the Agreement, the Registrant
also issued 363,146 shares of Class A Convertible Preferred Stock and 268,525
shares of Class B Redeemable Preferred Stock to Hambro International Venture
Fund Offshore II ("HIVFO II"). HIVFO II exchanged 59,066 common shares and
169,409 preference shares of Limited, and agreed to cancel $368,231.52 in
certain indebtedness of Limited to HIVFO II. The Registrant also issued 524,284
shares of Class A Common Stock, 86,622 shares of Class A Convertible Preferred
Stock and 288,026 shares of Class B Redeemable Preferred Stock to Monument Trust
Company ("MTC"). Pursuant to the terms of the Agreement, MTC exchanged 416,735
common shares and 195,833 preference shares of Limited, and agreed to cancel
indebtedness in the amount of $374,635.58 of Limited to MTC. Pursuant to the

II-1
<PAGE> 80

Agreement, the Registrant also issued 17,045 shares of Common Stock to Peter
Santeusanio, 69,626 shares of Common Stock to Ian Richardson and 1,268 shares of
Common Stock to Keith Miller in exchange for an equal number of common shares of
Limited held by each individual.

On June 30, 1993, the Registrant issued 504,292 shares of Common Stock to
Peter Santeusanio pursuant to a restricted stock purchase agreement between the
Registrant and Mr. Santeusanio for an aggregate consideration of $5,043.

On June 30, 1993, the Registrant issued 200,778 shares of Common Stock to
Ian Richardson for an aggregate consideration of $2,008.

On November 9, 1994, the Registrant issued 1,184,695 shares of Class A
Convertible Preferred Stock to Phoenix Technologies Ltd. ("Phoenix") for an
aggregate consideration of $750,000 in cash and certain assets of Phoenix having
an approximate value of $2,300,000.

On August 25, 1995, the Registrant entered into a Class C Preferred Stock
Purchase Agreement with certain of its existing stockholders and certain new
investors (the "Class C Preferred Stock Financing") pursuant to which the
Registrant issued shares of its Class C Redeemable Convertible Preferred Stock.
The Registrant issued 653,707 shares of Class C Redeemable Convertible Preferred
Stock to Phoenix for an aggregate consideration consisting of $1,900,000,
consisting of the cancellation of indebtedness of the Registrant to Phoenix in
that amount. The Registrant also issued 766,078 shares of Class C Redeemable
Convertible Preferred Stock to HIVF II for an aggregate consideration of
$2,261,605, consisting of $415,000 cash, and the surrender for cancellation of
shares of Class B Redeemable Preferred Stock and promissory notes of the
Registrant having an aggregate value of $1,811,605. The Registrant also issued
161,934 shares of Class C Redeemable Convertible Preferred Stock to HIVFO II for
an aggregate consideration of $456,053, consisting of $85,000 in cash and the
surrender for cancellation of shares of Class B Redeemable Preferred Stock and
promissory notes of the Registrant having a value of $371,053. Under the Class C
Preferred Stock Financing, the Registrant also issued 122,585 shares of Class C
Redeemable Convertible Preferred Stock to MTC for an aggregate consideration of
$356,923, consisting of the surrender of shares of Class B Redeemable Preferred
Stock of the Registrant with a value of $356,293. The Registrant issued 516,085
shares of Class C Redeemable Convertible Preferred Stock to Mytech Funds, L.P.
for an aggregate consideration of $1,500,000 in cash. The Registrant also issued
344,056 shares of Class C Redeemable Convertible Preferred Stock to PUSH
Incorporated for an aggregate consideration of $1,000,000 in cash, and 68,811
shares of Class C Redeemable Convertible Preferred Stock to ADD Venture
Associates, L.P. and 34,406 shares of Class C Redeemable Convertible Preferred
Stock to ADD Venture Associates II, L.P. for an aggregate consideration of
$200,000 and $100,000, respectively, in cash.

On September 29, 1995, the Registrant issued 10,000 shares of Common Stock
to John Pearce for an aggregate consideration of $2,000, in cash.

On November 7, 1995, the Registrant issued 29,630 shares of Common Stock to
Karl Marks in exchange for 25% of the equity of HiBRIC Technology Gesellschaft
fur Mikroelektronik mbH, subsequently renamed Xionics Document Technologies
GmbH.

On December 22, 1995, the Registrant issued 1,000,000 shares of Class D
Preferred Stock to Adobe Systems Incorporated for an aggregate consideration of
$4,500,000 in cash.

On May 9, 1996, the Registrant issued 116,979 shares of Class C Redeemable
Convertible Preferred Stock to Phoenix pursuant to an option granted to Phoenix
by the Registrant in connection with the Class C Preferred Stock Financing.

On June 28, 1996, the Registrant canceled the 116,979 shares of Class C
Redeemable Convertible Preferred Stock issued to Phoenix and in exchange
therefor issued 80,677 shares of Class B Common Stock and 36,302 shares of Class
C Redeemable Convertible Preferred Stock to Phoenix.

The Registrant has, from time to time, issued an aggregate of 175,450
shares of restricted Common Stock to various former employees and former
directors upon the exercise of options granted pursuant to

II-2
<PAGE> 81

the Company's 1993 Stock Option Plan and 1995 Stock Option Plan for an aggregate
consideration of $35,090 at an exercise price of $0.20 per share.

No underwriters were involved in the foregoing sales of securities. Such
sales were made in reliance upon an exemption from the registration provisions
of the Securities Act set forth in Section 4(2) thereof relative to sales by an
issuer not involving any public offering or the rules and regulations
thereunder, or, in the case of certain restricted shares, options to purchase
Common Stock and shares issuable upon the exercise of such options, Rule 701 of
the Act. All of the foregoing securities are deemed restricted securities for
purposes of the Act.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

<TABLE>

(a) The following is a list of exhibits filed as a part of this
registration statement:
<CAPTION>

EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ -----------------------
<C> <S>
1.1 Form of Underwriting Agreement by and among Registrant, the Selling Stockholder and
the Underwriters (previously filed).
3.1 Form of Amended and Restated Certificate of Incorporation of the Registrant
(previously filed).
3.2 Form of Amended and Restated By-Laws of Registrant (previously filed).
4.1 Specimen Certificate for Shares of the Registrant's Common Stock, $.01 par value
(previously filed).
5.1 Opinion of Bingham, Dana & Gould LLP with respect to the legality of the shares
being registered (previously filed).
10.1 1996 Stock Option Plan and related form of stock option agreement (previously
filed).
10.2 1995 Stock Option Plan and related form of stock option agreement (previously
filed).
10.3 1993 Stock Option Plan and related form of stock option agreement (previously
filed).
10.4 1996 Director Stock Option Plan (previously filed).
10.5 1996 Employee Stock Purchase Plan (previously filed).
10.6 Class C Preferred Stock Purchase Agreement dated August 25, 1995 (previously
filed).
10.7 Second Amended and Restated Shareholder Agreement, dated December 22, 1995
(previously filed).
10.8 Credit Agreement, dated September 25, 1995, between the Company and Fleet Bank of
Massachusetts, N.A. (previously filed).

10.8.1 Modification of Credit Agreement, dated August 21, 1996, between the Company and
Fleet National Bank (previously filed).

II-3
<PAGE> 82

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ -----------------------
<C> <S>
10.16 Form of Invention and Nondisclosure Agreement (previously filed).
10.17 Amended and Restated Registration Rights Agreement (previously filed).
10.18 Distributor Contract between Tech Data Corporation and the Registrant dated as of
July 1, 1994 (previously filed).
10.19 Distribution Agreement by and between Law Cypress Distributing Co. and the
Registrant dated as of November 22, 1991 (previously filed).
11.1 Computation of Per Share Earnings.
21.1 Subsidiaries of Registrant (previously filed).
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Bingham, Dana & Gould LLP, counsel to Registrant (included in Exhibit
5.1).
24.1 Power of Attorney (included in signature page to Registration Statement as
originally filed).
24.2 Power of Attorney executed by Ronald D. Fisher (previously filed).
<FN>
- ---------------

* Confidential treatment has been requested for certain portions of this
exhibit.
</TABLE>

<TABLE>
(b) Financial Statement Schedules
<CAPTION>
SCHEDULE NO. DESCRIPTION
------------ -----------
<S> <C>
Schedule II Valuation and Qualifying Accounts
</TABLE>

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended ("Securities Act") may be permitted to directors, officers
and controlling persons of the registrant pursuant to the provisions described
in Item 14 hereof, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

The undersigned registrant hereby undertakes:

(1) To provide the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to
each purchaser.

(2) That for purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or Rule 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared
effective.

(3) That for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-4
<PAGE> 83

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 5 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Burlington, Commonwealth of Massachusetts, on this 4th day of September, 1996.

Xionics Document Technologies, Inc.

By: /s/ Gerard T. Feeney
--------------------------------
Gerard T. Feeney
Vice President, Chief Financial Officer
and Treasurer

POWER OF ATTORNEY AND SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 5 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----

<S> <C> <C>
President and Chief Executive September 4, 1996
- ---------------------------------------- Officer; Director (principal
Robert E. Gilkes* executive officer)

Director September 4, 1996
- ----------------------------------------
Richard A. D'Amore*

Director September 4, 1996
- ----------------------------------------
Ronald D. Fisher*

Director September 4, 1996
- ----------------------------------------
David R. Skok*

Director September 4, 1996
- ----------------------------------------
Paul R. Low*

Director September 4, 1996
- ----------------------------------------
Thomas A. St. Germain*

/s/ Gerard T. Feeney Vice President-Finance, Chief September 4, 1996
- ---------------------------------------- Financial Officer, Treasurer
Gerard T. Feeney (principal financial and
accounting officer)

*By /s/ Gerard T. Feeney
-----------------------------
GERARD T. FEENEY
AS ATTORNEY-IN-FACT
</TABLE>

II-5
<PAGE> 84

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE

TO XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES

We have audited, in accordance with generally accepted auditing standards,
the consolidated balance sheets of Xionics Document Technologies, Inc. and
subsidiaries as of June 30, 1995 and 1996 and the related statements of
operations, redeemable preferred stock and stockholders' equity (deficit) and
cash flows for each of the three years in the period ended June 30, 1996,
included in this Registration Statement, and have issued our report thereon
dated July 23, 1996. Our audits were made for the purpose of forming an opinion
on the basic financial statements taken as a whole. The schedule listed in S-2
is the responsibility of the Company's management and is presented for the
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in our audits of the basic financial statements
and, in our opinion, fairly states in all material respects, the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.

ARTHUR ANDERSEN LLP

Boston, Massachusetts
July 23, 1996

S-1
<PAGE> 85
<TABLE>
VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED JUNE 30, 1994, 1995 AND 1996

<CAPTION>
BALANCE,
BEGINNING OF CHARGED BALANCE,
ALLOWANCE FOR DOUBTFUL ACCOUNTS YEAR TO EXPENSE WRITE-OFFS END OF YEAR
- ------------------------------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
Year ended June 30, 1994..................... $136,000 $ 25,000 $ (4,000) $157,000
Year ended June 30, 1995..................... 157,000 63,000 (16,000) 204,000
Year ended June 30, 1996..................... 204,000 -- (64,000) 140,000

<CAPTION>
BALANCE,
BEGINNING OF CHARGED BALANCE,
INVENTORY RESERVE ACCOUNT ACTIVITY YEAR TO EXPENSE WRITE-OFFS END OF YEAR
- ---------------------------------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
Year ended June 30, 1994..................... $ 60,000 $ -- $ -- $ 60,000
Year ended June 30, 1995..................... 60,000 171,869 -- 231,869
Year ended June 30, 1996..................... 231,869 197,000 (19,994) 408,875
</TABLE>

S-2
<PAGE> 86
<TABLE>

EXHIBIT INDEX
<CAPTION>

EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ -----------------------
<C> <S>
1.1 Form of Underwriting Agreement by and among Registrant, the Selling
Stockholder and the Underwriters (previously filed).
3.1 Form of Amended and Restated Certificate of Incorporation of the Registrant
(previously filed).
3.2 Form of Amended and Restated By-Laws of Registrant (previously filed).
4.1 Specimen Certificate for Shares of the Registrant's Common Stock, $.01 par
value (previously filed).
5.1 Opinion of Bingham, Dana & Gould LLP with respect to the legality of the
shares being registered (previously filed).
10.1 1996 Stock Option Plan and related form of stock option agreement (previously
filed).
10.2 1995 Stock Option Plan and related form of stock option agreement (previously
filed).
10.3 1993 Stock Option Plan and related form of stock option agreement (previously
filed).
10.4 1996 Director Stock Option Plan (previously filed).
10.5 1996 Employee Stock Purchase Plan (previously filed).
10.6 Class C Preferred Stock Purchase Agreement dated August 25, 1995 (previously
filed).
10.7 Second Amended and Restated Shareholder Agreement, dated December 22, 1995
(previously filed).
10.8 Credit Agreement, dated September 25, 1995, between the Company and Fleet
Bank of Massachusetts, N.A. (previously filed).

10.8.1 Modification of Credit Agreement, dated August 21, 1996, between the Company
and Fleet National Bank (previously filed).

10.9 Asset Purchase Agreement by and between Phoenix Technologies Ltd. and Xionics
International Holdings, Inc., dated September 30, 1994 (previously filed).
10.10 Computer Technology License Agreement between Phoenix Technologies Ltd. and
Hewlett- Packard Company for PhoenixPage Software Products dated September
30, 1994 as amended (including amended and restated Amendment No. 1 between
the Registrant and Hewlett- Packard, effective as of March 8, 1996)
(previously filed).*
10.11 Lease by and between the Registrant and E & F Realty Associates Limited
Partnership of Property at One Twenty Eight Corporate Center, 70 Blanchard
Road, Burlington, Massachusetts, dated November 29, 1994, including First
Amendment to Lease, dated August 9, 1995 (previously filed).
10.12 Adobe Repurchase Agreement (together with related General Release
Agreements), dated May 17, 1996 (previously filed).
10.13 Stock Option Agreement between the Company and Robert E. Gilkes (previously
filed).
10.14 Consulting Services Agreement between the Company and Thomas A. St. Germain
(previously filed).
10.15 Severance Agreement between the Company and Peter M. Santeusanio (previously
filed).
10.16 Form of Invention and Nondisclosure Agreement (previously filed).
10.17 Amended and Restated Registration Rights Agreement (previously filed).
10.18 Distributor Contract between Tech Data Corporation and the Registrant dated
as of July 1, 1994 (previously filed).
10.19 Distribution Agreement by and between Law Cypress Distributing Co. and the
Registrant dated as of November 22, 1991 (previously filed).
11.1 Computation of Per Share Earnings (previously filed).
21.1 Subsidiaries of Registrant (previously filed).
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Bingham, Dana & Gould LLP, counsel to Registrant (included in
Exhibit 5.1).
24.1 Power of Attorney (included in signature page to Registration Statement as
originally filed).
24.2 Power of Attorney executed by Ronald D. Fisher (previously filed).
<FN>
- ---------------

* Confidential treatment has been requested for certain portions of this
exhibit.
</TABLE>

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.

ARTHUR ANDERSEN LLP

Boston, Massachusetts

September 4, 1996