<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 28, 1996
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
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
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NO.)
</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>
------------------------
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. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
============================================================================================================
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per
share................................. 2,875,000 $12.00 $34,500,000 $11,896.55
============================================================================================================
<FN>
(1) Includes 375,000 shares which the Underwriters have the option to purchase
solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457(a) under the Securities Act.
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
XIONICS DOCUMENT TECHNOLOGIES, INC.
<TABLE>
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K Showing Location
in Prospectus of Part I Items of Form S-1
<CAPTION>
REGISTRATION STATEMENT
ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
---------------------- ----------------------
<S> <C> <C>
1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus................... Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus.................. Inside Front Cover Page; Reports to
Stockholders; Additional Information; Outside
Back Cover Page
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges... Prospectus Summary; Risk Factors; The Company
4. Use of Proceeds...................... Prospectus Summary; Risk Factors; Use of
Proceeds
5. Determination of Offering Price...... Outside Front Cover Page; Underwriting
6. Dilution............................. Dilution
7. Selling Security Holders............. Not applicable
8. Plan of Distribution................. Outside and Inside Front Cover Pages;
Underwriting; Outside Back Cover Page
9. Description of Securities to be
Registered........................... Prospectus Summary; Capitalization; Dividend
Policy; Description of Capital Stock
10. Interests of Named Experts and
Counsel.............................. Not applicable
11. Information with Respect to
Registrant........................... Outside and Inside Front Cover Pages;
Prospectus Summary; Risk Factors; The Company;
Use of Proceeds; Dividend Policy;
Capitalization; Dilution; Selected Consolidated
Financial Data; Management's Discussion and
Analysis of Financial Condition and Results of
Operations; Business; Management; Certain
Transactions; Principal Stockholders;
Description of Capital Stock; Shares Eligible
for Future Sale; Consolidated Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.......................... Not applicable
</TABLE>
<PAGE> 3
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 MAY , 1996
2,500,000 SHARES
[LOGO] XIONICS
Document Technologies
COMMON STOCK
------------------------
All of the 2,500,000 shares of Common Stock being offered hereby are being
sold by the Company.
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 Company intends to apply for quotation and trading of the
Common Stock on the Nasdaq National Market under the symbol "XION."
SEE "RISK FACTORS" COMMENCING ON PAGE 5 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
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.......................... $ $ $
- --------------------------------------------------------------------------------------------------
Total (3).......................... $ $ $
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
<FN>
(1) The Company has 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 $800,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 375,000 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 and Proceeds to
Company 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> 4
[PICTURES]
INTELLIGENT PERIPHERAL SYSTEM
XIONICS DOCUMENT
TECHNOLOGIES, INC.
The information age has created large quantities of complex electronics
documents that must be distributed and printed throughout an organization and
beyond. Xionics' Intelligent Peripheral System provides core page rendering and
processing technologies that OEMs incorporate into the printers they sell into
the office device market.
Internet Network Computer
Intelligent Peripheral System (IPS)
Dataflow Applications Xionics' IPS is designed to
Page Description Languages allow OEMs to improve printer
price/performance, increase
product differentiation and
Core Services meet increasingly short product
IPS Dataflow Operating System development cycles.
OEM Hardware
Documents
Paper
Digital Scanning
The artwork shows the Company's Intelligent Peripheral System interfacing
between documents and complex graphics and the Internet, corporate networks and
individual PC's.
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> 5
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.
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 $33 billion by 1997. End
users are demanding greater speed and throughput, higher-quality output, color
capability and network connectivity, all at lower costs. In addition,
manufacturers of office devices have an increasing need to meet de facto
industry standards in areas such as page rendering, networking and Internet
protocols. In order to meet user demands and comply with industry standards
within a fiercely competitive market, 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 differentiated products.
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 fully
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.
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 May
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 agreed to expand its relationship with
Hewlett-Packard by licensing certain of its page description technology 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
May 1, 1996 the Company had 162 full-time employees, including 101 in product
development.
3
<PAGE> 6
<TABLE>
THE OFFERING
<S> <C>
Common Stock offered .................................... 2,500,000 shares
Common Stock to be outstanding after the offering........ 10,030,863 shares(1)
Use of proceeds.......................................... To repay certain indebtedness of the
Company, for working capital and other
general corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol................... XION
<FN>
- ---------------
(1) Based on the number of shares of Common Stock outstanding as of March 31,
1996. Excludes 3,281,850 shares of Common Stock reserved for issuance under
the Company's stock option plans, of which 2,470,100 shares were subject to
outstanding options as of March 31, 1996 at a weighted average exercise
price of $0.42 per share. See "Capitalization" and "Management -- Stock
Option Plans."
</TABLE>
<TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
--------------------------------------- ------------------------
1992 1993 1994 1995 1995 1996
------- ------- ------ ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net revenue................................... $ 8,078 $8,691 $9,131 $15,577 $10,760 $15,536
Gross profit.................................. 4,463 4,796 6,235 10,896 7,584 11,255
Operating expenses:
Research and development.................. 682 958 1,308 6,235 4,365 6,347
Selling, general and administrative....... 5,700 3,755 4,674 6,901 4,876 7,032
Charge for purchased research and
development............................ -- -- -- 3,492 3,492 --
------- ------ ------ ------- ------- -------
Income (loss) from operations................. (1,919) 83 252 (5,733) (5,149) (2,124)
Other income (expense), net................... 346 5 (9) (292) (192) (152)
------- ------ ------ ------- ------- -------
Net income (loss)............................. $(1,573) $ 88 $ 243 $(6,025) $(5,341) $(2,276)
======= ====== ====== ======= ======= =======
Pro forma net loss per common and common
equivalent share............................ $ (0.27)
=======
Pro forma weighted average number of common
and common equivalent shares outstanding.... 8,317
=======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
------- ------------ --------------
(IN THOUSANDS)
BALANCE SHEET DATA:
<S> <C> <C> <C>
Cash and cash equivalents............................... $10,057 $ 5,257 $ 27,845
Working capital......................................... 6,254 1,454 24,042
Total assets............................................ 16,819 12,019 34,607
Long-term debt, net of current maturities............... 3,014 2,374 280
Stockholders' equity (deficit).......................... (7,525) 915 25,690
<FN>
- ---------------
(1) 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."
(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 $2.1 million in principal amount and $93,000 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 $340,000 in principal amount of the secured promissory note
payable to Phoenix Technologies Ltd. into 116,979 shares of Class C Redeemable
Convertible Preferred Stock and the repayment of an additional $300,000 in
principal amount of such note, (iii) 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, (iv) reflects
the redesignation of all shares of Class A Common Stock as "Common Stock," (v)
reflects the repurchase of 1,000,000 shares of Class D Preferred Stock of the
Company from Adobe Systems Incorporated at a repurchase price of $4.5 million,
and (vi) has been adjusted to give effect to the amendment and restatement of
the Company's Certificate of Incorporation effective immediately prior to the
closing of this offering. See "Capitalization," "Description of Capital Stock,"
"Underwriting" and "Certain Transactions."
4
<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 for the fiscal year ended June 30, 1995 and
approximately $2.3 million for the nine months ended March 31, 1996, 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 $12.8
million as of March 31, 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 three fiscal quarters ended
September 30, 1995, December 31, 1995 and March 31, 1996, revenue from the
Company's licensing and support arrangements with Hewlett-Packard accounted for
5.6%, 4.6% and 34.1%, 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 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."
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 to Hewlett-Packard. Payments under the HP Agreement
include the Company's charges for source code access, engineering services,
software license rights and ongoing maintenance and support. Future payments
under the HP Agreement are contingent on the satisfaction of performance
milestones by the Company. There can be no assurance that the Company will 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. Any material
failure by the Company to meet the performance milestones or any termination of
5
<PAGE> 8
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 demand for speed and
performance 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 9.5% of the
Company's net revenue for the nine months ended March 31, 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% of the Company's net
revenue for the fiscal year ended June 30, 1995, and approximately 35.3% of the
Company's net revenue for the nine months ended March 31, 1996. 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 over time as the Company focuses its research and
development efforts on printer software and multifunction peripheral products,
while reducing its investment for research and development in its imaging
products from current levels.
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
6
<PAGE> 9
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 ASIC, 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 controller systems and/or
related 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 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."
7
<PAGE> 10
Termination of Relationship with Adobe; Increased Competition. On May 17,
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. In addition, on
May 17, 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."
Management of Growth. 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. 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 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 16.7% of the Company's net revenue in fiscal 1995 and in
the nine
8
<PAGE> 11
months ended March 31, 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 upon 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 28.3% of the Company's
net revenue for the fiscal years ended June 30, 1994 and June 30, 1995 and the
nine months ended March 31, 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.
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
9
<PAGE> 12
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 2,500,000 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 4,711,618 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 3,281,850 shares of
Common Stock issuable under its employee stock option plans. The Company also
intends to register shares of Common Stock reserved for issuance under its
directors' stock option plan and employee stock purchase plan. At March 31,
1996, 1,833,912 shares of Common Stock were issuable pursuant to vested options
under the Company's employee stock option plans. In addition, the holders of
approximately 6,907,204 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 and to
facilitate future access by the Company to public equity markets. 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 64.4% 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 "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."
10
<PAGE> 13
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 in net tangible book value per share of
Common Stock from the initial public offering. See "Dilution."
11
<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 in 1978. 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(R), Intelligent
Peripheral System, Lightning, PowerLightning, PowerTools, XipApp, XipChannel,
XipChip, XipPower, XipPrint(R) and XipView(R). This Prospectus also includes
trademarks and trade names of companies other than Xionics. PostScript(TM) 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 $24.8 million. The principal purposes of this offering are to
increase the Company's working capital and financial flexibility and to
facilitate future access by the Company to public equity markets.
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 Phoenix Technologies Ltd. ("Phoenix") under a promissory note
issued in connection with the purchase by the Company of certain assets of the
Peripherals Division of Phoenix 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.
12
<PAGE> 15
CAPITALIZATION
<TABLE>
The following table sets forth the capitalization of the Company as of
March 31, 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>
MARCH 31, 1996
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
-------- ------------ --------------
<S> <C> <C> <C>
(IN THOUSANDS)
Equipment line of credit, current portion.................................. $ 161 $ 161 $ 161
======== ======== ========
Equipment line of credit, net of current portion........................... $ 280 $ 280 $ 280
Secured promissory note payable, net of current portion.................... 2,734 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 -- 2,662,636 shares, stated at liquidation
value, at March 31, 1996 (no shares pro forma or pro forma as
adjusted).............................................................. 8,010 -- --
Class D preferred stock, $.01 par value --
Authorized -- 1,100,000 shares
Issued and outstanding -- 1,000,000 shares, stated at liquidation
value, at March 31, 1996 (no shares pro forma or pro forma as
adjusted).............................................................. 4,590 -- --
Stockholders' equity (deficit):
Preferred stock, $.01 par value --
Authorized -- 10,000,000 shares
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 March 31, 1996 (no shares
pro forma or pro forma as adjusted).................................... 3,607 -- --
Common stock, $.01 par value --
Authorized -- 40,000,000 shares
Issued and outstanding -- no shares at March 31, 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 March 31, 1996
Outstanding -- 1,147,943 at March 31, 1996
(no shares pro forma or pro forma as adjusted)......................... 13 -- --
Common stock, class B --
Authorized -- 10,000,000 shares
Issued and outstanding -- 478,254 shares at March 31, 1996 (no shares
pro forma or pro forma as adjusted).................................... 5 -- --
Additional paid-in capital............................................... 1,915 13,902 38,652
Accumulated deficit...................................................... (12,904) (12,904) (12,904)
Treasury stock, 238,123 shares of common stock........................... (161) (161) (161)
-------- -------- --------
Total stockholders' equity (deficit).............................. (7,525) 915 25,690
-------- -------- --------
Total capitalization.............................................. $ 8,089 $ 3,289 $ 25,970
======== ======== ========
<FN>
- ---------------
(1) Adjusted to give effect to (i) the repurchase of 1,000,000 shares of Class D
Preferred Stock at a repurchase price of $4.50 per share, (ii) the
conversion of $340,000 in principal amount of the secured promissory note
payable to Phoenix Technologies Ltd. into 116,979 shares of Class C
Redeemable Convertible Preferred Stock and the repayment of an additional
$300,000 in principal amount of such note, (iii) the automatic conversion of
the Class C Redeemable Convertible Preferred Stock and the Class A
Convertible Preferred Stock into 5,904,666 shares of Class A Common Stock,
(iv) the automatic conversion of all outstanding shares of Class B Common
Stock into 478,254 shares of Class A Common Stock and (v) the redesignation
of all shares of Class A Common Stock as "Common Stock." 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.
(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 $93,000 of accrued
interest payable on a secured promissory note payable to Phoenix
Technologies Ltd.
</TABLE>
13
<PAGE> 16
DILUTION
The pro forma net tangible book value of the Company's Common Stock as of
March 31, 1996 was approximately $690,000 or $0.09 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 repurchase of 1,000,000 shares of
Class D Preferred Stock at a purchase price of $4.50 per share, (ii) the
conversion of $340,000 in principal amount of the secured promissory note
payable to Phoenix Technologies Ltd. into 116,979 shares of Class C Redeemable
Convertible Preferred Stock and the repayment of an additional $300,000 in
principal amount of such note, (iii) 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 (iv) 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 and the Class D 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 March 31, 1996 would have
been approximately $25.5 million or $2.54 per share. This represents an
immediate increase in pro forma net tangible book value of $2.45 per share to
existing stockholders and an immediate dilution in net tangible book value of
$8.46 per share to purchasers of Common Stock in this offering, as illustrated
in the following table:
<S> <C> <C>
Assumed initial public offering price per share............................ $11.00
Pro forma net tangible book value per share as of March 31, 1996......... $0.09
Increase per share attributable to new stockholders...................... 2.45
-----
As adjusted pro forma net tangible book value per share at March 31, 1996
after offering........................................................... 2.54
------
Dilution per share to new stockholders..................................... $ 8.46
======
</TABLE>
<TABLE>
The following table summarizes, as of March 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................. 7,530,863 75.1% $12,404,554 31.1% $ 1.65
New stockholders...................... 2,500,000 24.9 27,500,000 68.9 11.00
--------- ----- ----------- -----
Total....................... 10,030,863 100.0% $39,904,554 100.0%
========= ===== =========== =====
</TABLE>
The foregoing table assumes no exercise of any stock options. As of March
31, 1996, an aggregate of 3,281,850 shares of Common Stock were reserved but
unissued under the Company's stock option plans and options to purchase an
aggregate of 2,470,100 shares at a weighted average exercise price of $0.42 per
share were outstanding. To the extent such options are exercised, there will be
further dilution to new stockholders.
14
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
The Selected Consolidated Financial Data set forth below with respect to
the Balance Sheet Data at June 30, 1995 and March 31, 1996 and the Statement of
Operations Data for each of the two years in the period ended June 30, 1995 and
for the nine months ended March 31, 1996, respectively, 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 Statement of Operations Data for the nine months ended
March 31, 1995 are derived from unaudited Consolidated Financial Statements
included elsewhere in this Prospectus. Operating results for the nine months
ended March 31, 1996 are not necessarily indicative of the results that may be
expected for the entire fiscal year ending June 30, 1996. 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.
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
-------------------------------------- ------------------
1992 1993 1994 1995 1995 1996
------- ------ ------ ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue....................... $ 8,078 $8,691 $9,131 $15,577 $10,760 $15,536
Gross profit...................... 4,463 4,796 6,235 10,896 7,584 11,255
Operating expenses:
Research and development....... 682 958 1,308 6,235 4,365 6,347
Selling, general and
administrative............... 5,700 3,755 4,674 6,901 4,876 7,032
Charge for purchased research
and development.............. -- -- -- 3,492 3,492 --
------- ------ ------ ------- ------- -------
Income (loss) from operations..... (1,919) 83 252 (5,733) (5,149) (2,124)
Other income (expense), net....... 346 5 (9) (292) (192) (152)
------- ------ ------ ------- ------- -------
Net income (loss)................. $(1,573) $ 88 $ 243 $(6,025) $(5,341) $(2,276)
======= ====== ====== ======= ======= =======
Pro forma net loss per common and
common equivalent share........ $ (0.27)
=======
Pro forma weighted average number
of common and common equivalent
shares outstanding............. 8,317
=======
<CAPTION>
JUNE 30,
------------------------------------- MARCH 31,
1992 1993 1994 1995 1996
------ ------ ------ ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $1,344 $ 408 $ 851 $ 1,226 $10,057
Working capital............................. 528 (508) (493) 517 6,254
Total assets................................ 2,888 1,808 2,639 7,179 16,819
Long-term debt, net of current maturities... -- 184 -- 4,849 3,014
Stockholders' equity (deficit).............. 307 (367) (122) (5,377) (7,525)
</TABLE>
15
<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 28.3% of the Company's revenue for the fiscal years ended June 30, 1994 and
1995 and the nine months ended March 31, 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 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. The
remaining future payments under the HP Agreement are contingent upon the
satisfaction of performance milestones by the Company. There can be no assurance
that the Company will 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 to continue to increase the amount of its research and development, and
selling, general and administrative expenses.
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<PAGE> 19
The Company had no provision for income taxes for fiscal 1995 or the nine
months ended March 31, 1996 due to net losses incurred in those periods. As of
March 31, 1996, the Company had available net operating loss carryforwards of
approximately $4.2 million for federal income tax reporting purposes, expiring
at various dates beginning in 2001. In addition, the Company had available net
operating loss carryforwards of approximately $1.7 million for foreign income
tax reporting purposes. These carryforwards may be used to offset future taxable
income, if any.
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.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------- -------------------
1994 1995 1995 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net revenue.................................. 100.0% 100.0% 100.0% 100.0%
Cost of revenue.............................. 31.7 30.1 29.5 27.6
------ ------ ------ ------
Gross profit................................. 68.3 69.9 70.5 72.4
Operating expenses:
Research and development................... 14.3 40.0 40.6 40.9
Selling, general and administrative........ 51.2 44.3 45.3 45.3
Charge for purchased research and
development............................. -- 22.4 32.5 --
------ ------ ------ ------
Income (loss) from operations................ 2.8 (36.8) (47.9) (13.7)
Other expense, net........................... 0.1 1.9 1.7 1.0
------ ------ ------ ------
Net income (loss)............................ 2.7% (38.7)% (49.6)% (14.7)%
====== ====== ====== ======
</TABLE>
NINE MONTHS ENDED MARCH 31, 1996 AND MARCH 31, 1995
Revenue. Revenue increased 44.4% to $15.5 million for the nine months
ended March 31, 1996 compared to $10.8 million for the nine months ended March
31, 1995. This increase resulted primarily from growth in sales of the Company's
printer software products, including approximately $2.0 million of revenue
recognized under the HP Agreement, and a small increase in sales of the
Company's image acceleration products. In addition, revenue from sales of the
Company's printer software products was included for the entire nine-month
period ended March 31, 1996, compared to only six months during the prior period
because of the date of the Acquisition.
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 48.4% to $11.3 million for the nine
months ended March 31, 1996 from $7.6 million in the comparable prior period.
Gross margin increased to 72.4% for the nine months ended March 31, 1996
compared to 70.5% in the comparable prior period. These increases were
attributable primarily to increased sales of higher-margin Intelligent
Peripheral System ("IPS") products and related engineering services, partially
offset by a reduction in gross margin attributable to the Company's image
acceleration products.
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 45.4% to
$6.3 million for the nine months ended March 31, 1996 from $4.4 million in the
comparable prior period. The higher expense level resulted primarily from
increased 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
17
<PAGE> 20
image acceleration products. In addition, research and development expenses for
the Company's IPS products were included for the entire nine-month period ended
March 31, 1996 compared to only six months during the prior fiscal period
because of the date of the Acquisition. As a percentage of revenue, research and
development expenses increased to 40.9% for the nine months ended March 31, 1996
from 40.6% in the comparable prior period.
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 44.2% to $7.0 million for the nine months
ended March 31, 1996 from $4.9 million in the comparable prior period. 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 nine-month period ended March 31, 1996 compared to only
six months during the prior period because of the date of the Acquisition. As a
percentage of revenue, selling, general and administrative expenses remained
constant at 45.3% for both the nine months ended March 31, 1996 and the
comparable prior period.
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, gains and losses on foreign
currency translation and transactions. Other expense, net decreased 21.2% to
$152,000 for the nine months ended March 31, 1996 from $193,000 in the
comparable prior period. This decrease resulted primarily from an increase in
interest and other income and a decrease in losses from foreign currency
translation and transactions partially offset by an increase in interest
expense.
FISCAL YEARS ENDED JUNE 30, 1995 AND JUNE 30, 1994
Revenue. Revenue increased 70.6% 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 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 74.8% 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
376.5% 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 47.6% 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
18
<PAGE> 21
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.
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
The following table sets forth certain unaudited quarterly operating
information for each of the seven quarters ending with the quarter ended March
31, 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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1994 1994 1995 1995 1995 1995 1996
--------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <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
Cost of revenue................. 756 1,101 1,319 1,506 1,164 1,481 1,637
------ ------- ------ ------ ------- ------- ------
Gross profit.................... 1,397 3,112 3,075 3,312 2,835 3,393 5,026
Operating expenses:
Research and development...... 562 1,974 1,828 1,871 1,960 2,133 2,254
Selling, general and
administrative.............. 996 2,041 1,839 2,025 2,356 2,273 2,403
Charge for purchased research
and development............. -- 3,492 -- -- -- -- --
------ ------- ------ ------ ------- ------- ------
Income (loss) from operations... (161) (4,395 ) (592) (584) (1,481) (1,013 ) 369
Other expense, net.............. 25 26 142 100 125 8 19
------ ------- ------ ------ ------- ------- ------
Net income (loss)............... $ (186) $(4,421 ) $ (734) $ (684) $(1,606) $(1,021 ) $ 350
====== ======= ====== ====== ======= ======= ======
</TABLE>
19
<PAGE> 22
<TABLE>
The following table sets forth certain unaudited quarterly results of
operations expressed as a percentage of net revenue for each of the seven
quarters ending with the quarter ended March 31, 1996.
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1994 1994 1995 1995 1995 1995 1996
--------- -------- -------- -------- --------- -------- --------
<S> <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%
Cost of revenue................. 35.1 26.1 30.0 31.3 29.1 30.4 24.6
----- ------ ----- ----- ----- ----- -----
Gross profit.................... 64.9 73.9 70.0 68.7 70.9 69.6 75.4
Operating expenses:
Research and development...... 26.1 46.9 41.6 38.8 49.0 43.8 33.8
Selling, general and
administrative.............. 46.3 48.4 41.9 42.0 58.9 46.6 36.1
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
Other expense, net.............. 1.2 0.6 3.2 2.1 3.1 0.1 0.3
----- ------ ----- ----- ----- ----- -----
Net income (loss)............... (8.7)% (104.9)% (16.7)% (14.2)% (40.1)% (20.9)% 5.2%
===== ====== ===== ===== ===== ===== =====
</TABLE>
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 March 31, 1996, the Company had cash and cash equivalents of $10.1
million, an increase of $8.8 million from the $1.2 million of cash and cash
equivalents held at June 30, 1995. During the nine months ended March 31, 1996,
the Company's principal sources of cash were private placements of equity
securities and an initial nonrefundable $6.0 million payment under the HP
Agreement. 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 the nine months ended March 31,
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 17, 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 $2.0 million working capital
revolving line of credit and a $1.0 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 31, 1996, and no term loan will be
20
<PAGE> 23
made after December 1, 1996. 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 rate for the term loan facility is the
bank's prime rate plus 1.0%. As of March 31, 1996, the outstanding borrowings
under the working capital line of credit and term loan facility were $0 and
$441,000, 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. As of May 1, 1996, the Company had no material capital
commitments.
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> 24
BUSINESS
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.
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 $33 billion by 1997.
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 (i.e. software residing on an integrated circuit board, called a
controller, that governs the device's functioning), 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
22
<PAGE> 25
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
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> 26
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 $1,000, 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 in this price range 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 fully 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> 27
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 routing 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 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.
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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 and AutoRoute 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 will extend
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.
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:
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<PAGE> 29
Core Technologies
-------------------------
Embedded Applications
Device Drivers
Dataflow Software
Systems Services
Control Services
Image Processing
Print Embedded Products Document Imaging Products
- ------------------------------------- -----------------------------------------
Intelligent Peripheral System - Print Image Acceleration Controllers
PostScript PDL Scan (Turbo, Lightning, PowerLightning)
PCL PDL Display (XipView)
Embedded Core Services Print (XipPrint II)
Font Systems
Products Under Development
-----------------------------------
Intelligent Peripheral System - MFP
IPS - Print (Expanded)
XipApp
XipChannel
Internet/Intranet Capability
XipChip
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 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.
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<PAGE> 30
IPS-PRINT ARCHITECTURE
[GRAPHICS]
The artwork shows a schematic diagram of the Company's IPS-Print architecture
with dataflow applications (top box) and core services (next box down) together
comprising the Intelligent Peripheral System. Under these boxes OEM hardware is
shown using the Company's IPS to interface between Internet, Intranet, Network
and Host.
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 that are being designed to allow OEMs to build
high-performance, cost-effective controllers for multifunction peripheral
devices. The additional 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-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 also 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
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<PAGE> 31
onboard peripheral device interfaces. XipChip is intended to provide sustained,
aggregate image data bandwidth of approximately 250 megabytes per second through
its seven concurrently operating processing channels.
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, with
or without XipChip, will meet its 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 $850 to $2,799.
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 price of XipPrint II is $795.
The Company expects that its revenue from sales of its imaging products
will decrease over time as the Company focuses its research and development
efforts on printer software and MFP products, while reducing its investment in
research and development in its imaging products from current levels.
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 May 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 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
seven 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
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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 May 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 nine months ended March 31,
1996, Hewlett-Packard accounted for approximately 17.5% 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 three fiscal quarters ended September 30, 1995, December 31, 1995, and
March 31, 1996, revenue from Hewlett-Packard accounted for 5.6%, 4.6% and 34.1%,
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 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. There can be no
assurance that the Company will 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.
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.
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<TABLE>
A representative list of the Company's customers follows. In the Company's
1994 and 1995 fiscal years and for the nine months ended March 31, 1996,
aggregate net revenue recorded by the Company from these listed customers
represented 50.5%, 54.1% and 67.7%, respectively, of the Company's net revenue.
<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 GmbH
IBM Printer Systems, Inc. (C-2000)
Kyushu Matsushita Electric Co., Ltd. Cranel, Inc.
(Panasonic) Dicom AG
Lexmark International Group, Inc. Law Cypress Distributing Co.
Nihon Unisys Corporation Tech Data Corporation
Oce Printing System GmbH
Olivetti Lexicon S.p.A. END USERS
Ricoh Corporation Abbey National plc
Seiko Epson Corporation Defense Finance and Accounting Service
Sharp Corporation Mackenzie Financial Corporation
Xerox Corporation Papelaco Telematica
</TABLE>
For the nine months ended March 31, 1996, Lexmark accounted for 9.5% 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 May 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 the nine months ended March 31, 1996 was
$1.3 million, $6.2 million and $6.3 million, respectively. The Company
anticipates that it will continue to commit substantial resources to research
and development.
Through Xionics Document Technologies GmbH, a 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 group because of its substantial prior experience in the design,
development and deployment of complex silicon technology. The Company is
participating in IBM Microelectronics' core-plus-ASIC program. The parties 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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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 for 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., may 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 potentially 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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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 May 1, 1996, Xionics had 162 full-time employees. The Company employs
101 people in product development, 26 in sales and marketing, 18 in
manufacturing and operations, and 17 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 43,000
square feet of space in Burlington, Massachusetts. This facility is leased
through December 1999 with approximately 19,000 square feet of additional office
space becoming available to the Company under the lease in July 1996. 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,
with the additional 19,000 square feet of office space that becomes available to
the Company under its Burlington lease in July 1996, 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 results of operations or
financial condition.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
The executive officers and directors of the Company are as follows:
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- -------------------------------------------
<S> <C> <C>
Robert E. Gilkes.......................... 57 Chairman of the Board, Chief Executive
Officer and President
Robert Downs.............................. 48 Chief Operating Officer
Gerard T. Feeney.......................... 37 Vice President -- Finance, Chief Financial
Officer, Treasurer and Secretary
Gary Ambrosino............................ 40 Vice President -- Product 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 manufacturer of portable workstations. Mr.
Gilkes has over 30 years of experience in the high technology industry,
including over 20 years in senior management.
Mr. Downs has served as Chief Operating Officer of the Company since
January 1996. From January 1995 until January 1996, he served as Vice President
- -- Operations of the Company and from November 1994 through June 1995 he also
served as Chief Operating Officer of the Company. From November 1993 until
November 1994, Mr. Downs 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 -- Product Marketing of the
Company since May 1996. From January 1995 until May 1996, Mr. Ambrosino served
as Vice President -- Multifunction Products of the Company and from March 1994
until January 1995 as Director of OEM Sales. 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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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 November 1994. 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. Since January 1990, 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 Corp., and Veeco Instruments, Inc.
Mr. Skok has served as a Director of the Company since November 1995. Mr.
Skok has been President and Chief Executive Officer of Watermark Software, Inc.,
an imaging software company, since January 1993. 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 Company's
Audit Committee are Mr. D'Amore and Dr. Low. The Compensation Committee reviews
and
35
<PAGE> 38
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 Company's 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.
36
<PAGE> 39
EXECUTIVE COMPENSATION
<TABLE>
The following table sets forth certain information regarding each of the
two individuals who served as 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, 1995, except as otherwise
indicated.
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM
COMPENSATION
------------
NUMBER OF
SHARES
UNDERLYING
OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION SALARY GRANTED(#) COMPENSATION
- ---------------------------------------- ------------------- ------------ ---------------
<S> <C> <C> <C>
Robert E. Gilkes........................ $ 150,000 340,000(2) $ --
Chairman of the Board, Chief Executive
Officer and President(1)
Robert Downs............................ 125,000 59,299 1,875(3)
Chief Operating Officer
Gerard T. Feeney........................ 121,500 15,418 3,075(4)
Vice President -- Finance, Chief
Financial Officer, Treasurer and
Secretary
Gary Ambrosino.......................... 112,500 140,000(5) --
Vice President -- Product Marketing
Edward B. Mallen........................ 125,000 104,367 1,875(6)
Vice President -- Worldwide Sales
Peter Santeusanio(7).................... 89,917 -- 58,950
Former Chairman of the Board,
President and Chief Executive Officer
<FN>
- ---------------
(1) Mr. Gilkes became President and Chief Executive Officer of the Company in
January 1995.
(2) Includes options to purchase 300,000 shares of Common Stock which were
granted to Mr. Gilkes as of October 10, 1995.
(3) Consists of Company contributions made on Mr. Downs' behalf to the 401(k)
Plan in fiscal 1995.
(4) Consists of Company contributions made on Mr. Feeney's behalf to the 401(k)
Plan in fiscal 1995.
(5) Includes options to purchase 100,000 shares of Common Stock which were
granted to Mr. Ambrosino as of October 10, 1995.
(6) Consists of Company contributions made on Mr. Mallen's behalf to the 401(k)
Plan in fiscal 1995.
(7) Mr. Santeusanio was Chairman of the Board until his resignation in February
1995, and had been President and Chief Executive Officer of the Company
until January 1995. The terms of Mr. Santeusanio's resignation were governed
by a Severance Agreement, dated March 23, 1995, between Mr. Santeusanio and
the Company. A total of $148,867 was paid to Mr. Santeusanio during fiscal
1995, $89,917 while he was employed by the Company (included in column
headed "Salary") and $58,950 as post-termination salary and benefits
pursuant to the terms of the Severance Agreement (included in column headed
"All Other Compensation").
</TABLE>
37
<PAGE> 40
<TABLE>
Options granted to the Named Executive Officers during the fiscal year
ended June 30, 1995 are set forth in the following table. For disclosure
regarding the terms of stock options, see "Management -- Stock Option Plans." No
stock appreciation rights ("SARs") were granted during fiscal 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------
NUMBER OF PERCENT OF
SHARES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES PRICE EXPIRATION
NAME GRANTED(#) IN FISCAL 1995 ($/SHARE) DATE
- -------------------------------------------- ---------- -------------- -------- ----------
<S> <C> <C> <C> <C>
Robert E. Gilkes(1)......................... 40,000 2.9% $ 0.20 2005
Robert Downs................................ 59,299 4.4 0.20 2005
Gerard T. Feeney............................ 15,418 1.1 0.20 2005
Gary Ambrosino(2)........................... 40,000 2.9 0.20 2005
Edward B. Mallen............................ 104,367 7.7 0.20 2005
<FN>
- ---------------
(1) As of October 10, 1995, the Company granted Mr. Gilkes options to purchase
an additional 300,000 shares of Common Stock at an exercise price of $0.68
per share.
(2) As of October 10, 1995, the Company granted to Mr. Ambrosino options to
purchase an additional 100,000 shares of Common Stock at an exercise price
of $0.68 per share.
</TABLE>
<TABLE>
No stock options were exercised by the Named Executive Officers during
fiscal 1995 or subsequently thereafter. There were no SARs outstanding during
fiscal 1995 or subsequently thereafter. The following table sets forth certain
information regarding unexercised options held by each of the Named Executive
Officers as of June 30, 1995:
FISCAL YEAR-END OPTION VALUES
<CAPTION>
AGGREGATED FISCAL YEAR-END OPTION VALUES
------------------------------------------------------------------
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR-END(#) AT FISCAL YEAR-END(1)
-------------------------------- -----------------------------
NAME EXERCISABLE(2) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------ -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert E. Gilkes.................... 5,120 34,880 $ 55,296 $ 376,704
Robert Downs........................ 91,354 191,667 986,623 2,070,004
Gerard T. Feeney.................... 75,021 23,416 810,227 252,893
Gary Ambrosino...................... 5,120 34,880 55,296 376,704
Edward B. Mallen.................... 64,944 158,021 701,395 1,706,627
<FN>
- ---------------
(1) There was no public trading market for Common Stock on June 30, 1995.
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, 1995), 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.
</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 is
expected to be adopted by the Company's stockholders prior to the closing date
of this offering. 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
38
<PAGE> 41
employee of the Company (including officers), and any consultant to and any
director of the Company, are eligible to receive Stock Options under the 1996
Plan. As of March 31, 1996, 138,250 shares reserved for issuance under the 1996
Plan were subject to outstanding Stock Options at a weighted average exercise
price of $1.84 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.
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 March
31, 1996, all 1,758,843 of the shares of Common Stock reserved for issuance
under the 1995 Plan were subject to outstanding Stock Options at a weighted
average exercise price of $0.37 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 March 31, 1996, all of the 573,007 shares of Common Stock
reserved for issuance under the 1993 Plan are 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.
1996 Directors' Stock Option Plan. The Board of Directors is expected to
adopt the 1996 Directors' Stock Option Plan (the "Directors' Plan") prior to the
closing date of this offering. The Directors' Plan will provide for the grant of
stock options to non-employee directors. The Directors' Plan will be submitted
to the stockholders of the Company for their approval prior to the closing date
of this offering.
1996 Employee Stock Purchase Plan. The Board of Directors is expected to
adopt the 1996 Employee Stock Purchase Plan (the "Stock Purchase Plan") prior to
the closing date of this offering. The Stock Purchase Plan will enable eligible
employees to acquire shares of the Company's Common Stock through payroll
deductions. The Stock Purchase Plan will be submitted to the stockholders of the
Company for their approval prior to the closing date of this offering.
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 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> 42
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 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. 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 17, 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.
The Company has two classes of Preferred Stock outstanding: 3,125,051
shares of Class A Convertible Preferred Stock and 2,662,636 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. The Company has two classes of common
stock outstanding: 1,147,943 shares of Class A Common Stock and 478,254 shares
of Class B Common Stock. The automatic conversion of each share of
40
<PAGE> 43
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> 44
PRINCIPAL STOCKHOLDERS
<TABLE>
The following table sets forth, as of March 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>
PERCENT OF
OUTSTANDING SHARES
NUMBER OF SHARES -------------------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF 5% STOCKHOLDERS OWNED(1) OFFERING(2) OFFERING(2)
- ----------------------------------- ------------------- ----------- -----------
<S> <C> <C> <C>
Hambro International............... 2,539,087(3) 33.7% 25.3%
Venture Fund II
404 Wyman Street -- Suite 365
Waltham, MA 02154
Hambro International............... 520,054(4) 6.9 5.2
Venture Fund Offshore II
404 Wyman Street -- Suite 365
Waltham, MA 02154
Monument Trust Company............. 929,324 12.3 9.3
c/o Watermark Software, Inc.
15 Third Avenue
Burlington, MA 01803
Phoenix Technologies Ltd........... 1,955,381 26.0 19.5
2770 De La Cruz Boulevard
Santa Clara, CA 95050
Mytech Funds, L.P.................. 516,085 6.9 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................... 130,000(5) 1.7% 1.3%
Robert Downs....................... 283,021(5) 3.6 2.7
Gerard T. Feeney................... 98,437(5) 1.3 1.0
Gary Ambrosino..................... 52,500(5) * *
Edward B. Mallen................... 222,965(5) 2.9 2.2
Richard A. D'Amore(6).............. 3,062,891(5) 40.7 30.5
Ronald D. Fisher(7)................ 1,959,131(5) 26.0 19.5
Paul R. Low........................ 3,750(5) * *
Thomas A. St. Germain.............. 2,500(5) * *
David R. Skok (8).................. 929,324 12.3 9.3
Peter Santeusanio.................. 150,967 2.0 1.5
All directors and executive
officers as a group (13
persons)(9)...................... 7,014,519 81.5 63.2
<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 March 31,
1996,
42
<PAGE> 45
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.
(2) The number of shares of Common Stock deemed outstanding prior to this
offering includes (i) 1,147,943 shares of Common Stock outstanding as of
March 31, 1996; (ii) an aggregate of 5,904,666 shares of Common Stock
issuable upon the conversion of Class A Convertible Preferred Stock and
Class C Redeemable Convertible Preferred Stock (including the 116,979 shares
of Class C Redeemable Convertible Preferred Stock issued to Phoenix
Technologies Ltd. pursuant to the exercise by Phoenix of an option to
purchase such shares); (iii) an aggregate of 478,254 shares of Common Stock
issuable upon the conversion of Class B Common Stock; and (iv) 1,833,912
shares issuable pursuant to options held by persons which may be exercised
within 60 days after March 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 3,750 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 3,750 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 March 31, 1996, options which become immediately exercisable upon
completion of this offering and options which will be exercisable within 60
days of March 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.
(9) Does not include shares owned by Mr. Santeusanio.
</TABLE>
43
<PAGE> 46
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 March 31, 1996, a total of 1,626,197 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 10,030,863 shares of Common Stock outstanding
upon the closing of the offering.
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
44
<PAGE> 47
stockholders in relation to the then current market price of the Company's
capital stock, the estimated 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.
45
<PAGE> 48
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" 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 will be determined
prior to the completion of this offering.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 10,030,863 shares
of Common Stock outstanding (assuming no exercise of outstanding options). Of
these shares, the 2,500,000 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, 7,440,329 shares of Common Stock and
options to purchase 2,401,339 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, publicly sell
or distribute 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 7,530,863 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
3,104,284 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 4,711,618 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
100,309 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
46
<PAGE> 49
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 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 March 31, 1996, options to purchase a total of 2,470,100 shares of
Common Stock were outstanding (of which options to purchase 1,833,912 shares are
exercisable upon the completion of the offering pursuant to the stock option
agreements under which they were granted);2,401,339 of the total shares
issuable pursuant to such options are subject to Lock-up Agreements. See
"Management -- Stock Option Plans." As of March 31, 1996, an additional 811,750
shares were available for future issuance under the 1996 Stock Option Plan.
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 and the 1996 Stock Option
Plan, and expected to be reserved for issuance under the 1996 Directors' 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 6,907,204 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> 50
UNDERWRITING
<TABLE>
Subject to the terms and conditions of the Underwriting Agreement, the
Company has 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, 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.................................................................... 2,500,000
=========
</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 has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 375,000
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 2,500,000 shares of Common
Stock offered hereby. The Underwriters may exercise such option only to cover
over-allotments in connection with the sale of the 2,500,000 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, who will hold in
the aggregate 7,440,329 shares of Common Stock following the offering, have
agreed with the Underwriters or the Company not to publicly sell or distribute
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> 51
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 Company intends to apply for quotation and trading of its Common Stock
on the Nasdaq National Market under the symbol XION.
The Company has 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> 52
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, March 31, 1996 and Pro forma
March 31, 1996 (unaudited)...................................................... F-3
Consolidated Statements of Operations for the Years Ended June 30, 1994 and 1995
and for the Nine Months Ended March 31, 1995 (unaudited) and 1996............... F-4
Consolidated Statements of Redeemable Preferred Stock and Stockholders' Equity
(Deficit) for the Years Ended June 30, 1994 and 1995 and for the Nine Months
Ended March 31, 1996 and Pro forma March 31, 1996 (unaudited)................... F-5
Consolidated Statements of Cash Flows for the Years Ended June 30, 1994 and 1995
and for the Nine Months Ended March 31, 1995 (unaudited) 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, 1994 and 1993............................................................... F-23
Notes to Condensed Financial Statements.......................................... F-24
</TABLE>
F-1
<PAGE> 53
After the shareholder approval of the amendment and restatement of the
Company's Certificate of Incorporation, we expect to be in the position to
render the following audit report.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 17, 1996
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To 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 March 31, 1996, and the related consolidated statements of
operations, redeemable preferred stock and stockholders' equity (deficit) and
cash flows for the years ended June 30, 1994 and 1995 and for the nine months
ended March 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our 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 March 31, 1996, and
the results of their operations and their cash flows for the years ended June
30, 1994 and 1995 and the nine months ended March 31, 1996, in conformity with
generally accepted accounting principles.
We have also audited in accordance with generally accepted auditing
standards, the consolidated balance sheets as of June 30, 1993 and 1994 (neither
of which are presented herein) and have expressed an unqualified opinion on
those financial statements. In our opinion the information set forth in the
selected consolidated financial data for each of the two years in the period
ended June 30, 1995 and the nine month period ended March 31, 1996, appearing in
this Prospectus, is fairly stated, in all material respects, in relation to the
financial statements from which it has been derived.
F-2
<PAGE> 54
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1995 1996
------------ ------------ PRO FORMA
MARCH 31,
1996
------------
(UNAUDITED)
(NOTE 1)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 1,226,364 $ 10,056,575 $ 5,256,575
Accounts receivable, less reserves of approximately $204,000 at June
30, 1995 and $165,000 at March 31, 1996........................... 3,534,404 3,633,566 3,633,566
Inventories......................................................... 908,039 1,018,005 1,018,005
Prepaid expenses and other current assets........................... 278,722 275,364 275,364
------------ ------------ ------------
Total current assets.......................................... 5,947,529 14,983,510 10,183,510
------------ ------------ ------------
Property and equipment, net........................................... 720,051 1,573,166 1,573,166
Acquired Intangibles, net of accumulated amortization of approximately
$326,500 at June 30, 1995 and $575,000 at March 31, 1996............ 473,500 225,000 225,000
Other assets.......................................................... 37,500 37,500 37,500
------------ ------------ ------------
$ 7,178,580 $ 16,819,176 $12,019,176
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Equipment line of credit, current portion........................... $ -- $ 160,667 $ 160,667
Accounts payable.................................................... 1,786,832 1,560,484 1,560,484
Other accrued expenses.............................................. 1,236,762 1,032,580 1,032,580
Accrued payroll..................................................... 345,427 527,773 527,773
Deferred revenue.................................................... 1,483,173 5,448,173 5,448,173
Secured promissory notes payable, current portion................... 350,000 -- --
Senior subordinated promissory notes payable to stockholders........ 228,355 -- --
------------ ------------ ------------
Total current liabilities..................................... 5,430,549 8,729,677 8,729,677
Equipment line of credit, net of current portion...................... -- 280,333 280,333
Secured promissory notes payable, net of current portion.............. 4,849,000 2,734,000 2,094,000
------------ ------------ ------------
Commitments
Redeemable convertible preferred stock:
Class B redeemable preferred stock, $.01 par value--
Authorized, issued and outstanding--1,867,877 shares, stated at
liquidation value, at June 30, 1995. None authorized, issued or
outstanding at March 31, 1996 (no shares pro forma)............. 2,275,827 -- --
Class C redeemable convertible preferred stock, $.01 par value--
Authorized--2,779,615 shares
Issued and outstanding--2,662,636 shares, stated at liquidation
value, at March 31, 1996 (no shares pro forma).................. -- 8,009,814 --
Class D preferred stock (redeemable), $.01 par value--
Authorized--1,100,000 shares
Issued and outstanding--1,000,000 shares, stated at liquidation
value, at March 31, 1996 (no shares pro forma).................. -- 4,590,000 --
Stockholders' equity (deficit):
Preferred stock, $.01 par value--
Authorized--10,000,000 shares (no shares pro forma)
Issued and outstanding--none...................................... -- -- --
Class A convertible preferred stock, $.01 par value--
Authorized--3,603,305 shares
Issued and outstanding-- 3,125,051 shares at June 30, 1995 and
March 31, 1996, respectively (no shares pro forma).............. 4,835,771 3,606,658 --
Common stock, $.01 par value--
Authorized--40,000,000 shares
Issued--7,768,986 shares pro forma................................ -- -- 77,690
Common stock, class A--
Authorized--20,000,000 shares
Issued--1,327,293 shares at June 30, 1995 and 1,386,066 shares at
March 31, 1996 outstanding--1,327,293 shares at June 30, 1995
and 1,147,943 at March 31, 1996 (no shares pro forma)........... 13,273 13,861 --
Common stock, class B--
Authorized--10,000,000 shares
Issued and outstanding--none at June 30, 1995 and 478,254 shares
at March 31, 1996 (no shares pro forma)......................... -- 4,783 --
Additional paid-in capital.......................................... 6,463 1,914,568 13,901,994
Accumulated deficit................................................. (10,232,303) (12,903,782) (12,903,782 )
Treasury stock, 238,123 shares of class A common stock at March 31,
1996 (238,123 shares pro forma)................................... -- (160,736) (160,736 )
------------ ------------ ------------
Total stockholders' equity (deficit).......................... (5,376,796) (7,524,648) 915,166
------------ ------------ ------------
$ 7,178,580 $ 16,819,176 $12,019,176
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 55
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS ENDED
JUNE 30, MARCH 31,
-------------------------- ---------------------------
1994 1995 1996
---------- ----------- 1995 -----------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenue............................ $9,130,824 $15,577,249 $10,759,706 $15,535,616
Cost of revenue........................ 2,896,009 4,681,539 3,175,842 4,280,734
---------- ----------- ----------- -----------
Gross profit...................... 6,234,815 10,895,710 7,583,864 11,254,882
Operating expenses:
Research and development............. 1,308,402 6,235,034 4,364,519 6,347,205
Selling, general and
administrative.................... 4,674,313 6,901,394 4,876,026 7,031,658
Charge for purchased research and
development....................... -- 3,492,000 3,492,000 --
---------- ----------- ----------- -----------
Income (loss) from operations..... 252,100 (5,732,718) (5,148,681) (2,123,981)
Other income (expense):
Interest expense..................... (16,817) (312,881) (184,840) (226,337)
Interest income...................... -- 35,789 12,211 52,867
Other income (expense)............... 7,778 (15,115) (20,100) 21,604
---------- ----------- ----------- -----------
Net income (loss)................. $ 243,061 $(6,024,925) $(5,341,410) $(2,275,847)
========== =========== =========== ===========
Pro forma net loss per common and
common equivalent share.............. $ (0.27)
===========
Pro forma weighted average number of
common and common equivalent shares
outstanding.......................... 8,316,543
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 56
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<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 convertible
redeemable 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 preferred
stock......................... -- -- -- -- 1,000,000 4,500,000
Exercise of stock options....... -- -- -- -- -- --
Exercise of stock options,
issued from treasury.......... -- -- -- -- -- --
Noncash compensation charge for
stock options................. -- -- -- -- -- --
Issuance of treasury stock...... -- -- -- -- -- --
Related party forgiveness of
debt.......................... -- -- -- -- -- --
Accretion of class C redeemable
convertible and class D
preferred stock dividend...... -- -- -- 270,863 -- 90,000
Net loss........................ -- -- -- -- -- --
--------- ---------- --------- ---------- --------- ----------
Balance, March 31, 1996........... -- -- 2,662,636 8,009,814 1,000,000 4,590,000
Pro forma adjustments (see
footnote 1(j)................... -- -- (2,779,615) (8,349,814 ) (1,000,000) (4,590,000 )
--------- ---------- --------- ---------- --------- ----------
Pro forma balance, March 31, 1996
(unaudited)..................... -- $ -- -- $ -- -- $ --
========= ========== ========= ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 57
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT) -- (CONTINUED)
<CAPTION>
------------------------------------------------------------
CLASS A CLASS A
CONVERTIBLE COMMON STOCK
--------------------------- -------------------------
NUMBER LIQUIDATION NUMBER $.01
OF SHARES VALUE OF SHARES PAR VALUE
---------- ----------- ---------- ---------
<S> <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 ) -- --
Stock repurchase........................................... -- -- -- --
Issuance of class D preferred stock........................ -- -- -- --
Exercise of stock options.................................. -- -- 58,773 588
Exercise of stock options, issued from treasury............ -- -- -- --
Noncash compensation charge for stock options.............. -- -- -- --
Issuance of treasury stock................................. -- -- -- --
Related party forgiveness to debt.......................... -- -- -- --
Accretion of class C redeemable convertible and class D
preferred stock dividend................................. -- -- -- --
Net loss................................................... -- -- -- --
---------- ----------- ---------- --------
Balance, March 31, 1996.................................... 3,125,051 3,606,658 1,386,066 13,861
Pro forma adjustments...................................... (3,125,051) (3,606,658 ) (1,386,066) (13,861 )
---------- ----------- ---------- --------
Pro forma balance, March 31, 1996 (unaudited).............. -- $ -- -- $ --
========== =========== ========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 58
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------------------------------------------------------------------------------------------
CLASS B
COMMON STOCK COMMON STOCK TREASURY STOCK TOTAL
- ----------------------- ----------------------- ADDITIONAL ----------------------- STOCKHOLDERS'
NUMBER $.01 NUMBER $.01 PAID-IN ACCUMULATED NUMBER EQUITY
OF SHARES PAR VALUE OF SHARES PAR VALUE CAPITAL DEFICIT OF SHARES COST (DEFICIT)
- --------- --------- --------- --------- ----------- ------------ --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- $ -- -- $ -- $ 4,565 $(4,042,489 ) -- $ -- $(2,234,980)
-- -- -- -- 1,898 -- -- -- 1,998
-- -- -- -- -- (186,788 ) -- -- (186,788)
-- -- -- -- -- 243,061 -- -- 243,061
-------- ------- -------- ------- ----------- ------------ -------
-- -- -- -- 6,463 (3,986,216 ) -- -- (2,176,709)
-- -- -- -- -- -- -- -- 3,046,000
-- -- -- -- -- (221,162 ) -- -- (221,162)
-- -- -- -- -- (6,024,925 ) -- -- (6,024,925)
-------- ------- -------- ------- ----------- ------------ -------
-- -- -- -- 6,463 (10,232,303 ) -- -- (5,376,796)
-- -- -- -- -- (34,769 ) -- -- (34,769)
-- -- -- -- (25,651) -- -- -- (25,651)
478,254 4,783 -- -- 1,224,330 -- -- -- --
-- -- -- -- -- -- 370,370 (250,000) (250,000)
-- -- -- -- -- -- -- -- --
-- -- -- -- 11,169 -- -- -- 11,757
-- -- -- -- (48,743) -- (102,671 ) 69,264 20,521
-- -- -- -- 182,000 -- -- -- 182,000
-- -- -- -- -- -- (29,630 ) 20,000 20,000
-- -- -- -- 565,000 -- -- -- 565,000
-- -- -- -- -- (360,863 ) -- -- (360,863)
-- -- -- -- -- (2,275,847 ) -- -- (2,275,847)
-------- ------- -------- ------- ----------- ------------ -------
478,254 4,783 -- -- 1,914,568 (12,903,782 ) 238,123 (160,736) (7,524,648)
(478,254 ) (4,783) 7,768,986 77,690 11,987,426 -- -- -- 8,439,814
-------- ------- -------- ------- ----------- ------------ -------
-- $ -- 7,768,986 $77,690 $13,901,994 $(12,903,782) 238,123 $(160,736) $ 915,166
======== ======= ======== ======= =========== ============ =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 59
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS ENDED
JUNE 30, MARCH 31,
------------------------ --------------------------
1994 1995 1995 1996
--------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................ $ 243,061 $(6,024,925) $(5,341,410) $(2,275,847)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities--
Charge for purchased research and
development......................... -- 3,492,000 3,492,000 --
Depreciation and amortization......... 132,236 408,030 363,107 555,440
Noncash charge........................ -- -- -- 182,000
Changes in assets and liabilities--
Accounts receivable................. (223,969) 203,032 (263,440) (99,162)
Inventories......................... (115,246) (720,087) (595,082) (109,966)
Prepaid expenses and other current
assets........................... (3,277) (176,912) (152,375) 3,358
Accounts payable.................... (175,199) 1,017,315 750,554 (226,348)
Other accrued expenses.............. 558,313 199,949 465,779 (204,182)
Accrued payroll..................... 205,320 140,107 (21,851) 182,346
Deferred revenue.................... (67,184) 982,961 793,083 3,965,000
--------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities........... 554,055 (478,530) (509,635) 1,972,639
--------- ----------- ----------- -----------
Cash flows from investing activities:
Increase in other assets................. -- (37,500) (37,500) --
Net cash acquired in connection with the
Peripherals Division acquisition...... -- 197,000 197,000 --
Acquisition of property and equipment,
net................................... (176,077) (384,723) (372,925) (1,160,055)
--------- ----------- ----------- -----------
Net cash used in investing
activities..................... (176,077) (225,223) (213,425) (1,160,055)
--------- ----------- ----------- -----------
Cash flows from financing activities:
Issuance of class A convertible preferred
stock................................. -- 750,000 750,000 --
Issuance of class C redeemable
convertible preferred stock, net of
issuance costs........................ -- -- -- 3,274,349
Issuance of class D preferred stock...... -- -- -- 4,500,000
Issuance of treasury stock............... -- -- -- 20,000
Borrowings under equipment line of
credit................................ -- -- -- 482,000
Repayment of equipment line of credit.... -- -- -- (41,000)
Net borrowings (repayments) of senior
subordinated promissory notes payable
to stockholders....................... 64,850 (20,759) (20,759) --
Proceeds from secured promissory notes
payable............................... -- 350,000 -- --
Stock repurchase......................... -- -- -- (250,000)
Proceeds from exercise of stock
options............................... -- -- -- 32,278
--------- ----------- ----------- -----------
Net cash provided by financing
activities..................... 64,850 1,079,241 729,241 8,017,627
--------- ----------- ----------- -----------
Net increase in cash and cash
equivalents.............................. 442,828 375,488 6,181 8,830,211
Cash and cash equivalents, beginning of
period................................... 408,048 850,876 850,876 1,226,364
--------- ----------- ----------- -----------
Cash and cash equivalents, end of period... $ 850,876 $ 1,226,364 $ 857,057 $10,056,575
========= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE> 60
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
(1) OPERATIONS AND SUMMARY OF 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, 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, unless a
significant obligation exists at the time of shipment. The Company provides for
the 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 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 March 31, 1996.
(c) Warranty Costs
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,
F-9
<PAGE> 61
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
technological feasibility is established upon completion of a working model.
Costs incurred by the Company between completion of the working model and the
point at which the product is ready for general release have not been material.
Through March 31, 1996, all research and development costs have been expensed.
(e) Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less at the time of purchase to be cash
equivalents. Cash equivalents consist primarily of United States Government
obligations. In accordance with SFAS No. 115, Accounting for Investments in
Certain Debt and Equity Securities, the Company has the positive intent and
ability to hold its cash equivalents to maturity; therefore, cash equivalents
are recorded at amortized cost, which approximates market value.
(f) 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, MARCH 31,
1995 1996
-------- ----------
<S> <C> <C>
Raw materials........................................................ $602,706 $ 613,895
Finished goods....................................................... 305,333 404,110
-------- ----------
$908,039 $1,018,005
======== ==========
</TABLE>
(g) 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>
ESTIMATED JUNE 30, MARCH 31,
USEFUL LIFE 1995 1996
----------- ---------- ----------
<S> <C> <C> <C>
Computer equipment...................................... 3-5 Years $ 801,503 $1,818,030
Furniture and fixtures.................................. 3-7 Years 369,704 504,201
Machinery and equipment................................. 3-5 Years 42,567 52,377
---------- ----------
1,213,774 2,374,608
Less--Accumulated depreciation and amortization......... 493,723 801,442
---------- ----------
$ 720,051 $1,573,166
========== ==========
</TABLE>
(h) 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 United States dollar, are included in other
income (expense) in the consolidated statements of operations.
(i) 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
F-10
<PAGE> 62
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
Company's accounts receivable credit risk is not concentrated within any
geographic area. As of March 31, 1996, one customer accounted for approximately
16.5% of accounts receivable.
<TABLE>
The following summarizes significant customers:
<CAPTION>
NUMBER OF PERCENTAGE OF
CUSTOMERS NET REVENUES
--------- -------------
<S> <C> <C>
Fiscal year ended
June 30, 1994................................ 2 17.1%, 11.3%
June 30, 1995................................ 1 12.3
Nine months ended
March 31, 1995............................... -- --
March 31, 1996............................... 1 17.5
</TABLE>
(j) Unaudited Pro Forma Presentation
The unaudited pro forma consolidated balance sheet and unaudited
consolidated statement of pro forma redeemable preferred stock and stockholders'
equity (deficit) as of March 31, 1996 reflects: (1) the repurchase of 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; (2) the conversion of $340,000 in
principal amount of the secured promissory note payable to Phoenix Technologies
Ltd. into 116,979 shares of Class C Redeemable Convertible Preferred Stock and
the repayment of an additional $300,000 in principal amount of such note; (3)
the automatic conversion of the Class C Redeemable Convertible Preferred Stock
and the Class A Convertible Preferred Stock into 5,904,666 shares of Class A
Common Stock; and (4) the conversion of all issued shares of Class B into Class
A Common Stock and the redesignation of all shares of Class A Common Stock as
"Common Stock" upon the closing of the Company's proposed initial public
offering. In addition, the pro forma statements reflect the accumulated
dividends related to the Class C Redeemable Convertible Preferred Stock and
Class D Preferred Stock being credited to additional paid-in capital because
upon the automatic conversion of the Class C and Class D Preferred Stock, the
accumulated dividends are not converted or paid to the preferred stockholders.
(k) Pro Forma Net Loss
For the nine-month period ended March 31, 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 24, 1995 have been
outstanding for the period presented, computed in accordance with the treasury
stock method. Historical net income (loss) per share data has not been
presented, as such information is not considered to be relevant or meaningful.
(l) 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.
(m) Interim Financial Statements
The accompanying consolidated statements of operations and cash flows for
the nine-month period ended March 31, 1995 are unaudited but, in the opinion of
management, include all adjustments
F-11
<PAGE> 63
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
(consisting only of normal, recurring adjustments) necessary for a fair
presentation of results for this interim period.
(n) 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.
(o) New Accounting Standards
During 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 in the nine-month period ended March 31, 1996. The adoption of this
standard did not have a material effect on its 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 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
beginning in the year ending June 30, 1997, with comparable disclosures for the
year ending June 30, 1996. The Company has not determined the impact of these
pro forma adjustments.
(p) Noncash Investing and Financing Activities
<TABLE>
The following table summarizes the supplemental disclosure of the noncash
transactions for the periods indicated.
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
JUNE 30, MARCH 31,
------------------------ --------------------------
1994 1995 1995 1996
-------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Supplemental Disclosure of Noncash
Transactions:
Issuance of common stock................ $ 1,998 $ -- $ -- $ --
======== ======== ======== ==========
Dividend accretion on preferred stock... $186,788 $221,162 $165,873 $ 395,632
======== ======== ======== ==========
Conversion of class A convertible
preferred stock to class B common
stock................................ $ -- $ -- $ -- $1,229,113
======== ======== ======== ==========
Forgiveness of secured promissory note
payable to a related party........... $ -- $ -- $ -- $ 565,000
======== ======== ======== ==========
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
Senior subordinated promissory notes
payable to stockholders............ -- -- -- 228,355
Secured promissory notes payable..... -- -- -- 1,900,000
-------- -------- -------- ----------
Total noncash conversion........ $ -- $ -- $ -- $4,438,951
======== ======== ======== ==========
</TABLE>
F-12
<PAGE> 64
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
<TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
JUNE 30, MARCH 31,
------------------------ --------------------------
1994 1995 1996
-------- ----------- 1995 ----------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C>
In connection with the acquisition of
Peripherals Division in fiscal 1995
(Note 2), the following noncash
transactions occurred--
Fair value of assets acquired........ $ -- $(6,948,000) $(6,948,000) $ --
Issuance of Class A convertible
preferred stock.................... -- 2,296,000 2,296,000 --
Issuance of secured promissory notes
payable................................. -- 4,849,000 4,849,000 --
------- ----------- ----------- --------
Cash acquired, net of $53,000
paid for direct costs of
acquisition................... $ -- $ 197,000 $ 197,000 $ --
======= =========== =========== ========
Supplemental Disclosure of Cash Flow
Information:
Cash paid for interest.................. $14,605 $ 185,320 $ 88,706 $171,617
======= =========== =========== ========
Cash paid for income taxes.............. $ 3,184 $ 5,955 $ 5,955 $ --
======= =========== =========== ========
</TABLE>
(2) ACQUISITION OF THE PERIPHERALS DIVISION
<TABLE>
In October 1994, the Company acquired the Peripherals Division of Phoenix
Technologies Ltd. This acquisition was accounted for as a purchase, in
accordance with Accounting Principles Board Opinion No. 16. To fund the
purchase, the Company issued a $4,849,000 secured promissory note payable to
Phoenix Technologies Ltd. ("Phoenix"), with principal payable quarterly, as
defined, beginning in January 1997. Interest is payable at an annual rate of
8.0%, 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
connection with this acquisition, the Company sold to Phoenix an additional
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
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
F-13
<PAGE> 65
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
bring these projects to technological feasibility, high risk developmental and
testing issues needed to be resolved which required substantial additional
effort and testing.
(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. The principal differences
between assets and liabilities for financial reporting and tax return purposes
result primarily from the timing of certain expenditures for income tax
purposes. 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 March 31, 1996, the Company had available net operating loss
carryforwards of approximately $4,200,000 for United States federal income tax
reporting purposes, expiring at various dates beginning in 2001.
The Company's subsidiaries, and various predecessor companies have
available net operating loss carryforwards of approximately $1,737,000 for
foreign income tax reporting purposes at the subsidiary level. These
carryforwards may be used to offset future taxable income, if any.
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 net operating loss carryforwards (NOLs) is limited as of
March 31, 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 NOL carryforward.
<TABLE>
The components of deferred income tax assets and liabilities and the
valuation allowance are as follows:
<CAPTION>
JUNE 30, MARCH 31,
1995 1996
----------- -----------
<S> <C> <C>
Assets --
Operating loss carryforwards.................................... $ 1,556,653 $ 2,400,082
Temporary differences --
Intangibles and incomplete research and development.......... 1,492,960 1,414,840
Allowance for doubtful accounts.............................. 81,600 34,558
Inventory valuation allowance................................ 92,748 185,608
Allowance for sales returns.................................. 80,000 106,002
Other........................................................ 284,901 281,140
----------- -----------
Total gross deferred tax asset.......................... 3,588,862 4,422,230
Less -- valuation allowance..................................... (3,588,862) (4,422,230)
----------- -----------
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 NOL's in the year ended June
30, 1994 and the NOL incurred in all other periods presented. Because the level
of future
F-14
<PAGE> 66
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
taxable income is uncertain, the Company has recorded a valuation allowance
equal to the net deferred tax asset.
(4) SENIOR SUBORDINATED PROMISSORY NOTES PAYABLE TO STOCKHOLDERS
Senior subordinated promissory notes payable issued to various stockholders
represent subordinated promissory notes, 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)).
(5) SECURED PROMISSORY NOTES PAYABLE
In connection with the acquisition of the Peripherals Division of Phoenix
Technologies Ltd., 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. Interest was payable
quarterly at an annual rate of 10.0%, beginning in July 1995, and the principal
balance is payable on March 31, 1996. 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
8.0% 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. Phoenix has the right to convert up to
$340,000 of the principal amount of this note to shares of the Class C Preferred
Stock at a price of $2.91 by giving written notice to the Company on or before
June 30, 1998.
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 8.0% beginning in April 1996, and the
principal balance will be due in 12 quarterly installments beginning in
September 1998 in amounts as defined. The maturity date of this note is October
15, 2001. This note also has the right to convert up to $340,000 of principal
into Class C Preferred Stock. At March 31, 1996, $2,734,000 is outstanding under
this note. This balance was reduced by $340,000 of principal which was converted
to 116,979 shares of Class C Redeemable Convertible Preferred Stock on May 9,
1996. The balance after this conversion will be paid upon the completion of the
Company's proposed initial public offering.
(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 revolving line of credit bear interest at the prime rate
(8.25% at March 31, 1996) plus 0.5%. The revolving line of credit 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 March 31, 1996) plus 1.0% 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 March 31, 1996, the Company
has borrowed a total of $482,000 under three term loans. Borrowings under the
revolving line of credit and term loan facility are secured by substantially all
assets of the Company. The Company is restricted in the payment of any dividends
under the Line. In addition, the Company is required to comply with certain
restrictive covenants, including debt to worth, capital base, quick ratio and
profitability. The Company was
F-15
<PAGE> 67
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
in compliance with all covenants as of March 31, 1996. The outstanding
borrowings under the revolving line of credit and term loan facility are $0 and
$441,000, respectively, as of March 31, 1996.
(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.
VOTING RIGHTS
The holders of all classes of the preferred stock are 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 have 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 are entitled to dividends of 8.0% per annum.
Class C Redeemable Convertible Preferred Stockholders are entitled to dividends
of 6.0% 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 10.0% 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 D Preferred Stock will be entitled to receive, prior to
the distribution of assets to the holders of Class A and C Preferred Stock or
Class A and Class B Common Stock, $1.59 per share plus any unpaid dividends.
After full
F-16
<PAGE> 68
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
payment to the Class D stockholders, as described above, each holder of Class C
and Class D Preferred Stock will be entitled to $2.91 per share plus any unpaid
dividend.
After payment to the Class C and Class D Preferred Stockholders, the
holders of the Class A Preferred Stock, 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 and Class D 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 and Class D Preferred 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 and Class D 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
Class D Preferred Stock outstanding may be required to be repurchased. The
redemption price per share shall be equal to $2.91 and $4.50 for each share of
Class C and Class D Preferred Stock, respectively, plus all accrued dividends.
(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.
(c) Issuance of Class D Preferred Stock
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 $4.5 million.
(8) STOCKHOLDERS' EQUITY (DEFICIT)
(a) Authorized Capital Stock
During the nine months ended March 31, 1996, the Board of Directors 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.
F-17
<PAGE> 69
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
(b) Common Stock
At March 31, 1996, 11,125,664 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.
(c) Restricted Common Stock
As of March 31, 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 at $0.68 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 March 31, 1996.
The Company's 1996 Stock Option Plan was approved by the Board of Directors
in February 1996, and is expected to be adopted by the Company's stockholders
prior to the closing date of the offering. The 1996 Stock Option Plan provides
for the grant or award of stock options, restricted stock and other performance
awards which may or may not be denominated in shares of common stock or other
securities (collectively, the "Awards"). Stock options granted under the 1996
Stock Option Plan may be either incentive stock options or nonqualified options.
The purpose of the 1996 Stock Option Plan is to attract and retain outstanding
employees through the incentives of stock ownership. Any employee of the
Company, including officers and directors, is eligible to receive Awards.
The 1996 Stock Option Plan has been and will be administered by the Board
of Directors (the Board). Subject to the provisions of the 1996 Stock Option
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 Stock Option 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 Stock Option Plan) of a share of common stock on the date of
F-18
<PAGE> 70
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
grant. The aggregate number of shares of common stock available for awards under
the 1996 Stock Option 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................................. 841,000 0.20- 1.84
Terminated.............................. (129,660) 0.20- 1.84
Exercised............................... (161,390) 0.20
--------- -----------
Outstanding, March 31, 1996.................. 2,470,100 $0.20-$1.84
========= ===========
Exercisable, March 31, 1996.................. 860,827 $0.20-$1.84
========= ===========
</TABLE>
(9) OPERATING LEASE COMMITMENTS
The Company leases office facilities and 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, $309,000 and
$583,000 for the years ended June 30, 1994 and 1995 and the nine months ended
March 31, 1995 and 1996, respectively.
<TABLE>
The approximate minimum rental payments under the lease agreements for
respective years ending at March 31 are as follows:
<S> <C>
1997......................................................... $ 841,000
1998......................................................... 820,000
1999......................................................... 779,000
2000......................................................... 605,000
2001......................................................... 24,000
Thereafter................................................... --
----------
Total minimum payments.................................. $3,069,000
==========
</TABLE>
(10) RETIREMENT PLAN
Effective January 1992, Xionics, Inc., a subsidiary of 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.
Contributions to the Plan were approximately $33,000, $91,000 and $53,000 for
the years ended June 30, 1994 and 1995 and for the nine months ended March 31,
1995, respectively. There was no contribution in the nine months ended March 31,
1996.
F-19
<PAGE> 71
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
(11) REVENUES BY GEOGRAPHIC DESTINATION AND SIGNIFICANT CUSTOMERS
<TABLE>
Revenues by geographic destination and as a percentage of total revenues
are as follows:
<CAPTION>
FOR THE NINE
FOR THE YEAR ENDED MONTHS ENDED
JUNE 30, MARCH 31,
---------------------------- -----------------------------
1994 1995 1995 1996
---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
North and South America......... $5,348,049 $ 9,063,991 $ 6,222,440 $11,545,705
Europe.......................... 3,589,081 4,328,967 2,960,110 2,611,845
Asia............................ 193,694 2,184,291 1,577,156 1,378,066
---------- ----------- ----------- -----------
$9,130,824 $15,577,249 $10,759,706 $15,535,616
========== =========== =========== ===========
North and South America......... 58.6% 58.2% 57.8% 74.3%
Europe.......................... 39.3 27.8 27.5 16.8
Asia............................ 2.1 14.0 14.7 8.9
----- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
</TABLE>
F-20
<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.
Except as discussed in the following paragraph, 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 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 Sepetember 30, 1993 and 1994 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 17, 1996
F-21
<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-22
<PAGE> 74
PERIPHERALS DIVISION OF PHOENIX TECHNOLOGIES LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS OF REVENUE AND DIRECT COSTS
FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND 1993
(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, unless a significant obligation exists at the time of shipment.
- 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 Revenue
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-23
<PAGE> 75
PERIPHERALS DIVISION OF PHOENIX TECHNOLOGIES LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS OF REVENUE AND DIRECT COSTS
FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND 1993--(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 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-24
<PAGE> 76
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> 77
================================================================================
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 OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 5
The Company........................... 12
Use of Proceeds....................... 12
Dividend Policy....................... 12
Capitalization........................ 13
Dilution.............................. 14
Selected Consolidated Financial
Data................................ 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 22
Management............................ 34
Certain Transactions.................. 40
Principal 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
</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.
================================================================================
================================================================================
2,500,000 SHARES
[LOGO] XIONICS
Document Technologies
COMMON STOCK
------------------
PROSPECTUS
------------------
ADAMS, HARKNESS & HILL, INC.
SOUNDVIEW FINANCIAL GROUP, INC.
, 1996
================================================================================
<PAGE> 78
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
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.............................................. $ 11,897
NASD Fees......................................................... $ 3,950
Nasdaq National Market Listing Fees............................... $ 42,577
Printing and Engraving Expenses................................... $ *
Legal Fees and Expenses........................................... $ *
Accountants' Fees and Expenses.................................... $ *
Expenses of Qualification Under State Securities Laws, Including
Attorneys' Fees................................................. $ 20,000
Transfer Agent and Registrar's Fees............................... $ *
Miscellaneous Costs............................................... $ *
--------
Total........................................................... $800,000
========
<FN>
- ---------------
* To be provided by amendment.
</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
International Holdings, Ltd ("Xionics International"). 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 Xionics International, and agreed
to cancel $1,797,831.92 in certain indebtedness of Xionics International 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 Xionics
International, and agreed to cancel $368,231.52 in certain indebtedness of
Xionics International 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 Xionics
II-1
<PAGE> 79
International, and agreed to cancel indebtedness in the amount of $374,635.58 of
Xionics International to MTC. Pursuant to the 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 Xionics International 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 Mikroelectronic 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.
The Registrant has, from time to time, issued an aggregate of 161,390
shares of restricted Common Stock to various former employees and former
directors upon the exercise of options granted pursuant to the Company's 1993
Stock Option Plan and 1995 Stock Option Plan for an aggregate consideration of
$32,030 at an exercise price of $0.20 per share.
II-2
<PAGE> 80
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 (to be filed by amendment).
3.1 Form of Amended and Restated Certificate of Incorporation of the Registrant (to be
filed by amendment).
3.2 Form of Amended and Restated By-Laws of Registrant (to be filed by amendment).
4.1 Specimen Certificate for Shares of the Registrant's Common Stock, $.01 par value
(to be filed by amendment).
5.1 Opinion of Bingham, Dana & Gould LLP with respect to the legality of the shares
being registered (to be filed by amendment).
10.1 1996 Stock Option Plan and related form of stock option agreement.
10.2 1995 Stock Option Plan and related form of stock option agreement.
10.3 1993 Stock Option Plan and related form of stock option agreement.
10.4 1996 Directors' Stock Option Plan (to be filed by amendment).
10.5 1996 Employee Stock Purchase Plan (to be filed by amendment).
10.6 Class C Preferred Stock Purchase Agreement dated August 25, 1995.
10.7 Second Amended and Restated Shareholder Agreement, dated December 22, 1995.
10.8 Credit Agreement, dated September 25, 1995, between the Company and Fleet Bank of
Massachusetts, N.A.
10.9 Asset Purchase Agreement by and between Phoenix Technologies Ltd. and Xionics
International Holdings, Inc., dated September 30, 1994.
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) (to be filed by amendment).*
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.
10.12 Adobe Repurchase Agreement (together with related General Release Agreements),
dated May 17, 1996.
10.13 Stock Option Agreement between the Company and Robert E. Gilkes.
10.14 Consulting Services Agreement between the Company and Thomas A. St. Germain.
10.15 Severance Agreement between the Company and Peter M. Santeusanio.
10.16 Form of Invention and Nondisclosure Agreement.
10.17 Amended and Restated Registration Rights Agreement.
11.1 Computation of Per Share Earnings.
21.1 Subsidiaries of Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Bingham, Dana & Gould LLP, counsel to Registrant (to be included in
Exhibit 5.1).
24.1 Power of Attorney (included in signature page to Registration Statement).
<FN>
- ---------------
* Confidential treatment to be requested for certain portions of this exhibit.
</TABLE>
II-3
<PAGE> 81
<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> 82
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on this 24th day of May, 1996.
Xionics Document Technologies, Inc.
By: /s/ Robert E. Gilkes
Robert E. Gilkes
President and
Chief Executive Officer
POWER OF ATTORNEY AND SIGNATURES
Each person whose signature appears below hereby appoint each of Robert
Downs and Gerard T. Feeney severally, acting alone and without the other, his
true and lawful attorneys-in-fact with the authority to execute in the name of
each such person, any and all amendments (including without limitation, post-
effective amendments) to this Registration Statement on Form S-1, to sign any
and all additional registration statements relating to the same offering of
securities as this Registration Statement that are filed pursuant to Rule 462(b)
of the Securities Act, and to file such registration statements with the
Securities and Exchange Commission, together with any exhibits thereto and other
documents therewith, necessary or advisable to enable the registrant to comply
with the Securities Act, and any rules, regulations and requirements of the
Securities and Exchange Commission in respect thereof, which amendments may make
such other changes in the Registration Statement as the aforesaid
attorneys-in-fact executing the same deems appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
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>
/s/ Robert E. Gilkes President and Chief Executive May 24, 1996
- ---------------------------------------- Officer; Director (principal
Robert E. Gilkes executive officer)
/s/ Richard A. D'Amore Director May 24, 1996
- ----------------------------------------
Richard A. D'Amore
Director
- ----------------------------------------
Ronald D. Fisher
/s/ David R. Skok Director May 24, 1996
- ----------------------------------------
David R. Skok
/s/ Paul R. Low Director May 24, 1996
- ----------------------------------------
Paul R. Low
/s/ Thomas A. St. Germain Director May 24, 1996
- ----------------------------------------
Thomas A. St. Germain
/s/ Gerard T. Feeney Vice President-Finance, Chief May 24, 1996
- ---------------------------------------- Financial Officer, Treasurer
Gerard T. Feeney (principal financial and accounting
officer)
</TABLE>
II-5
<PAGE> 83
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 March 31, 1996 and the related statements
of operations, redeemable preferred stock and stockholders' equity (deficit) and
cash flows for the years ended June 30, 1994 and 1995 and the nine months ended
March 31, 1996, included in this Registration Statement, and have issued our
report thereon dated May 17, 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
May 17, 1996
S-1
<PAGE> 84
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1994, 1995 AND FOR THE NINE MONTHS ENDED MARCH 31,
1996
<TABLE>
<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
Nine Months ended March 31, 1996............. 204,000 -- (39,000) 165,000
</TABLE>
S-2
<PAGE> 85
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------ ----------------------------------------------------------------------------- -----
<C> <S> <C>
1.1 Form of Underwriting Agreement by and among Registrant, the Selling
Stockholder and the Underwriters (to be filed by amendment).
3.1 Form of Amended and Restated Certificate of Incorporation of the Registrant
effective on the closing date of this offering (to be filed by amendment).
3.2 Form of Amended and Restated By-Laws of Registrant as proposed to be amended
and restated effective on the closing date of this offering (to be filed by
amendment).
4.1 Specimen Certificate for Shares of the Registrant's Common Stock, $.01 par
value (to be filed by amendment).
5.1 Opinion of Bingham, Dana & Gould LLP with respect to the legality of the
shares being registered (to be filed by amendment).
10.1 1996 Stock Option Plan and related form of stock option agreement.
10.2 1995 Stock Option Plan and related form of stock option agreement.
10.3 1993 Stock Option Plan and related form of stock option agreement.
10.4 1996 Directors' Stock Option Plan (to be filed by amendment).
10.5 1996 Employee Stock Purchase Plan (to be filed by amendment).
10.6 Class C Preferred Stock Purchase Arrangement dated August 25, 1995.
10.7 Second Amended and Restated Shareholder Agreement, dated December 22, 1995.
10.8 Credit Agreement, dated September 25, 1995, between the Company and Fleet
Bank of Massachusetts, N.A.
10.9 Asset Purchase Agreement by and between Phoenix Technologies Ltd. and Xionics
International Holdings, Inc., dated September 30, 1994.
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) (to be
filed by amendment).
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.
10.12 Adobe Repurchase Agreement (together with related General Release
Agreements), dated May 17, 1996.
10.13 Stock Option Agreement between the Company and Robert E. Gilkes.
10.14 Consulting Services Agreement between the Company and Thomas A. St. Germain.
10.15 Severance Agreement between the Company and Peter M. Santeusanio.
10.16 Form of Invention and Nondisclosure Agreement.
10.17 Amended and Restated Registration Rights Agreement.
11.1 Computation of Per Share Earnings.
21.1 Subsidiaries of Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Bingham, Dana & Gould LLP, counsel to Registrant (to be included
in Exhibit 5.1).
24.1 Power of Attorney (included in signature page to Registration Statement).
</TABLE>
<PAGE> 1
EXHIBIT 10.1
XIONICS DOCUMENT TECHNOLOGIES, INC.
1996 STOCK OPTION PLAN
---- ----- ------ ----
<PAGE> 2
Table of Contents
1. Purpose 3
2. Definitions 3, 4
3. Term of the Plan 4
4. Stock Subject to the Plan 5
5. Administration 5
6. Eligibility 5
7. Time of Granting Options 5
8. Option Price 6
9. Option Period 6
10. Limit on Incentive Option Characterization 6
11. Exercise of Option 6, 7
12. Restrictions on Issue of Shares 7
13. Purchase for Investment; Subsequent Registration 7, 8
14. Withholding; Notice of Disposition of Stock
Prior to Expiration Of Specified Holding Period 8
15. Termination of Association with the Company 9
16. Transferability of Options 9
17. Adjustment of Number of Option Shares 9, 10
18. Reservation of Stock 10
19. Limitation of Rights in Stock;
No Special Employment or Other Rights 10
20. Termination and Amendment 11
21. Notices and Other Communications 11
2
<PAGE> 3
22. Governing Law 11
XIONICS DOCUMENT TECHNOLOGIES, INC.
1996 STOCK OPTION PLAN
---- ----- ------ ----
1. PURPOSE
This Plan is intended to encourage ownership of Stock by employees and
directors of and consultants to the Company and its Affiliates and to provide
additional incentives for them to promote the success of the Company's business.
The Plan is intended to be an incentive stock option plan within the meaning of
Section 422 of the Code but not all Options granted hereunder are required to be
Incentive Options.
2. DEFINITIONS
As used in this Plan the following terms shall have the following meanings:
2.1. AFFILIATE means a parent or subsidiary corporation of the Company, as
defined in Sections 424 (e) and (f), respectively, of the Code.
2.2. BOARD means the Company's Board of Directors.
2.3. CODE means the federal Internal Revenue Code of 1986, as amended.
2.4. COMMITTEE means a committee the members of which have been appointed
by the Board to serve from time to time at its pleasure and delegated
the responsibility for the administration of the Plan, as provided in
Section 5 of the Plan. For any period during which no such committee
is in existence all authority and responsibility assigned the
Committee under the Plan shall be exercised, if at all, by the Board.
2.5. COMPANY means Xionics Document Technologies, Inc., a corporation
organized under the laws of the State of Delaware.
2.6. EMPLOYMENT AGREEMENT means an agreement, if any, between the Company
and the Optionee, setting forth, INTER ALIA, conditions and
restrictions upon transfer of shares of Stock.
2.7. FAIR MARKET VALUE means the value of a share of Stock on any date as
determined by the Committee.
2.8. GRANT DATE means the date as of which an Option is granted, as
determined under Section 7.
3
<PAGE> 4
2.9. INCENTIVE OPTION means an Option which by its terms is to be treated
as an "incentive stock option" within the meaning of Section 422 of
the Code.
2.10. NONSTATUTORY OPTION means any Option that is not an Incentive Option.
2.11. OPTION means an option to purchase shares of Stock granted under the
Plan.
2.12. OPTION AGREEMENT means an agreement between the Company and an
Optionee, setting forth the terms and conditions of an Option.
2.13. OPTION PRICE means the price paid by an Optionee for a share of stock
upon exercise of an Option.
2.14. OPTIONEE means a person eligible to receive an Option, as provided in
Section 6, to whom an Option shall have been granted under the Plan.
2.15. PLAN means this 1996 Stock Option Plan of the Company, as amended
from time to time.
2.16. STOCK means Common Stock, par value $.01 per share, of the Company.
2.17. SHAREHOLDERS AGREEMENT means the agreement between the Company and
certain shareholders, setting forth, inter alia, certain restrictions
upon the transfer of shares of Stock.
2.18. TEN PERCENT OWNER means a person who owns, or is deemed within the
meaning of Section 422 (b) (6) of the Code to own, stock possessing
more than 10% of the total combined voting power of all classes of
stock of the Company (or any Affiliate). Whether a person is Ten
Percent Owner shall be determined with respect to each Option based
on the facts existing immediately prior to the Grant Date of such
Option.
2.19. VESTING YEAR for any portion of any Incentive Option means the
calendar year in which that portion of the Option first becomes
exercisable.
3. TERM OF THE PLAN
Options may be granted hereunder at the time in the period commencing on
the approval of the Plan by the Board and ending on the tenth anniversary of the
earlier of the adoption of the Plan by the Board or approval of the Plan by the
Company's shareholders.
4
<PAGE> 5
4. STOCK SUBJECT TO THE PLAN
At no time shall the number of shares of Stock then outstanding which are
attributable to the exercise of Options granted under the Plan, plus the number
of shares then issuable upon exercise of outstanding Options granted under the
plan, exceed 950,000 shares, subject, however, to the provisions of Section 17
of the Plan. Shares to be issued upon the exercise of Options granted under the
Plan may be either authorized but unissued shares or shares held by the Company
in its treasury. If any Option expires or terminates for any reason without
having been exercised in full, the shares not purchased thereunder shall again
be available for Options thereafter to be granted.
5. ADMINISTRATION
The Plan shall be administered by the Committee. Subject to the provisions
of the Plan, the Committee shall have complete authority, in its discretion, to
make or to select the manner of making the following determinations with respect
to each Option to be granted by the Company: (a) the employee, director or
consultant to receive the Option; (b) whether the Option (if granted to an
employee) will be an Incentive Option or Nonstatutory Option; (c) the time of
granting the Option; (d) the number of shares subject to the Option; (e) the
Option Price; (f) the Option period; (g) the Option exercise date or dates; and
(h) the effect of termination of employment or other association with the
Company and its affiliates on the subsequent exercisability of the Option. In
making such determinations, the Committee may take into account the nature of
the services rendered by the respective employees, directors, and consultants,
their present and potential contributions to the success of the Company and its
subsidiaries, and such other factors as the Committee in its discretion shall
deem relevant. Subject to the provisions of the Plan (including Section 20), the
Committee shall also have complete authority to interpret the Plan, to
prescribe, amend and rescind rules and regulations relating to it, to determine
the terms and provisions of the respective Option determine the terms and
provisions of the respective Option Agreements (which need not be identical),
and to make all other determinations necessary or advisable for the
administration of the Plan. The Committee's determinations on the matters
referred to in this Section 5 shall be conclusive.
6. ELIGIBILITY
Options may be granted under the Plan to any one or more of the employees
and directors of and consultants to one or more of the Company or an Affiliate.
7. TIME OF GRANTING OPTIONS
The granting of an Option shall take place at the time specified in the
Option Agreement. Only if expressly so provided in the Option Agreement shall
the Grant Date be the date on which an Option Agreement shall have been duly
executed and delivered by the Company and the Optionee.
5
<PAGE> 6
8. OPTION PRICE
The Option Price under each Incentive Option shall be not less than 100% of
the Fair Market Value of Stock on the Grant Date, not less than 110% of the Fair
Market Value of Stock on Grant Date if the Optionee is a Ten Percent Owner. The
Option Price under each Nonstatutory Option shall not be so limited solely by
reason of this Section 8.
9. OPTION PERIOD
No Incentive Option may be exercised later than the tenth anniversary of
the Grant Date, or not later than the fifth anniversary of the Grant Date, if
the Optionee is a Ten Percent Owner. The Option period under each Nonstatutory
Option shall not be so limited solely by reason of this Section 9. An Option may
become exercisable in such installments, cumulative or non-cumulative, as the
Committee may determine. In the case of an Option not otherwise immediately
exercisable in full, the Committee may accelerate the exercisability of such
Option in whole or in part at any time, provided the acceleration of the
exercisability of any Incentive Option would not cause the Option to fail to
comply with the provisions of Section 422 of the Code.
10. LIMIT ON INCENTIVE OPTION CHARACTERIZATION
No Incentive Option shall be considered an Incentive Option to the extent
pursuant to its terms it would permit the Optionee to purchase for the first
time in any Vesting Year under that Incentive Option more than number of shares
of Stock calculated by dividing the current limit by the Option Price. The
current limit for any Optionee for any Vesting Year shall be $100,000 minus the
aggregate Fair Market Value at the date of grant of the number of shares of
Stock available for purchase for the first time in the Vesting Year under each
other Incentive Option granted to the Optionee under the Plan after January 1,
1996 and each other incentive stock option granted to the Optionee after January
1, 1996 under any other incentive stock option plan of the Company and its
Affiliates.
11. EXERCISE OF OPTION
An Option may be exercised by the Optionee giving written notice, in the
manner provided in Section 21 specifying the number of shares with respect to
which the Option is then being exercised. The notice shall be accompanied by
payment in the form of cash, or certified or bank check payable to the order of
the Company in an amount equal to the option price of the shares to be purchased
or, if the Committee had so authorized on the grant of any particular Option
hereunder (and subject to such conditions, if any, as the Committee may deem
necessary to avoid adverse accounting effects to the Company) by delivery of
that number of shares of Stock having a fair market value equal to the option
price of the shares to be purchased. Receipt by the Company of such notice and
payment shall constitute the exercise of the Option. Within 30 days thereafter
but subject to the
6
<PAGE> 7
remaining provisions of the Plan, the Company shall deliver or cause to be
delivered to the Optionee or his/her agent a certificate or certificates for the
number of shares then being purchased. Such shares shall be fully paid and
nonassessable.
12. RESTRICTIONS ON ISSUE OF SHARES
12.1. Notwithstanding any other provision of the Plan, if, at any time, in
the reasonable opinion of the Company the issuance of shares of Stock covered by
the exercise of any Option may constitute a violation of law, then the Company
may delay such issuance and delivery of certificate for such shares until (i)
approval shall have been obtained from such governmental agencies, other than
the Securities and Exchange Commission, as may be required under any applicable
law, rule, or regulation, and (ii) in the case where such issuance would
constitute a violation of a law administered by or a regulation of the
Securities and Exchange Commission, one of the following conditions shall have
been satisfied:
(a) the shares with respect to which such Option has been exercised are at
the time of the issue of such shares effectively registered under the Securities
Act of 1933, as amended (the "Securities Act"); or
(b) a no-action letter in form and substance reasonably satisfactory to the
Company with respect to the issuance of such shares shall have been obtained by
the Company from the Securities and Exchange Commission.
The Company shall make all reasonable efforts to bring about the occurrence of
said events.
12.2. Each certificate representing shares issued upon the exercise of an
Option will bear restrictive legends which may refer to this Plan and to
applicable restrictions under the Shareholders Agreement and Employment
Agreement.
13. PURCHASE FOR INVESTMENT; SUBSEQUENT REGISTRATION
13.1. Unless the shares to be issued upon exercise of an Option granted
under the Plan have been effectively registered under the Securities Act, the
Company shall be under no obligation to issue any shares covered by any Option
unless the person who exercises such Option, in whole or in part, shall give a
written representation to the Company which is satisfactory in form and
substance to its counsel and upon which the Company may re reasonably rely, that
he or she is acquiring the shares issued pursuant to such exercise of the Option
as an investment and not with a view to, or for sale in connection with, the
distribution of any such shares.
13.2. Each share of Stock issued pursuant to the exercise of an Option
granted pursuant to this Plan may bear a reference to the investment
representation made in
7
<PAGE> 8
accordance with this Section 13 and to the fact that no registration statement
has been filed with the Securities and Exchange Commission in respect to said
Stock.
8
<PAGE> 9
13.3. If the Company shall deem it necessary or desirable to register under
the Securities Act or other applicable statutes any shares with respect to which
an Option shall have been granted, or to qualify any such shares for exemption
from the Securities Act or applicable statutes, then the Company shall take such
action at its own expense. The Company may require from each Option holder, or
each holder of shares of Stock acquired pursuant to the Plan, such information
in writing for use in any registration statement, prospectus, preliminary
prospectus or offering circular as is reasonably necessary for such purpose and
may require reasonable indemnity to the Company and its officers and directors
from such holder against all losses, claims, damage and liabilities arising from
such use of the information so furnished and caused by any untrue statement of
any material fact therein or caused by the omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances under which they were made.
13.4. Whenever shares are to be issued in satisfaction of an Option granted
hereunder, the Company shall have the right to require the Optionee (a) to
execute and deliver and otherwise become a party to the Shareholders Agreement
in respect of such shares, or (b) to grant the Company a right of first refusal
before any sale or other disposition of such shares by the Optionee on
commercially customary terms and conditions.
14. WITHHOLDING; NOTICE OF DISPOSITION OF STOCK PRIOR TO EXPIRATION OF
SPECIFIED HOLDING PERIOD
14.1. Whenever shares are to be issued in satisfaction of an Option granted
hereunder, the Company shall have the right to require the Optionee to remit to
the Company an amount sufficient to satisfy federal, state, local or other
withholding tax requirements if and to the extent required by law (whether so
required to secure for the Company an otherwise available tax deduction or
otherwise) prior to the delivery of any certificate or certificates for such
shares.
14.2. The Company may require as a condition to the issuance of shares
covered by any Incentive Option that the party exercising such Option give a
written representation to the Company which is satisfactory in form and
substance to its counsel and upon which the Company may reasonably rely, that he
or she will report to the Company any disposition of such shares prior to the
expiration of the holding periods specified by Section 422 (a) (1) of the Code.
If and to the extent that the realization of income in such a disposition
imposes upon the Company federal, state, local or other withholding tax
requirements, or any such withholding is required to secure for the Company an
otherwise available tax deduction, the Company shall have the right to require
that the recipient remit to the Company an amount sufficient to satisfy those
requirements, and the Company may require as a condition to the issuance of
shared covered by an Incentive Option that the party exercising such option give
a satisfactory written representation promising to make such a remittance.
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<PAGE> 10
15. TERMINATION OF ASSOCIATION WITH THE COMPANY
Unless the Committee shall provide otherwise in the grant of a particular
Option under the Plan, the Option shall cease to be exercisable in any respect
90 days after the Optionee's employment or other association with the Company is
terminated, whether voluntarily or otherwise, and shall be exercisable within
such 90 day period only to the extent exercisable on the date of such
termination. Military or sick leave shall not be deemed a termination of
employment or other association, provided that it does not exceed the longer of
90 days or the period during which the absent Optionee's reemployment rights, if
any, are guaranteed by statute or by contract.
16. TRANSFERABILITY OF OPTIONS
Options shall not be transferable, otherwise than by will or the laws of
descent and distribution, and may be exercised during the life of the Optionee
only by the Optionee.
17. ADJUSTMENT OF NUMBER OF OPTION SHARES
17.1. In the event of any stock dividend payable in Stock or any split-up
or contraction in the number of shares of Stock after the date of the Option
Agreement and prior to the exercise in full of the Option, the number of shares
subject to such Option Agreement and price to be paid for each share subject to
the Option shall be proportionately adjusted.
17.2. In the event of any reclassification or change of outstanding shares
of Stock, shares of stock or other securities equivalent in kind and value to
those shares an Optionee would have received if he or she had held the full
number of shares of Stock subject to the Option immediately prior to such
reclassification or change and had continued to hold those shares (together with
all other shares, stock and securities thereafter issued in respect thereof) to
the time of the exercise of the Option shall thereupon be subject to the Option.
17.3. Subject to the remainder of this Section 17.3, in the event of any
consolidation or merger of the Company with or into another company or in case
of any sale or conveyance to another company or entity of the property of the
Company as a whole or substantially as a whole, shares of stock or other
securities equivalent in kind and value to those shares and other securities an
Optionee would have received if he or she had held the full number of shares of
Stock remaining subject to the Option immediately prior such consolidation,
merger, sale or conveyance and had continued to hold those shares (together with
all other shares, stock, and securities thereafter issued in respect thereof) to
the time of the exercise of the Option shall thereupon be subject to the Option.
However, except to the extent any Option Agreement shall provide different or
additional terms, in any such transaction the Committee, in its discretion, may
provide instead that any outstanding Option shall terminate, to the extent not
exercised by the
10
<PAGE> 11
Optionee prior to termination, as of the date of the transaction, in
consideration of the Company's payment to the Optionee of an amount of cash
equal to the difference between the aggregate Fair Market Value of the shares of
Stock for which the Option is then exercisable and the aggregate exercise price
for such shares under the Option.
17.4. Upon dissolution or liquidation of the Company, the Option shall
terminate, but the Optionee (if at the time in the employ of or otherwise
associated with the Company or any of its Affiliates) shall have the right,
immediately prior to such dissolution or liquidation, to exercise the Option to
the extent exercisable on the date of such dissolution or liquidation.
17.5. No fraction of a share shall be purchasable or deliverable upon
exercise, but in the event any adjustment hereunder of the number of shares
covered by the Option shall cause such number to include a fraction of a share,
such number of shares shall be adjusted to the nearest smaller whole number of
shares. In the event of changes in the outstanding Stock by reason of any stock
dividend, split-up, contraction, reclassification, or change of outstanding
shares of Stock of the nature contemplated by this Section 17, the number of
shares of Stock available for the purpose of the Plan as stated in Section 4
shall be correspondingly adjusted.
18. RESERVATION OF STOCK
The Company shall at all times during the term of the Plan and any
outstanding Options granted hereunder reserve or otherwise keep available such
number of shares of Stock as will be sufficient to satisfy the requirements of
the Plan (if then in effect) and such Options and shall pay all fees and
expenses necessarily incurred by the Company in connection therewith.
19. LIMITATION OF RIGHTS IN STOCK;
NO SPECIAL EMPLOYMENT OR OTHER RIGHTS
The Optionee shall not be deemed for any purpose to be a stockholder of the
Company with respect to any of the shares of Stock covered by an Option, except
to the extent that the Option shall have been exercised with respect thereto
and, in addition, a certificate shall have been issued therefor and delivered to
the Optionee or his agent. Nothing contained in the Plan or in any Option shall
confer upon any Optionee any right with respect to the continuation of his or
her employment to other association with the Company (or any Affiliate), or
interfere in any way with the right of the Company (or any Affiliate), subject
to the terms of any separate employment of consulting agreement or provision of
law or corporate articles or by-laws to the contrary, at any time to terminate
such employment or consulting agreement or to increase or decrease the
compensation of the Optionee from the rate in existence at the time of the grant
of an Option.
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<PAGE> 12
20. TERMINATION AND AMENDMENT; NOTICE
The Board may at any time terminate the Plan or make such modifications of
the Plan as it shall deem advisable. No termination or amendment of the Plan
may, without the consent of the Optionee to whom any Option shall theretofore
have been granted, adversely affect the rights of such Optionee under such
Option.
The Committee shall similarly have the right to terminate or amend any
Option outstanding on the date of any such action, provided, however, that any
amended Option shall remain consistent with all applicable terms of the Plan,
and provided, further, however, that no termination or amendment of an
outstanding Option shall adversely affect the rights of the Optionee under such
Option without the consent of the Optionee.
The Committee shall give prompt notice to any Optionee of any amendment to
the Plan, and the occurrence of any event that would trigger rights with respect
to any Options granted under the Plan, including the occurrence of any
"Disposition" or any "IPO", as those terms are defined in certain option
agreements governing Options.
21. NOTICES AND OTHER COMMUNICATIONS
All notices and other communications required or permitted under the Plan
shall be effective if in writing and if delivered or sent by certified or
registered mail, return receipt requested (a) if to the Optionee, at his or her
residence address last filed with the Company, and (b) if to the Company, at 70
Blanchard Road, Burlington, MA 01803, Attention: Chief Executive Officer or to
such other persons or addresses as the Optionee or the Company may specify by
written notice to the other from time to time.
22. GOVERNING LAW
This Plan shall be interpreted and enforced in accordance with the laws of
the Commonwealth of Massachusetts.
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XIONICS DOCUMENT TECHNOLOGIES, INC.
STOCK OPTION AGREEMENT
(TIME VESTED)
AGREEMENT dated this ((Day))of ((Month)), ((Year), between Xionics Document
Technologies, Inc., a corporation organized under the laws of the State of
Delaware (the "Company"), and the individual identified below, residing at the
address there set out (the "Optionee").
1. GRANT OF OPTION. Pursuant to the Company's 1996 Stock Option Plan as
attached hereto as EXHIBIT A (the "Plan"), the Company grants to the Optionee an
option (the "Option") to purchase from the Company all or any part of a total of
((Shares)) shares (the "Optioned Shares") of the Company's Common Stock, par
value $.01 per share (the "Stock"), at a price of ____________________ cents per
share. This Option is granted as of the date hereof.
2. CHARACTER OF OPTION. This Option is intended to be treated as an
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended.
3. DURATION OF OPTION. This Option shall expire on the earlier of (a) the
tenth anniversary of the date of this Agreement , or (b) the ninetieth (90th)
day following the Optionee's termination of the employment or other association
with the Company and its Affiliates for any reason.
4. EXERCISE OF OPTION. Optioned Shares shall become available for purchase
under this Option in sixteen (16) equal installments of ((Option_A))Optioned
Shares each, one such installment available from and after the first day of each
of the sixteen (16) consecutive calendar quarters beginning subsequent to the
date of this Agreement;
PROVIDED, HOWEVER, that after termination of the Optionee's employment or other
association with the Company no additional installments of the Optioned Shares
shall become available for purchase. Until its expiration, exercise of this
Option at any time may be for any number of Optioned Shares then available for
purchase under this Option and shall be effected in the manner specified in
Section 11 of the Plan.
5. TRANSFER OF OPTIONS. This Option may not be transferred except by will
or the laws of descent and distribution, and, during the lifetime of the
Optionee, may be exercised only by the Optionee.
<PAGE> 14
6. INCORPORATION OF PLAN TERMS. This Option is granted subject to all of
the applicable terms and provisions of the Plan, including but not limited to
the limitations on the Company's obligation to deliver Optioned Shares upon
exercise set forth in Section 12 (RESTRICTIONS ON ISSUE OF SHARES), Section 13
(PURCHASE FOR INVESTMENT; SUBSEQUENT REGISTRATION), and Section 14 (WITHHOLDING
NOTICE OF DISPOSITION OF STOCK PRIOR TO EXPIRATION OF SPECIFIED HOLDING PERIOD).
7. MISCELLANEOUS. This Agreement shall be construed and enforced in
accordance with the laws of the Commonwealth of Massachusetts and shall be
binding upon and inure to the benefit of any successor or assign of the Company
and any executor, administrator, trustee, guardian, or other legal
representative of the Optionee.
IN WITNESS WHEREOF, the parties have executed this Agreement as a sealed
instrument as of the date first above written.
XIONICS DOCUMENT TECHNOLOGIES, INC.
By: Robert E. Gilkes
-----------------------------------
Optionee: ((FirstName))((LastName))
Title: Chief Executive Officer Optionee's Address:
-----------------------
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<PAGE> 1
EXHIBIT 10.2
XIONICS DOCUMENT TECHNOLOGIES, INC.
1995 STOCK OPTION PLAN
----------------------
<PAGE> 2
Table of Contents
1. Purpose 3
2. Definitions 3, 4
3. Term of the Plan 4
4. Stock Subject to the Plan 5
5. Administration 5
6. Eligibility 5
7. Time of Granting Options 5
8. Option Price 6
9. Option Period 6
10. Limit on Incentive Option Characterization 6
11. Exercise of Option 6, 7
12. Restrictions on Issue of Shares 7
13. Purchase for Investment; Subsequent Registration 7, 8
14. Withholding; Notice of Disposition of Stock
Prior to Expiration Of Specified Holding Period 8
15. Termination of Association with the Company 9
16. Transferability of Options 9
17. Adjustment of Number of Option Shares 9, 10
18. Reservation of Stock 10
19. Limitation of Rights in Stock;
No Special Employment or Other Rights 10
20. Termination and Amendment 11
21. Notices and Other Communications 11
2
<PAGE> 3
22. Governing Law 11
XIONICS DOCUMENT TECHNOLOGIES, INC.
1995 STOCK OPTION PLAN
----------------------
1. PURPOSE
This Plan is intended to encourage ownership of Stock by employees and
directors of and consultants to the Company and its Affiliates and to provide
additional incentives for them to promote the success of the Company's business.
The Plan is intended to be an incentive stock option plan within the meaning of
Section 422 of the Code but not all Options granted hereunder are required to be
Incentive Options.
2. DEFINITIONS
As used in this Plan the following terms shall have the following
meanings:
2.1. AFFILIATE means a parent or subsidiary corporation of the
Company, as defined in Sections 424 (e) and (f), respectively, of
the Code.
2.2. BOARD means the Company's Board of Directors.
2.3. CODE means the federal Internal Revenue Code of 1986, as amended.
2.4. COMMITTEE means a committee the members of which have been appointed
by the Board to serve from time to time at its pleasure and
delegated the responsibility for the administration of the Plan, as
provided in Section 5 of the Plan. For any period during which no
such committee is in existence all authority and responsibility
assigned the Committee under the Plan shall be exercised, if at
all, by the Board.
2.5. COMPANY means Xionics Document Technologies, Inc., a corporation
organized under the laws of the State of Delaware.
2.6. EMPLOYMENT AGREEMENT means an agreement, if any, between the Company
and the Optionee, setting forth, INTER ALIA, conditions and
restrictions upon transfer of shares of Stock.
2.7. FAIR MARKET VALUE means the value of a share of Stock on any date
as determined by the Committee.
2.8. Grant Date means the date as of which an Option is granted, as
determined under Section 7.
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<PAGE> 4
2.9. Incentive Option means an Option which by its terms is to be
treated as an "incentive stock option" within the meaning of Section
422 of the Code.
2.10. Nonstatutory Option means any Option that is not an Incentive
Option.
2.11. Option means an option to purchase shares of Stock granted under
the Plan.
2.12. Option Agreement means an agreement between the Company and an
Optionee, setting forth the terms and conditions of an Option.
2.13. Option Price means the price paid by an Optionee for a share of
stock upon exercise of an Option.
2.14. Optionee means a person eligible to receive an Option, as provided
in Section 6, to whom an Option shall have been granted under the
Plan.
2.15. Plan means this 1995 Stock Option Plan of the Company, as amended
from time to time.
2.16. Stock means Common Stock, par value $.01 per share, of the Company.
2.17. Shareholders Agreement means the agreement between the Company and
certain shareholders, setting forth, inter alia, certain
restrictions upon the transfer of shares of Stock.
2.18. Ten Percent Owner means a person who owns, or is deemed within the
meaning of Section 422 (b) (6) of the Code to own, stock possessing
more than 10% of the total combined voting power of all classes of
stock of the Company (or any Affiliate). Whether a person is Ten
Percent Owner shall be determined with respect to each Option based
on the facts existing immediately prior to the Grant Date of such
Option.
2.19. Vesting Year for any portion of any Incentive Option means the
calendar year in which that portion of the Option first becomes
exercisable.
3. TERM OF THE PLAN
Options may be granted hereunder at the time in the period commencing on
the approval of the Plan by the Board and ending on the tenth anniversary of the
earlier of the adoption of the Plan by the Board or approval of the Plan by the
Company's shareholders.
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<PAGE> 5
4. STOCK SUBJECT TO THE PLAN
At no time shall the number of shares of Stock then outstanding which are
attributable to the exercise of Options granted under the Plan, plus the number
of shares then issuable upon exercise of outstanding Options granted under the
plan, exceed 1,725,000 shares, subject, however, to the provisions of Section 17
of the Plan. Shares to be issued upon the exercise of Options granted under the
Plan may be either authorized but unissued shares or shares held by the Company
in its treasury. If any Option expires or terminates for any reason without
having been exercised in full, the shares not purchased thereunder shall again
be available for Options thereafter to be granted.
5. ADMINISTRATION
The Plan shall be administered by the Committee. Subject to the provisions
of the Plan, the Committee shall have complete authority, in its discretion, to
make or to select the manner of making the following determinations with respect
to each Option to be granted by the Company: (a) the employee, director or
consultant to receive the Option; (b) whether the Option (if granted to an
employee) will be an Incentive Option or Nonstatutory Option; (c) the time of
granting the Option; (d) the number of shares subject to the Option; (e) the
Option Price; (f) the Option period; (g) the Option exercise date or dates; and
(h) the effect of termination of employment or other association with the
Company and its affiliates on the subsequent exercisability of the Option. In
making such determinations, the Committee may take into account the nature of
the services rendered by the respective employees, directors, and consultants,
their present and potential contributions to the success of the Company and its
subsidiaries, and such other factors as the Committee in its discretion shall
deem relevant. Subject to the provisions of the Plan (including Section 20), the
Committee shall also have complete authority to interpret the Plan, to
prescribe, amend and rescind rules and regulations relating to it, to determine
the terms and provisions of the respective Option determine the terms and
provisions of the respective Option Agreements (which need not be identical),
and to make all other determinations necessary or advisable for the
administration of the Plan. The Committee's determinations on the matters
referred to in this Section 5 shall be conclusive.
6. ELIGIBILITY
Options may be granted under the Plan to any one or more of the employees
and directors of and consultants to one or more of the Company or an Affiliate.
7. TIME OF GRANTING OPTIONS
The granting of an Option shall take place at the time specified in the
Option Agreement. Only if expressly so provided in the Option Agreement shall
the Grant Date be the date on which an Option Agreement shall have been duly
executed and delivered by the Company and the Optionee.
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<PAGE> 6
8. OPTION PRICE
The Option Price under each Incentive Option shall be not less than 100%
of the Fair Market Value of Stock on the Grant Date, not less than 110% of the
Fair Market Value of Stock on Grant Date if the Optionee is a Ten Percent Owner.
The Option Price under each Nonstatutory Option shall not be so limited solely
by reason of this Section 8.
9. OPTION PERIOD
No Incentive Option may be exercised later than the tenth anniversary of
the Grant Date, or not later than the fifth anniversary of the Grant Date, if
the Optionee is a Ten Percent Owner. The Option period under each Nonstatutory
Option shall not be so limited solely by reason of this Section 9. An Option may
become exercisable in such installments, cumulative or non-cumulative, as the
Committee may determine. In the case of an Option not otherwise immediately
exercisable in full, the Committee may accelerate the exercisability of such
Option in whole or in part at any time, provided the acceleration of the
exercisability of any Incentive Option would not cause the Option to fail to
comply with the provisions of Section 422 of the Code.
10. LIMIT ON INCENTIVE OPTION CHARACTERIZATION
No Incentive Option shall be considered an Incentive Option to the extent
pursuant to its terms it would permit the Optionee to purchase for the first
time in any Vesting Year under that Incentive Option more than number of shares
of Stock calculated by dividing the current limit by the Option Price. The
current limit for any Optionee for any Vesting Year shall be $100,000 minus the
aggregate Fair Market Value at the date of grant of the number of shares of
Stock available for purchase for the first time in the Vesting Year under each
other Incentive Option granted to the Optionee under the Plan after, 1995 and
each other incentive stock option granted to the Optionee after, 1995 under any
other incentive stock option plan of the Company and its Affiliates.
11. EXERCISE OF OPTION
An Option may be exercised by the Optionee giving written notice, in the
manner provided in Section 21 specifying the number of shares with respect to
which the Option is then being exercised. The notice shall be accompanied by
payment in the form of cash, or certified or bank check payable to the order of
the Company in an amount equal to the option price of the shares to be purchased
or, if the Committee had so authorized on the grant of any particular Option
hereunder (and subject such conditions, if any, as the Committee may deem
necessary to avoid adverse accounting effects to the Company) by delivery of
that number of shares of Stock having a fair market value equal to the option
price of the shares to be purchased. Receipt by the Company of such notice and
payment shall constitute the exercise of the Option. Within 30 days thereafter
but subject to the remaining provisions of the Plan, the Company shall deliver
or cause to be delivered to
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<PAGE> 7
the Optionee or his/her agent a certificate or certificates for the number of
shares then being purchased. Such shares shall be fully paid and nonassessable.
12. RESTRICTIONS ON ISSUE OF SHARES
12.1. Notwithstanding any other provision of the Plan, if, at any time, in
the reasonable opinion of the Company the issuance of shares of Stock covered by
the exercise of any Option may constitute a violation of law, then the Company
may delay such issuance and delivery of certificate for such shares until (i)
approval shall have been obtained from such governmental agencies, other than
the Securities and Exchange Commission, as may be required under any applicable
law, rule, or regulation, and (ii) in the case where such issuance would
constitute a violation of a law administered by or a regulation of the
Securities and Exchange Commission, one of the following conditions shall have
been satisfied:
(a) the shares with respect to which such Option has been exercised are at
the time of the issue of such shares effectively registered under the Securities
Act of 1933, as amended (the "Securities Act"); or
(b) a no-action letter in form and substance reasonably satisfactory to
the Company with respect to the issuance of such shares shall have been obtained
by the Company from the Securities and Exchange Commission.
The Company shall make all reasonable efforts to bring about the occurrence of
said events.
12.2. Each certificate representing shares issued upon the exercise of an
Option will bear restrictive legends which may refer to this Plan and to
applicable restrictions under the Shareholders Agreement and Employment
Agreement.
13. PURCHASE FOR INVESTMENT; SUBSEQUENT REGISTRATION
13.1. Unless the shares to be issued upon exercise of an Option granted
under the Plan have been effectively registered under the Securities Act, the
Company shall be under no obligation to issue any shares covered by any Option
unless the person who exercises such Option, in whole or in part, shall give a
written representation to the Company which is satisfactory in form and
substance to its counsel and upon which the Company may re reasonably rely, that
he or she is acquiring the shares issued pursuant to such exercise of the Option
as an investment and not with a view to, or for sale in connection with, the
distribution of any such shares.
13.2. Each share of Stock issued pursuant to the exercise of an Option
granted pursuant to this Plan may bear a reference to the investment
representation made in accordance with this Section 13 and to the fact that no
registration statement has been filed with the Securities and Exchange
Commission in respect to said Stock.
7
<PAGE> 8
13.3. If the Company shall deem it necessary or desirable to register
under the Securities Act or other applicable statutes any shares with respect to
which an Option shall have been granted, or to qualify any such shares for
exemption from the Securities Act or applicable statutes, then the Company shall
take such action at its own expense. The Company may require from each Option
holder, or each holder of shares of Stock acquired pursuant to the Plan, such
information in writing for use in any registration statement, prospectus,
preliminary prospectus or offering circular as is reasonably necessary for such
purpose and may require reasonable indemnity to the Company and its officers and
directors from such holder against all losses, claims, damage and liabilities
arising from such use of the information so furnished and caused by any untrue
statement of any material fact therein or caused by the omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances under which they were made.
13.4. Whenever shares are to be issued in satisfaction of an Option
granted hereunder, the Company shall have the right to require the Optionee (a)
to execute and deliver and otherwise become a party to the Shareholders
Agreement in respect of such shares, or (b) to grant the Company a right of
first refusal before any sale or other disposition of such shares by the
Optionee on commercially customary terms and conditions.
14. WITHHOLDING; NOTICE OF DISPOSITION OF STOCK PRIOR TO EXPIRATION OF
SPECIFIED HOLDING PERIOD
14.1. Whenever shares are to be issued in satisfaction of an Option
granted hereunder, the Company shall have the right to require the Optionee to
remit to the Company an amount sufficient to satisfy federal, state, local or
other withholding tax requirements if and to the extent required by law (whether
so required to secure for the Company an otherwise available tax deduction or
otherwise) prior to the delivery of any certificate or certificates for such
shares.
14.2. The Company may require as a condition to the issuance of shares
covered by any Incentive Option that the party exercising such Option give a
written representation to the Company which is satisfactory in form and
substance to its counsel and upon which the Company may reasonably rely, that he
or she will report to the Company any disposition of such shares prior to the
expiration of the holding periods specified by Section 422 (a) (1) of the Code.
If and to the extent that the realization of income in such a disposition
imposes upon the Company federal, state, local or other withholding tax
requirements, or any such withholding is required to secure for the Company an
otherwise available tax deduction, the Company shall have the right to require
that the recipient remit to the Company an amount sufficient to satisfy those
requirements, and the Company may require as a condition to the issuance of
shared covered by an Incentive Option that the party exercising such option give
a satisfactory written representation promising to make such a remittance.
8
<PAGE> 9
15. TERMINATION OF ASSOCIATION WITH THE COMPANY
Unless the Committee shall provide otherwise in the grant of a particular
Option under the Plan, the Option shall cease to be exercisable in any respect
90 days after the Optionee's employment or other association with the Company is
terminated, whether voluntarily or otherwise, and shall be exercisable within
such 90 day period only to the extent exercisable on the date of such
termination. Military or sick leave shall not be deemed a termination of
employment or other association, provided that it does not exceed the longer of
90 days or the period during which the absent Optionee's reemployment rights, if
any, are guaranteed by statute or by contract.
16. TRANSFERABILITY OF OPTIONS
Options shall not be transferable, otherwise than by will or the laws of
descent and distribution, and may be exercised during the life of the Optionee
only by the Optionee.
17. ADJUSTMENT OF NUMBER OF OPTION SHARES
17.1. In the event of any stock dividend payable in Stock or any split-up
or contraction in the number of shares of Stock after the date of the Option
Agreement and prior to the exercise in full of the Option, the number of shares
subject to such Option Agreement and price to be paid for each share subject to
the Option shall be proportionately adjusted.
17.2. In the event of any reclassification or change of outstanding shares
of Stock, shares of stock or other securities equivalent in kind and value to
those shares an Optionee would have received if he or she had held the full
number of shares of Stock subject to the Option immediately prior to such
reclassification or change and had continued to hold those shares (together with
all other shares, stock and securities thereafter issued in respect thereof) to
the time of the exercise of the Option shall thereupon be subject to the Option.
17.3. Subject to the remainder of this Section 17.3, in the event of any
consolidation or merger of the Company with or into another company or in case
of any sale or conveyance to another company or entity of the property of the
Company as a whole or substantially as a whole, shares of stock or other
securities equivalent in kind and value to those shares and other securities an
Optionee would have received if he or she had held the full number of shares of
Stock remaining subject to the Option immediately prior such consolidation,
merger, sale or conveyance and had continued to hold those shares (together with
all other shares, stock, and securities thereafter issued in respect thereof) to
the time of the exercise of the Option shall thereupon be subject to the Option.
However, except to the extent any Option Agreement shall provide different or
additional terms, in any such transaction the Committee, in its discretion, may
provide instead that any outstanding Option shall terminate, to the extent not
exercised by the
9
<PAGE> 10
Optionee prior to termination, as of the date of the transaction, in
consideration of the Company's payment to the Optionee of an amount of cash
equal to the difference between the aggregate Fair Market Value of the shares of
Stock for which the Option id then exercisable and the aggregate exercise price
for such shares under the Option.
17.4. Upon dissolution or liquidation of the Company, the Option shall
terminate, but the Optionee (if at the time in the employ of or otherwise
associated with the Company or any of its Affiliates) shall have the right,
immediately prior to such dissolution or liquidation, to exercise the Option to
the extent exercisable on the date of such dissolution or liquidation.
17.5. No fraction of a share shall be purchasable or deliverable upon
exercise, but in the event any adjustment hereunder of the number of shares
covered by the Option shall cause such number to include a fraction of a share,
such number of shares shall be adjusted to the nearest smaller whole number of
shares. In the event of changes in the outstanding Stock by reason of any stock
dividend, split-up, contraction, reclassification, or change of outstanding
shares of Stock of the nature contemplated by this Section 17, the number of
shares of Stock available for the purpose of the Plan as stated in Section 4
shall be correspondingly adjusted.
18. RESERVATION OF STOCK
The Company shall at all times during the term of the Plan and any
outstanding Options granted hereunder reserve or otherwise keep available such
number of shares of Stock as will be sufficient to satisfy the requirements of
the Plan (if then in effect) and such Options and shall pay all fees and
expenses necessarily incurred by the Company in connection therewith.
19. LIMITATION OF RIGHTS IN STOCK;
NO SPECIAL EMPLOYMENT OR OTHER RIGHTS
The Optionee shall not be deemed for any purpose to be a stockholder of
the Company with respect to any of the shares of Stock covered by an Option,
except to the extent that the Option shall have been exercised with respect
thereto and, in addition, a certificate shall have been issued therefor and
delivered to the Optionee or his agent. Nothing contained in the Plan or in any
Option shall confer upon any Optionee any right with respect to the continuation
of his or her employment to other association with the Company (or any
Affiliate), or interfere in any way with the right of the Company (or any
Affiliate), subject to the terms of any separate employment of consulting
agreement or provision of law or corporate articles or by-laws to the contrary,
at any time to terminate such employment or consulting agreement or to increase
or decrease the compensation of the Optionee from the rate in existence at the
time of the grant of an Option.
10
<PAGE> 11
20. TERMINATION AND AMENDMENT; NOTICE
The Board may at any time terminate the Plan or make such modifications of
the Plan as it shall deem advisable. No termination or amendment of the Plan
may, without the consent of the Optionee to whom any Option shall theretofore
have been granted, adversely affect the rights of such Optionee under such
Option.
The Committee shall similarly have the right to terminate or amend any
Option outstanding on the date of any such action, provided, however, that any
amended Option shall remain consistent with all applicable terms of the Plan,
and provided, further, however, that no termination or amendment of an
outstanding Option shall adversely affect the rights of the Optionee under such
Option without the consent of the Optionee.
The Committee shall give prompt notice to any Optionee of any amendment to
the Plan, and the occurrence of any event that would trigger rights with respect
to any Options granted under the Plan, including the occurrence of any
"Disposition" or any "IPO", as those terms are defined in certain option
agreements governing Options.
21. NOTICES AND OTHER COMMUNICATIONS
All notices and other communications required or permitted under the Plan
shall be effective if in writing and if delivered or sent by certified or
registered mail, return receipt requested (a) if to the Optionee, at his or her
residence address last filed with the Company, and (b) if to the Company, at 70
Blanchard Road, Burlington, MA 01803, Attention: Chief Executive Officer or to
such other persons or addresses as the Optionee or the Company may specify by
written notice to the other from time to time.
22. GOVERNING LAW
This Plan shall be interpreted and enforced in accordance with the laws of
the Commonwealth of Massachusetts.
11
<PAGE> 12
XIONICS DOCUMENT TECHNOLOGIES, INC.
STOCK OPTION AGREEMENT
(TIME VESTED)
AGREEMENT dated this <<Day>>th day of <<Month>>, <<Year>>, between
Xionics Document Technologies, Inc., a corporation organized under the laws of
the State of Delaware (the "Company"), and the individual identified below,
residing at the address there set out (the "Optionee").
1. GRANT OF OPTION. Pursuant to the Company's 1995 Stock Option Plan as
attached hereto as EXHIBIT A (the "Plan"), the Company grants to the Optionee an
option (the "Option") to purchase from the Company all or any part of a total of
<<Shares>>shares (the "Optioned Shares") of the Company's Common Stock, par
value $.01 per share (the "Stock"), at a price of TWENTY cents per share. This
Option is granted as of the date hereof.
2. CHARACTER OF OPTION. This Option is intended to be treated as an
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended.
3. DURATION OF OPTION. This Option shall expire on the earlier of (a)
the tenth anniversary of the date of this Agreement, or (b) the ninetieth
(90th) day following the Optionee's termination of the employment or other
association with the Company and its Affiliates for any reason.
4. EXERCISE OF OPTION. Optioned Shares shall become available for
purchase under this Option in the following equal installments:
(a) one installment of <<Option_A>> Optioned Shares, available from and
after the date of this Agreement,
(b) 14 installments of <<Option_B>> Optioned Shares each, one such
installment available from and after the first day of each calendar quarter to
begin subsequent to the date of this Agreement, and
(c) one installment of <<Option_C>> Optioned Shares available from and
after the first day of the calendar quarter to begin subsequent to the last
quarter for which shares become available pursuant to clause (b) above;
PROVIDED, HOWEVER, that each installment of Optioned Shares that has not yet
become available for purchase under Sections 4(b) and (c) hereof shall become
immediately available for purchase hereunder upon closing of a Disposition or an
IPO (as each such
<PAGE> 13
2
term is defined in EXHIBIT B hereto); PROVIDED, FURTHER, that after termination
of the Optionee's employment or other association with the Company no additional
installments of the Optioned Shares shall become available for purchase. Until
its expiration, exercise of this Option at any time may be for any number of
Optioned Shares then available for purchase under this Option and shall be
effected in the manner specified in Section 11 of the Plan.
5. TRANSFER OF OPTIONS. This Option may not be transferred except by
will or the laws of descent and distribution, and, during the lifetime of the
Optionee, may be exercised only by the Optionee.
6. INCORPORATION OF PLAN TERMS. This Option is granted subject to all of
the applicable terms and provisions of the Plan, including but not limited to
the limitations on the Company's obligation to deliver Optioned Shares upon
exercise set forth in Section 12 (RESTRICTIONS ON ISSUE OF SHARES), Section 13
(PURCHASE FOR INVESTMENT; SUBSEQUENT REGISTRATION), and Section 14 (WITHHOLDING
NOTICE OF DISPOSITION OF STOCK PRIOR TO EXPIRATION OF SPECIFIED HOLDING PERIOD).
7. MISCELLANEOUS. This Agreement shall be construed and enforced in
accordance with the laws of the Commonwealth of Massachusetts and shall be
binding upon and inure to the benefit of any successor or assign of the Company
and any executor, administrator, trustee, guardian, or other legal
representative of the Optionee.
IN WITNESS WHEREOF, the parties have executed this Agreement as a sealed
instrument as of the date first above written.
XIONICS DOCUMENT TECHNOLOGIES, INC.
By: Robert E. Gilkes
-------------------------------------
Optionee: <<FirstName>> <<LastName>>
Title: Chief Executive Office Optionee's Address:
---------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
<PAGE> 14
XIONICS DOCUMENT TECHNOLOGIES, INC.
STOCK OPTION AGREEMENT
(TIME VESTED)
AGREEMENT dated this <<Day>> of <<Month>>, <<Year>>, between Xionics
Document Technologies, Inc., a corporation organized under the laws of the State
of Delaware (the "Company"), and the individual identified below, residing at
the address there set out (the "Optionee").
1. GRANT OF OPTION. Pursuant to the Company's 1996 Stock Option Plan as
attached hereto as EXHIBIT A (the "Plan"), the Company grants to the Optionee an
option (the "Option") to purchase from the Company all or any part of a total of
<<Shares>> shares (the "Optioned Shares") of the Company's Common Stock, par
value $.01 per share (the "Stock"), at a price of SIXTY-SEVEN AND ONE-HALF
cents per share. This Option is granted as of the date hereof.
2. CHARACTER OF OPTION. This Option is intended to be treated as an
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended.
3. DURATION OF OPTION. This Option shall expire on the earlier of (a)
the tenth anniversary of the date of this Agreement, or (b) the ninetieth
(90th) day following the Optionee's termination of the employment or other
association with the Company and its Affiliates for any reason.
4. EXERCISE OF OPTION. Optioned Shares shall become available for
purchase under this Option in sixteen (16) equal installments of
<<Option_A>>Optioned Shares each, one such installment available from and
after the first day of each of the sixteen (16) consecutive calendar quarters
beginning subsequent to the date of this Agreement;
PROVIDED, HOWEVER, that after termination of the Optionee's employment or other
association with the Company no additional installments of the Optioned Shares
shall become available for purchase. Until its expiration, exercise of this
Option at any time may be for any number of Optioned Shares then available for
purchase under this Option and shall be effected in the manner specified in
Section 11 of the Plan.
5. TRANSFER OF OPTIONS. This Option may not be transferred except by
will or the laws of descent and distribution, and, during the lifetime of the
Optionee, may be exercised only by the Optionee.
<PAGE> 15
6. INCORPORATION OF PLAN TERMS. This Option is granted subject to all of
the applicable terms and provisions of the Plan, including but not limited to
the limitations on the Company's obligation to deliver Optioned Shares upon
exercise set forth in Section 12 (RESTRICTIONS ON ISSUE OF SHARES), Section 13
(PURCHASE FOR INVESTMENT; SUBSEQUENT REGISTRATION), and Section 14 (WITHHOLDING
NOTICE OF DISPOSITION OF STOCK PRIOR TO EXPIRATION OF SPECIFIED HOLDING PERIOD).
7. MISCELLANEOUS. This Agreement shall be construed and enforced in
accordance with the laws of the Commonwealth of Massachusetts and shall be
binding upon and inure to the benefit of any successor or assign of the Company
and any executor, administrator, trustee, guardian, or other legal
representative of the Optionee.
IN WITNESS WHEREOF, the parties have executed this Agreement as a sealed
instrument as of the date first above written.
XIONICS DOCUMENT TECHNOLOGIES, INC.
By: Robert E. Gilkes
------------------------------------
Optionee: <<FirstName>> <<LastName>>
Title: Chief Executive Officer Optionee's Address:
-----------------------
------------------------------------
------------------------------------
------------------------------------
2
<PAGE> 1
EXHIBIT 10.3
XIONICS INTERNATIONAL HOLDINGS, INC.
1993 STOCK OPTION PLAN
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
<CAPTION>
<S> <C> <C>
1. Purpose 1
2. Definitions 1
3. Term of the Plan 2
4. Stock Subject to the Plan 2
5. Administration 3
6. Eligibility 3
7. Time of Granting Options 3
8. Option Price 3
9. Option Period 3
10. Limit on incentive Option Characterization 4
11. Exercise of Option 4
12. Restrictions on Issue of Shares 4
13. Purchase for Investment; Subsequent
Registration 5
14. Withholding; Notice of Disposition of Stock
Prior to Expiration of Specified Holding Period 6
15. Termination of Association with the Company 6
16. Transferability of Options 6
17. Adjustment of Number of Option Shares 6
18. Reservation of Stock 8
19. Limitation of Rights in Stock;
No Special Employment or Other Rights 8
20. Termination and Amendment 8
21. Notices and Other Communications 8
22. Governing Law 9
</TABLE>
<PAGE> 3
XIONICS INTERNATIONAL HOLDINGS, INC.
1993 STOCK OPTION PLAN
1. PURPOSE
This Plan is intended to encourage ownership of Stock by employees and
directors of and consultants to the Company and its Affiliates and to provide
additional incentives for them to promote the success of the Company's business.
The Plan is intended to be an incentive stock option plan within the meaning of
Section 422 of the Code but not all Options granted hereunder are required to be
Incentive Options.
2. DEFINITIONS
As used in this Plan the following terms shall have the following
meanings:
2.1. AFFILIATE means a parent or subsidiary corporation of the Company,
as defined in Sections 424(e) and (f), respectively, of the Code.
2.2. BOARD means the Company's Board of Directors.
2.3. CODE means the federal Internal Revenue Code of 1986, as amended.
2.4. COMMITTEE means a committee the members of which have been
appointed by the Board to serve from time to time at its pleasure and delegated
the responsibility for the administration of the Plan, as provided in Section 5
of the Plan. For any period during which no such committee is in existence all
authority and responsibility assigned the Committee under the Plan shall be
exercised, if at all, by the Board.
2.5. COMPANY means Xionics International Holdings, Inc., a corporation
organized under the laws of the State of Delaware.
2.6. EMPLOYMENT AGREEMENT means an agreement, if any, between the
Company and an Optionee, setting forth, INTER ALIA, conditions and restrictions
upon the transfer of shares of Stock.
2.7. FAIR MARKET VALUE means the value of a share of Stock on any date
as determined by the Committee.
<PAGE> 4
-2-
2.8. GRANT DATE means the date as of which an Option is granted, as
determined under Section 7.
2.9. INCENTIVE OPTION means an Option which by its terms is to be
treated as an "incentive stock option" within the meaning of Section 422 of the
Code.
2.10. NONSTATUTORY OPTION means any Option that is not an Incentive
Option.
2.11. OPTION means an option to purchase shares of Stock granted under
the Plan.
2.12. OPTION AGREEMENT means an agreement between the Company and an
Optionee, setting forth the terms and conditions of an Option.
2.13. OPTION PRICE means the price paid by an Optionee for a share of
Stock upon exercise of an Option.
2.14. OPTIONEE means a person eligible to receive an Option, as
provided in Section 6, to whom an Option shall have been granted under the Plan.
2.15. PLAN means this 1993 Stock Option Plan of the Company, as amended
from time to time.
2.16. STOCK means Common Stock, par value $.01 per share, of the
Company
2.17. SHAREHOLDERS AGREEMENT means the agreement between the Company
and certain shareholders, setting forth, INTER ALIA, certain restrictions upon
the transfer of shares of Stock.
2.18. TEN PERCENT OWNER means a person who owns, or is deemed within
the meaning of Section 422(b) (6) of the Code to own, stock possessing more than
10% of the total combined voting power of all classes of stock of the Company
(or any Affiliate). Whether a person is a Ten Percent Owner shall be determined
with respect to each Option based on the facts existing immediately prior to the
Grant Date of such Option.
2.19. VESTING YEAR for any portion of any Incentive Option means the
calendar year in which that portion of the Option first becomes exercisable.
<PAGE> 5
-3-
3. TERM OF THE PLAN
Options may be granted hereunder at any time in the period commencing
on the approval of the Plan by the Board and ending on the tenth anniversary of
the earlier of the adoption of the Plan by the Board or approval of the Plan by
the Company's shareholders.
4. STOCK SUBJECT TO THE PLAN
At no time shall the number of shares of Stock then outstanding which
are attributable to the exercise of Options granted under the Plan, plus the
number of shares then issuable upon exercise of outstanding Options granted
under the Plan, exceed 1,026,015 shares, SUBJECT, HOWEVER, to the provisions of
Section 17 of the Plan. Shares to be issued upon the exercise of Options granted
under the Plan may be either authorized but unissued shares or shares held by
the Company in its treasury. If any Option expires or terminates for any reason
without having been exercised in full, the shares not purchased thereunder shall
again be available for Options thereafter to be granted.
5. ADMINISTRATION
The Plan shall be administered by the Committee. Subject to the
provisions of the Plan, the Committee shall have complete authority, in its
discretion, to make or to select the manner of making the following
determinations with respect to each Option to be granted by the Company: (a) the
employee, director or consultant to receive the Option; (b) whether the Option
(if granted to an employee) will be an Incentive Option or Nonstatutory Option;
(c) the time of granting the Option; (d) the number of shares subject to the
Option; (e) the Option Price; (f) the Option period; (g) the Option exercise
date or dates; and (h) the effect of termination of employment or other
association with the Company and its Affiliates on the subsequent exercisability
of the Option. In making such determinations, the Committee may take into
account the nature of the services rendered by the respective employees,
directors and consultants, their present and potential contributions to the
success of the Company and its subsidiaries, and such other factors as the
Committee in its discretion shall deem relevant. Subject to the provisions of
the Plan (including Section 20), the Committee shall also have complete
authority to interpret the Plan, to prescribe, amend and rescind rules and
regulations relating to it, to determine the terms and provisions of the
respective Option Agreements (which need not be identical), and to make all
<PAGE> 6
-4-
other determinations necessary or advisable for the administration of the Plan.
The Committee's determinations on the matters referred to in this Section 5
shall be conclusive.
6. ELIGIBILITY
Options may be granted under the Plan to any one or more of the
employees and directors of and consultants to one or more of the Company or an
Affiliate.
7. TIME OF GRANTING OPTIONS
The granting of an Option shall take place at the time specified in the
Option Agreement. Only if expressly so provided in the Option Agreement shall
the Grant Date be the date on which an Option Agreement shall have been duly
executed and delivered by the Company and the Optionee.
8. OPTION PRICE
The Option Price under each Incentive Option shall be not less than
100% of the Fair Market Value of Stock on the Grant Date, or not less than 110%
of the Fair Market Value of Stock on the Grant Date if the Optionee is a Ten
Percent Owner. The Option Price under each Nonstatutory Option shall not be so
limited solely by reason of this Section 8.
9. OPTION PERIOD
No Incentive Option may be exercised later than the tenth anniversary
of the Grant Date, or not later than the fifth anniversary of the Grant Date, if
the Optionee is a Ten Percent Owner. The Option period under each Nonstatutory
Option shall not be so limited solely by reason of this Section 9. An Option may
become exercisable in such installments, cumulative or non-cumulative, as the
Committee may determine. In the case of an Option not otherwise immediately
exercisable in full, the Committee may accelerate the exercisability of such
Option in whole or in part at any time, provided the acceleration of the
exercisability of any Incentive Option would not cause the Option to fail to
comply with the provisions of Section 422 of the Code.
10. LIMIT ON INCENTIVE OPTION CHARACTERIZATION
No Incentive Option shall be considered an Incentive Option to the
extent pursuant to its terms it would permit the Optionee to purchase for the
first time in any Vesting
<PAGE> 7
-5-
Year under that Incentive Option more than the number of shares of Stock
calculated by dividing the current limit by the Option Price. The current limit
for any Optionee for any Vesting Year shall be $100,000 minus the aggregate Fair
Market Value at the date of grant of the number of shares of Stock available for
purchase for the first time in the Vesting Year under each other Incentive
Option granted to the Optionee under the Plan after December 31, 1986 and each
other incentive stock option granted to the Optionee after December 31, 1986
under any other incentive stock option plan of the Company and its Affiliates.
11. EXERCISE OF OPTION
An Option may be exercised by the Optionee giving written notice, in
the manner provided in Section 21 specifying the number of shares with respect
to which the Option is then being exercised. The notice shall be accompanied by
payment in the form of cash, or certified or bank check payable to the order of
the Company in an amount equal to the option price of the shares to be purchased
or, if the Committee had so authorized on the grant of any particular Option
hereunder (and subject such conditions, if any, as the Committee may deem
necessary to avoid adverse accounting effects to the Company) by delivery of
that number of shares of Stock having a fair market value equal to the option
price of the shares to be purchased. Receipt by the Company of such notice and
payment shall constitute the exercise of the Option. Within 30 days thereafter
but subject to the remaining provisions of the Plan, the Company shall deliver
or cause to be delivered to the Optionee or his agent a certificate or
certificates for the number of shares then being purchased. Such shares shall be
fully paid and nonassessable.
12. RESTRICTIONS ON ISSUE OF SHARES
12.1. Notwithstanding any other provision of the Plan, if, at any time,
in the reasonable opinion of the Company the issuance of shares of Stock covered
by the exercise of any Option may constitute a violation of law, then the
Company may delay such issuance and the delivery of a certificate for such
shares until (i) approval shall have been obtained from such governmental
agencies, other than the Securities and Exchange Commission, as may be required
under any applicable law, rule, or regulation, and (ii) in the case where such
issuance would constitute a violation of a law administered by or a regulation
of the Securities and Exchange Commission, one of the following conditions shall
have been satisfied:
<PAGE> 8
-6-
(a) the shares with respect to which such Option has been
exercised are at the time of the issue of such shares effectively registered
under the Securities Act of 1933, as amended (the "Securities Act"); or
(b) a no-action letter in form and substance reasonably
satisfactory to the Company with respect to the issuance of such shares shall
have been obtained by the Company from the Securities and Exchange Commission.
The Company shall make all reasonable efforts to bring about the occurrence of
said events.
12.2. Each certificate representing shares issued upon the exercise of
an Option will bear restrictive legends which may refer to this Plan and to
applicable restrictions under the Shareholders Agreement and Employment
Agreement.
13. PURCHASE FOR INVESTMENT; SUBSEQUENT REGISTRATION
13.1. Unless the shares to be issued upon exercise of an Option granted
under the Plan have been effectively registered under the Securities Act, the
Company shall be under no obligation to issue any shares covered by any Option
unless the person who exercises such Option, in whole or in part, shall give a
written representation to the Company which is satisfactory in form and
substance to its counsel and upon which the Company may reasonably rely, that
he or she is acquiring the shares issued pursuant to such exercise of the
Option as an investment and not with a view to, or for sale in connection with,
the distribution of any such shares.
13.2. Each share of Stock issued pursuant to the exercise of an Option
granted pursuant to this Plan may bear a reference to the investment
representation made in accordance with this Section 13 and to the fact that no
registration statement has been filed with the Securities and Exchange
Commission in respect to said Stock.
13.3. If the Company shall deem it necessary or desirable to register
under the Securities Act or other applicable statutes any shares with respect to
which an Option shall have been granted, or to qualify any such shares for
exemption from the Securities Act or other applicable statutes, then the Company
shall take such action at its own expense. The Company may require from each
Option holder, or each holder of shares of Stock acquired pursuant to the Plan,
such information in writing for use in any registration statement, prospectus,
preliminary prospectus
<PAGE> 9
-7-
or offering circular as is reasonably necessary for such purpose and may require
reasonable indemnity to the Company and its officers and directors from such
holder against all losses, claims, damage and liabilities arising from such use
of the information so furnished and caused by any untrue statement of any
material fact therein or caused by the omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made.
13.4. Whenever shares are to be issued in satisfaction of an Option
granted hereunder, the Company shall have the right to require the Optionee (a)
to execute and deliver and otherwise become a party to the Shareholders
Agreement in respect of such shares, or (b) to grant the Company a right of
first refusal before any sale or other disposition of such shares by the
Optionee on commercially customary terms and conditions.
14. WITHHOLDING; NOTICE OF DISPOSITION OF STOCK
PRIOR TO EXPIRATION OF SPECIFIED HOLDING PERIOD
14.1. Whenever shares are to be issued in satisfaction of an Option
granted hereunder, the Company shall have the right to require the Optionee to
remit to the Company an amount sufficient to satisfy federal, state, local or
other withholding tax requirements if and to the extent required by law (whether
so required to secure for the Company an otherwise available tax deduction or
otherwise) prior to the delivery of any certificate or certificates for such
shares.
14.2. The Company may require as a condition to the issuance of shares
covered by any Incentive Option that the party exercising such Option give a
written representation to the Company which is satisfactory in form and
substance to its counsel and upon which the Company may reasonably rely, that he
or she will report to the Company any disposition of such shares prior to the
expiration of the holding periods specified by Section 422(a) (1) of the Code.
If and to the extent that the realization of income in such a disposition
imposes upon the Company federal, state, local or other withholding tax
requirements, or any such withholding is required to secure for the Company an
otherwise available tax deduction, the Company shall have the right to require
that the recipient remit to the Company an amount sufficient to satisfy those
requirements, and the Company may require as a condition to the issuance of
shares covered by an Incentive Option that the party exercising
<PAGE> 10
-8-
such option give a satisfactory written representation promising to make such a
remittance.
15. TERMINATION OF ASSOCIATION WITH THE COMPANY
Unless the Committee shall provide otherwise in the grant of a
particular Option under the Plan, the Option shall cease to be exercisable in
any respect 90 days after the Optionee's employment or other association with
the Company is terminated, whether voluntarily or otherwise, and shall be
exercisable within such 90 day period only to the extent exercisable on the date
of such termination. Military or sick leave shall not be deemed a termination of
employment or other association, PROVIDED that it does not exceed the longer of
90 days or the period during which the absent Optionee's reemployment rights, if
any, are guaranteed by statute or by contract.
16. TRANSFERABILITY OF OPTIONS
Options shall not be transferable, otherwise than by will or the laws
of descent and distribution, and may be exercised during the life of the
Optionee only by the Optionee.
17. ADJUSTMENT OF NUMBER OF OPTION SHARES
17.1. In the event of any stock dividend payable in Stock or any
split-up or contraction in the number of shares of Stock after the date of the
Option Agreement and prior to the exercise in full of the Option, the number of
shares subject to such Option Agreement and the price to be paid for each share
subject to the Option shall be proportionately adjusted.
17.2. In the event of any reclassification or change of outstanding
shares of Stock, shares of stock or other securities equivalent in kind and
value to those shares an Optionee would have received if he or she had held the
full number of shares of Stock subject to the Option immediately prior to such
reclassification or change and had continued to hold those shares (together with
all other shares, stock and securities thereafter issued in respect thereof) to
the time of the exercise of the Option shall thereupon be subject to the Option.
17.3. Subject to the remainder of this Section 17.3, in the event of
any consolidation or merger of the Company with or into another company or in
case of any sale or conveyance to another company or entity of the property of
<PAGE> 11
-9-
the Company as a whole or substantially as a whole, shares of stock or other
securities equivalent in kind and value to those shares and other securities an
Optionee would have received if he or she had held the full number of shares of
Stock remaining subject to the Option immediately prior to such consolidation,
merger, sale or conveyance and had continued to hold those shares (together with
all other shares, stock and securities thereafter issued in respect thereof) to
the time of the exercise of the Option shall thereupon be subject to the Option.
However, except to the extent any Option Agreement shall provide different or
additional terms, in any such transaction the Committee, in its discretion, may
provide instead that any outstanding Option shall terminate, to the extent not
exercised by the Optionee prior to termination, as of the date of the
transaction, in consideration of the Company's payment to the Optionee of an
amount of cash equal to the difference between the aggregate Fair Market Value
of the shares of Stock for which the Option is then exercisable and the
aggregate exercise price for such shares under the Option.
17.4. Upon dissolution or liquidation of the Company, the Option shall
terminate, but the Optionee (if at the time in the employ of or otherwise
associated with the Company or any of its Affiliates) shall have the right,
immediately prior to such dissolution or liquidation, to exercise the Option to
the extent exercisable on the date of such dissolution or liquidation.
17.5. No fraction of a share shall be purchasable or deliverable upon
exercise, but in the event any adjustment hereunder of the number of shares
covered by the Option shall cause such number to include a fraction of a share,
such number of shares shall be adjusted to the nearest smaller whole number of
shares. In the event of changes in the outstanding Stock by reason of any stock
dividend, split-up, contraction, reclassification, or change of outstanding
shares of Stock of the nature contemplated by this Section 17, the number of
shares of Stock available for the purpose of the Plan as stated in Section 4
shall be correspondingly adjusted.
18. RESERVATION OF STOCK
The Company shall at all times during the term of the Plan and any
outstanding Options granted hereunder reserve or otherwise keep available such
number of shares of Stock as will be sufficient to satisfy the requirements of
the Plan (if then in effect) and such Options and shall pay all
<PAGE> 12
-10-
fees and expenses necessarily incurred by the Company in connection therewith.
19. LIMITATION OF RIGHTS IN STOCK;
NO SPECIAL EMPLOYMENT OR OTHER RIGHTS
The Optionee shall not be deemed for any purpose to be a stockholder of
the Company with respect to any of the shares of Stock covered by an Option,
except to the extent that the Option shall have been exercised with respect
thereto and, in addition, a certificate shall have been issued therefor and
delivered to the Optionee or his agent. Nothing contained in the Plan or in any
Option shall confer upon any Optionee any right with respect to the continuation
of his or her employment or other association with the Company (or any
Affiliate), or interfere in any way with the right of the Company (or any
Affiliate), subject to the terms of any separate employment or consulting
agreement or provision of law or corporate articles or by-laws to the contrary,
at any time to terminate such employment or consulting agreement or to increase
or decrease the compensation of the Optionee from the rate in existence at the
time of the grant of an Option.
20. TERMINATION AND AMENDMENT; NOTICE
The Board may at any time terminate the Plan or make such modifications
of the Plan as it shall deem advisable. No termination or amendment of the Plan
may, without the consent of the Optionee to whom any Option shall theretofore
have been granted, adversely affect the rights of such Optionee under such
Option.
The Committee shall similarly have the right to terminate or amend any
Option outstanding on the date of any such action, provided, however, that any
amended Option shall remain consistent with all applicable terms of the Plan,
and provided, further, however, that no termination or amendment of an
outstanding Option shall adversely affect the rights of the Optionee under such
Option without the consent of the Optionee.
The Committee shall give prompt notice to any Optionee of any amendment
to the Plan, and the occurrence of any event that would trigger rights with
respect to any Options granted under the Plan, including the occurrence of any
"Disposition" or any "IPO", as those terms are defined in certain option
agreements governing Options.
<PAGE> 13
-11-
21. NOTICES AND OTHER COMMUNICATIONS
All notices and other communications required or permitted under the
Plan shall be effective if in writing and if delivered or sent by certified or
registered mail, return receipt requested (a) if to the Optionee, at his or her
residence address last filed with the Company, and (b) if to the Company, at Two
Corporation Way, Peabody, MA 01960 Attention: Chief Executive Officer or to such
other persons or addresses as the Optionee or the Company may specify by a
written notice to the other from time to time.
22. GOVERNING LAW
This Plan shall be interpreted and enforced in accordance with the laws
of the Commonwealth of Massachusetts.
<PAGE> 14
XIONICS INTERNATIONAL HOLDINGS, INC.
STOCK OPTION AGREEMENT
(TIME VESTED)
AGREEMENT dated this 20th day of December, 1993, between Xionics
International Holdings, Inc., a corporation organized under the laws of the
State of Delaware (the "Company"), and the individual identified below, residing
at the address there set out (the "Optionee").
1. GRANT OF OPTION. Pursuant to the Company's 1993 Stock Option Plan as
attached hereto as EXHIBIT A (the "Plan"), the Company grants to the Optionee
an option (the "Option") to purchase from the company all or any part of a
total of _____ shares (the "Optioned Shares") of the Company's Common Stock, par
value $.01 per share (the "Stock"), at a price of TWENTY Cents per share. This
Option is granted as of the date hereof.
2. CHARACTER OF OPTION. This Option is not intended to be treated as an
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended.
3. DURATION OF OPTION. This Option shall expire on the earlier of (a)
June 30, 2003, or (b) the ninetieth (90th) day following the Optionee's
termination of employment or other association with the Company and its
Affiliates for any reason.
4. EXERCISE OF OPTION. Optioned Shares shall become available for
purchase under this Option in the following installments:
(a) one installment of ____ Optioned Shares, available from and
after the date of this Agreement,
(b) _____ installments of _____ Optioned Shares each, one such
installment available from and after the first day of each calendar quarter to
begin subsequent to the date of this Agreement, and
(c) one installment of _____ Optioned Shares available from and
after the first day of the calendar quarter to begin subsequent to the last
quarter for which shares become available pursuant to clause (b) above;
PROVIDED, HOWEVER, that each installment of Optioned Shares that has not yet
become available for purchase under Sections 4(b) and (c) hereof shall become
immediately
<PAGE> 15
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available for purchase hereunder upon the closing of a Disposition or an IPO (as
each such term is defined in EXHIBIT B hereto); PROVIDED, FURTHER, that after
termination of the Optionee's employment or other association with the Company
no additional installments of Optioned Shares shall become available for
purchase. Until its expiration, exercise of this Option at any time may be for
any number of Optioned Shares then available for purchase under this Option and
shall be effected in the manner specified in Section 11 of the Plan.
5. TRANSFER OF OPTIONS. This Option may not be transferred except by
will or the laws of descent and distribution, and, during the lifetime of the
Optionee, may be exercised only by the Optionee.
6. INCORPORATION OF PLAN TERMS. This Option is granted subject to all
of the applicable terms and provisions of the Plan, including but not limited to
the limitations on the Company's obligation to deliver Optioned Shares upon
exercise set forth in Section 12 (RESTRICTIONS ON ISSUE OF SHARES), Section 13
(PURCHASE FOR INVESTMENT; SUBSEQUENT REGISTRATION) and Section 14 (WITHHOLDING
NOTICE OF DISPOSITION OF STOCK PRIOR TO EXPIRATION OF SPECIFIED HOLDING PERIOD).
7. MISCELLANEOUS. This Agreement shall be construed and enforced in
accordance with the laws of the Commonwealth of Massachusetts and shall be
binding upon and inure to the benefit of any successor or assign of the Company
and any executor, administrator, trustee, guardian, or other legal
representative of the Optionee.
IN WITNESS WHEREOF, the parties have executed this Agreement as a
sealed instrument as of the date first above written.
XIONICS INTERNATIONAL HOLDINGS, INC.
By: /s/ Peter Santeusanio
----------------------- ------------------------------
Title: CEO Optionee
--------------------
Optionee's Address:
------------------------------
------------------------------
------------------------------
<PAGE> 1
EXHIBIT 10.6
XIONICS DOCUMENT TECHNOLOGIES, INC.
70 Blanchard Road
Burlington, Massachusetts 01803
SECURITIES PURCHASE AGREEMENT
-----------------------------
Dated as of: August 25, 1995
To: Each of the Investors Named on
the FIRST SCHEDULE Annexed Hereto
Ladies and Gentlemen:
The undersigned, Xionics Document Technologies, Inc., a Delaware
corporation (the "COMPANY"), proposes to issue and sell to the Investors named
on the FIRST SCHEDULE annexed hereto (collectively, the "INVESTORS", and singly,
an "INVESTOR") certain Preferred Stock of the Company on the terms and subject
to the conditions contained in this Agreement.
Accordingly, the parties hereto agree as follows:
ARTICLE I
---------
AUTHORIZATION OF CAPITAL STOCK
------------------------------
The Company represents and warrants to each of the Investors as follows:
[Section]1.01. Capitalization of Company.
-------------------------
(a) The authorized capital stock of the Company will, on and as of the
Closing Date (as defined in Article III hereof), consist of: (i) 3,603,305
shares of the Company's Class A Convertible Preferred Stock, $.01 par value per
share (the "CLASS A PREFERRED STOCK"); (ii) zero (0) shares of the Company's
Class B Redeemable Preferred Stock, $.01 par value per share (the "CLASS B
PREFERRED STOCK"); (iii) 2,779,615 shares of the Company's Class C Redeemable
Convertible Preferred Stock, $.01 par value per share ("CLASS C PREFERRED STOCK"
and, together with the Class A Preferred Stock and the Class B Preferred Stock,
the "PREFERRED STOCK"); (iv) 20,000,000 shares of the Company's Class A Common
Stock, par value $.01 per share (the "CLASS A COMMON STOCK"); and (v) 10,000,000
shares of the Company's Class B Common Stock, par value $.01 per share ("CLASS B
COMMON STOCK", and, together with the Class A Common Stock, the "COMMON STOCK").
A description of
<PAGE> 2
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the Preferred Stock and the Common Stock and of the preferences, voting powers,
rights and privileges thereof will be stated in the Company's Certificate of
Incorporation (herein, as from time to time amended and in effect, called the
"CERTIFICATE OF INCORPORATION"), as the same will be amended on or prior to the
Closing Date by a Certificate of Amendment in or substantially in the form of
EXHIBIT A attached hereto (the "CERTIFICATE OF AMENDMENT").
(b) On and as of the Closing Date (and prior to giving effect to the
transactions contemplated by this Agreement), 1,386,066 shares of Class A Common
Stock, 3,603,305 shares of Class A Preferred Stock, and 1,867,877 shares of
Class B Preferred Stock will be validly issued and outstanding, and will be
fully-paid and non-assessable; no shares of Class B Common Stock, and no shares
of Class C Preferred Stock, will have been issued prior to the Closing Date.
[Section]1.02. AUTHORIZATION OF CLASS C PREFERRED STOCK AND COMMON STOCK.
The Company will, prior to the Closing Date, duly and properly authorize the
issuance of (i) 2,779,615 shares of Class C Preferred Stock, and (ii) 2,779,615
shares of Common Stock issuable by the Company upon conversion of the Class C
Preferred Stock.
[Section]1.03. CLASS B SHARES RETIRED. Promptly after giving effect to the
transactions contemplated by this Agreement, all shares of Class B Preferred
Stock will be cancelled.
[Section]1.04. OTHER DEFINITIONS. Certain terms and expressions used in
this Agreement are defined in Article XI hereof.
ARTICLE II
----------
PURCHASE AND SALE OF CLASS C PREFERRED
--------------------------------------
SHARES AT CLOSING
-----------------
[Section]2.01. Subject to all of the terms and conditions set forth in
this Agreement and in reliance upon the representations, warranties and
agreements set forth herein, the Company will issue and sell to each Investor,
and each Investor agrees to purchase from the Company, at the closing hereunder
(the "CLOSING"), the number of shares of Class C Preferred Stock set forth
opposite such Investor's name in COLUMN II of the FIRST SCHEDULE attached
hereto, for a purchase price per share of $2.9065 and for the total
consideration set forth or described opposite the name of such Investor in
Column III of such FIRST SCHEDULE. The shares of Class C Preferred Stock
purchased by the Investors hereunder shall be referred to hereunder as the
"CLASS C PREFERRED SHARES".
<PAGE> 3
-3-
ARTICLE III
-----------
THE CLOSING
-----------
[Section]3.01. The Closing under this Agreement will take place at the
offices of Bingham, Dana & Gould, 150 Federal Street, Boston, Massachusetts
02110, at 10:00 a.m., local time, on August 25 1995 or at such other place and
time and on such other date as may be mutually agreed upon in writing by the
Investors and the Company. The date of the Closing is herein called the "CLOSING
DATE". At the Closing, the Company will (among other things) deliver to each
Investor stock certificates representing the Class C Preferred Shares purchased
by such Investor hereunder, and each Investor will deliver to the Company the
total consideration payable or deliverable by such Investor for its Class C
Preferred Shares, in the form described in the FIRST SCHEDULE attached hereto.
ARTICLE IV
----------
ADDITIONAL REPRESENTATIONS OF THE COMPANY
-----------------------------------------
The Company hereby further represents and warrants to each of the
Investors, on and as of the Closing Date, and, unless otherwise specified,
immediately after giving effect to the transactions contemplated hereby to be
consummated on the Closing Date, that:
[Section]4.01. Corporate Existence And Power, Etc.
-----------------------------------
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. The Company has all
requisite corporate power and authority and full legal right to own or to hold
under lease its properties and to carry on the business in which it is presently
engaged.
(b) The Company has all requisite corporate power and authority and has
full legal right to enter into each of the Fundamental Documents, to perform,
observe and comply with all of its agreements and obligations under each of such
documents, and to issue and deliver to the Investors all of the Class C
Preferred Shares being purchased hereunder.
(c) Each of the Company and its Subsidiaries is qualified or has duly and
properly applied to qualify as a foreign corporation, or is licensed, admitted
or approved to do business as a foreign corporation or has made proper
application therefor, in each jurisdiction wherein the character of the
properties owned or held under lease by it, or the nature of the business
conducted by it, makes such
<PAGE> 4
-4-
qualification necessary, except for any such jurisdiction wherein the failure to
qualify would not be reasonably likely to have a Material Adverse Effect.
[Section]4.02. CORPORATE AUTHORITY, ETC. The execution and delivery by the
Company of each of the Fundamental Documents, the performance by the Company of
all of its agreements and obligations under each of such documents, the issuance
and delivery by the Company to the Investors of all of the Class C Preferred
Shares being purchased hereunder upon the terms contained in or contemplated by
this Agreement, and the implementation of all of the other transactions
contemplated by this Agreement, have been duly and properly authorized by all
necessary corporate action on the part of the Company and its shareholders and
do not and will not (a) contravene any provision of the Company's Certificate of
Incorporation or By-laws, (b) conflict with, or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any agreement, trust
deed, indenture, mortgage or other instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound or affected, (c) violate any provision of any law or regulation or any
order, ruling or interpretation thereunder or any judgment, decree or order of
any court or governmental or regulatory authority, bureau, agency or official
(all as in effect and from time to time applicable to the Company or any of its
Subsidiaries), (d) require any waivers, consents or approvals from any of the
creditors or trustees for creditors of the Company or any of its Subsidiaries,
except for such as will have been obtained and will be in effect as of the
Closing Date, or (e) require any consents or approvals from any shareholders of
the Company, except such as will have been obtained and will be in effect as of
the Closing Date.
[Section]4.03. Binding Effect Of Documents, Etc.
---------------------------------
(a) Each of the Fundamental Documents has been duly executed and delivered
by the Company and is in full force and effect. The agreements and obligations
of the Company contained in each of the Fundamental Documents constitute legal,
valid and binding obligations of the Company enforceable against the Company in
accordance with their respective terms.
(b) The representations and warranties made by the Company in paragraph
(a) of this [Section]4.03 are subject to the following qualifications:
(i) the enforceability of any rights and remedies provided in any
Fundamental Document against any particular party thereto is subject to any
applicable bankruptcy, reorganization, moratorium or other similar laws
affecting generally the enforcement of rights against any party; and
<PAGE> 5
-5-
(ii) the availability of equitable remedies for the enforcement of any
provision of any Fundamental Document may be subject to the discretion of the
court before which any proceeding for the enforcement of any such provision may
be brought.
(c) The Certificate of Amendment has been duly and properly adopted by the
Company and by its stockholders and properly filed and recorded in the State of
Delaware, and is in full force and effect.
[Section]4.04. Validity Of Shares.
-------------------
(a) The Class C Preferred Shares issued, sold and delivered to the
Investors by the Company pursuant to this Agreement have been duly and validly
issued and are fully paid and nonassessable. 2,779,615 shares of Class A Common
Stock have been duly and validly reserved for issuance by the Company upon
conversion of the Class C Preferred Stock, and will be duly and validly issued,
fully-paid and nonassessable upon issuance by the Company in accordance with the
provisions of the Certificate of Incorporation.
(b) Upon the purchase by the Investors of the Class C Preferred Shares
being sold hereunder, and the delivery by the Company to the Investors of the
stock certificates representing such Class C Preferred Shares, all in accordance
with the terms of this Agreement, lawful, valid and marketable title to each of
such Class C Preferred Shares shall be conveyed to and vested in the Investors,
free and clear of all voting agreements, shareholder agreements, restrictions,
liens and other encumbrances, except the agreements, restrictions and other
encumbrances imposed by the Certificate of Incorporation, this Agreement and the
Shareholder Agreement.
(c) Upon the conversion of the Class C Preferred Shares into shares of
Class A Common Stock in accordance with the Certificate of Incorporation, and
the delivery by the Company of stock certificates representing such shares of
Class A Common Stock, lawful, valid, and marketable title to such shares of
Class A Common Stock will be conveyed to and vested in the Investors, free and
clear of all voting agreements, shareholder agreements, restrictions, liens and
other encumbrances, except the agreements, restrictions and other encumbrances
imposed by the Certificate of Incorporation, the Shareholder Agreement, and this
Agreement.
[Section]4.05. Capitalization.
---------------
(a) THE COMPANY. The authorized and outstanding capital stock of the
Company is as described in the SECOND SCHEDULE annexed hereto.
<PAGE> 6
-6-
(b) SUBSIDIARIES. (i) The Company does not have any direct Subsidiaries
other than Xionics Holdings, Ltd. ("XHL"), Xionics K.K. ("XKK"), and HiBRIC
Technology Gesellschaft fur Mikroelektronic mbH ("HiBRIC"), (ii) XHL does not
have any direct Subsidiaries other than Xionics International Limited ("XIL"),
(iii) XIL does not have any active direct Subsidiaries other than Xionics, Inc.,
and (iv) except for the Subsidiaries described in clauses (i), (ii) and (iii)
hereof, none of the Company or any of such Subsidiaries has any other active
Subsidiaries, or owns or holds of record and/or beneficially any shares in the
capital of any active corporation, or any other rights or interests in any other
person. All of the outstanding capital stock of each of XHL and XKK is owned by
the Company; all of the outstanding capital stock of XIL is owned by XHL; and
all of the outstanding capital stock of Xionics, Inc. is owned by XIL.
Seventy-five percent (75%) of the outstanding capital stock of HiBRIC is owned
by the Company.
[Section]4.06. Commitments To Issue Securities.
--------------------------------
(a) Except as described in the SECOND SCHEDULE attached hereto, there are
no outstanding securities exchangeable for or convertible into or carrying any
rights to acquire from the Company or any of its Subsidiaries any shares of any
class in the capital of the Company or any of its Subsidiaries, and there are no
outstanding options, warrants or other similar rights to acquire from the
Company or any of its Subsidiaries any shares of any class in the capital of the
Company or any of its Subsidiaries.
(b) No shareholder of the Company or any other person has any preemptive
or other similar rights under the Certificate of Incorporation or By-laws of the
Company or under any applicable law to acquire from the Company any shares of
any class in the capital of the Company.
(c) No shareholder of the Company or any other person has any rights of
first refusal to purchase or acquire from the Company any shares of any class in
the capital of the Company or any other securities of the Company, except for
those rights contemplated by this Agreement and the Shareholder Agreement.
[Section]4.07. AGREEMENTS AFFECTING CAPITAL STOCK. Except as described in
[Section]4.07 of the THIRD SCHEDULE attached hereto ("DISCLOSURE SCHEDULE"), no
shares of any class in the capital of the Company or any of its Subsidiaries are
subject to any voting agreements, voting trusts, trust deeds, irrevocable
proxies, shareholder agreements or any other similar agreements or instruments.
[Section]4.08. SHAREHOLDERS. Set forth in Section 4.08 of the DISCLOSURE
SCHEDULE are (a) the name of each person who owns or holds of record, on and as
of the Closing Date and immediately prior to the Closing, any shares of capital
stock of any class of the Company, any securities exchangeable for or
convertible into any such shares, or any options, warrants or other rights to
acquire any such shares (other than
<PAGE> 7
-7-
employee stock options), (b) the number of shares, securities, options, warrants
or rights owned or held of record by each such person on and as of the Closing
Date and immediately prior to the Closing, (c) each person holding employee
stock options entitling such person to acquire that number of shares of Common
Stock (without giving effect to vesting provisions) equal to at least one
percent (1%) of the outstanding shares of Common Stock, calculated on a
fully-diluted basis assuming the exercise of all options and other rights to
acquire Common Stock, and the conversion of all warrants and other securities
(including convertible preferred stock) convertible into Common Stock, and (d)
the entire number of shares of Common Stock for which all other outstanding
employee stock options are exercisable.
[Section]4.09 Financial Statements.
---------------------
(a) The Company has heretofore furnished to each Investor the unaudited
consolidated balance sheet of the Company and its Subsidiaries as at June 30,
1995 ("1995 BALANCE SHEET"), and the unaudited consolidated statements of
income, retained earnings and cash flows of the Company and its Subsidiaries for
the fiscal year of the Company ending on June 30, 1995.
(b) The financial statements of the Company referred to in paragraph (a)
of this [Section]4.09 were prepared in accordance with generally accepted
accounting principles and practices applied on a consistent basis and fairly
represent the consolidated financial condition of the Company and its
Subsidiaries as of the date thereof. The 1995 Balance Sheet presents fairly the
consolidated financial position of the Company and its Subsidiaries as at June
30, 1995. The statements of income and retained earnings and cash flows of the
Company and its Subsidiaries included in the financial statements referred to
in such paragraph presents fairly the results of the operations of the Company
and its Subsidiaries for the periods covered thereby.
[Section]4.10. No Adverse Changes; No Undisclosed Liabilities.
-----------------------------------------------
(a) Since June 30, 1995, no changes of any kind have occurred in the
assets, liabilities or financial condition of the Company and its Subsidiaries
from that reflected in the 1995 Balance Sheet which individually or in the
aggregate have been materially adverse to the Company and its Subsidiaries,
taken as a whole. Since June 30, 1995, there has been no materially adverse
development in the business or in the operations or prospects of the Company and
its Subsidiaries, taken as a whole.
(b) The Company had no material liabilities or obligations of any nature
(absolute, accrued, contingent or otherwise) which, under generally accepted
accounting principles, were required to be reflected on or reserved against in
the
<PAGE> 8
-8-
1994 Balance Sheet and which were not fully reflected on or reserved against
in such balance sheet, except as disclosed in [Section]4.10(b) of the DISCLOSURE
SCHEDULE.
[Section]4.11. INDEBTEDNESS FOR BORROWED MONEY. Except as otherwise
identified and described in [Section]4.11 of the DISCLOSURE SCHEDULE, the
Company and its Subsidiaries do not have any Indebtedness for Borrowed Money
(a) which is not reflected in the 1995 Balance Sheet, or (b) which has not been
created, incurred or assumed by the Company or any of its Subsidiaries after
June 30, 1995 in the ordinary course of its business.
As used herein, the term "INDEBTEDNESS FOR BORROWED MONEY" shall mean, in
relation to any person, any indebtedness of such person (i) in respect of any
money borrowed by such person, (ii) under or in respect of any guarantee by such
person of any indebtedness for money borrowed by any other person, or (iii)
evidenced by any loan agreement, credit agreement, promissory note, debenture,
bond, guarantee or other similar written obligation of such person to pay money.
[Section]4.12. Title To Properties.
--------------------
(a) Each of the Company and its Subsidiaries has good, valid and
marketable title in and to all of its properties and assets reflected on the
1995 Balance Sheet or purported to have been acquired by the Company or any of
its Subsidiaries since June 30, 1995, except tangible personal property sold or
otherwise disposed of by the Company or any of its Subsidiaries in the ordinary
course of its business. Except as otherwise described in [Section]4.12 of the
DISCLOSURE SCHEDULE, all properties and assets of the Company and its
Subsidiaries (real or personal, tangible or intangible) are free and clear of
all defects of title and also free and clear of all mortgages, liens, pledges,
charges, security interests and other encumbrances of any kind whatsoever,
except (i) liens for current taxes not yet due and payable, and (ii) such
imperfections or minor defects of title, easements, rights-of-way and other
similar restrictions (if any) as are insubstantial in character, amount or
extent, do not materially detract from the value or interfere with the present
or proposed use of the properties or assets of the Company and its Subsidiaries
subject thereto or affected thereby, and do not otherwise adversely affect or
impair the business or operations of the Company and its Subsidiaries taken as a
whole.
(b) All accounts and notes receivable reflected on the 1995 Balance Sheet,
and all accounts and notes receivable arising subsequent to the date of the 1995
Balance Sheet, have arisen in the ordinary course of the business of the Company
and its Subsidiaries, represent valid obligations owing to the Company or its
Subsidiaries, and, subject only to recorded reserves for bad debts, have been
collected or are collectible in all material respects in the aggregate recorded
amounts thereof in accordance with their terms.
<PAGE> 9
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[Section]4.13. Trademarks, Etc.
----------------
(a) Except as otherwise described in [Section]4.13(a) of the DISCLOSURE
SCHEDULE, the Company or one of its Subsidiaries is the sole and exclusive owner
of or has the right to use, free and clear of any material obligations to pay
royalties or any other similar obligations, and free and clear of all mortgages,
liens or other encumbrances of any kind, all (if any) patents, trade secrets,
trademarks, trade names, brand names and copyrights the use of which are
material to the business or operations of the Company and its Subsidiaries as
now conducted. Except as otherwise described in [Section]4.13(a) of the
DISCLOSURE SCHEDULE, there are no material licenses, sublicenses, covenants or
agreements which have been entered into by the Company with respect to any
patents, trade secrets, trademarks, trade names, brand names or copyrights. None
of the Company or any of its Subsidiaries is in default in any material respect
under or in relation to any such license, sublicense, covenant or agreement.
(b) There is no claim by or demand of any person pertaining to, and there
is (to the best knowledge of the Company) no pending or threatened action, suit,
proceeding or investigation relating to any rights of the Company or any of its
Subsidiaries in respect of any patents, trade secrets, trademarks, trade names,
brand names or copyrights used in the business or operations of the Company or
any of its Subsidiaries, the outcome of which could reasonably be expected to
have a Material Adverse Effect.
(c) No patent, trade secret, trademark, trade name, brand name or
copyright owned or used by the Company or any of its Subsidiaries (i) is, to the
Company's knowledge, being infringed by any person, or (ii) to the Company's
knowledge, infringes any patent, trade secret, trademark, copyright or other
intellectual property right of any person.
(d) Except as otherwise described in [Section]4.13(d) of the DISCLOSURE
SCHEDULE, none of the Company or any of its Subsidiaries is a party to or bound
by any agreement or contract (whether written or oral) containing any covenant
prohibiting the Company or any of its Subsidiaries from competing in any
business of any kind in any territory or from competing with any person, or
prohibiting the Company or any of its Subsidiaries from doing any kind of
business with any person.
[Section]4.14. GOVERNMENTAL LICENSES. All (if any) licenses, permits,
franchises, consents and other authorizations from governmental agencies which
are necessary for the present business or operations of the Company and its
Subsidiaries have been obtained by the Company or its Subsidiaries and are in
full force and effect, except for any such licenses, permits, franchises,
covenants and other authorizations the absence of which could reasonably be
expected to have a Material Adverse Effect. Each of the Company and its
Subsidiaries has observed
<PAGE> 10
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and is in compliance with the terms of all such licenses, permits, franchises,
consents and other authorizations, except for such noncompliance as could not
reasonably be expected to have a Material Adverse Effect.
[Section]4.15. INSURANCE. Each of the Company and its Subsidiaries
maintains property and liability insurance with reputable insurance companies
insuring against such risks and in such amounts as are appropriate and
reasonable considering the properties, business and operations of the Company
and its Subsidiaries.
[Section]4.16. Compliance With Laws And Contracts, Etc.
----------------------------------------
(a) Each of the Company and its Subsidiaries has complied with all laws
and regulations, all orders, rulings and interpretations thereunder, and all
judgments, decrees and orders of courts and governmental or regulatory
authorities, applicable to the Company or any such Subsidiary, its business or
operations, the violation or contravention of which could reasonably be expected
to have a Material Adverse Effect.
(b) None of the Company or any of its Subsidiaries is in violation of or
in default under any provision of its charter documents or By-laws. None of the
Company or any of its Subsidiaries is in violation of or in default under any
provision of any contract, agreement or instrument (including, without
limitation, any writing evidencing any indebtedness or any guarantee) to which
it is a party or by which it or any of its property is bound or affected, the
violation or default under or in respect of which could reasonably be expected
to result in a Material Adverse Effect.
[Section]4.17. TAXES. Each of the Company and its Subsidiaries has filed
all federal, state, county, local, foreign, and other income tax, excise tax,
sales tax, use tax, gross receipts tax, franchise tax, employment and payroll
related tax, property tax and all other tax returns which it has been required
to file. Each of the Company, and its Subsidiaries has paid or made provision
for the payment of all (if any) taxes that have become due or are required to be
paid by it, except for taxes for which adequate reserves are reflected in the
1995 Balance Sheet.
[Section]4.18. Litigation, Etc.
----------------
(a) Except as otherwise described in [Section]4.18 of the DISCLOSURE
SCHEDULE, there is no pending or (to the knowledge of the Company) threatened
action, suit, proceeding, claim or investigation before any court, governmental
or regulatory authority, agency, commission or official, board of arbitration or
arbitrator by or against the Company or any of its Subsidiaries or in which the
Company or any of its Subsidiaries is a participant, the outcome of which could
reasonably be expected to result in a Material Adverse Effect.
<PAGE> 11
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(b) No resolution has been passed by the shareholders of the Company for
the winding up, liquidation or dissolution of the Company or any of its
Subsidiaries. None of the Company or any of its Subsidiaries has made an
assignment for the benefit of creditors or become insolvent. None of the Company
or any of its Subsidiaries has filed a petition in voluntary liquidation or
bankruptcy or filed a petition or answer or consent seeking its reorganization
or the readjustment of any of its indebtedness under applicable insolvency or
bankruptcy laws now or hereafter existing.
[Section]4.19. Transactions With Associated Persons, Etc.
------------------------------------------
(a) Except as otherwise described in [Section]4.19 of the DISCLOSURE
SCHEDULE or set forth, with respect to the Investors, in any Fundamental
Document, (i) none of the Company or any of its Subsidiaries is a party to or
bound by or otherwise committed in respect of any agreement, instrument or
contract (whether written or oral) to which any Associated Person (as
hereinafter defined) is or is to become a party or under which any Associated
Person has or is to acquire any rights, interests or benefits, (ii) none of the
Company or any of its Subsidiaries is a party to or a participant in or
otherwise committed in respect of any transaction or arrangement in which any
Associated Person has or is to acquire any rights, interests or benefits, (iii)
none of the Company or any of its Subsidiaries is committed to make or has any
investments of any kind in any Associated Person, (iv) no Associated Person has
or is committed to make any investments of any kind in the Company or any of its
Subsidiaries, (v) there is no Indebtedness for Borrowed Money of the Company or
any of its Subsidiaries to any Associated Person, and (vi) there is no
Indebtedness for Borrowed Money of any Associated Person to the Company or any
of its Subsidiaries.
(b) As used herein, the term "ASSOCIATED PERSON" shall mean:
(i) any person who owns or holds, of record and/or beneficially,
more than five percent (5%) of all of the issued and outstanding shares of any
class in the capital of the Company;
(ii) any person who is a director or an officer of the Company or
any of its Subsidiaries;
(iii) any person who is an ancestor, a lineal descendant, a
brother or sister, a spouse, a father-in-law, or a mother-in-law of a person
who is an Associated Person; and
(iv) any person which (directly or indirectly) controls or is
controlled by or is under common control with any Associated Person.
<PAGE> 12
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As used herein, the term "ASSOCIATED PERSON" shall not include any Investor.
[Section]4.20. CUSTOMERS. [Section]4.20 of the DISCLOSURE SCHEDULE sets
forth the ten (10) largest customers of the Company and its Subsidiaries during
the 1995 fiscal year of the Company, and each other customer of material
importance to the business of the Company and its Subsidiaries. Except as
described in [Section]4.20 of the DISCLOSURE SCHEDULE, no such customer has
canceled or otherwise terminated its relationship with the Company and its
Subsidiaries or its usage or purchase of the services or products of the Company
and its Subsidiaries. Except as set forth in [Section]4.20 of the DISCLOSURE
SCHEDULE, the Company has no knowledge that any material customer intends to
cancel or otherwise modify its relationship with the Company and its
Subsidiaries, or to decrease materially or limit usage or purchase of the
services or products of the Company and its Subsidiaries.
[Section]4.21. USE OF PROCEEDS. Except as otherwise described in [Section]
4.21 of the DISCLOSURE SCHEDULE, the proceeds from the sale of the Class C
Preferred Shares will not be used by the Company (whether directly or
indirectly) (a) to repay any principal of any Indebtedness for Borrowed Money,
(b) to pay any dividends on, to make any payments on account of the purchase or
redemption of, or to make any distributions in respect of, any capital stock, or
(c) to make any other payment to any Associated Person.
[Section]4.22. BROKERS AND FINDERS. None of the Company or any of its
Subsidiaries has employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders' fees in connection with the transactions
contemplated by this Agreement.
[Section]4.23. GOVERNMENTAL CONSENTS AND APPROVALS. No approval, consent,
order, authorization or license by any governmental or regulatory authority,
bureau, agency or official is required, under any provision of any applicable
law:
(a) for the execution and delivery by the Company of any of the
Fundamental Documents, or for the performance by the Company of any of its
agreements or obligations thereunder; or
(b) to ensure the continuing legality, validity, binding effect, or
enforceability of any Fundamental Document;
EXCEPT (in each case) such approvals, consents, orders, authorizations and
licenses as have been duly obtained, are adequate and are in full force and
effect as of the Closing Date.
<PAGE> 13
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[Section]4.24. Private Offering.
-----------------
(a) Neither the Company nor anyone acting on its behalf has offered any
shares of Class C Preferred Stock or any substantially similar securities of the
Company for sale to, or solicited offers to buy any securities of the Company
from, or otherwise approached or negotiated with respect thereto with any
prospective purchasers other than the Investors, and a limited number of other
sophisticated potential investors. The Company warrants that neither the Company
nor anyone acting on its behalf has offered or will offer such securities of the
Company or any similar securities for issue or sale to, or solicit any offer to
acquire any of the same from, anyone so as to make the issuance and sale of the
Class C Preferred Shares subject to the registration requirements of Section 5
of the Securities Act.
(b) The offer, issuance and sale of Class C Preferred Shares contemplated
by this Agreement are (and the issuance of shares of Class A Common Stock upon
conversion of the Class C Preferred Stock will be) exempt from the registration
and prospectus delivery requirements of the Securities Act. The issuance and
sale by the Company of the Class C Preferred Shares contemplated by this
Agreement are (and the issuance of shares of Class A Common Stock upon
conversion of the Class C Preferred Stock will be) exempt from registration or
qualification under the registration or qualification requirements of all
applicable state Blue Sky laws.
[Section]4.25 Erisa.
------
(a) Except as set forth in [Section]4.25 of the DISCLOSURE SCHEDULE, the
Company does not maintain or make contributions to any defined benefit or
defined contribution pension plans for its employees which are subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
(b) The Company does not currently maintain, nor has it ever maintained, a
retiree medical plan or program or other welfare benefit plan intended to
provide benefits to retired employees of the Company.
(c) The Company has purchased group medical insurance for active employees
for which the Company is required to pay the stated premiums.
(d) The Company does not currently maintain, nor has it ever maintained,
an employee benefit plan which constitutes, or has constituted a Multi-Employer
Plan within the meaning of Section 4001(a)(3) of ERISA, and the Company has not
incurred any liability to any Multi-Employer Plan which remains unsatisfied in
connection with a complete or partial withdrawal from any such plan within the
meaning of Section 4203 or 4205 of ERISA.
<PAGE> 14
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(e) The consummation of the transaction contemplated hereby will not
result in (i) an "excess parachute payment" (as defined in Section 280G(b)(1) of
the Internal Revenue Code) which is subject to the imposition of an excise tax
under Section 4999 of the Internal Revenue Code or which would not be deductible
by reason of Section 280G of the Internal Revenue Code or (ii) the payment of
any severance benefits or compensation in lieu thereof.
(f) The employee welfare plans that the Company maintains comply in all
material respects with ERISA, including, without limitation, the reporting and
disclosure provisions thereof.
[Section]4.26 BROKERS, ETC. Neither the Company nor any of its officers,
directors or employees has employed any broker or finder, or incurred any
liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated by this Agreement.
[Section]4.27. DISCLOSURE. Neither this Agreement (including the EXHIBITS
and SCHEDULES hereto), nor any of the other documents delivered at the Closing
to the Investors by or on behalf of the Company pursuant to this Agreement
(including the EXHIBITS and SCHEDULES hereto), taken as a whole, contains any
untrue statement of any material fact or omits to state any material fact
necessary in order to make the statements contained herein or therein not
misleading.
ARTICLE V
---------
REPRESENTATIONS OF EACH INVESTOR
--------------------------------
Each Investor (severally, and not jointly) represents and warrants to the
Company with respect to such Investor that:
[Section]5.01. DUE ORGANIZATION, ETC. Each such Investor (other than
Monument Trust Company) is a corporation or partnership, as the case may be,
duly organized, legally existing and in good standing under the laws of the
jurisdiction of its organization. Each Investor has all requisite power and
authority to enter into each of the Fundamental Documents to which it is or is
to become a party, and to perform, observe and comply with all of its agreements
and obligations under each of such documents.
[Section]5.02. BINDING EFFECT OF DOCUMENTS. Each of this Agreement and
the other Fundamental Documents to which such Investor is a party has been
duly executed and delivered by such Investor, and each Fundamental Document
constitutes the valid and legally binding agreement of such Investor,
enforceable in accordance with its terms, except as such validity, binding
effect or enforceability may be
<PAGE> 15
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affected by (a) applicable bankruptcy, reorganization, moratorium or other
similar laws affecting generally the enforcement of rights, or (b) the
availability of equitable remedies.
[Section]5.03. Investment Representations.
---------------------------
(a) Such Investor is purchasing the Class C Preferred Shares to be
purchased by such Investor hereunder from the Company in accordance with the
terms hereof for such Investor's own account without a view to any distribution
thereof in violation of the Securities Act of 1933, as amended (the "SECURITIES
ACT"), but, SUBJECT, NEVERTHELESS, to any requirement of law that the
disposition of such Investor's property shall at all times be within such
Investor's control. Such Investor has been informed and understands that the
Class C Preferred Shares to be purchased by such Investor hereunder have not
been registered pursuant to the provisions of Section 5 of the Securities Act
and must be held indefinitely unless such securities are subsequently registered
under the provisions of the Securities Act or an exemption from such
registration is available.
(b) Such Investor has been furnished with, or has had access to, all
information concerning the Company and its Subsidiaries, and such opportunity to
raise questions of officers of the Company, as such Investor has deemed
necessary or appropriate in order to enable such Investor to make an informed
investment decision with respect to the acquisition of the Class C Preferred
Shares to be purchased by such Investor hereunder. Such Investor has such
knowledge and experience in financial matters that such Investor is capable of
evaluating the merits and risks of such Investor's investment contemplated
hereby. Such Investor's financial condition is such that such Investor is able
to bear all economic risks of investment contemplated hereby, including a
complete loss of such Investor's investments therein and the risks of holding
such investment for an indefinite period of time. Such Investor also
acknowledges that there exists no market for the Class C Preferred Shares at
this time. Such Investor represents that such Investor is an "accredited
investor" within the meaning of Rule 501(a) promulgated under the Securities
Act.
(c) Such Investor also acknowledges that, except as otherwise provided by
the terms of this Agreement and the Registration Rights Agreement, the Company
is not under any obligation to register or to cause any person to register any
shares of capital stock of the Company under the Securities Act, to become a
reporting company under the Securities Exchange Act of 1934, as amended (the
"SECURITIES EXCHANGE ACT"), or otherwise to make public the financial and other
information required to comply with the requirements of any exemption from
registration under the Securities Act.
<PAGE> 16
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(d) Each stock certificate representing shares of Class C Preferred Stock
being purchased hereunder shall bear a legend in or substantially in the
following form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF
COUNSEL SATISFACTORY TO THIS CORPORATION THAT SUCH REGISTRATION IS
NOT REQUIRED UNLESS SUCH SALE, PLEDGE OR HYPOTHECATION IS MADE IN
COMPLIANCE WITH THE PROVISIONS OF RULE 144 PROMULGATED UNDER SAID
ACT."
(e) Such Investor's correct address is set forth on the FIRST
SCHEDULE annexed hereto.
ARTICLE VI
----------
CONDITIONS OF CLOSING
---------------------
The obligations of each Investor to purchase and pay for the Class C
Preferred Shares being purchased by such Investor at the Closing in accordance
with the terms hereof shall be subject to the satisfaction in each such
instance, prior thereto or concurrently therewith, unless otherwise indicated,
of each of the following conditions precedent (any of which conditions may be
waived on behalf of all Investors by a Special Majority of Investors):
[Section]6.01. FUNDAMENTAL DOCUMENTS. Each of the Fundamental Documents
shall have been duly executed and delivered by the respective parties thereto.
Each of the Fundamental Documents (other than this Agreement) shall be in the
form thereof set out in one of the EXHIBITS to this Agreement or substantially
in that form with only such variations as shall have been approved by the
Investors pursuant to a written Special Investor Consent.
[Section]6.02. CERTIFIED COPIES OF CHARTER DOCUMENTS. Each of the
Investors shall have received from the Company a copy, certified by an
authorized officer of the Company to be true and complete on and as of the
Closing Date, of each of (a) the Certificate of Incorporation, as amended to
and in effect on the Closing Date, and (b) the By-laws of the Company, as
amended to and in effect on the Closing Date. Each of such documents shall be
reasonably satisfactory in form and substance to the Special Majority of
Investors.
<PAGE> 17
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[Section]6.03. PROOF OF CORPORATE ACTION. The Investors shall have
received copies, certified by an authorized officer of the Company to be true
and complete on and as of the Closing Date, of the records of all corporate
action taken by the Company and its shareholders to authorize the execution and
delivery by the Company of each Fundamental Document to which it is a party,
the performance by the Company of all of its agreements and obligations under
each such document, and the issuance, sale and delivery by the Company to the
Investors of the Class C Preferred Shares to be sold hereunder.
[Section]6.04. REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties made by the Company to each Investor in this
Agreement shall be true and correct in all material respects on and as of the
Closing Date with the same full force and effect as if such representations and
warranties had been made to each Investor by the Company on and as of such
date. The Company shall have performed and complied in all material respects
with all agreements and conditions contained in this Agreement or in any of the
other Fundamental Documents which are required to be performed or complied with
by the Company on or prior to the Closing Date. No event shall have occurred on
or prior to the Closing Date and be continuing on such date, and no condition
shall exist on any such date, which constitutes a default on the part of the
Company under any of the Fundamental Documents.
[Section]6.05. PROCEEDINGS. All corporate and other proceedings in
connection with the arrangements and transactions contemplated by the
Fundamental Documents shall be reasonably satisfactory in form and substance to
the Investors, and the Investors shall have received all such originals or
certified or other copies of all such documents, including records of corporate
or other proceedings, as the Investors shall have reasonably requested.
[Section]6.06. RECAPITALIZATION TRANSACTIONS. The Company shall have
consummated each of the recapitalization transactions described on
[Section]6.06 of the DISCLOSURE SCHEDULE.
[Section]6.07. DELIVERY OF STOCK CERTIFICATES. The Company shall have
delivered on the Closing Date to each Investor duly issued stock certificates
representing all of the Class C Preferred Shares being purchased by such
Investor hereunder on the Closing Date.
[Section]6.08. QUALIFICATIONS. All authorizations, approvals or permits
(if any) of any governmental or regulatory authority or agency of the United
States, The Commonwealth of Massachusetts, or any other State of the United
States which are required in connection with the lawful issuance and sale by the
Company of Class C Preferred Shares pursuant to this Agreement shall have been
duly obtained and shall be effective on and as of the Closing Date.
<PAGE> 18
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[Section]6.09. MEMBERSHIP ON BOARD OF DIRECTORS. The number of directors
on the Board of Directors of the Company shall have been duly and properly
fixed at five (5) directors by all necessary corporate and shareholder action.
The persons nominated or designated by the Investors to be directors of the
Company shall have been duly and properly elected to the Board of Directors of
the Company, all as contemplated by the Shareholder Agreement.
[Section]6.10. GRANT OF REGISTRATION RIGHTS. The Investors shall have been
granted certain registration rights pursuant to the Registration Rights
Agreement.
ARTICLE VII
-----------
CONDITIONS OF COMPANY'S OBLIGATIONS TO SELL
-------------------------------------------
CLASS C PREFERRED SHARES
------------------------
The obligations of the Company to issue and sell Class C Preferred Shares
to any Investor on the Closing Date in accordance with the terms hereof shall be
subject to the satisfaction, prior thereto or concurrently therewith, of each of
the following conditions precedent:
[Section]7.01. FUNDAMENTAL DOCUMENTS. Each of this Agreement, the
Shareholder Agreement and the Registration Rights Agreement shall have been duly
executed and delivered to the Company by each Investor.
[Section]7.02. REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties made by each Investor to the Company in Article
V hereof shall be true and correct when made by such Investor and shall be true
and correct on the Closing Date.
[Section]7.03. PAYMENT FOR PREFERRED STOCK. Each Investor shall have
delivered to the Company, in full and complete payment for the Class C Preferred
Shares to be purchased by such Investor from the Company hereunder, the total
consideration payable by such Investor for such securities in accordance with
the terms hereof. Such amount shall be paid by each Investor to the Company by
either or a combination of, as applicable, (a) cash, or (b) delivery to the
Company of instruments canceling indebtedness of the Company or its Subsidiaries
held by the Investors in the amounts set forth on the FIRST SCHEDULE attached
hereto.
<PAGE> 19
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ARTICLE VIII
------------
COVENANTS OF THE COMPANY
------------------------
The Company hereby covenants with each of the Investors that, from the
Closing Date and until the Covenant Termination Date, except as otherwise
expressly permitted or provided, in any particular instance, by a written
Special Investor Consent:
[Section]8.01. ANNUAL FINANCIAL REPORTS. The Company will at all times
keep, and cause each of its Subsidiaries to keep, proper records and books of
account in which complete and correct entries will be made in accordance with
generally accepted accounting principles and practices applied on a consistent
basis. The Company will furnish or cause to be furnished to each Investor, as
soon as available and, in any event, not later than ninety (90) days after the
end of each fiscal year of the Company, copies of (a) the audited consolidated
balance sheet of the Company and its Subsidiaries as at the end of such fiscal
year, (b) the related audited consolidated statements of operations of the
Company and its Subsidiaries for such fiscal year, and (c) the related audited
consolidated statements of changes in the financial position of the Company and
its Subsidiaries in such fiscal year, all in reasonable detail, prepared in
accordance with generally accepted accounting principles and practices applied
on a consistent basis, and certified by independent accountants of recognized
national standing chosen by the Company.
[Section]8.02. QUARTERLY FINANCIAL REPORTS; OTHER FINANCIAL INFORMATION.
The Company will also furnish or cause to be furnished to each Investor:
(a) as soon as available and, in any event, not later than thirty (30)
days after the end of each of the first three fiscal quarters in each fiscal
year of the Company, copies of
(i) the unaudited consolidated balance sheet of the Company and
its Subsidiaries as at the end of such fiscal quarter; and
(ii) the related unaudited consolidated statement of operations of
the Company and its Subsidiaries for such fiscal quarter and for the
portion of the fiscal year of the Company ended at the end of such fiscal
quarter;
setting forth, in the case of each of such balance sheets and statements of
operations, (A) in comparative form the corresponding figures for such fiscal
quarter from the Budget (as defined in [Section]8.03 hereof), and (B) an
explanation for all material differences between the figures for the fiscal
quarter covered by the financial statements furnished pursuant to clauses (i)
and (ii) of this paragraph (a) and the corresponding figures from the Budget;
and
<PAGE> 20
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(iii) the related unaudited consolidated statements of sources and
application of funds and statements of changes in working capital of the
Company and its Subsidiaries in such fiscal quarter;
each of the foregoing to be certified to be true, correct and complete (subject
to year-end audit adjustments) by the chief financial officer of the Company;
(b) as soon as available and, in any event, not later than thirty (30)
days after the beginning of each fiscal year of the Company, copies of the
Budget (as defined in [Section]8.03 hereof) of the Company for such fiscal year
in the form approved by the Board of Directors of the Company, which Budget
shall in any event include the projected financial statements (including balance
sheet, profit and loss and cash flow projections) for each monthly accounting
period in, and also for each of the first three fiscal quarters of, such fiscal
year for the Company and its Subsidiaries, and, as soon as available, copies of
each modification to each such Budget approved by the Board of Directors of the
Company;
(c) promptly upon their becoming available, copies of each management
letter, audit report and other report of substance prepared by the Company or
any of its Subsidiaries or (as the case may be) by independent accountants in
connection with any audit of the accounts of the Company or of any of its
Subsidiaries; and
(d) with reasonable promptness, all such other information, reports and
statements respecting the business, assets, financial condition, results of
operations or prospects of the Company and its Subsidiaries as a Special
Majority of Investors may from time to time reasonably request.
[Section]8.03. PREPARATION OF BUDGET. The Company will, not later than
thirty (30) days prior to the beginning of each fiscal year of the Company,
prepare and submit to the Company's Board of Directors, for approval by the
Board, the annual operating plan of the Company and its Subsidiaries for such
fiscal year (herein sometimes called the "BUDGET"). The Budget will in any event
include monthly capital and operating expense budgets, and monthly cash flow,
profit and loss and balance sheet projections. Each Budget will be modified by
the Company from time to time as often as reasonably necessary or appropriate.
Copies of each such modification will be submitted by the Company to the Board
of Directors of the Company for approval.
[Section]8.04. NOTICE OF LITIGATION. If (a) any action, suit, proceeding
or investigation by or against the Company or any of its Subsidiaries shall be
instituted in or before any court, governmental or regulatory body, agency,
commission or official, board of arbitration or arbitrator or shall be
threatened, and the outcome of any such action, suit, proceeding or
investigation could reasonably be expected to have Material Adverse Effect, or
(b) any material development, not previously disclosed by the Company to each of
the Investors in writing, shall occur in any such action, suit,
<PAGE> 21
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proceeding or investigation, then, promptly (and, in any event, within
ten (10) days) after the Company shall have first become aware of any such
action, suit, proceeding or investigation or of the occurrence of any such
development, the Company will furnish to each of the Investors a written notice
setting forth brief particulars of such action, suit, proceeding, investigation
or development.
[Section]8.05. INSPECTION. The Company will permit any of the duly
authorized representatives of any Investor to visit and inspect any of the
assets or properties now or at any time hereafter owned or held under lease by
the Company or by any of its Subsidiaries, and, at the request of any Investor,
to examine the books of account, records, reports and other papers (and to make
copies thereof and to take extracts therefrom) of the Company or of any of its
Subsidiaries and to discuss the affairs, finances and accounts of the Company or
of any of its Subsidiaries with the directors, officers, agents and independent
accountants of the Company and its Subsidiaries, all at such times and as often
as any Investor may reasonably request. Any information concerning the Company
or any of its Subsidiaries obtained by any Investor in connection with any such
visit, inspection or examination will be kept confidential by such Investor.
[Section]8.06. MERGERS SALES, ETC. The Company will not, and will not
cause or permit any of its Subsidiaries to (a) become a party to any merger or
consolidation, or (b) sell, lease, sublease or otherwise transfer or dispose of
any assets (a "SALE"), except (i) Sales of inventory in the ordinary course of
business, and (ii) mergers of any wholly-owned Subsidiary of the Company with
any other wholly-owned Subsidiary of the Company or with the Company, PROVIDED,
that in any such merger involving the Company, the Company is the surviving
corporation.
[Section]8.07. LIENS, ETC. The Company will not, and will not cause or
permit any of its Subsidiaries to, grant, create, assume or incur any mortgage,
pledge, security interest, lien or other encumbrance on or in respect of any
part of its property, assets, income or revenues, other than in the ordinary
course of business consistent with past practices; EXCLUDING, HOWEVER, from the
operation of the foregoing provisions of this [Section]8.07:
(a) liens in existence on the Closing Date and described in [Section]4.12
of the DISCLOSURE SCHEDULE; and
(b) liens securing Indebtedness for Borrowed Money permitted by [Section]
8.08.
[Section]8.08. LIMITATION ON INDEBTEDNESS FOR BORROWED MONEY. The Company
will not, and will not permit any of its Subsidiaries to, create, incur or
assume, or become or be liable (directly or indirectly) in respect of, any
Indebtedness for Borrowed Money; EXCLUDING, HOWEVER, from the operation of the
foregoing provisions of this [Section]8.08:
<PAGE> 22
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(a) Indebtedness for Borrowed Money incurred in connection with the
purchase or lease of equipment used by the Company or any of its Subsidiaries in
the ordinary course of its business, the aggregate outstanding principal amount
of which shall not at any time exceed $1,500,000;
(b) Indebtedness for Borrowed Money existing on the Closing Date and
described in Section 4.11 of the DISCLOSURE SCHEDULE;
(c) Indebtedness for Borrowed Money of the Company and its Subsidiaries
incurred under one or more working capital lines of credit, the aggregate
outstanding principal amount of which shall not at any time exceed $3,000,000;
and
(d) additional Indebtedness for Borrowed Money of the Company and its
Subsidiaries, the aggregate outstanding principal amount of which shall not at
any time exceed $1,000,000.
[Section]8.09. NATURE OF BUSINESS. The Company will not and will not cause
or permit any of its Subsidiaries to, (a) engage, directly or indirectly, in any
businesses except those lines of business which are not materially different
from those lines of business in which the Company or any such Subsidiary is
engaged on the Closing Date, or (b) undertake, conduct or transact any business
in a manner prohibited by applicable law.
[Section]8.10. LIMITATION ON INVESTMENTS. The Company will not, and will
not permit any of its Subsidiaries to, make any Investments of any kind;
EXCLUDING, HOWEVER, from the operation of the foregoing provisions of this
[Section]8.10:
(a) Investments in demand deposit accounts or money market accounts with,
or in negotiable certificates of deposit or bankers' acceptances maturing in
ninety (90) days or less from the date of issue of, any commercial bank or trust
company which is organized under the laws of the United States or of any State
thereof and which has, or which is owned by a bank holding company which has, a
capital and surplus of at least $100,000,000;
(b) Investments in securities (i) which are commonly known as "commercial
paper", (ii) which are due and payable within ninety (90) days from the date of
issue, (iii) which have been issued by any corporation organized under the laws
of the United States or of any State thereof, and (iv) the ratings for which, at
the time of the acquisition thereof by the Company or any of its Subsidiaries,
have one of the highest two ratings given by Moody's Investors Services, Inc. or
Standard and Poor's Corporation;
<PAGE> 23
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(c) Investments in any marketable direct or unconditionally guarantied
obligations of the United States of America or any agency thereof (provided such
Investments are backed by the full faith and credit of the United States of
America) which mature within one (1) year from the date of such Investments;
(d) Investments in any mutual funds substantially all of the investments
of which are Investments of the kind described in paragraph (a), (b) or (c) of
this [Section]8.10;
(e) Investment by the Company in any corporation which, prior to such
Investment, is a wholly-owned Subsidiary of the Company; and
(f) Investments in assets useful in the conduct of the business of the
Company and its Subsidiaries permitted by [Section]8.09, PROVIDED, that
immediately prior to and immediately after giving effect to any such Investment,
the Company is in compliance in all material respects with each of the covenants
set forth in this [Section]8.
[Section]8.11. ISSUANCE OF OTHER CAPITAL STOCK, ETC.
(a) Except as otherwise expressly contemplated and required or permitted
by Article II and Article III of this Agreement, and except for (i) the issuance
of options to acquire shares of Common Stock to officers and employees of the
Company or any of its Subsidiaries, provided such options have been specifically
approved by the Board of Directors of the Company, (ii) the issuance of Common
Stock upon the exercise of the options referred to in the foregoing clause (i),
(iii) the issuance of shares of Common Stock to the holders of rights and
options to acquire Common Stock described in the SECOND SCHEDULE hereto in
accordance with the instruments governing such rights and options, as in effect
on Closing Date, (iv) the issuance of shares of Common Stock upon conversion of
the Class A Preferred Stock and the Class C Preferred Stock, and (v) the
issuance of shares of Common Stock in a Qualified Public Offering, the Company
will not at any time after the effective date hereof issue (whether by way of a
dividend payment or otherwise), sell or grant to any person or persons, (A) any
shares of Capital Stock (as defined in [Section]8.11(b) hereof), (B) any
securities convertible into or exchangeable for or carrying any rights to
acquire any shares of Capital Stock, or (C) any options, warrants or other
rights to acquire any shares of Capital Stock.
(b) As used in this Article VIII, the term "Capital Stock" shall mean: (i)
Preferred Stock; (ii) Common Stock; and (iii) any other class or series of any
class of capital stock of the Company.
<PAGE> 24
-24-
(c) The Company will at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of issue upon
conversion of shares of Class A and Class C Preferred Stock, the number of
shares of Common Stock issuable from time to time upon conversion of such
Preferred Stock.
(d) The Company will not permit any of its Subsidiaries to issue, sell or
grant to any person or persons, (i) any shares of capital stock of any such
Subsidiary, (ii) any securities convertible into or exchangeable for or carrying
any rights to acquire any shares of capital stock of any such Subsidiary, or
(iii) any options, warrants other rights to acquire any shares of capital stock
of any such Subsidiary.
[Section]8.12. DIVIDENDS AND CAPITAL DISTRIBUTIONS. The Company will not,
and will not cause or permit any of its Subsidiaries to, (a) declare or pay any
dividends of any kind on any shares in its capital of any class, (b) make any
payments on account of the purchase or other acquisition or redemption or
retirement of any shares in its capital of any class or any warrants or options
to purchase any such shares, or (c) make any other distributions of any kind in
respect of any shares in its capital of any class or in respect of any such
warrants or options; EXCLUDING, HOWEVER, from the operation of the foregoing
provisions of this Section 8.12: (i) the declaration and payment of dividends on
the Class C Preferred Stock as set forth in and required by the Company's
Certificate of Incorporation; (ii) the redemption of shares of Class C Preferred
Stock as set forth in and required by the Company's Certificate of
Incorporation; (iii) the issuance of shares of Common Stock upon conversion of
the Class A and Class C Preferred Stock as set forth in the Company's
Certificate of Incorporation; (iv) the declaration of ordinary cash dividends by
any Subsidiary which is wholly-owned by the Company, and the payment of such
dividends to the Company or to another wholly-owned Subsidiary of the Company;
and (v) the repurchase by the Company of up to 370,370 shares of Class A Common
Stock of the Company held by Peter Santeusanio for an aggregate purchase price
not to exceed $ 250,000.
[Section]8.13. NONCOMPETITION AGREEMENTS. The Company will cause each
officer or employee of the Company and its Subsidiaries who is from time to
time identified by the Board of Directors of the Company as a "key employee" to
execute and deliver to the Company a noncompetition and confidentiality
agreement in form and substance satisfactory to the Board of Directors of the
Company.
[Section]8.14. CONFIDENTIALITY AGREEMENTS. The Company will cause each of
its employees, consultants and agents (and those of its Subsidiaries) with
access to confidential information or documents of the Company or any of its
Subsidiaries to execute and deliver to the Company a confidentiality agreement
in form and substance satisfactory to the Board of Directors of the Company.
<PAGE> 25
-25-
[Section]8.15. DIRECTORS' MEETINGS The Company will take or cause to be
taken all such measures as may be appropriate and can lawfully be effected by
the Company to ensure that meetings of the Company's Board of Directors shall be
duly and properly held as frequently as reasonably necessary or appropriate
considering the Company's business, operations and prospects and, in any event,
at least once every calendar quarter.
[Section]8.16. NOTICE OF DEFAULTS. If (and on each occasion that) the
Company shall breach or otherwise fail to comply with any of the covenants
contained in this [Section]8, then, promptly (and, in any event, within five (5)
business days) after the Company shall have first become aware of the occurrence
or development of any such failure or breach, the Company will furnish to the
Investors a written notice specifying the nature and date of the occurrence of
such event or (as the case may be) the nature and period of existence of such
condition and what action the Company is taking or proposes to take with respect
thereto.
[Section]8.17. AFFILIATED TRANSACTIONS, ETC.
(a) The Company will not, and will not cause or permit any of its
Subsidiaries to, enter into any agreement or transaction with any Associated
Person, other than those entered into on or before the Closing Date and
disclosed in [Section]4.19 of the DISCLOSURE SCHEDULE, and those entered into at
any time after the Closing Date that are on terms no less favorable to the
Company and its Subsidiaries than the terms of a similar agreement or
transaction with a person other than an Associated Person.
(b) The Company will not cause or permit any agreements or contracts
between the Company or any of its Subsidiaries and any Associated Person to be
modified or amended in any respect that is materially adverse to the Company or
its Subsidiaries, or to the interests of the Investors, as such.
[Section]8.18. TERMINATION OF ALL COVENANTS. All of the covenants of the
Company contained in this Article VIII shall terminate on and as of the Covenant
Termination Date.
ARTICLE IX
----------
GRANT OF PREEMPTIVE RIGHTS
--------------------------
The Company hereby grants to each of the Investors preemptive rights to
purchase a portion of New Securities (as defined in [Section]9.01(a) hereof)
that the Company may from time to time after the effective date hereof propose
to issue to any person or persons. The preemptive rights granted to each of
such Investors
<PAGE> 26
-26-
pursuant to this Article IX shall be governed by and subject to all of the terms
and provisions contained in this Article IX:
Section 9.01. DEFINITIONS. As used in Article IX hereof, the term "NEW
SECURITIES" shall mean any capital stock of the Company of any class, and any
rights, options or warrants to purchase any such capital stock, and securities
(including, without limitation, debt obligations) of any type whatsoever that
are, or may become, convertible into or exchangeable for any such capital stock;
PROVIDED, HOWEVER, that the term "NEW SECURITIES" shall not include: (i) any
shares of Class C Preferred Stock issued by the Company pursuant to this
Agreement or any shares of Common Stock issuable upon conversion of the Class A
or Class C Preferred Stock; (ii) employee stock options issued by the Company
pursuant to any stock option plan approved by the Board of Directors of the
Company, and shares of Common Stock issuable upon exercise thereof; or (iii)
shares of Common Stock to be offered and sold pursuant to any Qualified Public
Offering.
Section 9.02. PREEMPTIVE RIGHTS.
(a) In the event (and on each occasion) that the Company shall decide to
undertake an issuance of New Securities, the Company will give to each of the
Investors written notice (an "OFFER NOTICE") of the Company's decision,
describing the type of New Securities, the price, and the general terms upon
which the Company has decided to issue the New Securities. Each Investor shall
have fourteen (14) days from the date on which the Company shall give the
written Offer Notice to the Investors (in this Article IX called the "OFFER
DATE") to agree to purchase such New Securities for the price and upon the
general terms specified in the Offer Notice and in compliance with paragraphs
(c) and (d) of this Section 9.02, by giving written notice to the Company and
stating therein the quantity of New Securities to be purchased by such Investor.
If, in connection with such a proposed issuance of New Securities, any Investor
shall for any reason fail or refuse to give such written notice to the Company
within such period of fourteen (14) days, such Investor shall, for all purposes
of this Article IX, be deemed to have refused (in that particular instance only)
to purchase any of such New Securities and to have waived (in that particular
instance only) all rights of such Investor under this Article IX to purchase any
of such New Securities.
(b) In the event that Investors shall fail or refuse to exercise in full
their rights of first refusal within said fourteen (14) day period, the Company
shall have forty-five (45) days thereafter to sell the quantity of New
Securities which the Investors did not agree to purchase pursuant to paragraphs
(c) and (d) of this Section 9.02, at a price and upon general terms no more
favorable to the purchasers thereof than specified in the Company's Offer Notice
to each of the Investors. In the event the Company has not sold the New
Securities within said period of forty-five (45) days, the Company will not
thereafter issue or sell any New Securities without first
<PAGE> 27
-27-
offering such securities to each of the Investors in the manner provided by the
foregoing provisions of this Article IX.
(c) Unless each of the Investors shall otherwise agree in writing, New
Securities to be issued by the Company on any particular occasion shall be
allocated among the Investors on the basis set forth below in this paragraph (c)
and in paragraph (d) of this Section 9.02. Each Investor shall be entitled to
purchase its Investor Percentage of any New Securities to be issued by the
Company at any time after the date hereof. As used in this paragraph (c), in
relation to any particular Investor and any particular issue of New Securities,
the term "INVESTOR PERCENTAGE" shall mean the percentage obtained by dividing:
(X) the total number of Investor Shares held or deemed held of
record on the Offer Date by such Investor, by (Y) the total number of
Investor Shares held or deemed held of record on the Offer Date by all
Investors.
(d) If any Investor shall agree to purchase less than such Investor's
Investor Percentage of an issue of New Securities (as determined pursuant to
paragraph (c) of this Section 9.02), each Investor who shall be willing to
purchase more than such Investor's Investor Percentage of the New Securities
shall be entitled to such portion of the unallocated New Securities as the total
number of Investor Shares held or deemed held of record by such Investor on the
Offer Date bears to the total number of Investor Shares held of record on the
Offer Date by all of the Investors who shall be willing to purchase more than
their Investor Percentage of the New Securities (as determined pursuant to
paragraph (c) of this Section 9.02). The procedure described in the preceding
sentence for allocating New Securities among Investors willing to purchase such
New Securities shall be repeated until all unallocated New Securities shall have
been allocated among Investors willing to purchase such unallocated New
Securities, all in compliance with the provisions contained in the preceding
sentence of this paragraph (d).
(e) Each Investor covenants with the Company and each of the other
Investors that each written notice given to the Company by such Investor
pursuant to paragraph (a) of this Section 9.02 shall be consistent and in
compliance with the terms of paragraphs (c) and (d) of this Section 9.02.
(f) Each Investor may designate any Permitted Transferee of such Investor
to exercise any preemptive rights of such Investor under this Article IX.
Section 9.03. NO INCONSISTENT AGREEMENTS. The Company will not, at any
time after the effective date of this Agreement, enter into any agreement or
contract (whether written or oral) which is inconsistent in any respect with the
preemptive rights granted by the Company to the Investors pursuant to Article IX
of this Agreement.
<PAGE> 28
-28-
Section 9.04. TERMINATION OF PREEMPTIVE RIGHTS. All rights of the
Investors under this Article IX, and all agreements and obligations of the
Company under this Article IX, shall terminate and shall have no further force
or effect from and after the Covenant Termination Date.
ARTICLE X
---------
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION.
---------------------------------------------
Section 10.01. SURVIVAL OF REPRESENTATIONS. The representations and
warranties of the Company and of each of the Investors contained in this
Agreement or any agreement, instrument or document delivered pursuant to any of
the provisions of this Agreement, shall survive the execution and delivery of
this Agreement, any examination or investigation conducted by or on behalf of
the Company or any of the Investors, and the Closing hereunder.
Section 10.02. INDEMNIFICATION FOR MISREPRESENTATIONS. The Company agrees
to indemnify and hold each Investor harmless from and against, and to pay to
each Investor, on demand by such Investor from time to time, the full amount of
any loss, claim, damage, liability, cost or expense (including reasonable
attorneys' fees) resulting to such Investor from any false, incorrect or
misleading representation or warranty of the Company contained in this
Agreement, or in any agreement, instrument or document delivered by the Company
to such Investor pursuant to any of the provisions of this Agreement.
Section 10.03. EXPENSES. The Company agrees to pay to the Investors, on
demand by the Investors at any time and as often as the occasion therefor may
require, all reasonable out-of-pocket costs and expenses which shall be incurred
or sustained by such Investor at any time in connection with any modifications
or amendments to or consents, approvals or waivers under this Agreement or any
of the other Fundamental Documents, or in connection with any litigation,
proceeding or dispute arising out of or relating to any Fundamental Documents or
relationships created thereby, or in connection with any action or proceeding
taken by such Investor to protect or preserve all or any of the rights,
remedies, powers or privileges of such Investor under any of such documents or
to enforce any of the covenants, agreements or obligations of the Company under
any of such documents (including, without limitation, all of the reasonable fees
and disbursements of legal counsel for such Investor); PROVIDED, HOWEVER, that
in the case of any such litigation, preceding or dispute, or any such action or
proceeding, the Investors are the prevailing party.
In addition, whether or not all or any of the arrangements or transactions
contemplated by this Agreement or by any of the other Fundamental Documents
shall be consummated, the Company agrees to pay, or to reimburse Mr. and Mrs.
<PAGE> 29
-29-
Pao for, the reasonable legal fees and disbursements, up to $7,500 incurred by
MyTech Funds, L.P. and PUSH Incorporated in connection with the negotiation,
execution and delivery of this Agreement and the other Fundamental Documents.
ARTICLE XI
----------
CERTAIN DEFINED TERMS
---------------------
As used herein the following terms shall have the meaning assigned to them
in this Article XI:
"ASSOCIATED PERSON" shall have the meaning specified in Section 4.19
hereof.
"COVENANT TERMINATION DATE" shall mean the earlier of (i) the date on
which the Company shall complete and close a Qualified Public Offering, and (ii)
the date on which all outstanding shares of Class A Preferred Stock and Class C
Preferred Stock have been converted to Common Stock.
"FUNDAMENTAL DOCUMENTS" shall mean, collectively: (i) this Agreement;
(ii) the Registration Rights Agreement; and (iii) the Shareholder Agreement.
"INDEBTEDNESS FOR BORROWED MONEY" shall have the meaning specified in
Section 4.11 hereof.
"INVESTMENT" shall mean, in relation to any person, all investments by
such person in any other person by stock purchase, capital contribution, loan,
advance, guarantee of any indebtedness or creation or assumption of any other
liability in respect of any indebtedness of such other person, the acquisition
by such person of all or any substantial part of the assets or properties of any
other person, or the transfer or sale of property by such person (otherwise than
in the ordinary course of the business of such person) to any other person for
less than payment in full in cash of the transfer or sale price or the fair
market value thereof (whichever of such price or value is higher).
"INVESTORS" shall have the meaning specified in the introductory
paragraph hereto.
"INVESTOR SHARES" means, in relation to any Investor at any particular
date, (i) all shares of Common Stock held of record by such Investor on such
date, and (ii) all shares of Common Stock issuable by the Company to such
Investor upon conversion of or in exchange for or upon exercise of rights under
all other capital stock or other securities (including warrants and options) of
the Company held of record by such Investor on such date; and, in this
Agreement, each Investor shall be deemed to hold of record on any particular
date the total number of shares of
<PAGE> 30
-30-
Common Stock issuable by the Company upon conversion of or in exchange for or
upon exercise of rights under all capital stock or other securities (including
warrants and options) of the Company then held of record by such Investor on
such date; disregarding, for this purpose, any legal or other restrictions on
the exercise of such rights.
"MATERIAL ADVERSE EFFECT" means any material adverse effect on the assets,
business, condition (financial or otherwise) or prospects of the Company and its
Subsidiaries, taken as a whole.
"PERMITTED TRANSFEREE" shall mean, in relation to any particular Investor,
each person to whom such Investor would be permitted to transfer securities of
the Company pursuant to the Shareholder Agreement.
"PERSON" OR "PERSON" shall mean an individual, corporation, partnership,
joint venture, trust, or unincorporated organization, or a government or any
agency or political subdivision thereof.
"QUALIFIED PUBLIC OFFERING" shall mean, in relation to the Company, the
first underwritten public offering pursuant to an effective registration
statement under the Securities Act covering the offer and sale of shares of
Common Stock in which (i) not less than $15,000,000 of net cash proceeds from
such public offering shall be received by the Company for the account of the
Company; (ii) the public offering price per share of Common Stock in such public
offering shall equal or exceed $10.00; and (iii) each of the underwriters
participating in such public offering shall be obligated to buy on a "firm
commitment" basis all shares of Common Stock which such underwriters shall have
agreed to distribute.
"REGISTRATION RIGHTS AGREEMENT" shall mean the Registration Rights
Agreement, in or substantially in the form of EXHIBIT B attached hereto, dated
as of the date hereof, among the Company, the Investors and certain other
shareholders of the Company, as such agreement may be amended, modified or
restated from time to time.
"SHAREHOLDER AGREEMENT" shall mean the Second Amended and Restated
Shareholder Agreement, in or substantially in the form of EXHIBIT C attached
hereto, dated as of the date hereof, by and among the Company, the Investors,
and certain other Shareholders of the Company, as such agreement may be amended,
modified or restated from time to time.
"SPECIAL INVESTOR CONSENT" shall mean, at any particular date, the
consent, approval or vote of Investors holding of record or deemed to be holding
of record, at such date, more than fifty percent (50%) of the total number of
Investor Shares outstanding.
<PAGE> 31
-31-
"SPECIAL MAJORITY OF INVESTORS" shall mean, at any particular date,
Investors holding of record or deemed to be holding of record, at such date,
more than fifty percent (50%) of the total number of Investor Shares
outstanding.
"SUBSIDIARY" shall mean, in relation to the Company at any particular
time, any other corporation at least fifty percent (50%) of the outstanding
voting shares in the capital of which shall be owned or controlled (whether
directly or indirectly) by the Company and/or by any one or more of the
Company's other Subsidiaries.
ARTICLE XII
-----------
MISCELLANEOUS
-------------
Section 12.01. NOTICES.
(a) All notices and other communications pursuant to this Agreement shall
be in writing, either delivered in hand or sent by first-class mail, postage
prepaid, or sent by telex, telecopier, facsimile machine or telegraph, addressed
as follows:
(i) if to the Company, at the address of the Company set forth
on the first page hereof, or at such other address as shall have been
furnished to each of the Investors in writing by the Company, and
marked "Attention: Chief Executive Officer"; or
(ii) if to any Investor, at the address or addresses of such
Investor set forth opposite the name of such Investor on the FIRST
SCHEDULE annexed hereto, or at such other addresses (in each case) as
shall have been furnished to the Company by such Investor in writing;
and, in either case, with a copy thereof simultaneously transmitted to Neil W.
Townsend, Esq., Bingham, Dana & Gould, 150 Federal Street, Boston,
Massachusetts 02110.
(b) Any notice or other communication pursuant to this Agreement shall be
deemed to have been duly given or made and to have become effective (i) when
delivered in hand to the party to which it was directed, (ii) if sent by telex,
telecopier, facsimile machine or telegraph and properly addressed in accordance
with the foregoing provisions of this Section 12.01, when transmitted, or (iii)
if sent by first-class mail, postage prepaid, and properly addressed in
accordance with the foregoing provisions of this Section 12.01, (A) when
received by the addressee, or (B) on the third business day following the day of
dispatch thereof, whichever of (A) or (B) shall be the earlier.
<PAGE> 32
-32-
Section 12.02. GOVERNING LAW. This Agreement is intended to take effect
as a sealed instrument and shall be construed in accordance with and governed
by the internal laws of The Commonwealth of Massachusetts, without regard to
the principles of conflicts of law.
Sectiion 12.03. AMENDMENTS AND WAIVERS.
(a) Except as otherwise provided by paragraph (b) of this Section 12.03,
and except as otherwise expressly required by any other provisions of this
Agreement, none of the terms or provisions contained in this Agreement, and none
of the agreements, obligations or covenants of the Company contained in this
Agreement, may be amended, modified, supplemented, waived or terminated unless
(i) the Company shall execute an instrument in writing agreeing or consenting to
such amendment, modification, supplement, waiver or termination, and (ii) the
Company shall receive a prior written Special Investor Consent therefor.
(b) Each of the terms and provisions contained in this Section 12.03 or
in the definitions of SPECIAL INVESTOR CONSENT or SPECIAL MAJORITY OF
INVESTORS contained in Article XI may be amended, modified, supplemented,
waived or terminated only by a written instrument or consent signed by the
Company and by each of the Investors.
(c) In connection with any action taken or to be taken pursuant to
paragraph (a) or (b) of this Section 12.03, there shall be no obligation or
requirement on the part of the Company, any of the Investors or any other
persons (i) to solicit or to attempt to solicit from all of the Investors the
consent or approval of all of the Investors for such action, or (ii) to submit
any notices of any kind to all of the Investors in advance of any action
proposed to be taken pursuant to paragraph (a) or (b) of this Section 12.03.
However, copies of all written consents or approvals given by Investors in
connection with any action taken or to be taken pursuant to and in compliance
with paragraph (a) or (b) of this Section 12.03 shall be sent by the Company,
promptly after the receipt thereof by the Company, to each Investor.
(d) Any action taken pursuant to and in compliance with paragraph (a) or
(b) of this Section 12.03 shall be binding upon the Company and upon all of the
Investors.
Section 12.04. PROPORTIONAL ADJUSTMENTS. There are references in this
Agreement to a specific price per share of the Company's Common Stock or to a
specific number of shares in the capital of the Company. The specific price per
share and the specific number of shares so stated are effective as of the
Closing Date. The specific price per share and the specific number of shares so
stated shall (in each case) be proportionally adjusted from time to time if (and
on each occasion that) there shall be effected by the Company any stock
dividend, stock split, subdivision of shares, combination of shares,
reclassification, recapitalization or other similar corporate reorganization
affecting the capital structure of the Company. The exact amount
<PAGE> 33
-33-
and the effective date of each adjustment effected pursuant to this Sectiion
12.04 shall be determined in good faith and on a reasonable basis by the Board
of Directors of the Company. The Company shall promptly notify each Investor in
writing of each such adjustment.
Section 12.05. INTEGRATION. Annexed to this Agreement are three (3)
SCHEDULES and also EXHIBITS A through C. Such SCHEDULES and EXHIBITS are an
integral part of this Agreement and are hereby incorporated by reference.
Section 12.06. RIGHTS AND OBLIGATIONS SEVERAL. The rights and obligations
of each of the parties hereto shall be several (and not joint), except as
otherwise expressly provided by this Agreement.
Section 12.07. NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the
part of any Investor in exercising any right, power or remedy hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy hereunder. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
Section 12.08. ENTIRE AGREEMENT. This Agreement, including the SCHEDULES
and EXHIBITS hereto, constitutes the entire agreement among the parties hereto
with respect to the subject matter hereof and supersedes any prior
understandings or agreements concerning the subject matter hereof.
Section 12.09. SEVERABILITY. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
Section 12.10. BINDING EFFECT.
(a) All of the covenants and agreements of the Company contained in, and
all of the rights granted by the Company pursuant to, this Agreement, shall
inure to the benefit of each Investor and each Permitted Transferee of such
Investor to whom Investor Shares shall have been transferred. None of such
covenants, agreements or rights shall be assignable or transferable by any
Investor to any person except to a person who is a Permitted Transferee of such
Investor.
(b) No limited partner of any limited partnership which is a party hereto
or to any other of the Fundamental Documents shall be held to any personal
obligation or liability hereunder or thereunder.
Section 12.11. COUNTERPARTS. This Agreement may be executed
simultaneously in several counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
agreement. In making proof of this
<PAGE> 34
-34-
Agreement, it shall not be necessary to produce or account for more than one
such counterpart signed by each of the parties hereto.
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this Agreement and return such
counterpart to the undersigned, whereupon this Agreement, as so accepted by each
of you, shall become a binding agreement under seal among you and the
undersigned, Xionics Document Technologies, Inc.
Very truly yours,
XIONICS DOCUMENT TECHNOLOGIES, INC.
By:
------------------------------------------
Title:
---------------------------------------
<PAGE> 35
-35-
The foregoing Securities Purchase Agreement with Xionics Document
Technologies, Inc. is hereby accepted by each of the undersigned on and as of
the date first set forth above.
INVESTORS
- ---------
MYTECH FUNDS, L.P.
By:
----------------------------------------
Title:
-------------------------------------
By:
----------------------------------------
Title:
-------------------------------------
PUSH INCORPORATED
By:
----------------------------------------
Title:
-------------------------------------
ADD VENTURE ASSOCIATES, L.P.
By:
----------------------------------------
Title:
-------------------------------------
ADD VENTURE ASSOCIATES II, L.P.
By:
----------------------------------------
Title:
-------------------------------------
PHOENIX TECHNOLOGIES LTD.
By:
----------------------------------------
Title:
-------------------------------------
<PAGE> 36
-36-
HAMBRO INTERNATIONAL VENTURE FUND II
By:
---------------------------------
Title: General Partner
--------------
HAMBRO INTERNATIONAL VENTURE
FUND OFFSHORE II
By:
---------------------------------
Title: Attorney-in-Fact
----------------
MONUMENT TRUST COMPANY
By:
---------------------------------
Title:
<PAGE> 37
FIRST SCHEDULE
--------------
NAMES AND ADDRESSES OF INVESTORS AND
INVESTMENTS IN CLASS C PREFERRED STOCK
THE FIRST SCHEDULE TO THE SECURITIES PURCHASE
AGREEMENT, DATED AS OF AUGUST 25, 1995, AMONG
XIONICS DOCUMENT TECHNOLOGIES, INC. AND EACH
OF THE INVESTORS NAMED BELOW
- --------------------------------------------------------------------------------
<TABLE>
INVESTMENTS IN CLASS C PREFERRED STOCK
--------------------------------------
<CAPTION>
COLUMN I COLUMN II COLUMN III
- -------- --------- ----------
AGGREGATE
CLASS CONSIDERATION
C PREFERRED PAID OR
SHARES TO BE DELIVERED BY
NAME AND ADDRESS OF INVESTOR PURCHASED INVESTOR
- ---------------------------- --------- --------
<S> <C> <C>
MyTech Funds, L.P. 516,085 $1,500,000
c/o Mr. and Mrs. Frank C. Pao
Penthouse No. 1
10 Rowes Wharf
Boston, MA 02110
PUSH Incorporated 344,056 $1,000,000
c/o 2, Oxford Road
Kowloon, Hong Kong
Attention: Mr. Yunni Pao
ADD Venture Associates, L.P. 68,811 $ 200,000
c/o Posternak, Blankstein & Lund
100 Charles River Plaza
Boston, MA 02114
Attention: Noel Posternak
</TABLE>
<PAGE> 38
-2-
<TABLE>
<CAPTION>
COLUMN I COLUMN II COLUMN III
- -------- --------- ----------
AGGREGATE
CLASS CONSIDERATION
C PREFERRED PAID OR
SHARES TO BE DELIVERED BY
NAME AND ADDRESS OF INVESTOR PURCHASED INVESTOR
- ---------------------------- --------- --------
<S> <C> <C>
ADD Venture Associates II, L.P. 34,406 $100,000
c/o Posternak Blankstein & Lund
100 Charles River Plaza
Boston, MA 02114
Attention: Noel Posternak
PHOENIX TECHNOLOGIES, LTD. 653,707 Cancellation of
$1,900,000
indebtedness
846 University Avenue
Norwood, MA 02062
Attention: Mr. Ron Fisher
With a copy to:
2770 De La Cruz Boulevard
Santa Clara, CA 95050
Attention: Legal Department
HAMBRO INTERNATIONAL 766,078 $415,000 cash
VENTURE FUND II - and -
404 Wyman Street - Suite 365 Cancellation of
Waltham, MA 02154 indebtedness and
surrender of Class
Attention: Mr. Richard D'Amore, B Preferred Stock
General Partner in aggregate
amount of
$1,811,605
</TABLE>
<PAGE> 39
-3-
<TABLE>
<CAPTION>
COLUMN I COLUMN II COLUMN III
- -------- --------- ----------
AGGREGATE
CLASS CONSIDERATION
C PREFERRED PAID OR
SHARES TO BE DELIVERED BY
NAME AND ADDRESS OF INVESTOR PURCHASED INVESTOR
- ---------------------------- --------- --------
<S> <C> <C>
HAMBRO INTERNATIONAL 161,934 $85,000 cash
VENTURE FUND OFFSHORE II - and -
404 Wyman Street - Suite 365 Cancellation of
Waltham, MA 02154 indebtedness and
surrender of Class
Attention: Mr. William Geary, B Preferred Stock
General Partner in aggregate
amount of $371,053
MONUMENT TRUST COMPANY 122,585 Surrender of Class
c/o Watermark Software Inc. B Preferred Stock
129 Middlesex Turnpike in aggregate
Burlington, MA 01803 amount of $356,293
Attention: Mr. David Skok
</TABLE>
<PAGE> 40
SECOND SCHEDULE
---------------
CAPITALIZATION TABLES
---------------------
THE SECOND SCHEDULE TO
THE SECURITIES PURCHASE AGREEMENT,
DATED AS OF AUGUST 25, 1995, AMONG
XIONICS DOCUMENT TECHNOLOGIES, INC., AND EACH OF THE
INVESTORS NAMED IN THE FIRST SCHEDULE ANNEXED THERETO
- -------------------------------------------------------------------------------
PART A
------
<TABLE>
CAPITALIZATION OF COMPANY
IMMEDIATELY PRIOR TO CLOSING
----------------------------
1. Capital Stock.
--------------
<CAPTION>
Class of Number of Shares Number of Shares of
Capital of Class Class Issued and
Stock Authorized Outstanding
- -------- ---------------- -------------------
<S> <C> <C>
Class A Common Stock 20,000,000 1,386,066
Class B Common Stock 10,000,000 0
Class A Preferred Stock 3,603,305 3,603,305
Class B Preferred Stock 1,867,877 1,867,877
</TABLE>
2. Stock Purchase Warrants. None
------------------------
3. Stock Options. See attached Section 4.08 to Disclosure Schedule.
-------------
<PAGE> 41
-2-
<TABLE>
4. Other Convertible Securities.
-----------------------------
<CAPTION>
Class of Stock Number of
Registered Nature and Issuable on Shares Issuable
Holder of Date of Conversion of on Conversion
Instrument Instrument Instrument of Instrument
- ---------- ---------- ---------- -------------
<S> <C> <C> <C>
Hambro International
Venture Fund II
("HIVF II") Class A Preferred Common 1,773,009
-------
Hambro International
Venture Fund
Offshore II
("HIVFO II") Class A Preferred Common 363,146
--------
Monument Trust
Company ("MTC") Class A Preferred Common 282,455
---
Phoenix Technologies,
Ltd. ("Phoenix") Class A Preferred Common 1,184,695
-------
</TABLE>
PART B
------
CAPITALIZATION OF COMPANY
IMMEDIATELY AFTER CLOSING
-------------------------
<TABLE>
1. Capital Stock.
<CAPTION>
Class of Number of Shares Number of Shares of
Capital of Class Class Issued and
Stock Authorized Outstanding
- -------- ---------------- -------------------
<S> <C> <C>
Class A Common Stock 20,000,000 1,386,066
Class B Common Stock 10,000,000 -0-
Class A Preferred Stock 3,603,305 3,603,305
Class B Preferred Stock -0- -0-
Class C Preferred Stock 2,779,615 2,662,636
</TABLE>
<PAGE> 42
-3-
2. Stock Purchase Warrants. None.
------------------------
3. Stock Options. See attached Section 4.08 to DISCLOSURE SCHEDULE.
-------------
<TABLE>
4. Convertible Securities.
----------------------
<CAPTION>
Class of Stock Number of
Registered Nature and Issuable on Shares Issuable
Holder of Date of Conversion of on Conversion
Instrument Instrument Instrument of Instrument
- ---------- ---------- -------------- ---------------
See Section 4 of Part 1 for Outstanding
Class A Preferred Stock
<S> <C> <C> <C>
HIVF II Class C Preferred Common 761,052
HIVFO II Class C Preferred Common 161,934
MTC Class C Preferred Common 122,585
Phoenix Class C Preferred Common 653,707
MyTech Funds, L.P. Class C Preferred Common 516,085
PUSH Incorporated Class C Preferred Common 344,056
ADD Venture Class C Preferred Common 68,811
Associates, L.P.
ADD Venture Class C Preferred Common 34,406
Associates, II, L.P.
Phoenix Secured Promissory Class C 116,979
Note, dated Preferred
August 25, 1995
</TABLE>
<PAGE> 43
RECAPITALIZATION TRANSACTIONS
-----------------------------
1. SURRENDER AND EXCHANGE OF OUTSTANDING CLASS B PREFERRED STOCK. Holders of
all outstanding shares of Class B Preferred Stock will surrender such
shares (including all dividends capitalized thereon) in exchange for
shares of Class C Preferred Stock having an aggregate purchase price
(calculated at $2.9065 per share) equal to the Liquidation Value on the
surrendered shares of Class B Preferred Stock.
2. SURRENDER OF SENIOR SUBORDINATED NOTES. Holders of the Senior
Subordinated Notes of Xionics Inc. will cancel such notes as payment for
shares of Class C Preferred Stock having an aggregate purchase price
(calculated at $2.9065 per share) equal to the outstanding principal
amount of such Senior Subordinated Notes, plus accrued and unpaid
interest thereon.
3. SURRENDER AND RESTATEMENT OF PHOENIX SELLER NOTES. The Secured
Promissory Notes of the Company issued to Phoenix Technologies Ltd. on
November 8, 1994 and on April 17, 1995 will be surrendered to the Company
in exchange for (i) shares of Class C Preferred Stock having an aggregate
purchase price equal to $1,900,000; and (ii) a restated Secured Promissory
Note in the original face amount of $3,299,000, payable in 20 quarterly
installments as follows: (a) 6 consecutive installments of $50,000 payable
on the last day of each fiscal quarter commencing with the quarter ending
March 31, 1997, (b) 8 consecutive installments of $164,950 payable on the
last day of each fiscal quarter commencing with the quarter ending
September 30, 1998; and (c) 6 consecutive installments of $279,900 payable
on the last day of each fiscal quarter commencing with the quarter ending
September 30, 2000. The restated note shall provide that $340,000 of the
principal balance thereof may be converted to shares of Class C Preferred
Stock at a price of $2.9065 per share at any time on or prior to June 30,
1998.
The restated Secured Promissory Note shall otherwise be
substantially identical to the original note dated November 8, 1994.
<PAGE> 1
EXHIBIT 10.7
------------
EXHIBIT C
---------
SECOND
------
AMENDED AND RESTATED
--------------------
SHAREHOLDER AGREEMENT
---------------------
THIS SHAREHOLDER AGREEMENT, dated as of August 25, 1995 ("THIS
AGREEMENT"), is entered into by and among Xionics Document Technologies, Inc., a
Delaware corporation (the "COMPANY"), the persons named in SCHEDULE I to this
Agreement (hereinafter referred to, collectively, as the "SECURITYHOLDERS" and,
singly, as a "SECURITYHOLDER"), and the persons named in SCHEDULE II to this
Agreement (hereinafter referred to, collectively, as the "INVESTORS" and,
singly, as an "INVESTOR").
The Company is a corporation duly organized and existing under the laws
of the State of Delaware with an authorized capitalization of 20,000,000 shares
of Class A Common Stock, $.01 par value per share (the "CLASS A COMMON STOCK"),
10,000,000 shares of Class B Common Stock, $.01 par value per share (the "CLASS
B COMMON STOCK", and together with the Class A Common Stock, the "COMMON
STOCK"), 3,603,305 shares of Class A Convertible Preferred Stock, $.01 par value
per share (the "CLASS A PREFERRED STOCK"), zero (0) shares of Class B Redeemable
Preferred Stock, $.01 par value per share (the "CLASS B PREFERRED STOCK"), and
2,779,615 shares of Class C Redeemable Convertible Preferred Stock, $.01 par
value per share (the "CLASS C PREFERRED STOCK" and, together with the Class A
Preferred Stock and the Class B Preferred Stock, the "PREFERRED STOCK"). After
giving effect to the closing contemplated by the Purchase Agreement described
below, each Securityholder will own the number of shares of Class A Common Stock
set forth opposite his name on SCHEDULE I attached hereto, or options
exercisable for the number of shares of Common Stock set forth opposite his name
on SCHEDULE I attached hereto, and each Investor will own the number of shares
of Class A Preferred Stock and Class C Preferred Stock set forth opposite the
name of such Investor on SCHEDULE II attached hereto.
WHEREAS, the Company and the Investors are party to that certain
Securities Purchase Agreement, dated as of August 25, 1995 (the "PURCHASE
AGREEMENT"), pursuant to which the Investors purchased from the Company shares
of Class C Preferred Stock;
<PAGE> 2
-2-
WHEREAS, the Investors wish to enter into certain agreements relating
to the disposition and voting of the capital stock of the Company held by them;
and
WHEREAS, as a condition precedent to the obligations of the Investors
to purchase shares of Class C Preferred Stock, the Investors have required that
each of the Securityholders enter into this Agreement.
NOW, THEREFORE, in consideration of these premises and of the mutual
covenants, agreements and obligations herein set forth, and fully intending to
be legally bound hereby, each of the parties hereto hereby agrees as follows:
SECTION 1. DEFINITIONS. Terms used herein without definition that are
defined in the Purchase Agreement shall have the meaning specified for such term
in the Purchase Agreement. As used herein, the following terms shall have the
following respective meanings:
"AFFILIATE" shall mean a person that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with, any Stockholder.
"CORPORATE TRANSACTION" shall mean any of the following transactions:
(i) the merger or consolidation, sale or other disposition of all or any
substantial part of the assets, or other reorganization, of the Company or any
of its Subsidiaries; (ii) the liquidation, dissolution or winding up of the
Company or any of its Subsidiaries; (iii) the redemption or repurchase of any
outstanding equity securities of the Company; (iv) the declaration or payment of
any dividends or other distributions of any kind on any equity securities of the
Company; (v) the authorization, issue or sale by the Company of any equity
securities of the Company; and (vi) the amendment, repeal, modification or
restatement of any provision of the Certificate of Incorporation or By-laws of
the Company or any of its Subsidiaries.
"FAMILY MEMBER" shall mean, as applied to any individual, any spouse,
child, parent, brother or sister, or spouse of any thereof, and each trust
created for the benefit of one or more of such persons and each custodian of
property of one or more such persons.
<PAGE> 3
-3-
"GROUP" shall mean:
(i) IN THE CASE OF ANY STOCKHOLDER WHO IS AN INDIVIDUAL, (A)
such Stockholder, (B) such Stockholder's then spouse and the children,
grandchildren or parents of such Stockholder, (C) a trust for the
benefit of any of the foregoing, (D) any corporation or partnership
controlled by such Stockholder, and (E) the heirs, executors,
administrators or other legal representatives of any deceased
Stockholder;
(ii) IN THE CASE OF ANY STOCKHOLDER THAT IS A PARTNERSHIP, (A)
such partnership and any of its limited or general partners, (B) any
corporation or other business organization to which such partnership
shall sell all or any substantial part of its assets or with which it
shall be merged, and (C) any Affiliate of such partnership;
(iii) IN THE CASE OF ANY STOCKHOLDER THAT IS A CORPORATION,
(A) such corporation, its parent and any of such corporation's or
parent's subsidiaries, (B) any corporation or other business
organization to which such corporation shall sell all or any
substantial part of its assets or with which it shall be merged or
consolidated, and (C) any Affiliate of such corporation; and
(iv) IN THE CASE OF ANY STOCKHOLDER THAT IS A TRUST, (A) such
trust, (B) any corporation or other business organization to which such
trust shall sell all or any substantial part of its assets or with
which it shall be merged, and (C) any Affiliate of such trust.
"HOLDER" shall mean, with respect to any security of the Company, as of
any date of determination, the person in whose name such security shall be
registered.
"INVESTORS" shall mean (unless the context otherwise requires),
collectively, the several persons who shall from time to time be parties to and
be bound by all applicable provisions of this Agreement as "INVESTORS"
hereunder, and shall in any event include each person named in SCHEDULE II to
this Agreement so long as such person remains bound by this Agreement in
accordance with the terms hereof and any Permitted Transferee (other than a
Securityholder) of such Investor; and "INVESTOR" shall mean any one of such
persons.
"MAJORITY IN INTEREST OF HOLDERS" shall mean, as to any given series or
class of securities of the Company, as of any date of determination, the Holders
<PAGE> 4
-4-
of more than fifty percent (50%) of the aggregate number of shares of such
series or class then outstanding.
"MANAGEMENT STOCKHOLDERS" means any or all of (i) Robert Gilkes, (ii)
Ian Richardson, (iii) Edward Mallen, (iv) Robert Downs, (v) Gerard Feeney, (vi)
Frank Monaco and (vii) Rosemary Grande.
"NOTICE OF ACCEPTANCE" shall mean the written notice delivered pursuant
to Section 3(a) or 3(b) of this Agreement by the Company or by any Investor
accepting the offer of a Stockholder to sell certain shares of Stock to the
Company or to the Investors at the purchase price and on the terms specified in
such offer.
"NOTICE OF INTENTION TO PARTICIPATE" shall mean the written notice
delivered pursuant to Section 3(c) of this Agreement by an Investor to the
Company, a transferring Stockholder and the other Investors, exercising such
Investor's right to have a portion of its shares of Stock purchased by an
Offeror or other Investors.
"NOTICE OF INTENTION TO SELL" shall mean the written notice delivered
pursuant to Section 3(a) or 3(b) by an Offeree to the Company or the Investors,
evidencing such Offeree's intention to sell shares of Stock to an Offeror and
offering such shares of Stock at the purchase price and on the terms specified
in such notice.
"OFFER" shall have the meaning specified in the recitals to Section 3
of this Agreement.
OFFEREE" shall have the meaning specified in the recitals to Section 3
of this Agreement.
"OFFEROR" shall have the meaning specified in the recitals to Section 3
of this Agreement.
"OWNERSHIP PERCENTAGE" shall mean the percentage obtained by dividing
the total number of shares of Stock owned or deemed to be owned by a selling
Stockholder, by the sum of the aggregate number of shares of Stock owned or
deemed to be owned by (A) all Investors delivering a Notice of Intention to
Participate, and by (B) the Stockholder delivering a Notice of Intention to
Sell.
"OVERSUBSCRIPTION" shall have the meaning attributed to it in Section
3(e) of this Agreement.
<PAGE> 5
-5-
"PERMITTED TRANSFEREE" shall mean, with respect to any Stockholder, any
transferee of Stock held by such Stockholder pursuant to a Sale permitted by
this Agreement.
"PROPORTIONATE PERCENTAGE" shall mean the PRO RATA percentage of shares
of Stock being offered by a Stockholder pursuant to Section 3 hereof that each
Investor shall be entitled to purchase, if any. Such PRO RATA percentage of
Stock, as to each Investor, shall be the percentage obtained by dividing the
number of shares of outstanding Stock owned or deemed to be owned by such
Investor by the aggregate number of shares of Stock owned or deemed to be owned
by all Investors.
"SECURITYHOLDERS" shall mean (unless the context otherwise requires),
collectively, the several persons who shall from time to time be parties to and
be bound by all applicable provisions of this Agreement as "SECURITYHOLDERS"
hereunder, and shall in any event include each person named in SCHEDULE I to
this Agreement so long as such person remains bound by this Agreement in
accordance with the terms hereof, and any Permitted Transferee (other than any
Investor) of any such person; and "SECURITYHOLDER" shall mean any one of such
persons.
"SELL", as to any shares of Stock, shall mean to sell, transfer by
gift, or in any other way directly or indirectly transfer, assign, distribute,
encumber or otherwise dispose of, whether voluntarily or involuntarily, by
operation of law or otherwise.
"STOCK" shall mean (i) the currently issued and outstanding shares of
Common Stock of the Company, (ii) any shares of capital stock of the Company
into which such shares are hereafter converted or for which they are hereafter
exchanged, (iii) any additional shares of Common Stock hereafter issued and
outstanding, and (iv) shares of Common Stock issued or issuable upon conversion
of or exchange for or upon exercise of all rights under convertible securities
and other options, warrants or securities. For all purposes of this Agreement,
each Stockholder shall be deemed to own at any particular time, and such
Stockholder's Stock at any particular time shall include, the total number of
shares of Common Stock issuable by the Company upon conversion of or exchange
for or upon exercise of rights under all convertible securities and all other
options, warrants or securities then held by such Stockholder.
"STOCKHOLDERS" shall mean, collectively, the Securityholders and the
Investors; and "STOCKHOLDER" shall mean any one of such persons.
<PAGE> 6
-6-
SECTION 2. LIMITATIONS ON SALES OF SHARES--GENERAL. Each Stockholder
hereby agrees that such Stockholder shall not, at any time during the term of
this Agreement, Sell any Stock EXCEPT:
(a) by sale in accordance with Section 3 hereof;
(b) by transfer to another member of the Group to which such
Stockholder belongs, so long as the recipient of such Stock shall agree in
writing to become a party to, to become bound by and to comply with all
applicable provisions of this Agreement as a Stockholder (either a
Securityholder or an Investor, as applicable) hereunder;
(c) by a sale approved prior to such sale in writing by Investors
holding or deemed to be holding more than fifty percent (50%) of the total
number of all shares of Stock then held or deemed to be held by all Investors;
or
(d) by sale as part of a Qualified Public Offering of the securities of
the Company that results in the termination of this Agreement pursuant to
Section 6(b) hereof.
SECTION 3. PROCEDURES ON SALE OF SHARES TO THIRD PARTY OFFERORS. In the
event any Stockholder receives a BONA FIDE written offer from a third party (the
"OFFEROR") to purchase any or all of such Stockholder's shares of Stock (the
"OFFER"), and such sale would not be permitted by any of clauses (b) through (d)
of Section 2 hereof, then such Stockholder (in this Section 3 called the
"OFFEREE"), hereby agrees that such Offeree will not Sell any shares of Stock,
except in accordance with the following procedures:
(a) RIGHT OF PURCHASE BY COMPANY. The Offeree shall first deliver to
the Company a written Notice of Intention to Sell (and the Company shall
immediately give notice to the Investors of its receipt of such notice), which
shall be irrevocable for a period of fifteen (15) days after delivery thereof,
naming the Offeror, describing the Offer, and offering the shares of Stock to be
sold by the Offeree at the purchase price and on the other terms specified in
the Offer. The Company shall have the right and option, for a period of fifteen
(15) days after delivery of the Notice of Intention to Sell, to accept and
purchase all or a portion of the shares of Stock so offered. Such acceptance
shall be made by delivering a written Notice of Acceptance to such Offeree
within such 15-day period.
(b) RIGHT OF PURCHASE BY DESIGNATED INVESTORS. If the Company (i) fails
to accept the shares of Stock specified in the Notice of Intention to Sell, (ii)
accepts less than all of the shares of Stock specified in such notice, or (iii)
rejects in writing the offer made in such notice, then, upon the earlier to
occur of (x) the
<PAGE> 7
-7-
expiration of the 15-day acceptance period, (y) such partial acceptance, or (z)
the written rejection of such offer, the Offeree shall deliver to each Investor
a written Notice of Intention to Sell, which shall be irrevocable for a period
of fifteen (15) days after delivery thereof, naming the Offeror, describing the
Offer, and offering those shares of Stock not accepted by the Company, to be
sold by the Offeree at the purchase price and on the other terms specified in
the Offer. Each Investor shall have the right and option, for a period of
fifteen (15) days after delivery of the Notice of Intention to Sell, to accept
and purchase any or all of the shares of Stock so offered according to the
applicable Proportionate Percentages. Such acceptance shall be made by
delivering a written Notice of Acceptance to the Company, such Stockholder and
the other Investors within said fifteen (15) day period.
(c) RIGHT OF PARTICIPATION BY INVESTORS. In the case of any Offer, the
Offeree shall deliver a notice of right to participate (the "PARTICIPATION
NOTICE") to each of the Investors and the Company. Each Investor shall have the
right and option, for a period of fifteen (15) days after delivery of the
Participation Notice, to participate in the Offer and to cause all or any
portion of such Investor's shares of Stock to be purchased by the Offeror and
other Investors according to the applicable Ownership Percentages. Such
participation shall be made by delivering a written Notice of Intention to
Participate to the Company, the Offeree and the other Investors within said
fifteen (15) day period.
(d) CALCULATION OF RIGHTS OF PARTICIPATION AND PURCHASE. Upon receipt
of all Notices of Acceptance and Notices of Intention to Participate, the
Company shall compute the proportion of shares of Stock available for sale to
the Offeror or to any Investor delivering a Notice of Acceptance, by any
Stockholder or selling Investor delivering a Notice of Intention to Participate,
as the case may be. Such proportion of shares of Stock to be sold by
Stockholders delivering a Notice of Intention to Sell or a Participation Notice
and by Investors delivering a Notice of Intention to Participate shall be equal
to the product obtained by multiplying the aggregate number of shares of Stock
to be purchased by the Offeror or by any purchasing Investors, if applicable, by
the Ownership Percentage of each Stockholder delivering a Notice of Intention to
Sell or a Participation Notice and each Investor delivering a Notice of
Intention to Participate.
(e) PURCHASE AND OVERSUBSCRIPTION RIGHTS OF INVESTORS. At the earlier
of the receipt by the Company of Notices of Acceptance and Notices of Intention
to Participate, or fifteen (15) days following the end of the period specified
in Section 3(b) or 3(c) hereof, as applicable, any Investor who has delivered a
Notice of Acceptance may purchase all or any portion of its Proportionate
Percentage of shares of Stock so offered, as specified in such Investor's Notice
of Acceptance.
<PAGE> 8
-8-
Each Designated Investor that is accepting its full Proportionate Percentage
under the terms of Section 3(b) hereof may also specify, simultaneously with the
acceptance of such offer, that it is electing to subscribe for all or any
portion of the remaining shares of Stock that other Investors do not elect to
purchase under the terms of Sections 3(b) and 3(d) hereof (the
"OVERSUBSCRIPTION"); PROVIDED, HOWEVER, that if subscriptions requested by all
Investors pursuant to Oversubscriptions exceed the number of remaining shares of
Stock available for purchase through such Oversubscriptions, then each Investor
requesting an Oversubscription shall be entitled to purchase pursuant to its
Oversubscription request the number of such remaining shares of Stock that bears
the same ratio to such remaining shares of Stock as such Investor's holdings of
shares of Stock bears to the holdings of shares of Stock of all Investors
requesting Oversubscriptions; PROVIDED, FURTHER, that if any Investor shall
subscribe, pursuant to its Oversubscription request, for less than its PRO RATA
share of such remaining shares of Stock, the other Investors requesting an
Oversubscription shall be entitled to purchase the remaining shares comprising
the balance of such PRO RATA share in proportion to its holdings of shares of
Stock, all subject to adjustment to eliminate sales of fractional shares as the
Stockholder and any Investor delivering a Notice of Intention to Participate
shall deem reasonably necessary.
(f) DELIVERY OF SHARE CERTIFICATES. Sales of shares of Stock under the
terms of Sections 3(a), 3(b), 3(c), 3(d) and 3(e) of this Agreement shall be
made at the offices of the Company on a mutually satisfactory business day
within ten (10) business days after the expiration of the appropriate period for
acceptance as described in such Section. Delivery of certificates or other
instruments evidencing such shares of Stock duly endorsed for transfer shall be
made on such dates against payment of the purchase price therefor.
(g) PERMITTED SALE TO OFFEROR. In the event that the Company or the
Investors have delivered Notices of Acceptance with respect to only a part of
the shares of Stock offered for sale, then the Offeree may sell to the Offeror
the remaining shares of Stock so offered for sale at a price not less than the
price, and on other terms not more favorable to the Offeror, than the price and
the other terms, stated in the original Notice of Intention to Sell, at any time
within sixty (60) days after the expiration of the period set forth in Section
3(f) hereof; PROVIDED, HOWEVER, that such Offeror shall agree in writing in
advance with the parties hereto to be bound by and to comply with all applicable
provisions of this Agreement as a Stockholder hereunder and thereunder and shall
be deemed to be a Stockholder (either a Securityholder or an Investor, as
applicable) for all purposes of this Agreement. In the event the remaining
shares of Stock are not sold by the Offeree during such 60-day period, the right
of the Offeree to sell such remaining shares of Stock shall expire and the
obligations of this Section 3
<PAGE> 9
-9-
shall be reinstated; PROVIDED, HOWEVER, that in the event the Offeree determines
at any time during such 60-day period, that the sale of all or any part of the
remaining shares of Stock to the Offeror on the terms set forth in the original
Notice of Intention to Sell is impractical, the Offeree can terminate the offer
and reinstate the procedure provided in this Section 3 without waiting for the
expiration of such 60-day period.
SECTION 4. LEGEND ON STOCK CERTIFICATES. Each stock certificate
representing shares of capital stock of the Company held by any Stockholder
shall bear the following legend, until such time as the shares of Stock
represented thereby are no longer subject to the provisions hereof:
"The sale, transfer, assignment or other disposition of the securities
represented by this certificate, and the exercise by the holders of
such securities of voting rights with respect thereto, are subject to
the terms and conditions of a Shareholder Agreement, dated as of August
25, 1995, among the Company and certain holders of its outstanding
capital stock. Copies of such Agreement may be obtained, without cost,
by written request made by the holder of record of this certificate to
the Secretary of the Company."
SECTION 5. The Board of Directors; Corporate Transactions.
----------------------------------------------
(a) Each Investor absolutely and unconditionally agrees with the
Company and with each of the other Investors to vote all shares of the capital
stock of the Company of any class or series now or hereafter owned or controlled
by such Investor, and otherwise to use his or its best efforts as a shareholder
or as a director (if such Investor serves as such) of the Company, as follows:
(i) to fix the number of directors on the Board of Directors of the
Company at five (5);
(ii) to elect to the Board of Directors of the Company (A) up to
three (3) persons designated by the Investors, one of whom shall be the
Chief Executive Officer of the Company, (B) one person designated by
Hambro International Venture Fund II ("HIVF II"), for as long as HIVF
II owns shares of Stock and (C) one person designated by Phoenix
Technologies Ltd. ("PHOENIX"), for as long as Phoenix shall continue to
hold shares of Preferred Stock, which person shall be Ronald Fisher, or
such other person as shall be reasonably satisfactory to the other
Investors; and
<PAGE> 10
-10-
(iii) in the event of the approval by a majority of the Board of
Directors of the Company of any Corporate Transaction, to vote to
approve or consent to such Corporate Transaction;
PROVIDED, HOWEVER, that none of Mytech Funds, L.P., PUSH Incorporated, ADD
Venture Associates, L.P. or ADD Venture Associates II, L.P., or any Permitted
Transferee of any such Investor with respect to any Stock transferred to such
Permitted Transferee by such Investor, shall be required by clause (iii) above
to vote to approve or consent to any Corporate Transaction approved by the Board
of Directors of the Company.
(b) Each person entitled to designate directors of the Company as
provided in paragraph (a) of this Section 5 shall, prior to any election of the
Board of Directors of the Company, furnish to each of the Investors a written
notice identifying such person's director designees. If any such person shall
for any reason fail or refuse to give any such written notice, the director then
serving on the Board of Directors of the Company and previously designated by
such person shall be re-elected by the Investors if such director is still
eligible to serve as provided in this Agreement.
As of the date of this Agreement, the Investors agree that the Board of
Directors shall consist of the following persons:
Robert E. Gilkes
Richard A. D'Amore
Ronald D. Fisher
(c) No Investor shall vote to remove any member of the Board of
Directors of the Company designated in accordance with the foregoing provisions
of this Section 5, unless the person entitled to designate a director shall so
vote or otherwise consent, and, if the designating person shall so vote or
otherwise consent, then the non-designating parties shall likewise so vote.
(d) Any vacancy on the Board of Directors of the Company created by the
resignation, removal, incapacity or death of any person designated under the
foregoing provisions of this Section 5 shall be filled by another person
designated by the original designating party. Each Investor shall vote all
shares of Stock owned or controlled by such Investor in accordance with each
such new designation, and no such vacancy shall be filled in the absence of a
new designation by the original designating party.
<PAGE> 11
-11-
(e) Directors shall be entitled to reimbursement by the Company for
reasonable out-of-pocket expenses incurred in connection with their performance
of duties as directors.
SECTION 6. Duration of Agreement.
---------------------
(a) The rights and obligations of each Stockholder under this Agreement
shall terminate as to such Stockholder when the Group of which such Stockholder
is a member has completed the transfer or other disposition of all shares of
Stock owned by such Group in compliance with the terms of this Agreement.
(b) This Agreement, and all of the rights and obligations of each of
the parties under this Agreement, shall terminate upon, and shall be of no
further force or effect from and after any Qualified Public Offering (as defined
in the Purchase Agreement).
(c) The termination of any rights and obligations hereunder of any
party to this Agreement pursuant to paragraphs (a) or (b) of this Section 6
shall not impair or discharge any rights or obligations hereunder of any party
to this Agreement which shall have arisen prior to the date of such termination.
SECTION 7. SEVERABILITY; GOVERNING LAW. If any provision of this
Agreement shall be determined to be illegal and unenforceable by any court of
law, the remaining provisions hereof shall be severable and enforceable in
accordance with their terms. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Delaware.
SECTION 8. BENEFITS OF AGREEMENT. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns, legal representatives and heirs.
SECTION 9. NOTICES. All notices and communications to be given or
otherwise made to any party to this Agreement, or to the Group of any such
party, shall be deemed to be sufficient and effective when received in a written
instrument, delivered in person or duly sent by registered mail, postage
prepaid, return receipt requested, addressed to such party at the address
specified below or at such other address as may hereafter be designated in
writing by the addressee to the addressor:
<PAGE> 12
-12-
if to the Company: Xionics Document Technologies, Inc.
70 Blanchard Road
Burlington, MA 01803
Attention: Chief Executive Officer
if to the at their respective
Securityholders: addresses set forth in
SCHEDULE I hereto;
if to the at their respective addresses
Investors: set forth in SCHEDULE II
hereto.
SECTION 10. MODIFICATION. Except as otherwise provided herein, neither
this Agreement nor any provision hereof can be modified, changed, discharged or
terminated, except by an instrument in writing signed by Stockholders holding or
deemed to be holding more than fifty percent (50%) of the total number of all
shares of Stock then held or deemed to be held by all Stockholders. So long as
Phoenix holds any shares of Convertible Preferred Stock, the provisions of
Section 5(a)(ii)(C) shall not be modified, changed, discharged or terminated
without the prior written consent of Phoenix.
SECTION 11. CAPTIONS. The captions herein are inserted for convenience
only and shall not define, limit, extend or describe the scope of this Agreement
or affect the construction hereof.
SECTION 12. AMENDMENT AND RESTATEMENT OF SHAREHOLDER AGREEMENT. This
Agreement amends and restates, and supersedes in its entirety, the Amended and
Restated Shareholder Agreement, dated as of November 8, 1994, among the Company
and the holders of the Company's capital stock party thereto.
SECTION 13. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among the parties hereto pertaining to the subject matter hereof and
supersedes all prior and contemporaneous agreements and understandings of any of
the parties hereto. In the event that any provision of this Agreement shall be
in conflict with any provisions of any stock purchase agreement between the
Company and any of the Securityholders, the provisions of this Agreement shall
prevail.
SECTION 14. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute but one and the same instrument.
<PAGE> 13
-13-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and in the month and year first above written.
THE COMPANY:
------------
XIONICS DOCUMENT TECHNOLOGIES, INC.
By:
--------------------------------
Title:
SECURITYHOLDERS:
----------------
-----------------------------------
Robert Gilkes
-----------------------------------
Ian S. Richardson
-----------------------------------
Edward Mallen
-----------------------------------
Robert Downs
-----------------------------------
Gerard Feeney
-----------------------------------
Frank Monaco
-----------------------------------
Rosemary Grande
-----------------------------------
Ian Richardson
<PAGE> 14
-14-
INVESTORS:
----------
MYTECH FUNDS, L.P.
By:
--------------------------------
Title:
-----------------------------
By:
--------------------------------
Title:
-----------------------------
PUSH INCORPORATED
By:
--------------------------------
Title:
-----------------------------
ADD VENTURE ASSOCIATES, L.P.
By:
--------------------------------
Title:
-----------------------------
ADD VENTURE ASSOCIATES II, L.P.
By:
--------------------------------
Title:
-----------------------------
PHOENIX TECHNOLOGIES LTD.
By:
--------------------------------
Title:
<PAGE> 15
-15-
HAMBRO INTERNATIONAL VENTURE FUND II
By:
--------------------------------
Title: General Partner
---------------
HAMBRO INTERNATIONAL VENTURE FUND
OFFSHORE II
By:
--------------------------------
Title: Attorney-In-Fact
----------------
MONUMENT TRUST COMPANY
By:
--------------------------------
Title:
<PAGE> 16
-16-
<TABLE>
SCHEDULE I
----------
TO
SHAREHOLDER AGREEMENT
DATED AS OF AUGUST 25, 1995
---------------------------
<CAPTION>
Options to
Purchase
(or Owned)
Common
SECURITYHOLDERS Stock
- --------------- -----
<S> <C>
Robert Gilkes 40,000
c/o Xionics Document
Technologies, Inc.
70 Blanchard Road
Burlington, MA 01803
Edward Mallen 222,965
c/o Xionics Document
Technologies, Inc.
70 Blanchard Road
Burlington, MA 01803
Ian Richardson 270,404(owned)
c/o Xionics Document
Technologies, Inc.
70 Blanchard Road
Burlington, MA 01803
Robert Downs 283,021
c/o Xionics Document
Technologies, Inc.
70 Blanchard Road
Burlington, MA 01803
Gerard Feeney 98,437
c/o Xionics Document
Technologies, Inc.
70 Blanchard Road
Burlington, MA 01803
</TABLE>
<PAGE> 17
-17-
<TABLE>
<S> <C>
Frank Monaco 115,000
c/o Xionics Document
Technologies, Inc.
70 Blanchard Road
Burlington, MA 01803
Rosemary Grande 115,000
c/o Xionics Document
Technologies, Inc.
70 Blanchard Road
Burlington, MA 01803
</TABLE>
<PAGE> 18
-18-
<TABLE>
SCHEDULE II
-----------
TO
SHAREHOLDER AGREEMENT
DATED AS OF AUGUST 25, 1995
---------------------------
<CAPTION>
Class A Class C
Common Preferred Preferred
INVESTORS Stock Stock Stock
- --------- ----- ----- -----
<S> <C> <C> <C>
Mytech Funds, L.P. -0- -0- 516,085
c/o Mr. and Mrs. Frank C. Pao
Penthouse No. 1
10 Rowes Wharf
Boston, MA 02110
PUSH Incorporated -0- -0- 344,056
c/o 2, Oxford Road
Kowloon, Hong Kong
Attention: Mr. Yunni Pao
ADD Venture Associates, L.P. -0- -0- 68,811
c/o Posternak, Blankstein & Lund
100 Charles River Plaza
Boston, MA 02109
Attention: Mr. Noel Posternak
ADD Venture Associates II, L.P. -0- -0- 34,406
c/o Posternak, Blankstein & Lund
100 Charles River Plaza
Boston, MA 02109
Attention: Mr. Noel Posternak
HAMBRO INTERNATIONAL -0- 1,773,009 761,052
VENTURE FUND II
ATTN: Mr. William J. Geary
404 Wyman Street
Suite 365
Waltham, MA 02154
</TABLE>
<PAGE> 19
-19-
<TABLE>
<CAPTION>
Class A Class C
Common Preferred Preferred
INVESTORS Stock Stock Stock
- --------- ----- ----- -----
<S> <C> <C> <C>
HAMBRO INTERNATIONAL -0- 363,146 161,934
VENTURE FUND OFFSHORE II
ATTN: Mr. William J. Geary
404 Wyman Street
Suite 365
Waltham, MA 02154
MONUMENT TRUST COMPANY 524,284 282,455 122,585
ATTN: Mr. David Skok
c/o Watermark Software Inc.
129 Middlesex Turnpike
Burlington, MA 01830
PHOENIX TECHNOLOGIES LTD. -0- 1,184,695 653,707
ATTN: Ronald Fisher
846 University Avenue
Norwood, MA 02062
</TABLE>
<PAGE> 1
EXHIBIT 10.8
XIONICS DOCUMENT TECHNOLOGIES, INC.
XIONICS, INC.
70 Blanchard Road
Burlington, MA 01803
September 27, 1995
Fleet Bank of Massachusetts, N.A.
75 State Street
Boston, MA 02109
Gentlemen:
This letter agreement will set forth certain understandings among Xionics
Document Technologies, Inc., a Delaware corporation ("Technologies"), Xionics,
Inc., a Delaware corporation ("Xionics") (Technologies and Xionics being
hereinafter referred to collectively as the "Borrowers" and individually as a
"Borrower") and Fleet Bank of Massachusetts, N.A. (the "Bank") with respect to
Revolving Loans and Term Loans (each as hereinafter defined) to be made by the
Bank to the Borrowers and with respect to letters of credit which may hereafter
be issued by the Bank for the account of one or more of the Borrowers. In
consideration of the mutual promises contained herein and in the other documents
referred to below, and for other good and valuable consideration, receipt and
sufficiency of which are hereby acknowledged, the Borrowers and the Bank agree
as follows:
I. AMOUNTS AND TERMS
-----------------
1.1. REFERENCE TO DOCUMENTS. Reference is made to (i) that certain
$2,000,000 principal amount promissory note (the "Revolving Note") of even date
herewith made jointly and severally by the Borrowers and payable to the order of
the Bank, (ii) certain term notes (the "Term Notes") in an aggregate principal
amount of up to $1,000,000 which are to be made by the Borrowers jointly and
severally and which will be payable to the order of the Bank, (iii) that certain
Inventory, Accounts Receivable and Intangibles Security Agreement and that
certain Supplementary Security Agreement - Security Interest in Goods and
Chattels, each of even date herewith, from Technologies to the Bank
(collectively, the "Technologies Security Agreement"), (iv) notices of security
interests (collectively, the "Technologies Intellectual Property Notices") from
Technologies to the Bank relating to the registered trademarks, patents and
copyrights of Technologies, if any, (v) that certain Inventory, Accounts
Receivable and Intangibles Security Agreement and that certain Supplementary
Security Interest - Security Interest in Goods and Chattels, each of even date
herewith, from Xionics to the Bank (collectively, the "Xionics Security
Agreement") and (vi) notices of security interests (collectively, the "Xionics
Intellectual Property Notices") from Xionics to the Bank relating to the
registered trademarks, patents and copyrights of Xionics, if any.
<PAGE> 2
1.2. THE BORROWING: REVOLVING NOTE. Subject to the terms and conditions
hereinafter set forth, the Bank will make loans ("Revolving Loans") to the
Borrowers jointly, in such amounts as the Borrowers may request, at the
Principal Office of the Bank on any Business Day prior to the first to occur of
(i) the Expiration Date, or (ii) the earlier termination of the
within-described revolving financing arrangements pursuant to [Section]5.2 or
[Secion]6.7; provided, however, that (1) the aggregate principal amount of
Revolving Loans outstanding shall at no time exceed the Maximum Revolving
Amount (hereinafter defined) and (2) the Aggregate Revolving Bank Liabilities
(hereinafter defined) shall at no time exceed the Borrowing Base (hereinafter
defined). Within such limits, and subject to the terms and conditions hereof,
the Borrowers may obtain Revolving Loans, repay Revolving Loans and obtain
Revolving Loans again on one or more occasions. The Revolving Loans shall be
the joint and several obligations of the Borrowers, shall be evidenced by the
Revolving Note and interest thereon shall be payable at the times and at the
rate provided for in the Revolving Note.
1.3. REPAYMENT; RENEWAL. The Borrowers shall repay (and shall be
jointly and severally obligated so to repay) in full all Revolving Loans and
all interest thereon upon the first to occur of: (i) the Expiration Date or
(ii) an acceleration under [Section]5.2(a) following an Event of Default. The
Borrowers may repay, at any time, without penalty or premium, the whole or any
portion of any Revolving Loan. In addition, if at any time the Borrowing Base
is in an amount which is less than the then outstanding Aggregate Revolving
Bank Liabilities, the Borrowers will forthwith prepay (and shall be jointly and
severally obligated so to prepay) so much of the Revolving Loans as may be
required (or arrange for the termination of such letters of credit as may be
required) so that the Aggregate Revolving Bank Liabilities will not exceed the
Borrowing Base. The Bank may, at its sole discretion, renew the financing
arrangements described in this letter agreement by extending the Expiration
Date in a writing signed by the Bank and accepted by the Borrowers. Neither the
inclusion in this letter agreement or elsewhere of covenants relating to
periods of time after the Expiration Date, nor any other provision hereof, nor
any action (except a written extension pursuant to the immediately preceding
sentence), non-action or course of dealing on the part of the Bank will be
deemed an extension of, or agreement on the part of the Bank to extend, the
Expiration Date.
1.4. TERM LOANS: TERM NOTES. In addition to the foregoing, the Bank may
make one or more loans (the "Term Loans") to the Borrowers in an aggregate
principal amount of up to $1,000,000. A Term Loan shall be made at the
Borrowers' request, no more than once per calendar quarter (except that Term
Loans may be made more frequently than once per quarter provided that each Term
Loan made in any such quarter shall be in the original principal amount of
$100,000 or more), in order to finance costs of Qualifying Equipment acquired by
a Borrower within the 90 days preceding the request for such Term Loan (except
that the first such request may include Qualifying Equipment acquired more than
-2-
<PAGE> 3
90 days prior to the date thereof so long as such Qualifying Equipment was
acquired on or after April 1, 1995), each such Term Loan to be in such amount as
may be requested by the Borrowers; provided that (i) no Term Loan will be made
after December 1, 1996; (ii) the aggregate original principal amounts of all
Term Loans will not exceed $1,000,000; and (iii) no Term Loan will be in an
amount more than 80% of the invoiced actual costs of the tangible property
constituting the items of Qualifying Equipment with respect to which such Term
Loan is made (excluding taxes, shipping, software, installation charges and
other "soft costs"). Prior to the making of each Term Loan, and as a
precondition thereto, the Borrowers will provide the Bank with: (i) invoices
supporting the costs of the relevant Qualifying Equipment; (ii) such evidence as
the Bank may reasonably require showing that the Qualifying Equipment has been
installed at the Borrowers' Burlington, Massachusetts premises, has become fully
operational, has been paid for by a Borrower and is owned by a Borrower free of
all liens and interests of any other Person (other than the security interest of
the Bank pursuant to a Security Agreement); (iii) evidence satisfactory to the
Bank that the Qualifying Equipment is fully insured against casualty loss, with
insurance naming the Bank as secured party and first loss payee; and (iv) a duly
executed Term Note in the amount of the relevant Term Loan and a satisfactory
opinion of counsel relating thereto. Each Term Loan will be evidenced by a Term
Note, substantially in the form of item 1.4 of the attached Disclosure Schedule.
Each Term Loan will be deemed to be the joint and several obligation of the
Borrowers. Interest on each Term Loan shall be payable at the times and at the
rate provided for in the Term Note evidencing same.
1.5. PRINCIPAL REPAYMENT OF TERM LOANS. The Borrowers shall repay (and
shall be jointly and severally obligated to repay) principal of each Term Loan
in 36 equal consecutive monthly installments, commencing on the first day of the
month next following the month in which such Term Loan is made and continuing on
the first day of each month thereafter. Each such monthly installment of
principal shall be in an amount equal to 1/36th of the original principal amount
of such Term Loan. In any event, the then outstanding principal balance of each
Term Loan and all interest then accrued but unpaid thereon shall be due and
payable in full on the first day of the 36th month next following the month in
which such Term Loan is made. The Borrowers may prepay, at any time or from time
to time, without premium or penalty, the whole or any portion of any Term Loan;
provided that each such principal prepayment shall be accompanied by payment of
all interest under the related Term Note accrued but unpaid to the date of
payment. Any partial prepayment of principal of a Term Loan will be applied to
installments of principal of such Term Loan thereafter coming due in inverse
order of normal maturity.
1.6. ADVANCES AND PAYMENTS. The proceeds of all Loans shall be credited by
the Bank to a general deposit account maintained by the Borrowers jointly with
the Bank. The proceeds of each
-3-
<PAGE> 4
Revolving Loan will be used by the Borrowers solely for their respective working
capital purposes, being allocated between the Borrowers in such proportions as
the Borrowers may determine. The proceeds of each Term Loan will be used by the
Borrowers solely to pay or reimburse acquisition costs of Qualifying Equipment.
The Bank may charge any general deposit account of any Borrower at the Bank
with the amount of all payments of interest, principal and other sums due, from
time to time, under this letter agreement and/or any Note and/or with respect to
any letter of credit; and will thereafter notify the Borrowers of the amount so
charged. The failure of the Bank so to charge any account or to give any such
notice shall not affect the obligation of the Borrowers to pay interest,
principal or other sums as provided herein or in any Note or with respect to any
letter of credit.
Whenever any payment to be made to the Bank hereunder or under any Note or
with respect to any letter of credit shall be stated to be due on a day which is
not a Business Day, such payment may be made on the next succeeding Business
Day, and interest payable on each such date shall include the amount thereof
which shall accrue during the period of such extension of time. All payments by
any Borrower hereunder and/or in respect of any Note and/or with respect to any
letter of credit shall be made net of any impositions or taxes and without
deduction, set-off or counterclaim, notwithstanding any claim which any Borrower
may now or at any time hereafter have against the Bank. All payments of
interest, principal and any other sum payable hereunder and/or under any Note
and/or with respect to any letter of credit shall be made to the Bank at its
Principal Office, in immediately available funds. All payments received by the
Bank after 2:00 p.m. on any day shall be deemed received as of the next
succeeding Business Day. All monies received by the Bank shall be applied first
to fees, charges, costs and expenses payable to the Bank under this letter
agreement, any Note and/or any of the other Loan Documents and/or with respect
to any letter of credit, next to interest then accrued on account of any Loans
or letter of credit reimbursement obligations and only thereafter to principal
of the Loans and letter of credit reimbursement obligations, being applied
against the Loans and/or such obligations in such order as the Borrowers may
designate (and, failing such designation, being applied first against the letter
of credit reimbursement obligations, next against the Revolving Loans and
thereafter against installments of the Term Loans in inverse order of normal
maturity). All interest and fees payable hereunder and/or under any Note shall
be calculated on the basis of a 360-day year for the actual number of days
elapsed.
1.7. LETTERS OF CREDIT. At the Borrowers' request, the Bank may, from
time to time, in its sole discretion issue one or more letters of credit for the
account of any Borrower; provided that at the time of such issuance and after
giving effect thereto the Aggregate Revolving Bank Liabilities will in no event
exceed the
-4-
<PAGE> 5
lesser of (i) $2,000,000 or (ii) the then effective Borrowing Base. Any such
letter of credit will be issued for such fee and upon such terms and conditions
as may be agreed to by the Bank and the relevant Borrower at the time of
issuance. Each of the Borrowers hereby authorizes the Bank, without further
request from the Borrowers, to cause any Borrower's liability to the Bank for
reimbursement of funds drawn under any such letter of credit to be repaid from
the proceeds of a Revolving Loan to be made hereunder. Each Borrower hereby
irrevocably requests that such Revolving Loans be made.
1.8. CONDITIONS TO ADVANCE. Prior to the making of the initial Loan or the
issuance of any letter of credit hereunder, the Borrowers shall deliver to the
Bank duly executed copies of this letter agreement, the Security Agreements, the
Intellectual Property Notices, the Revolving Note, the initial Term Note (if
such initial Loan is to be a Term Loan) and the documents and other items listed
on the Closing Agenda delivered herewith by the Bank to the Borrowers, all of
which, as well as all legal matters incident to the transactions contemplated
hereby, shall be satisfactory in form and substance to the Bank and its counsel.
Without limiting the foregoing, any Loan or letter of credit issuance
(including the initial Loan or letter of credit issuance) is subject to the
further conditions precedent that on the date on which such Loan is made or such
letter of credit is issued (and after giving effect thereto):
(a) All statements, representations and warranties of each Borrower made in
this letter agreement and/or in any of the Security Agreements shall continue to
be correct in all material respects as of the date of such Loan or the date of
issuance of such letter of credit, as the case may be.
(b) All covenants and agreements of each Borrower contained herein and/or
in any of the other Loan Documents shall have been complied with in all material
respects on and as of the date of such Loan or the date of issuance of such
letter of credit, as the case may be.
(c) No event which constitutes, or which with notice or lapse of time or
both could constitute, an Event of Default shall have occurred and be
continuing.
(d) No material adverse change shall have occurred in the financial
condition of any Borrower from that disclosed in the financial statements then
most recently furnished to the Bank.
Each request by the Borrowers for any Loan or letter of credit issuance,
and each acceptance by any Borrower of the proceeds of any Loan or delivery of a
letter of credit, will be deemed a representation and warranty by both Borrowers
that at the date of such Loan or the date of issuance of such letter of credit,
as the case may be, and after giving effect thereto all
-5-
<PAGE> 6
of the conditions set forth in the foregoing clauses (a)-(d) of this
[Section]1.8 will be satisfied. Each request for a Revolving Loan or letter of
credit issuance will be accompanied by a borrowing base certificate on a form
satisfactory to the Bank, executed by the respective chief financial officers
of the Borrowers, unless such a certificate shall have been previously
furnished setting forth the Borrowing Base as at a date not more than 30 days
prior to the date of the requested borrowing.
II. REPRESENTATIONS AND WARRANTIES
------------------------------
2.1. REPRESENTATIONS AND WARRANTIES. In order to induce the Bank to
enter into this letter agreement and to make Loans hereunder and/or issue
letters of credit hereunder, each of the Borrowers warrants and represents to
the Bank as follows:
(a) Each Borrower is a corporation duly organized, validly existing and
in good standing under the laws of Delaware. Each Borrower has full corporate
power to own its property and conduct its business as now conducted and as
contemplated to be conducted, to grant the security interests contemplated by
the Security Agreements and the Intellectual Property Notices and to enter into
and perform this letter agreement and the other Loan Documents. Each Borrower
is duly qualified to do business and in good standing in Massachusetts and
(except as described on item 2.1(a) of the attached Disclosure Schedule) in
each other jurisdiction in which such Borrower maintains any facility, sales
office, warehouse or other location and in each other jurisdiction where such
qualification is required by the nature of such Borrower's business, all such
jurisdictions being listed on item 2.1(a) of the attached Disclosure Schedule.
Neither Borrower is a member of any partnership or joint venture. Item 2.1(a)
of the attached Disclosure Schedule sets forth the corporate structure of
Technologies and its Subsidiaries.
(b) At the date of this letter agreement, all of the outstanding capital
stock of Technologies is owned, of record and beneficially, as set forth on item
2.1(b) of the attached Disclosure Schedule. All of the outstanding capital stock
of Xionics is owned, of record and beneficially, by Xionics International Ltd.,
an English corporation ("International Ltd.") which in turn is a wholly-owned
Subsidiary of Xionics Holdings Ltd., an English corporation. Said Xionics
Holdings Ltd. is a wholly-owned Subsidiary of Technologies.
(c) The execution, delivery and performance by the Borrowers of this letter
agreement and each of the other Loan Documents have been duly authorized by all
necessary corporate and other action and do not and will not:
(i) violate any provision of, or require any filings (other than
filings under the Uniform Commercial Code), registration, consent or
approval under, any law, rule, regulation, order, writ, judgment,
injunction, decree,
-6-
<PAGE> 7
determination or award presently in effect having applicability to any
Borrower;
(ii) violate any provision of the charter or by-laws of any Borrower,
or result in a breach of or constitute a default or require any waiver or
consent under any indenture or loan or credit agreement or any other
material agreement, lease or instrument to which any Borrower is a party or
by which any Borrower or any of its properties may be bound or affected or
require any other consent of any Person; or
(iii) result in, or require, the creation or imposition of any lien,
security interest or other encumbrance (other than in favor of the Bank),
upon or with respect to any of the properties now owned or hereafter
acquired by any Borrower.
(d) This letter agreement and each of the other Loan Documents has been
duly executed and delivered by the respective Borrower or Borrowers named
therein as parties and each is a legal, valid and binding obligation of the
Borrower or Borrowers named therein, enforceable against each such Borrower or
Borrowers in accordance with its respective terms.
(e) Except as described on item 2.1(e) of the attached Disclosure Schedule,
there are no actions, suits, proceedings or investigations pending or, to the
knowledge of any Borrower, threatened by or against any Borrower or any
Subsidiary of a Borrower before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, which
could hinder or prevent the consummation of the transactions contemplated hereby
or call into question the validity of this letter agreement or any of the other
Loan Documents or any action taken or to be taken in connection with the
transactions contemplated hereby or thereby or which in any single case or in
the aggregate might result in any material adverse change in the business,
prospects, condition, affairs or operations of any Borrower or any such
Subsidiary.
(f) Neither Borrower is in violation of any term of its charter or by-laws
as now in effect. Neither Borrower is in material violation of any term of any
mortgage, indenture or judgment, decree or order, or any other instrument,
contract or agreement to which it is a party or by which any of its property is
bound.
(g) Except as described on item 2.1(g) of the attached Disclosure Schedule,
each Borrower has filed (and has caused each of its Subsidiaries to file) all
federal, foreign, state and local tax returns, reports and estimates required to
be filed by such Borrower (or by any such Subsidiary, as the case may be). All
such filed returns, reports and estimates are proper and accurate and each
Borrower has paid (and has caused each of its Subsidiaries to pay) all taxes,
assessments, impositions, fees and other governmental charges required to be
paid in respect of
-7-
<PAGE> 8
the periods covered by such returns, reports or estimates. No deficiencies for
any tax, assessment or governmental charge have been asserted or assessed, and
neither Borrower knows of any material tax liability or basis therefor.
(h) Each Borrower (and each Subsidiary of a Borrower) is, to the best
knowledge of such Borrower, in compliance with all requirements of law, federal,
foreign, state and local, and all requirements of all governmental bodies or
agencies having jurisdiction over it, the conduct of its business, the use of
its properties and assets, and all premises occupied by it, failure to comply
with any of which could (singly or in the aggregate with all other such
failures) have a material adverse effect upon the assets, business, financial
condition or prospects of any Borrower or any such Subsidiary. Without limiting
the foregoing, each Borrower has all the franchises, licenses, leases, permits,
certificates and authorizations needed for the conduct of its business and the
use of its properties and all premises occupied by it, as now conducted, owned
and used and as proposed to be conducted, owned and used, except such
franchises, licenses, leases, permits, certificates and authorizations as to
which any Borrower's failure to have same could not (singly or in the aggregate
with all other such failures) have a material adverse effect upon the assets,
business, financial condition or prospects of any Borrower.
(i) The audited financial statements of each Borrower as at June 30, 1994
and the management-generated statements as at March 31, 1995 and June 30, 1995,
each heretofore delivered to the Bank, are complete and accurate and fairly
present the financial condition of each Borrower as at the respective dates
thereof and for the periods covered thereby, except that the
management-generated statements do not have footnotes and thus do not present
the information which would normally be contained in footnotes to financial
statements. Neither Borrower has any liability, contingent or otherwise, not
disclosed in the aforesaid financial statements or in any notes thereto that
could materially affect the financial condition of such Borrower. Except as
disclosed on item 2.1(i) of the attached Disclosure Schedule, since June 30,
1994, there has been no material adverse development in the business, condition
or prospects of any Borrower and no Borrower has entered into any transaction
other than in the ordinary course, except as otherwise heretofore disclosed to
the Bank in writing.
(j) The principal place of business and chief executive offices of each
Borrower are located at 70 Blanchard Road, Burlington, MA 01803 (the
"Premises"). All of the books and records of each Borrower are located at the
Premises. Except described in item 2.1(j) of the attached Disclosure Schedule,
no assets of any Borrower are located at any other address. Said item 2.1(j)
of the attached Disclosure Schedule sets forth the names and addresses of all
record owners of the Premises.
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<PAGE> 9
(k) Each Borrower owns or has a valid right to use all of the patents,
licenses, copyrights, trademarks, trade names and franchises ("Intellectual
Property") now being used to conduct its business, all of which are described on
Item 2.1(k) of the attached Disclosure Schedule, and has full right and
authority grant to the Bank a security interest in such Intellectual Property.
None of the Intellectual Property owned by any Borrower is represented by a
registered copyright, trademark, patent or other federal or state registration,
except as shown on said Item 2.1(k). The conduct of each Borrower's business as
now operated does not, to the best knowledge of such Borrower, conflict with
valid patents, licenses, copyrights, trademarks, trade names or franchises of
others in any manner that could materially adversely affect the business,
prospects, assets or condition, financial or otherwise, of such Borrower.
(l) None of the executive officers or key employees of any Borrower is
subject to any agreement in favor of anyone other than such Borrower which
limits or restricts that person's right to engage in the type of business
activity conducted or proposed to be conducted by such Borrower or which grants
to anyone other than such Borrower any rights in any inventions or other ideas
susceptible to legal protection developed or conceived by any such officer or
key employee while in the employ of any Borrower.
(m) Neither Borrower is a party to any contract or agreement which now has
or, as far as can be reasonably foreseen by such Borrower at the date hereof,
may have a material adverse effect on the financial condition, business,
prospects or properties of such Borrower.
III. AFFIRMATIVE COVENANTS AND REPORTING REQUIREMENTS
------------------------------------------------
Without limitation of any covenants and agreements contained in any
Security Agreement or elsewhere, the Borrowers jointly and severally agree that
so long as the financing arrangements contemplated hereby are in effect or any
Loan or any of the other Obligations shall be outstanding or any letter of
credit issued hereunder shall be outstanding:
3.1. LEGAL EXISTENCE: QUALIFICATION: COMPLIANCE. Each Borrower will
maintain (and will cause each Subsidiary of such Borrower to maintain) its
corporate existence and good standing in the jurisdiction of its incorporation;
provided, however, that (i) Xionics may be merged into Technologies and (ii) any
other Subsidiary of Technologies may be merged into another wholly-owned
Subsidiary of Technologies or into Technologies itself. Each Borrower will
remain in good standing in Massachusetts. Further, each Borrower will qualify to
do business and will remain qualified and in good standing (and each Borrower
will cause each Subsidiary of such Borrower to qualify and remain qualified and
in good standing) in each other jurisdiction in which the failure so to qualify
could (singly or in the aggregate with all other such failures) have a material
adverse effect on the financial condition, business or prospects of any Borrower
or
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<PAGE> 10
any such Subsidiary. Each Borrower will comply (and will cause each Subsidiary
of such Borrower to comply) with its charter documents and by-laws and, in all
material respects, with all contractual requirements (other than those the
performance of which is excused due to the other party's breach or conduct) by
which it or any of its properties may be bound. Each Borrower will comply with
(and will cause each Subsidiary of such Borrower to comply with) all applicable
laws, rules and regulations (including, without limitation, ERISA and those
relating to environmental protection) other than (i) laws, rules or regulations
the validity or applicability of which such Borrower or such Subsidiary shall be
contesting in good faith by proceedings which serve as a matter of law to stay
the enforcement thereof and (ii) those laws, rules and regulations the failure
to comply with any of which could not (singly or in the aggregate) have a
material adverse effect on the financial condition, business or prospects of any
Borrower or any such Subsidiary.
3.2. MAINTENANCE OF PROPERTY: INSURANCE. Each Borrower will maintain
and preserve (and cause each Subsidiary of such Borrower to maintain and
preserve) all of its properties in good working order and condition, making all
necessary repairs thereto and replacements thereof. Each Borrower will maintain
all such insurance as may be required under the Security Agreements and will
also maintain, with financially sound and reputable insurers, insurance with
respect to its property and business against such liabilities, casualties and
contingencies and of such types and in such amounts as shall be customary for
companies conducting a business similar to that of such Borrower in similar
locales.
3.3. PAYMENT OF TAXES AND CHARGES. Each Borrower will pay and discharge
(and will cause each Subsidiary of such Borrower to pay and discharge) all
taxes, assessments and governmental charges or levies imposed upon it or upon
its income or property, including, without limitation, taxes, assessments,
charges or levies relating to real and personal property, franchises, income,
unemployment, old age benefits, withholding, or sales or use, prior to the date
on which penalties would attach thereto, and all lawful claims (whether for any
of the foregoing or otherwise) which, if unpaid, might give rise to a lien upon
any property of such Borrower or any such Subsidiary, except any of the
foregoing which is being contested in good faith and by appropriate proceedings
which serve as a matter of law to stay the enforcement thereof and for which
such Borrower (or such Subsidiary, as the case may be) has established and is
maintaining adequate reserves. Each Borrower will pay, in a timely manner, all
lease obligations, all trade debt, purchase money obligations, equipment lease
obligations and all of its other Indebtedness (other than that Indebtedness the
payment of which is excused due to the other party's breach or conduct). Each
Borrower will perform and fulfill all covenants and agreements under any leases
of real estate, agreements relating to purchase money debt, equipment leases and
other material
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<PAGE> 11
contracts (except as such performance is excused due to the other party's breach
or conduct). Each Borrower will maintain in full force and effect, and comply
with the terms and conditions of, all permits, permissions and licenses
necessary or desirable for its business.
3.4. ACCOUNTS. Each Borrower will maintain its principal depository and
operating accounts with the Bank.
3.5. CONDUCT OF BUSINESS. Each Borrower will conduct, in the ordinary
course, the business in which it is presently engaged. Neither Borrower will,
without the prior written consent of the Bank, directly or indirectly enter into
any other lines of business, businesses or ventures.
3.6. REPORTING REQUIREMENTS. The Borrowers will furnish to the Bank:
(i) Within 120 days after the end of each fiscal year of Technologies,
a copy of the annual audit report for such fiscal year for
Technologies, including therein consolidated and consolidating balance
sheets of Technologies and Subsidiaries (including a separate balance
sheet for Xionics, unless Xionics has been merged into Technologies)
as at the end of such fiscal year and related consolidated and
consolidating statements of income, stockholders' equity and cash flow
for the fiscal year then ended for Technologies and Subsidiaries
(including separate statements for Xionics, unless Xionics has been
merged into Technologies). The annual consolidated financial
statements shall be certified by independent public accountants
selected by Technologies and reasonably acceptable to the Bank, such
certification to be in such form as is generally recognized as
"unqualified".
(ii) Within 45 days after the end of each fiscal quarter of
Technologies, consolidated and consolidating balance sheets of
Technologies and its Subsidiaries (including a separate balance sheet
for Xionics, unless Xionics has been merged into Technologies) and
related consolidated and consolidating statements of income and
stockholders' equity and cash flow for Technologies and its
Subsidiaries (including separate statements for Xionics, unless
Xionics has been merged into Technologies), unaudited but prepared in
accordance with generally accepted accounting principles consistently
applied (except that such quarterly statements need not contain
footnotes) and certified as accurate (subject to normal year-end audit
adjustments, which shall not be material) by the chief financial
officer of each Borrower, such balance sheets to be as at the end of
such fiscal quarter and such statements of income and stockholders'
equity and cash flow to be for such fiscal quarter and for the year to
date, in each case together with a comparison to budget.
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<PAGE> 12
(iii) At the time of delivery of each annual and quarterly statement
of any Borrower, a certificate executed by the chief financial officer
of such Borrower stating that he or she has reviewed this letter
agreement and the other Loan Documents and has no knowledge of any
default by such Borrower in the performance or observance of any of
the provisions of this letter agreement or of any of the other Loan
Documents or, if he or she has such knowledge, specifying each such
default and the nature thereof. Each financial statement given as at
the end of any fiscal quarter of Technologies will also set forth the
calculations necessary to evidence compliance with [Sections]3.7-3.10.
(iv) Monthly, within 15 days after the end of each month, (A) an aging
report in form satisfactory to the Bank covering all Receivables of
each Borrower outstanding as at the end of such month, and (B) a
certificate signed by the respective chief financial officers of the
Borrowers setting forth the Borrowing Base as at the end of such
month, all in form reasonably satisfactory to the Bank.
(v) Promptly after receipt, a copy of all audits or reports submitted
to any Borrower by independent public accountants in connection with
any annual, special or interim audits of the books of any Borrower and
any letter of comments directed by such accountants to the management
of any Borrower.
(vi) As soon as possible and in any event within five days after the
occurrence of any Event of Default or any event which, with the giving
of notice or passage of time or both, could constitute an Event of
Default, the statement of the Borrowers setting forth details of each
such Event of Default or event and the action which the Borrowers
propose to take with respect thereto.
(vii) Promptly after the commencement thereof, notice of all actions,
suits and proceedings before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or
foreign, which are brought against any Borrower or any Subsidiary of a
Borrower or in which any counterclaim or crossclaim is asserted
against any Borrower or any such Subsidiary; provided that no such
notice will be deemed required by this clause (vii) with respect to
any such action, suit, proceeding, counterclaim or crossclaim which
seeks monetary damages only and as to which the amount sought from any
Borrower or any such Subsidiary does not exceed $100,000.
(viii) Promptly upon the filing by any Borrower of any registration
statement or listing application (or any supplement or amendment to
any registration statement or listing application) with the Securities
and Exchange Commission ("SEC") or any successor agency or with any
stock
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<PAGE> 13
exchange or with the National Association of Securities Dealers
quotations system, a copy of same.
(ix) If any Borrower becomes a publicly-traded company, a copy of each
periodic or current report filed with the SEC or any successor agency
and each annual report, proxy statement and other communication sent
to shareholders or other security holders generally, such copy to be
provided to the Bank promptly upon such filing with the SEC or such
communication with shareholders or securityholders, as the case may
be.
(x) Promptly upon any Borrower applying for, or being granted, a
federal or state registration for any copyright, trademark or patent
or purchasing any registered copyright, trademark or patent, written
notice to the Bank describing same, together with all such documents
as may be required to give the Bank a fully perfected first priority
security interest in each such copyright, trademark or patent.
(xi) Promptly after any Borrower has knowledge thereof, written notice
of any development or circumstance which may reasonably be expected to
have a material adverse effect on any Borrower or its business,
properties, assets, Subsidiaries or condition, financial or otherwise.
(xii) Promptly upon written request, such other information respecting
the financial condition, operations, Receivables, inventory, machinery
or equipment of any Borrower or any Subsidiary of a Borrower as the
Bank may from time to time reasonably request.
3.7. DEBT TO WORTH. Technologies will maintain as at the end of each fiscal
quarter (commencing with September 30, 1995) on a consolidated basis a Leverage
Ratio of not more than 1.5 to 1. As used herein, "Leverage Ratio" means, as at
any date when same is to be determined, the ratio of (x) the outstanding
consolidated Senior Debt of Technologies and its Subsidiaries to (y)
Technologies' consolidated Capital Base.
3.8. CAPITAL BASE. Technologies will maintain as at the end of each fiscal
quarter (commencing with September 30, 1995) a consolidated Capital Base of not
less than $3,250,000.
3.9. QUICK RATIO. Technologies will maintain as at the end of each fiscal
quarter of Technologies (commencing with September 30, 1995) a ratio of Net
Quick Assets to Current Liabilities, which ratio shall be not less than 1.25 to
1.
3.10. PROFITABILITY. Technologies will not incur a consolidated Adjusted
Net Loss in excess of $1,000,000 for its fiscal quarter ending September 30,
1995. Technologies will not incur a consolidated Adjusted Net Loss in excess of
$600,000 for its fiscal quarter ending December 31, 1995. Technologies will
achieve consolidated Adjusted Net Income of at least $250,000 for
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<PAGE> 14
its fiscal quarter ending March 31, 1996. Subject to the provisions of the next
following sentence, Technologies will achieve consolidated Adjusted Net Income
of at least $250,000 for its fiscal quarter ending June 30, 1996. If the
cumulative consolidated Adjusted Net Loss of Technologies for the nine-month
period ending March 31, 1996 is greater than $1,000,000, then Technologies will
achieve consolidated Adjusted Net Income of at least $500,000 for its fiscal
quarter ending June 30, 1996. For its fiscal quarter ending September 30, 1996
and for each fiscal quarter thereafter, Technologies will achieve consolidated
Adjusted Net Income of at least $1.00 per fiscal quarter. Without limitation of
the foregoing, for each six-month period ending on each Determination Date
(defined below), Technologies will achieve cumulative consolidated Adjusted Net
Income of at least $500,000. As used herein, the term "Determination Date" means
the last day of each fiscal quarter of Technologies, commencing with September
30, 1996.
In addition and without limitation of the foregoing, Technologies will not
incur an annual consolidated Adjusted Net Loss in excess of $750,000 for its
fiscal year ending June 30, 1996. Further, Technologies will achieve annual
consolidated Adjusted Net Income of at least $750,000 for its fiscal year ending
June 30, 1997 and for each fiscal year thereafter.
3.11. BOOKS AND RECORDS. Each Borrower will maintain (and cause each of its
Subsidiaries to maintain) complete and accurate books, records and accounts
which will at all times accurately and fairly reflect all of its transactions in
accordance with generally accepted accounting principles consistently applied.
Each Borrower will, at any reasonable time and from time to time upon reasonable
notice and during normal business hours (and at any time and without any
necessity for notice following the occurrence of an Event of Default), permit
the Bank, and any agents or representatives thereof, to examine and make copies
of and take abstracts from the records and books of account of, and visit the
properties of such Borrower and any of its Subsidiaries, and to discuss its
affairs, finances and accounts with its managers, officers or directors and
independent accountants, all of whom are hereby authorized and directed to
cooperate with the Bank in carrying out the intent of this--[Section]3.11. Each
financial statement of any Borrower hereafter delivered pursuant to this letter
agreement will be complete and accurate and will fairly present the financial
condition of such Borrower as at the date thereof and for the periods covered
thereby.
3.12. EQUITY INFUSIONS: CONVERSION OF SUBORDINATED DEBT. Prior to the Bank
making the first Loan, the Borrowers will provide to the Bank evidence
reasonably satisfactory to the Bank as to (i) the conversion into capital stock
of Technologies of the aggregate principal amount of $2,400,000 in subordinated
debt formerly owed by Technologies to Hambro International Venture Fund II,
Hambro International Venture Fund Offshore II and Phoenix Technologies Ltd. and
(ii) the receipt of not less than $2,000,000 in additional equity contributions
since June 30, 1995
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<PAGE> 15
from MyTech Fund L.P., PUSH Incorporated, ADD Venture Associates L.P., ADD
Venture Associates II L.P., Hambro International Venture Fund II and Hambro
International Venture Fund Offshore II. Technologies will also provide a
confirmation, executed by Phoenix Technologies Ltd., of the terms on which the
indebtedness owed by Technologies to Phoenix Technologies Ltd. is subordinated
to the Loans and other Obligations now or hereafter owned by Technologies to the
Bank, such confirmation to be satisfactory in form and substance to the Bank.
3.13. LANDLORD'S WAIVER. Prior to the Bank making the first Loan, the
Borrowers will obtain, and will thereafter maintain in effect at all time,
waivers from the owners of all premises in which any material amount of
Collateral is located, such waivers to be in form and substance satisfactory to
the Bank.
IV. NEGATIVE COVENANTS
------------------
Without limitation of any covenants and agreements contained in any
Security Agreement or elsewhere, the Borrowers jointly and severally agree that
so long as the financing arrangements contemplated hereby are in effect or any
Loan or any of the other Obligations shall be outstanding or any letter of
credit issued hereunder shall be outstanding:
4.1. INDEBTEDNESS. No Borrower will create, incur, assume or suffer to
exist any Indebtedness (nor will any Borrower allow any of its Subsidiaries to
create, incur, assume or suffer to exist any Indebtedness), except for:
(i) Indebtedness owed to the Bank, including, without limitation, the
Indebtedness represented by the Notes and any Indebtedness in respect of
letters of credit issued by the Bank;
(ii) Indebtedness of any Borrower or any Subsidiary of a Borrower for
taxes, assessments and governmental charges or levies not yet due and
payable;
(iii) unsecured current liabilities of any Borrower or any Subsidiary
of a Borrower (other than for money borrowed or the deferred purchase price
of property) incurred upon customary terms in the ordinary course of
business;
(iv) purchase money Indebtedness (including, without limitation,
Indebtedness in respect of capitalized equipment leases) owed to equipment
vendors and/or lessors for equipment purchased or leased by any Borrower
for use in such Borrower's business, provided that the total of
Indebtedness permitted under this clause (iv) plus presently-existing
equipment financing permitted under clause (v) of this [Section]4.1 will
not exceed $500,000 in the aggregate outstanding at any one time;
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<PAGE> 16
(v) other Indebtedness existing at the date hereof, but only to the
extent set forth on item 4.1 of the attached Disclosure Schedule; and
(vi) any guaranties or other contingent liabilities expressly
permitted pursuant to [Section]4.3.
4.2. LIENS. No Borrower will create, incur, assume or suffer to exist (nor
will any Borrower allow any of its Subsidiaries to create, incur, assume or
suffer to exist) any mortgage, deed of trust, pledge, lien, security interest,
or other charge or encumbrance (including the lien or retained security title of
a conditional vendor) of any nature (collectively, "Liens"), upon or with
respect to any of its property or assets, now owned or hereafter acquired,
except that the foregoing restrictions shall not apply to:
(i) Liens for taxes, assessments or governmental charges or levies on
property of any Borrower or any of their respective Subsidiaries if the
same shall not at the time be delinquent or thereafter can be paid without
interest or penalty;
(ii) Liens imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar Liens arising in the ordinary course of
business for sums not yet due or which are being contested in good faith
and by appropriate proceedings which serve as a matter of law to stay the
enforcement thereof and as to which adequate reserves have been made;
(iii) pledges or deposits under workmen's compensation laws,
unemployment insurance, social security, retirement benefits or similar
legislation;
(iv) Liens in favor of the Bank;
(v) Liens in favor of equipment vendors and/or lessors securing
purchase money Indebtedness to the extent permitted by clause (iv) of
[Section]4.1; provided that no such Lien will extend to any property of any
Borrower other than the specific items of equipment financed; or
(vi) other Liens existing at the date hereof, but only to the extent
and with the relative priorities set forth on item 4.2 of the attached
Disclosure Schedule.
4.3. GUARANTIES. Neither Borrower will, without the prior written consent
of the Bank, assume, guarantee, endorse or otherwise become directly or
contingently liable (including, without limitation, liable by way of agreement,
contingent or otherwise, to purchase, to provide funds for payment, to supply
funds to or otherwise invest in any debtor or otherwise to assure any creditor
against loss) in connection with any indebtedness of any other Person (nor will
any Borrower permit any of its
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<PAGE> 17
Subsidiaries to do so), except (i) guaranties by endorsement for deposit or
collection in the ordinary course of business, (ii) guaranties in favor of the
Bank, (iii) guaranties existing at the date hereof and described on item 4.3 of
the attached Disclosure Schedule, and (iv) any guaranties given after the date
hereof by a Borrower in the ordinary course of its business with respect to any
Indebtedness of a Subsidiary of such Borrower so long as such Borrower would
have been permitted under any of clauses (i)-(iv) of [Section]4.1 above to have
incurred such Indebtedness directly.
4.4. DIVIDENDS. Neither Borrower will, without the prior written consent of
the Bank, make any distributions to its shareholders, pay any dividends (other
than dividends payable solely in capital stock of such Borrower) or redeem,
purchase or otherwise acquire, directly or indirectly any of its capital stock.
4.5. LOANS AND ADVANCES. Neither Borrower will make (nor will any Borrower
permit any of its Subsidiaries to make) any loans or advances to any Person,
including, without limitation, such Borrower's directors, officers and
employees, except advances to such directors, officers or employees with respect
to expenses incurred by them in the ordinary course of their duties and advances
against salary, all of which advances will not exceed, in the aggregate,
$150,000 outstanding at any one time.
4.6. INVESTMENTS. Neither Borrower will, without the Bank's prior written
consent, invest in, hold or purchase any stock or securities of any Person (nor
will any Borrower permit any of its Subsidiaries to invest in, purchase or hold
any such stock or securities) except (i) readily marketable direct obligations
of, or obligations guarantied by, the United States of America or any agency
thereof, (ii) other investment grade debt securities, (iii) mutual funds, the
assets of which are primarily invested in items of the kind described in the
foregoing clauses (i) and (ii) of this [Section]4.6, (iv) deposits with or
certificates of deposit issued by the Bank and any other obligations of the Bank
or the Bank's parent, (v) deposits in any other bank organized in the United
States having capital in excess of $100,000,000, and (vi) investments in
Subsidiaries now existing or hereafter created by any Borrower pursuant to
[Section]4.7 below; provided that in any event the combined Tangible Net
Worths of the two Borrowers themselves (exclusive of any investment by either
of them in Subsidiaries and exclusive of any debt owed to any Borrower by any
of its Subsidiaries) will be not less than 75% of the consolidated Tangible Net
Worth of Technologies and Subsidiaries.
4.7. SUBSIDIARIES; ACQUISITIONS. Neither Borrower will, without the prior
written consent of the Bank, form or acquire any Subsidiary or make any other
acquisition of the stock of any other Person or of all or substantially all of
the assets of any other Person, except that any Borrower may without the Bank's
consent acquire another Person so long as (i) the sole
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<PAGE> 18
consideration paid for such acquisition is capital stock of Technologies and
(ii) after giving effect to any such acquisition the Borrowers will be in
compliance with clause (vi) of [Section] 4.6 above. Neither Borrower will
become a partner in any partnership.
4.8. MERGER. Neither Borrower will, without the prior written consent
of the Bank, merge or consolidate with any Person (except that Xionics may be
merged into Technologies and any other Subsidiary of Technologies may be merged
into any other wholly-owned Subsidiary of Technologies or into Technologies
itself), or sell, lease, transfer or otherwise dispose of any material portion
of its assets (whether in one or more transactions), other than sale of
inventory in the ordinary course.
4.9. AFFILIATE TRANSACTIONS. Neither Borrower will, without prior written
consent of the Bank, enter into any transaction, including, without limitation,
the purchase, sale or exchange of any property or the rendering of any service,
with any affiliate of such Borrower, except in the ordinary course of and
pursuant to the reasonable requirements of such Borrower's business and upon
fair and reasonable terms no less favorable to such Borrower than would be
obtained in a comparable arms'-length transaction with any Person not an
affiliate; provided that (A) nothing in this [Section] 4.9 shall be deemed to
prohibit transfer pricing between Technologies and its foreign Subsidiaries
generally consistent with that being utilized at the date of this letter
agreement and (B) nothing in this [Section] 4.9 shall be deemed to prohibit
the payment of salary or other similar payments to any officer or director of
any Borrower at a level consistent with the salary and other payments being
paid at the date of this letter agreement and heretofore disclosed in writing
to the Bank, nor to prevent the hiring of additional officers at a salary level
consistent with industry practice, nor to prevent reasonable periodic increases
in salary. For the purposes of this letter agreement, "affiliate" means any
Person which, directly or indirectly, controls or is controlled by or is under
common control with any Borrower; any officer or director or former officer or
director of any Borrower; any Person owning of record or beneficially, directly
or indirectly, 5% or more of any class of capital stock of any Borrower or 5%
or more of any class of capital stock or other equity interest having voting
power (under ordinary circumstances) of any of the other Persons described
above; and any member of the immediate family of any of the foregoing.
"Control" means possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of any Person, whether
through ownership of voting equity, by contract or otherwise.
4.10. CHANGE OF ADDRESS ETC. Neither Borrower will change its name or
legal structure, nor will any Borrower move its chief executive offices or
principal place of business from the address described in the first sentence of
[Section]2.1(j) above, nor will any Borrower remove any books or records from
such address, nor will
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<PAGE> 19
any Borrower keep any Collateral at any location other than the Premises
without, in each instance, giving the Bank at least 30 days' prior written
notice and providing all such financing statements, certificates and other
documentation as the Bank may request in order to maintain the perfection and
priority of the security interests granted or intended to be granted pursuant
to any Security Agreement. Neither Borrower will change its fiscal year or
methods of financial reporting unless, in each instance, prior written notice
of such change is given to the Bank and prior to such change the Borrowers
enter into amendments to this letter agreement in form and substance
satisfactory to the Bank in order to preserve unimpaired the rights of the Bank
and the obligations of the Borrowers hereunder.
4.11. HAZARDOUS WASTE. Except as provided below, neither Borrower will
dispose of or suffer or permit to exist any hazardous material or oil on any
site or vessel owned, occupied or operated by any Borrower or any Subsidiary of
such Borrower, nor shall any Borrower store (nor permit any such Subsidiary to
store) on any site or vessel owned, occupied or operated by any Borrower or by
any such Subsidiary, or transport or arrange the transport of, any hazardous
material or oil (the terms "hazardous material", "oil", "site" and "vessel",
respectively, being used herein with the meanings given those terms in Mass.
Gen. Laws, Ch. 21E or any comparable terms in any comparable statute in effect
in any other relevant jurisdiction). Each Borrower shall provide the Bank with
written notice of (i) the intended storage or transport of any hazardous
material or oil by such Borrower or any Subsidiary of such Borrower, (ii) any
potential or known release or threat of release of any hazardous material or
oil at or from any site or vessel owned, occupied or operated by such Borrower
or any Subsidiary of such Borrower, and (iii) any incurrance of any expense or
loss by any government or governmental authority in connection with the
assessment, containment or removal of any hazardous material or oil for which
expense or loss such Borrower or any Subsidiary of such Borrower may be liable.
Notwithstanding the foregoing, any Borrower and its Subsidiaries may use,
store and transport, and need not notify the Bank of the use, storage or
transportation of, (x) oil in reasonable quantities, as fuel for heating of
their respective facilities or for vehicles or machinery used in the ordinary
course of their respective businesses and (y) hazardous materials that are
solvents, cleaning agents or other materials used in the ordinary course of the
respective business operations of such Borrower and its Subsidiaries, in
reasonable quantities, as long as in any case such Borrower or the Subsidiary
concerned (as the case may be) has obtained and maintains in effect any
necessary governmental permits, licenses and approvals, complies with all
requirements of applicable federal, state and local law relating to such use,
storage or transportation, follows the protective and safety procedures that a
prudent businessperson conducting a business the same as or similar to that of
such Borrower or such Subsidiary (as the case may be) would follow, and
disposes of such materials (not consumed in the ordinary course) only through
licensed providers of hazardous waste removal services.
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<PAGE> 20
4.12. NO MARGIN STOCK. No proceeds of any Loan shall be used directly or
indirectly to purchase or carry any margin security.
4.13. SUBORDINATED DEBT. Neither Borrower will directly or indirectly make
any optional or voluntary prepayment or purchase of Subordinated Debt nor
modify, alter or add any provisions with respect to any Subordinated Debt.
Further, neither Borrower will make any payment in respect of Subordinated Debt
in violation of the subordination agreement relating thereto. In any event, no
Borrower will make any payment on account of Subordinated Debt if any Event of
Default then exists or would result from such payment. Notwithstanding the
foregoing, nothing contained in this Section 4.13 will be deemed to prohibit the
conversion of any Subordinated Debt into shares of capital stock of
Technologies.
V. DEFAULT AND REMEDIES
--------------------
5.1. EVENTS OF DEFAULT. The occurrence of any one of the following events
shall constitute an Event of Default hereunder:
(a) The Borrowers shall fail to make any payment of principal of or
interest on the Revolving Note or any Term Note on or before the date when due;
or any Borrower shall fail to pay when due any amount owed to the Bank in
respect of any letter of credit now or hereafter issued by the Bank; or
(b) Any representation or warranty of any Borrower contained herein shall
at any time prove to have been incorrect in any material respect when made or
any representation or warranty made by any Borrower in connection with the
execution and delivery of this letter agreement or in connection with any Loan
or letter of credit shall at any time prove to have been incorrect in any
material respect when made; or
(c) Any Borrower shall default in the performance or observance of any
agreement or obligation under any of [Sections]3.1, 3.3, 3.6, 3.7, 3.8, 3.9 or
3.10 or Article IV; or
(d) Any Borrower shall default in the performance of any other term,
covenant or agreement contained in this letter agreement and such default shall
continue unremedied for 30 days after notice thereof shall have been given to
the Borrowers; or
(e) Any default on the part of any Borrower or any Subsidiary of a Borrower
shall exist, and shall remain unwaived or uncured beyond the expiration of any
applicable notice and/or grace period, under any other contract, agreement or
undertaking now existing or hereafter entered into with or for the benefit of
the Bank (or any affiliate of the Bank); or
(f) Any default shall exist and remain unwaived or uncured with respect to
any Indebtedness of any Borrower or any Subsidiary of a Borrower in excess of
$150,000 in aggregate
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<PAGE> 21
principal amount or with respect to any instrument evidencing, guaranteeing,
securing or otherwise relating to any such Indebtedness in excess of $150,000
in aggregate principal amount, or any such Indebtedness in excess of $150,000 in
aggregate principal amount shall not have been paid when due, whether by
acceleration or otherwise, or shall have been declared to be due and payable
prior to its stated maturity, or any event or circumstance shall occur which
permits, or with the lapse of time or giving of notice or both would permit,
the acceleration of the maturity of any such Indebtedness in excess of $150,000
in aggregate principal amount by the holder of holders thereof; or
(g) Any Borrower shall be dissolved, or any Borrower or any Subsidiary of a
Borrower shall become insolvent or bankrupt or shall cease paying its debts as
they mature or shall make an assignment for the benefit of creditors, or a
trustee, receiver or liquidator shall be appointed for any Borrower or any
Subsidiary of a Borrower or for a substantial part of the property of any
Borrower or any such Subsidiary, or bankruptcy, reorganization, arrangement,
insolvency or similar proceedings shall be instituted by or against any Borrower
or any such Subsidiary under the laws of any jurisdiction (except for an
involuntary proceeding filed against any Borrower or any Subsidiary of a
Borrower which is dismissed within 60 days following the institution thereof);
or
(h) Any attachment, execution or similar process shall be issued or levied
against any of the property of any Borrower or any Subsidiary of a Borrower and
such attachment, execution or similar process shall not be paid, stayed,
released, vacated or fully bonded within 10 days after its issue or levy; or
(i) Any final uninsured judgment in excess of $150,000 shall be entered
against any Borrower or any Subsidiary of a Borrower by any court of competent
jurisdiction; or
(j) Any Borrower or any Subsidiary of a Borrower shall fail to meet its
minimum funding requirements under ERISA with respect to any employee benefit
plan (or other class of benefit which the PBGC has elected to insure) or any
such plan shall be the subject of termination proceedings (whether voluntary or
involuntary) and there shall result from such termination proceedings a
liability of any Borrower or any Subsidiary of a Borrower to the PBGC which in
the reasonable opinion of the Bank may have a material adverse effect upon the
financial condition of any Borrower or any such Subsidiary; or
(k) Any Security Agreement or any other Loan Document shall for any reason
(other than due to payment in full of all amounts secured or evidenced thereby
or due to discharge in writing by the Bank) not remain in full force and effect;
or
(l) The security interests and liens of the Bank in and on any of the
Collateral shall for any reason (other than due to payment in full of all
amounts secured thereby or due to written
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<PAGE> 22
release by the Bank) not be fully perfected liens and security interests,
subject in priority only to the matters set forth in [Section]4.2 above; or
(m) At any time Xionics shall not be a wholly-owned Subsidiary of
Technologies (owned directly or through one or more intermediate Subsidiaries),
except that Xionics may be merged into Technologies; or
(n) At any time, 50% or more of the outstanding shares of any class of
equity securities of Technologies shall be owned by any Person or by any
"group" (as defined in the Securities Exchange Act of 1934, as amended, and the
regulations thereunder), other than by a Person who is a stockholder of
Technologies at the date hereof or a group consisting solely of such Persons.
5.2. RIGHTS AND REMEDIES ON DEFAULT. Upon the occurrence of any Event of
Default, in addition to any other rights and remedies available to the Bank
hereunder or otherwise, the Bank may exercise any one or more of the following
rights and remedies (all of which shall be cumulative):
(a) Declare the entire unpaid principal amount of the Revolving Note and
each Term Note then outstanding, all interest accrued and unpaid thereon and all
other amounts payable under this letter agreement, and all other Indebtedness of
any Borrower to the Bank, to be forthwith due and payable, whereupon the same
shall become forthwith due and payable, without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived by each Borrower.
(b) Terminate the revolving financing arrangements and the Term Loan
facility provided for by this letter agreement.
(c) Exercise all rights and remedies hereunder, under the Revolving Note,
under each Term Note, under the Security Agreements, under the Intellectual
Property Notices and under each and any other agreement with the Bank; and
exercise all other rights and remedies which the Bank may have under applicable
law.
5.3. SET-OFF. In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, upon the
occurrence of any Event of Default, the Bank is hereby authorized at any time or
from time to time, without presentment, demand, protest or other notice of any
kind to any Borrower or to any other Person, all of which are hereby expressly
waived, to set off and to appropriate and apply any and all deposits and any
other Indebtedness at any time held or owing by the Bank or any affiliate
thereof to or for the credit or the account of any Borrower against and on
account of the obligations and liabilities of the Borrowers or either of them to
the Bank under this letter agreement or otherwise, irrespective of whether or
not the Bank shall have made any demand hereunder and although
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<PAGE> 23
said obligations, liabilities or claims, or any of them, may then be contingent
or unmatured and without regard for the availability or adequacy of other
collateral. As further security for the Obligations, each Borrower also grants
to the Bank a security interest with respect to all its deposits and all
securities or other property in the possession of the Bank or any affiliate of
the Bank from time to time, and, upon the occurrence of any Event of Default,
the Bank may exercise all rights and remedies of a secured party under the
Uniform Commercial Code.
5.4. LETTERS OF CREDIT. Without limitation of any other right or remedy
of the Bank, (i) if an Event of Default shall have occurred and the Bank shall
have accelerated the Revolving Loans or (ii) if this letter agreement and/or the
revolving financing arrangements described herein shall have expired or shall
have been earlier terminated by either the Bank or the Borrowers for any reason,
the Borrowers will forthwith deposit (the Borrowers being jointly and severally
obligated so to deposit) with the Bank in cash a sum equal to the total of all
then undrawn amounts of all outstanding letters of credit issued by the Bank for
the account of any Borrower.
VI. MISCELLANEOUS
-------------
6.1. COSTS AND EXPENSES. The Borrowers agree to pay (the Borrowers being
jointly and severally obligated so to pay) on demand all reasonable costs and
expenses (including, without limitation, reasonable legal fees) of the Bank in
connection with the preparation, execution and delivery of this letter
agreement, the Security Agreements, the Revolving Note, any Term Note and all
other instruments and documents to be delivered in connection with any Loan or
any letter of credit issued hereunder and any amendments or modifications of any
of the foregoing, as well as the reasonable costs and expenses (including,
without limitation, the reasonable fees and expenses of legal counsel) incurred
by the Bank in connection with preserving, enforcing or exercising, upon
default, any rights or remedies under this letter agreement, the Security
Agreements, the Revolving Note, any Term Note and all other instruments and
documents delivered or to be delivered hereunder or in connection herewith, all
whether or not legal action is instituted. In addition, the Borrowers shall be
jointly and severally obligated to pay any and all stamp and other taxes payable
or determined to be payable in connection with the execution and delivery of
this letter agreement, the Security Agreements, the Revolving Note, any Term
Note and all other instruments and documents to be delivered in connection with
any Obligation. Any fees, expenses or other charges which the Bank is entitled
to receive from the Borrower under this Section shall bear interest from that
date which is 30 days after the date of any demand therefor until the date when
paid at a rate per annum equal to the sum of (i) two (2%) percent plus (ii) the
per annum rate otherwise payable under the Revolving Note (but in no event in
excess of the maximum rate permitted by then applicable law).
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<PAGE> 24
6.2. CAPITAL ADEQUACY. If the Bank shall have determined that the adoption
or phase-in after the date hereof of any applicable law, rule or regulation
regarding capital requirements for banks or bank holding companies, or any
change therein after the date hereof, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by the Bank with any request or directive of such entity regarding capital
adequacy (whether or not having the force of law) has or would have the effect
of reducing the return on the Bank's capital with respect to the Revolving
Loans, the Term Loans and/or the within-described revolving and term loan
facilities and/or letters of credit issued for the account of any Borrower to a
level below that which the Bank could have achieved (taking into consideration
the Bank's policies with respect to capital adequacy immediately before such
adoption, phase-in, change or compliance and assuming that the Bank's capital
was then fully utilized) but for such adoption, phase-in, change or compliance
by any amount deemed by the Bank to be material: (i) the Bank shall promptly
after its determination of such occurrence give notice thereof to the Borrowers;
and (ii) the Borrowers shall pay (the Borrowers being jointly and severally
obligated so to pay) forthwith to the Bank as an additional fee such amount as
the Bank certifies to be the amount that will compensate it for such reduction
with respect to the Revolving Loans, the Term Loans, the within-described
revolving and term loan facilities and/or such letters of credit.
A certificate of the Bank claiming compensation under this Section
shall be conclusive in the absence of manifest error. Such certificate shall
set forth the nature of the occurrence giving rise to such compensation, the
additional amount or amounts to be paid to it hereunder and the method by which
such amounts were determined. In determining such amounts, the Bank may use any
reasonable averaging and attribution methods. No failure on the part of the
Bank to demand compensation on any one occasion shall constitute a waiver of
its right to demand such compensation on any other occasion and no failure on
the part of the Bank to deliver any certificate in a timely manner shall in any
way reduce any obligation of any Borrower to the Bank under this Section.
6.3. FACILITY FEES. With respect to the within-described facility for
Revolving Loans, the Borrowers will pay (and will be jointly and severally
obligated to pay) to the Bank, on the date of execution of this letter agreement
and on the first day of each calendar quarter thereafter as long as the
within-described revolving loan arrangements are in effect, a non-refundable
quarterly facility fee, payable in advance, in the amount of $2,500 per quarter
(appropriately pro-rated for any partial calendar quarter). In addition, if the
revolving loan financing arrangements established by this letter agreement are
terminated by the Borrowers at any time or by the Bank as the result of any
Borrower's default, the Borrowers shall forthwith upon such
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<PAGE> 25
termination pay to the Bank a sum equal to all of the fees which would have
become due pursuant to the immediately preceding sentence from the date of such
termination through the Expiration Date. Further, the Borrowers are paying to
the Bank, at the date hereof, in respect of the Term Loans a non-refundable
facility fee of $7,500. The fees described in this Section are in addition to
any balances and fees required by the Bank or any of its affiliates in
connection with any other services made available to any Borrower.
6.4. OTHER AGREEMENTS. The provisions of this letter agreement are not in
derogation or limitation of any obligations, liabilities or duties of any
Borrower under any of the other Loan Documents or any other agreement with or
for the benefit of the Bank. No inconsistency in default provisions between this
letter agreement and any of the other Loan Documents or any such other agreement
will be deemed to create any additional grace period or otherwise derogate from
the express terms of each such default provision. No covenant, agreement or
obligation of any Borrower contained herein, nor any right or remedy of the Bank
contained herein, shall in any respect be limited by or be deemed in limitation
of any inconsistent or additional provisions contained in any of the other Loan
Documents or any such other agreement.
6.5. GOVERNING LAW. This letter agreement and the Notes shall be governed
by, and construed and enforced in accordance with, the laws of The Commonwealth
of Massachusetts.
6.6. ADDRESSES FOR NOTICES. ETC. All notices, requests, demands and other
communications provided for hereunder shall be in writing and shall be mailed or
delivered to the applicable party at the address indicated below:
If to the Borrowers:
Xionics Document Technologies, Inc.
Xionics, Inc.
70 Blanchard Road
Burlington, MA 01803
Attention: Gerard T. Feeney, Chief Financial Officer
If to the Bank:
Fleet Bank of Massachusetts, N.A.
High Technology Group
75 State Street
Boston, MA 02109
Attention: Thomas W. Davies, Vice President
or, as to each of the foregoing, at such other address as shall be designated by
such Person in a written notice to the other party complying as to delivery with
the terms of this Section. All such notices, requests, demands and other
communications shall be deemed delivered on the earlier of (i) the date received
or (ii) the date of delivery, refusal or non-delivery indicated
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<PAGE> 26
on the return receipt if deposited in the United States mails, sent postage
prepaid, certified or registered mail, return receipt requested, addressed as
aforesaid.
6.7. BINDING EFFECT: ASSIGNMENT; TERMINATION. This letter agreement shall
be binding upon the Borrowers, the Bank and their respective successors and
assigns and shall inure to the benefit of the Borrowers and the Bank and their
respective permitted successors and assigns. All covenants and agreements of the
Borrowers contained herein (whether or not expressly so stated herein) shall be
deemed to constitute joint and several obligations of the Borrowers. No Borrower
may assign this letter agreement or any rights hereunder without the express
written consent of the Bank. The Bank may, in accordance with applicable law,
from time to time assign or grant participations in this letter agreement, the
Loans, the Notes and/or the letters of credit issued hereunder. The Borrowers
may terminate this letter agreement and the financing arrangements made herein
by giving written notice of such termination to the Bank, together with payment
of the sum described in the second sentence of [Section]6.3; provided that no
such termination will release or waive any of the Bank's rights or
remedies nor any of the Borrowers' obligations under this letter agreement
or any of the other Loan Documents unless and until the Borrowers have paid in
full all Loans and all interest thereon and all fees and charges payable in
connection therewith and all letters of credit issued hereunder have been
terminated.
6.8. CONSENT TO JURISDICTION. Each Borrower irrevocably submits to the
non-exclusive jurisdiction of any Massachusetts court or any federal court
sitting within The Commonwealth of Massachusetts over any suit, action or
proceeding arising out of or relating to this letter agreement and/or any Note.
Each Borrower irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of venue of any such
suit, action or proceeding brought in such a court and any claim that any such
suit, action or proceeding has been brought in an inconvenient forum. Each
Borrower agrees that final judgment in any such suit, action or proceeding
brought in such a court shall be enforced in any court of proper jurisdiction by
a suit upon such judgment, provided that service of process in such action, suit
or proceeding shall have been effected upon such Borrower in one of the manners
specified in the following paragraph of this [Section]6.8 or as otherwise
permitted by law.
Each Borrower hereby consents to process being served in any suit, action
or proceeding of the nature referred to in the preceding paragraph of this
[Section]6.8 either (i) by mailing a copy thereof by registered or certified
mail, postage prepaid, return receipt requested, to it at its address set
forth in [Section] 6.6 or (ii) by serving a copy thereof upon it at its
address set forth in [Section]6.6.
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<PAGE> 27
6.9. SEVERABILITY. In the event that any provision of this letter agreement
or the application thereof to any Person, property or circumstances shall be
held to any extent to be invalid or unenforceable, the remainder of this letter
agreement, and the application of such provision to Persons, properties or
circumstances other than those as to which it has been held invalid and
unenforceable, shall not be affected thereby, and each provision of this letter
agreement shall be valid and enforced to the fullest extent permitted by law.
VII. DEFINED TERMS
-------------
7.1. DEFINITIONS. In addition to terms defined elsewhere in this letter
agreement, as used in this letter agreement, the following terms have the
following respective meanings:
"Adjusted Net Income" - For any period, the result of: (i) the
consolidated Net Income (or consolidated Net Loss, expressed as a negative
number) of Technologies and Subsidiaries for such period, PLUS (ii) all
amounts representing amortization of goodwill and other intangibles
recognized by Technologies for such period and actually deducted on the
consolidated books of Technologies for the purposes of computation of such
Net Income (or Net Loss, as the case may be) for the period involved, MINUS
(iii) any additional amount capitalized during the period involved by
Technologies and/or any of its Subsidiaries with respect to intangible
assets. If the result of the computation set forth in the immediately
preceding sentence is a negative number, the amount by which such result is
less than zero referred to in this letter agreement as an "Adjusted Net
Loss" in such amount.
"Aggregate Revolving Bank Liabilities" - At any time, the sum of (i)
the principal amount of all Revolving Loans then outstanding, PLUS (ii) all
then undrawn amounts of letters of credit issued by the Bank for the
account of any Borrower, plus (iii) all amounts then drawn on any such
letter of credit which at said date shall not have been reimbursed to the
Bank by the Borrowers.
"Borrowing Base" - At any time, the sum of: (1) 80% of the aggregate
principal amount of the Qualified Receivables of the Borrowers then
outstanding, PLUS (2) 80% of the aggregate principal amount of the
Qualified PhoenixPage International Receivables then outstanding, PLUS (3)
60% of the aggregate principal amount of Other Approved Foreign Receivables
(if any) then outstanding.
"Business Day" - Any day which is not a Saturday, nor a Sunday nor a
public holiday under the laws of the United States of America or The
Commonwealth of Massachusetts applicable to a national bank.
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<PAGE> 28
"Capital Bases" - At any time, the sum of (i) the consolidated
Tangible Net Worth of Technologies and Subsidiaries then existing plug (ii)
the principal amount of Subordinated Debt of Technologies then outstanding
(nothing contained herein being deemed to authorize the incurrence of any
additional Subordinated Debt).
"Collateral" All property now or hereafter owned by any Borrower or in
which any Borrower now or hereafter has any interest which is described as
"Collateral" in any Security Agreement or in [Section]7.2(b) below.
"Current Liabilities" - All consolidated liabilities of Technologies
and Subsidiaries which are properly shown as current liabilities on a
balance sheet of Technologies prepared in accordance with generally
accepted accounting principles, including, without limitation, all payments
under capitalized leases and fixed prepayments of, and sinking fund
payments with respect to, Indebtedness required to be made within one year
from the date of determination. "Current Liabilities" shall also and in any
event be deemed to include the Revolving Loans.
"ERISA" - The Employee Retirement Income Security Act of 1974, as
amended.
"Expiration Date" - December 1, 1996, unless extended pursuant to the
terms of this letter agreement.
"Indebtedness" - All obligations of a Person, whether current or
long-term, senior or subordinated, which in accordance with generally
accepted accounting principles would be included as liabilities upon such
Person's balance sheet at the date as of which Indebtedness is to be
determined, and shall also include guaranties, endorsements (other than for
collection in the ordinary course of business) or other arrangements
whereby responsibility is assumed for the obligations of others, whether by
agreement to purchase or otherwise acquire the obligations of others,
including any agreement, contingent or otherwise, to furnish funds through
the purchase of goods, supplies or services for the purpose of payment of
the obligations of others.
"Intellectual Property Notices" - Collectively, the Technologies
Intellectual Property Notices and the Xionics Intellectual Property
Notices.
"International Ltd." - As defined in Subsection 2.1(b)
"Loan" - Any Revolving Loan or any Term Loan.
"Loan Documents" - Each of this letter agreement, the Revolving Note,
the Term Notes, the Security Agreements, the Intellectual Property Notices,
and each other instrument,
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<PAGE> 29
document or agreement evidencing, securing, guaranteeing or relating in any
way to any of the Loans or any of the letters of credit issued hereunder,
all whether now existing or hereafter arising or entered into.
"Maximum Revolving Amount" - At any date as of which same is to be
determined, the amount by which (x) $2,000,000 exceeds (y) the sum of (i)
all then undrawn amounts of letters of credit issued by the Bank for the
account of any Borrower plus (ii) all amounts then drawn on any such letter
of credit which at said date shall not have been reimbursed to the Bank by
the Borrowers.
"Net Income" (or "Net Loss") - The book net income (or book net loss,
as the case may be) of a Person for any period, after all taxes actually
paid or accrued and all expenses and other charges determined in accordance
with generally accepted accounting principles consistently applied.
"Net Quick Assets" - Such current assets of the Borrowers as consist
of cash, cash-equivalents and Receivables (less an allowance for bad debt
consistent with the Borrowers' prior experience).
"Notes" - Collectively, the Revolving Note and the Term Notes.
"Obligations" - As defined in any of the Security Agreements.
"Other Approved Foreign Receivables" - Receivables owed to
International Ltd. or to any Borrower (each, an "Account Creditor") by
account debtors not located in the United States which do not constitute
Qualified Receivables or Qualified PhoenixPage International Receivables;
provided that each such Other Approved Foreign Receivable meets all of the
following criteria: (a) the relevant account debtor has been specifically
approved for this purpose in writing by the Bank, which approval may be
given, withheld or revoked by the Bank in its discretion; (b) such
Receivable arises out of a BONA FIDE sale in the ordinary course of the
Account Creditor's business made to a customer of the Account Creditor
which is not an affiliate of the Account Creditor; (c) such Receivable
remains unpaid no more than 90 days after the date of invoice of the
relevant sale; (d) such Receivable satisfies all of the requirements to be
a "Qualified Receivable" set forth in the last sentence of the definition
of "Qualified Receivables" below; (e) payment of such Receivable is secured
by a letter of credit or credit insurance with terms satisfactory to the
Bank and issued by a bank or other credit enhancer satisfactory to the
Bank; and (f) if the relevant Account Creditor is International Ltd.,
International Ltd. shall have delivered to the Bank (i) a guaranty of the
obligations of the Borrowers in form
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<PAGE> 30
and substance satisfactory to the Bank, (ii) instruments satisfactory to
the Bank creating and perfecting in favor of the Bank a floating charge on
the Receivables of International Ltd., (iii) certified copies of charter
documents, by-laws, Directors votes and other documentation satisfactory to
the Bank evidencing the legal existence of International Ltd., its
corporate power to give the above-described guaranty and floating charge
and due corporate approval of such guaranty and floating charge, and (iv)
an opinion of English counsel to International Ltd. in form and substance
satisfactory to the Bank.
"PBGC" - The Pension Benefit Guaranty Corporation or any successor
thereto.
"Person" - An individual, corporation, partnership, joint venture,
trust or unincorporated organization, or a government or any agency or
political subdivision thereof.
"Principal Office" - The principal place of business of the Bank, now
located at 75 State Street, Boston, MA 02109.
"Qualified PhoenixPage International Receivables" - Receivables now or
hereafter owed to Technologies which arise out of sales of products and
services within its PhoenixPage product line and which satisfy all of the
criteria set forth below to be "Qualified Receivables" except that the
relevant customer is not located in the United States.
"Qualified Receivables" - Only those Receivables of any Borrower which
arise out of BONA FIDE sales of products and services made to customers of
such Borrower (which customers are located in the United States and are not
Subsidiaries of or otherwise controlled by any Borrower) in the ordinary
course of such Borrower's business and which remain unpaid no more than 90
days past the respective dates of invoice of such sales, the payment of
which is not in dispute. Unless the Bank in its sole discretion otherwise
determines with respect to any Receivable, a Receivable which would
otherwise be a Qualified Receivable shall be deemed not to be a Qualified
Receivable (i) if the Bank does not have a fully perfected first priority
security interest in such Receivable; (ii) if such Receivable is not free
and clear of all adverse interests in favor of any Person other than the
Bank; (iii) if such Receivable is subject to any deduction, off-set, contra
account, counterclaim or condition (provided that if only a portion of any
such Receivable is subject to any such deduction, off-set, contra account,
counterclaim or condition, then the balance of such Receivable which is not
subject to such deduction, off-set, contra account, counterclaim or
condition will not be-deemed excluded from Qualified Receivables by virtue
of this clause (iii)); (iv) if a field examination made by the Bank fails
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<PAGE> 31
to confirm that such Receivable exists and satisfies all of the criteria
set forth herein to be a Qualified Receivable; (v) if such Receivable is
not invoiced within such period of time as is consistent with the
Borrowers' normal practices at the date hereof; (vi) if the customer or
account debtor has disputed liability or made any claim with respect to the
Receivable or the merchandise covered thereby or with respect to any other
Receivable due from said customer to any Borrower; (vii) if the customer or
account debtor has filed a petition for bankruptcy or any other application
for relief under the Bankruptcy Code or has effected an assignment for the
benefit of creditors, or if any petition or any other application for
relief under the Bankruptcy Code has been filed against said customer or
account debtor, or if the customer or account debtor has suspended
business, become insolvent, ceased to pay its debts as they become due, or
had or suffered a receiver or trustee to be appointed for any of its assets
or affairs; (viii) if the customer or account debtor has failed to pay
other Receivables so that an aggregate of 25% of the total Receivables
owing to the Borrowers by such customer or account debtor has been
outstanding for more than 90 days past their respective due dates; or (ix)
if such Receivable is owed by the United States government or any agency or
department thereof (unless assigned to the Bank under the Federal
Assignment of Claims Act).
"Qualifying Equipment" - Equipment purchased by a Borrower on or after
April 1, 1995 for use in such Borrower's business which meets all of the
following criteria: (i) such equipment consists of one of the items shown
on the Equipment List heretofore delivered by the Borrowers to the Bank or
has otherwise been approved by the Bank in its reasonable discretion for
use in supporting a Term Loan, (ii) each item of such equipment has been
delivered to and installed at the Premises and has become fully
operational, and (iii) such Borrower has paid in full for each item of such
equipment and holds title to same, free of all interests and claims of any
other Person (other than the security interest of the Bank).
"Receivables" - All present and future accounts, accounts receivable
and notes, drafts, acceptances and other instruments representing or
evidencing a right to payment for goods sold or for services rendered.
"Security Agreements" - Collectively, the Technologies Security
Agreement and the Xionics Security Agreement.
"Senior Debt" - All Indebtedness of Technologies and/or any Subsidiary
of Technologies which does not constitute Subordinated Debt.
"Subordinated Debt" - Any Indebtedness of Technologies which is
expressly subordinated, pursuant to a subordination
-31-
<PAGE> 32
agreement in form and substance satisfactory to the Bank, to all
Indebtedness now or hereafter owed by Technologies to the Bank.
"Subsidiary" - As to any Person, any corporation other entity of which
said Person and/or any of its Subsidiaries, directly or indirectly, owns,
or has the right to control or direct the voting of, fifty (50%) percent or
more of the outstanding capital stock or other ownership interest having
general voting power (under ordinary circumstances).
"Tangible Net Worth" - An amount equal to the total assets of any
Person (excluding (i) the total intangible assets of such Person and (ii)
any assets representing amounts due from any officer or employee of such
Person or from any other affiliate of such Person) minus the total
liabilities of such Person. Total intangible assets shall be deemed to
include, but shall not be limited to, the excess of cost over book value of
acquired businesses accounted for by the purchase method, formulae,
trademarks, trade names, patents, patent rights and deferred expenses
(including, but not limited to, unamortized debt discount and expense,
organizational expense, capitalized software costs and experimental and
development expenses).
Any defined term used in the plural preceded by the definite article shall
be taken to encompass all members of the relevant class. Any defined term used
in the singular preceded by "any" shall be taken to indicate any number of the
members of the relevant class.
7.2. SECURITY AGREEMENT. (a) The Borrowers acknowledge and agree that the
"Obligations" described in and secured by the Security Agreements, include,
without limitation, all of the obligations of each Borrower under the Revolving
Note, the Term Notes and/or this letter agreement and/or with respect to any
letter of credit which may be issued by the Bank for the account of any
Borrower.
(b) Each Security Agreement is hereby modified to provide as follows:
(i) That the "Collateral" subject thereto includes, without limitation and
in addition to the Collateral described therein, all of the relevant Borrower's
files, books and records (including, without limitation, all electronically
recorded data) all whether owned or existing or hereafter acquired, created or
arising. Each Borrower hereby grants to the Bank a security interest in all such
Collateral in order to secure the full and prompt payment and performance of all
of the Obligations.
(ii) That, upon the occurrence of any Event of Default (as defined in
[Section]5.1 of this letter agreement), the Bank
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<PAGE> 33
may, at any time, notify account debtors that the Collateral has been
assigned to the Bank and that payments by such account debtors shall be
made directly to the Bank. At any time after the occurrence of an Event of
Default, the Bank may collect each Borrower's Receivables, or any of same,
directly from account debtors and may charge to the Borrowers the direct
out-of-pocket collection costs and expenses, including, in any event,
reasonable attorneys' fees and expenses incurred by the Bank.
-33-
<PAGE> 34
This letter agreement is executed, as an instrument under seal, as of
the day and year first above written.
Very truly yours,
XIONICS DOCUMENT TECHNOLOGIES, INC.
By /s/
--------------------------------
Its Vice President and CFO
XIONICS, INC.
By
--------------------------------
Its Vice President and CFO
Accepted and agreed:
FLEET BANK OF MASSACHUSETTS, N.A.
By
------------------------------
Its Vice President
By /s/ Kimberly Martin
------------------------------
Its Vice President
-34-
<PAGE> 35
DISCLOSURE SCHEDULE
Item 2.1(a) Jurisdictions in which each Borrower is qualified;
Disclosure of exceptions to representations re qualification;
Subsidiaries of Technologies
Item 2.1(b) Stock ownership
Item 2.1(e) Litigation
Item 2.1(g) Disclosure of exceptions to representations re payment of
taxes
Item 2.1(i) Disclosure of transactions other than in the ordinary course
Item 2.1(j) Location of Collateral; record owners of Premises
Item 2.1(k) Intellectual Property
Item 4.1 Existing Indebtedness
Item 4.2 Existing Liens
Item 4.3 Existing Guaranties
<PAGE> 36
Item 1.4
--------
PROMISSORY NOTE
---------------
$ Boston, Massachusetts
----------------------- , 1995
---------------
FOR VALUE RECEIVED, the undersigned Xionics Document Technologies, Inc., a
Delaware corporation ("Technologies") and Xionics, Inc., a Delaware corporation
("Xionics") (Technologies and Xionics being hereinafter referred to collectively
as the "Borrowers" and individually as a "Borrower") hereby jointly and
severally promise to pay to the order of FLEET BANK OF MASSACHUSETTS, N.A. (the
"Bank") the principal amount of [ ] ($ ) Dollars ("Principal"),
with interest, at the rate hereinafter set forth, on the daily balance of all
unpaid Principal, from the date hereof until payment in full of all Principal
and interest hereunder. As used herein, "Letter Agreement" means that certain
letter agreement dated September 27, 1995 among the Borrowers and the Bank, as
same may be from time to time amended.
Interest on all unpaid Principal shall be due and payable monthly in
arrears, on the first day of each month commencing on the first such date after
the advance of any Principal and continuing on the first day of each month
thereafter and on the date of payment of this note in full, at a fluctuating
rate per annum (computed on the basis of a year of three hundred sixty (360)
days for the actual number of days elapsed) which shall at all times be equal to
the sum of (i) one (1.0%) percent per annum plus (ii) the Prime Rate as in
effect from time to time (but in no event in excess of the maximum rate
permitted by then applicable law). A change in the aforesaid rate of interest
will become effective on the same day on which any change in the Prime Rate is
effective. Overdue Principal and, to the extent permitted by law, overdue
interest from and after the date on which same becomes past due shall bear
interest at a fluctuating rate per annum which at all times shall be equal to
the sum of (i) two (2%) percent plus (ii) the per annum rate otherwise payable
under this note (but in no event in excess of the maximum rate permitted by then
applicable law), compounded monthly and payable on demand. As used herein,
"Prime Rate" means that rate of interest per annum announced by the Bank from
time to time as its prime rate, it being understood that such rate is merely a
reference rate, not necessarily the lowest, which serves as the basis upon which
effective rates of interest are calculated for obligations making reference
thereto. If the entire amount of any required Principal and/or interest is not
paid within ten (10) days after the same is due, the Borrowers shall pay (and
shall be jointly and severally obligated to pay) to the Bank a late fee equal to
five percent (5%) of the required payment,
<PAGE> 37
provided that such late fee shall be reduced to three percent (3%) of any
required Principal and interest that is not paid within fifteen (15) days of
the date it is due if this note is secured by a mortgage on an owner-occupied
residence of 1-4 units.
Principal shall be repaid in thirty-five (35) equal consecutive monthly
installments (each in an amount equal to $ ___________ [1/36th of Principal])
commencing on [first day of month following date of note] and continuing on the
first day of each month thereafter through and including [first day of 35th
month following month in which note is executed], plus a thirty-sixth (36th)
and final payment due on [first day of 36th month following month in which note
is executed] in an amount equal to all then remaining Principal and all
interest accrued but unpaid thereon. The Borrowers may at any time and from
time to time prepay all or any portion of said Principal; provided that each
such Principal prepayment shall be accompanied by payment of all interest on
the amount so prepaid accrued but unpaid to the date of such prepayment. Any
partial prepayment of Principal shall be applied against Principal installments
in inverse order of normal maturity.
Payments of both Principal and interest shall be made, in immediately
available funds, at the principal office of the Bank (now located at 75 State
Street, Boston, Massachusetts 02109), or at such other address as the Bank may
from time to time designate.
Each of the undersigned Borrowers irrevocably authorizes the Bank to make
or cause to be made, on a schedule attached to this note or on the books of the
Bank, at or following the time of making the Term Loan (as defined in the Letter
Agreement) evidenced by this note and of receiving any payment of Principal, an
appropriate notation reflecting such transaction and the then unpaid balance of
Principal. Failure of the Bank to make any such notation shall not, however,
affect any obligation of any Borrower hereunder or under the Letter Agreement.
Such unpaid balance of Principal, as recorded by the Bank from time to time on
such schedule or on such books, shall constitute presumptive evidence of the
outstanding principal amount of the Term Loan evidenced by this note.
Each Borrower hereby (a) waives notice of and consents to any and all
advances, settlements, compromises, favors and indulgences (including, without
limitation, any extension or postponement of the time for payment), any and all
receipts, substitutions, additions, exchanges and releases of collateral, and
any and all additions, substitutions and releases of any person primarily or
secondarily liable, (b) waives presentment, demand, notice, protest and all
other demands and notices generally in connection with the delivery, acceptance,
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<PAGE> 38
performance, default or enforcement of or under this note, and (c) agrees to
pay, to the extent permitted by law, all costs and expenses, including, without
limitation, reasonable attorneys' fees, incurred or paid by the Bank in
enforcing this note and any collateral or security therefor, all whether or not
litigation is commenced. This note is one of the Term Notes referred to in the
Letter Agreement.
This note is secured by, and is entitled to the benefits of, the Security
Agreements (as defined in the Letter Agreement). This note is subject to
prepayment as set forth in the Letter Agreement. The maturity of this note may
be accelerated upon the occurrence of an Event of Default, as provided in the
Letter Agreement. This note is the joint and several obligation of each of the
undersigned.
Executed, as an instrument under seal, as of the day and year first above
written.
CORPORATE XIONICS DOCUMENT TECHNOLOGIES, INC.
SEAL
ATTEST:
_____________________________ By:_________________________________
Secretary Its
CORPORATE XIONICS, INC.
SEAL
ATTEST:
_____________________________ By:_________________________________
Secretary Its
-3-
<PAGE> 1
EXHIBIT 10.9
ASSET PURCHASE AGREEMENT
by and between
PHOENIX TECHNOLOGIES LTD.
and
XIONICS INTERNATIONAL HOLDINGS, INC.
dated as of
SEPTEMBER 30, 1994
<PAGE> 2
Section
Description Reference
- ----------- ---------
Accounts Receivable 1.01
Intellectual Property 1.02
Real Property 1.03
Contracts 1.04
Office Equipment 1.07
Excluded Assets 2
Promissory Note 4.0l(a)
Financials 6.03
Compliance with Laws 6.04
Title to Purchased Assets 6.05
Accounts Receivable 6.06
Litigation 6.08
Employee Matters 6.09
Intellectual Property 6.10
Undisclosed Liabilities 6.11
Regulatory Approvals 6.12
Projections Financials 6.14
Certificate of Incorporation 7.06
Capital Structure 7.07
Regulatory Approvals 7.07
Undisclosed Liabilities 7.08
Projections 7.14
Registration Rights & Shareholder Agreements 7.16
Trademark 9.06
Maintenance Obligations 11.08
Tax Matters 11.12
12.04
Related Agreements
------------------
Section
Description Reference
- ----------- ---------
Sublease Agreement 1.03/1.04
8.06(f)/9.07(h)
Promissory Note 11.03
Bill of Sale 4.01(a)
Assignment and Assumption Agreement 8.06(a)
Amendment to Shareholder Agreement 9.07(c)
Amendment to Registration Rights Agreement 8.06/9.06
Amendment to Stock Purchase and Exchange Agreement 8.06/9.06
Japan Distribution Agreement 8.06/9.07
Eclipse License Agreement 8.06/9.07
<PAGE> 3
ASSET PURCHASE AGREEMENT
------------------------
This Asset Purchase Agreement (this "Agreement") is made as of September
30, 1994, by and between Phoenix Technologies Ltd., a Delaware corporation
("Seller" or "Phoenix"), and Xionics International Holdings, Inc., a Delaware
corporation ("Purchaser" or "Xionics").
WITNESSETH:
-----------
WHEREAS, a division of Seller is currently engaged in the business of
developing and marketing system software which enables computer printer
manufacturers to design and manufacture printers that can support multiple page
description language emulations (the "Business"); and
WHEREAS, Seller wishes to sell to Purchaser, and Purchaser wishes to
purchase and acquire from Seller, certain of Seller's assets relating to the
Business and to assume certain liabilities of Seller relating to the Business;
and
WHEREAS, Purchaser wishes to enter into certain other agreements with
Seller relating to the purchase of such assets and assumption of such
liabilities, all upon the terms and subject to the conditions hereinafter
stated.
NOW, THEREFORE, in consideration of the mutual agreements herein contained,
and for other good and valuable consideration, the receipt and adequacy of which
is hereby acknowledged, the parties hereto, intending to be legally bound,
hereby agree as follows:
ARTICLE I
PURCHASE AND SALE
-----------------
1. TRANSFER OF ASSETS. Subject to the terms and conditions of this
Agreement, Seller agrees to sell, convey, transfer, assign and deliver to
Purchaser, and Purchaser agrees to purchase and accept from Seller, free and
clear of liens, attachments, charges and encumbrances (except as noted herein)
all of Seller's right, title and interest in and to the following assets (the
"Purchased Assets"):
1.01 ACCOUNTS RECEIVABLE. All of Seller's rights to the accounts
receivable listed on the Schedule to this Section (the "Accounts Receivable").
1.02 INTELLECTUAL PROPERTY. All of Seller's rights in intellectual
property and intangible property rights, constituting, embodied in or pertaining
to (a) all United States or foreign copyrights in the works listed on the
Schedule to this Section and any copyright registrations and any copyright
applications to register claims of copyrights for the works
-1-
<PAGE> 4
listed on the Schedule to this Section; and (b) United States and foreign
patents and patent applications listed in the Schedule to this Section; and (c)
all claims and potential claims of Seller for infringement by any person of
Seller's rights with respect to any of the foregoing (collectively the
"Intellectual Property").
1.03 LEASES AND RELATED FACILITIES. The rights of Seller to occupy the
real property identified on the Schedule to this Section subject to the terms
and conditions of the Sublease Agreement referenced in Articles VIII and IX
hereof (the "Sublease").
1.04 CONTRACTS. Subject to Section 11.01 hereof, all rights under
executory contracts, agreements, arrangements or commitments, written or oral,
relating to the Business to which Seller is a party or by which it is bound
(including all sales orders, sales and purchase contracts, and vendor
agreements), and including those listed on the Schedule to this Section (the
"Contracts").
1.05 PERSONNEL RECORDS. All personnel records for Seller's employees
identified on the Schedule to Section hereto (the "Employees").
1.06 BOOKS AND RECORDS. The personnel records identified in Section
1.05; all books and records that relate directly to the Contracts; all source
code, object code, flow charts, logic diagrams manuals, guides and
specifications that relate directly to the Intellectual Property; and all books
and records in Seller's possession or control which relate directly and
exclusively to the Business and which exist as of the Closing (as hereinafter
defined).
1.07 OFFICE EQUIPMENT. The personal computers, equipment and software
listed on the Schedule to this Section (the "Office Equipment").
1.08 CASH. One Million Dollars ($1,000,000).
1.09 DISCLAIMER. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES
EXPRESSLY SET FORTH IN ARTICLE VI HEREOF, (1) PHOENIX MAKES NO REPRESENTATIONS
OR WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE PURCHASED ASSETS
(INCLUDING, WITHOUT LIMITATION, THE INTELLECTUAL PROPERTY) AND/OR THE PHOENIX
RIGHTS (AS HEREINAFTER DEFINED), AND (2) PHOENIX HEREBY DISCLAIMS ALL OTHER
WARRANTIES EXPRESS AND IMPLIED INCLUDING, WITHOUT LIMITATION, THE WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND WARRANTIES OF
NON-INFRINGEMENT OF THE RIGHTS OF THIRD PARTIES (INCLUDING, WITHOUT LIMITATION,
RIGHTS UNDER PATENT, COPYRIGHT AND TRADE SECRETS).
1.10 Transfer. The Purchased Assets will be transferred to Purchaser
at the leased premises described in
-2-
<PAGE> 5
Schedule 1.03 hereof at the Closing. All costs and expenses of moving the
Purchased Assets from such leased premises shall be paid by Purchaser.
ARTICLE II
EXCLUDED ASSETS
---------------
2. ASSETS EXCLUDED FROM SALE. All provisions of this Agreement to the
contrary notwithstanding, there shall be excluded from the purchase and sale
contemplated hereunder assets listed on the Schedule to this Section.
ARTICLE III
ASSUMPTION OF LIABILITIES
-------------------------
3.01 ASSUMPTION OF LIABILITIES. As partial consideration for the
purchase of the Purchased Assets, upon the Closing hereunder, Purchaser will
assume and agrees to pay, perform and discharge to the extent not theretofore
performed, paid or discharged, the following liabilities and obligations of
Seller as the same shall exist on the Closing Date (collectively the "Assumed
Liabilities"):
(a) Seller's obligation to perform under the Contracts;
(b) All liabilities and obligations under or with respect to
accounts payable of the Business to the extent they are incurred by Purchaser on
or after the Closing (the "Accounts Payable");
(c) Seller's obligations to perform under the terms of any
warranties and/or maintenance provisions of the Contracts which may have arisen
in the course of the conduct by Seller of the Business;
(d) any federal, state or local, excise, sales, personal property
or other taxes which relate to the Business and which are incurred by reason of
the transfer or sale of the Purchased Assets to Purchaser pursuant to this
Agreement; and
(e) any and all claims, including without limitation, contract,
tort, negligence, gross negligence, strict liability, express or implied
warranty, Restatement of Torts claims and derivative claims, resulting from or
arising out of products sold by Purchaser or services provided by Purchaser in
connection with the Business on or after the Closing.
3.02. EXCLUDED LIABILITIES. Notwithstanding any provision in this
Agreement or any Related Agreement to the contrary, Purchaser assumes only the
Assumed Liabilities and will not be assuming any other liability or obligation
of the Seller of whatever nature, whether presently in existence or arising
hereafter, and all such other liabilities and obligations shall be retained by
and remain liabilities of the Seller (all such
-3-
<PAGE> 6
other liabilities being hereinafter referred to, collectively, as the Excluded
Liabilities").
ARTICLE IV
PURCHASE AND SALE
-----------------
4.01 PURCHASE PRICE. In consideration of Seller's sale, assignment and
transfer of the Purchased Assets to Purchaser and Seller's agreement to perform
the terms, covenants and provisions of this Agreement on its part to be
performed, Purchaser, in addition to assuming the Assumed Liabilities at Closing
and agreeing to perform all of the terms, covenants and provisions of this
Agreement on its part to be performed, will pay to Seller the Purchase Price",
as defined below, which shall be paid by Purchaser at the Closing as required by
this Agreement, except that the Contingency Payment (as defined below) shall be
payable within forty-five days after September 30, 1995:
4.01 (a) The Purchase Price shall consist of: (1) a promissory note
(the "Promissory Note") in the form set forth in the Schedule to this Section,
and (2) 1,184,695 shares of the Class A Preferred Stock (the "Shares") of
Purchaser, and (3) a "Contingency Payment" equal to forty percent (40%) of the
gross margin from the revenues received from Hewlett Packard generated by
Purchaser during the twelve month period immediately following the Closing Date
from either (a) the sale, licensing or other disposition of any product or
technology which is based on or includes, as a material component, any portion
of the Purchased Assets or (b) license fees and/or royalties from the sale,
licensing or other disposition of any product or technology which is based on or
includes, as a material component, any portion of the Purchased Assets, but only
to the extent that the gross margin from revenues from all customers (including
Hewlett Packard) generated by Purchaser during the twelve month period
immediately following the Closing Date from either (a) the sale, licensing or
other disposition of any product or technology which is based on or includes, as
a material component, any portion of the Purchased Assets or (b) license fees
and/or royalties from the sale, licensing or other disposition of any product or
technology which is based on or includes, as a material component, any portion
of the Purchased Assets, exceeds $7,129,000.
ARTICLE V
CLOSING
-------
5. PLACE AND DATE. The closing (the "Closing") of the transactions
contemplated by this Agreement will take place at 10:00 AM on November 4, 1994
at Seller's offices at 846 University Avenue, Norwood, MA 02062 or at such other
place or later time as the parties may agree in writing, provided that such
later time shall in no event be later than five days following the satisfaction
or waiver of all conditions to Closing set forth in Articles VIII and IX.
However, all transactions
-4-
<PAGE> 7
contemplated by this Agreement shall be concluded, and all obligations and
liabilities of Seller and Purchaser regarding such transactions (including
without limitation the payment obligations under Article XI hereof) shall be
determined, as if the Closing had occurred on September 30, 1994 and the term
"Closing Date" as used herein shall mean September 30, 1994. At the Closing,
Seller shall pay to Purchaser all cash received from the collection of the
Accounts Receivable since September 30, 1994 through the date of the Closing and
the Accounts Receivable shall be reduced by deleting all accounts for which
Purchaser is so paid. At the Closing, Purchaser shall pay to Seller $605,765
plus $20,956 for each day after October 31, 1994 which the Closing actually
occurs as reimbursement for all expenses incurred in the operation of the
Business from September 30, 1994 until the Closing.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
6. MAKING OF REPRESENTATIONS AND WARRANTIES. As a material inducement to
Purchaser to enter into and perform this Agreement, Seller hereby represents and
warrants to Purchaser, as of the Closing, that:
6.01 CORPORATE ORGANIZATION. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
with full power and authority to own or lease its properties and to carry on its
businesses as now conducted. Seller is not insolvent" as such term is defined
under generally accepted accounting principles or applicable Federal or state
bankruptcy or insolvency laws.
6.02 AUTHORIZATION OF AGREEMENT. The execution and delivery of this
Agreement and the agreements required to be executed and delivered pursuant
hereto (the "Related Agreements") by Seller and the performance by Seller of the
obligations to be performed hereunder and thereunder have been duly authorized
by all necessary and appropriate corporate action, including all necessary and
appropriate action by the Board of Directors of Seller. The execution and
delivery of this Agreement and the Related Agreements by Seller and the
consummation of the transactions contemplated hereby and thereby by Seller do
not and will not conflict with, or result in a breach of, or constitute a
default under, the terms or conditions of the Certificate of Incorporation of
Seller or its By-Laws, any court or administrative order or process by which
Seller is bound, any agreement or instrument to which Seller is a party or by
which Seller is bound, or any statute or regulation of any governmental agency,
and will not result in the creation or imposition of any lien, charge or
encumbrance of any nature upon any of the Purchased Assets. This Agreement and
the Related Agreements are the valid and binding obligations of Seller
enforceable in accordance with their terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws
-5-
<PAGE> 8
of general application relating to or affecting enforcement of creditor's rights
and by applicable equitable remedies.
6.03 FINANCIAL STATEMENTS. Seller has delivered to Purchaser copies of
the unaudited statement of operations of Seller with respect to the Business for
the nine-month period ended June 30, 1994 (the "Financials"), which Financials
are set forth in the Schedule to this Section. Except as set forth on the
Schedule to this Section, the Financials have been prepared in accordance with
generally accepted accounting principles consistently applied (except that the
Financials lack footnotes normally contained in financial statements prepared in
accordance with generally accepted accounting principles and are subject to
normal year-end audit adjustments which are not material either individually or
in the aggregate) and fairly state the results of operations of the Business for
the fiscal period indicated. Since the date of the Financials and except as set
forth on the Schedule to this Section or Schedule 6.14 hereof, there has been no
material adverse change in the operations or in the financial condition or
prospects of the Business and Seller has conducted the Business solely in the
ordinary course consistent with past practices. Since the date of the
Financials, except as set forth on Schedule 1.04 hereof, Seller has not,
directly or indirectly, (a) disposed of any property or assets used in the
conduct of the Business other than in the ordinary course of business consistent
with past practice, (b) modified or amended in any material respect any Contract
or waived or released any material right with respect thereto, or (c) entered
into any transaction, contract or agreement related to the Business or the
Purchased Assets other than in the ordinary course of business, or entered into
any fixed price development contract, or any time and materials contract at
rates less than $1,050 (except for contracts with Hewlett Packard Company and
Dataproducts Corporation listed on Schedule 1.04 hereof) per engineer per day.
Seller makes no representation or warranty, and shall have no obligation or
liability, with respect to the financial performance of the Business and/or the
value of the Purchased Assets, after the date of this Agreement.
6.04 COMPLIANCE WITH LAWS. Except as otherwise set forth on the
Schedule to this Section, Seller has never received written notification of, and
is not otherwise aware of, any asserted past or present failure by it to operate
the Business in compliance with federal, state and local statutory and common
laws, rules, regulations, ordinances, codes and orders ("Laws") governing the
operation of the Business. Except as otherwise set forth on the Schedule to this
Section, Seller has complied with all Laws governing the operation of the
Business the violation of which could have a material adverse effect on the
Business.
6.05 RIGHT TO PURCHASED ASSETS. Except as otherwise set forth on the
Schedule to this Section, Seller is the true and lawful owner of, has good and
marketable title to, and has the full right, without any restriction of any
kind, to sell, assign,
-6-
<PAGE> 9
transfer, and deliver the Purchased Assets free and clear of all encumbrances,
liens, charges or other restrictions. Except as otherwise set forth on the
Schedule to this Section, after giving effect to the Closing, Purchaser will be
the true and lawful owner of, and have good and marketable title to, all of the
Purchased Assets, free and clear of all encumbrances, liens, charges and other
restrictions.
6.06 ACCOUNTS RECEIVABLE. All of the Accounts Receivable constitute
valid claims incurred in the ordinary course of business. Except as set forth on
the Schedule to this Section or Schedules 1.01 or 1.04 hereof, no account debtor
has refused or threatened to refuse, or indicated its inability, to pay in the
ordinary course of business its obligations constituting Accounts Receivable for
any reason.
6.07 CONTRACTS. To the best knowledge of Seller and except as set
forth on Schedule 1.04 hereof, each Contract is legally valid and binding on the
parties thereto and is in full force and effect. To the best of Seller's
knowledge and except as set forth on Schedule 1.04 or Schedule 1.01 hereof,
Seller is not in default or alleged to be in default in any material respect
under any Contract and, to the knowledge of Seller, there exists no event of
default or event, occurrence, condition or act (including the transactions
contemplated by this Agreement) which, with the giving of notice or the lapse of
time, or both, would become a default under any Contract, or which would, alone
or with the giving of notice or the lapse of time, or both, constitute grounds
for termination of any Contract by any party thereto. To Seller's knowledge, all
material obligations to be paid or performed by the parties to the Contracts
other than Seller have been fully paid or performed and no party to any Contract
has threatened not to pay or perform any such obligation.
6.08 LITIGATION. Except as set forth on the Schedule to this Section,
there is no action, suit, proceeding at law or in equity by any person or
entity, or any arbitration or any administrative or other proceeding by or
before (or to Seller's knowledge any investigation by) any governmental or other
instrumentality or agency, pending, or, to Seller's knowledge, threatened,
against Seller relating to the Business or any of the Purchased Assets
that questions the legality, validity or enforceability of this Agreement or any
of the Related Agreements or any of the transactions contemplated hereby or
thereby, or that would, if successful, enjoin, restrict or hinder the
consummation of the transactions contemplated hereby or thereby or the use by
Purchaser of any of the Purchased Assets; and to Seller's knowledge there does
not exist any valid basis for any such action, suit, proceeding, arbitration or
investigation. Seller is not subject to any judgment, order or decree entered in
any lawsuit or proceeding to which it is a party which relates to the Business
or any of the Purchased Assets.
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6.09 EMPLOYEE MATTERS. The Schedule to this Section lists the names of
all employees of Seller which Purchaser has indicated to Seller it wishes to
hire (the "Employees"); together with the amount of their current compensation.
Except as set forth in the Schedule to this Section, Seller is not a party to or
bound by any contract, agreement, arrangement or commitment relating to the
employment of any Employee which would impose obligations on Purchaser.
6.10 INTELLECTUAL PROPERTY. Except as set forth on the Schedule to
this Section, Seller has no knowledge that any third party is infringing on any
of the Intellectual Property. Except as set forth in the Schedule to this
Section, Seller has no knowledge that the use by Seller of the Intellectual
Property in connection with the Business infringes on any intellectual property
right of any person or entity. Except for Seller's intellectual property rights
in and to Seller's Eclipse product line, Schedule 1.02 hereof includes all
material copyrights and patent rights currently being used by Seller in the
Business.
6.11 UNDISCLOSED LIABILITIES. To Seller's knowledge Seller does not
have any liabilities which are material in the aggregate with respect to the
Business, either accrued, absolute, contingent or otherwise, except as set forth
in the Financials or Schedule 6.03 hereof, other than liabilities incurred after
the date of the Financials in the ordinary course of business and which do not
involve borrowings by Seller or otherwise set forth on the Schedule to this
Section. For purposes of this Section 6.11, material means in excess of
$100,000.
6.12 REGULATORY APPROVALS. All consents, approvals, authorizations and
other requirements prescribed by any law, rule or regulation which must be
obtained or satisfied by the Seller in connection with the execution, delivery
or performance by the Seller of this Agreement or any documents to be executed
and delivered by the Seller in connection herewith are set forth on the Schedule
to this Section.
6.13 KNOWLEDGE. When a representation in this Agreement is made to the
knowledge of Seller, such knowledge shall be understood to be the actual
knowledge of the executive officers of Seller, and the General Manager and
Director of Research and Development of the Business, as acquired in the
fulfillment of their day-to-day responsibilities in the Business.
6.14 PROJECTIONS. Neither this Agreement (including the Schedules
hereto), the Related Agreements nor any document or certificate delivered by
Seller to Purchaser at the Closing contains any statement by Seller that to
Seller's knowledge is materially untrue or materially misleading or that, when
taken as a whole, omits to state any fact necessary to make the information
presented therein not misleading in a material respect. The projections set
forth in the Schedule to this Section reflect Seller's reasonable good faith
estimate, as of
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the date hereof, of the total projected revenue of the Business and the total
projected revenue of the Business from all of the customers listed on that
Schedule, in each case, for the twelve months commencing October 1, 1994. To
Seller's knowledge, there is no material fact that would make such projections
unreasonable in any material respect; provided however, Seller makes no
representation or warranty (except as expressly set forth in this Section 6.14)
with respect to such projections.
6.15 ACCREDITED INVESTOR. With respect to receipt by Seller of the
Shares, (1) Seller is an "accredited investor" within the meaning of Rule 501 of
Regulation D promulgated under the Securities Act of 1993, (2) Seller is
acquiring the Shares for investment only and understands the risks of investment
inherent in acquiring the Shares, including the risk of loss and the risk that
there is not and may not be a market for the Shares or other manner to realize
upon such investment and (3) has had sufficient access to the records and
officers of Xionics to make an informed investment decision.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
7. MAKING OF REPRESENTATIONS AND WARRANTIES. As a material inducement to
Seller to enter into and perform this Agreement, Purchaser hereby represents and
warrants to Seller, as of the Closing, that:
7.01 CORPORATE ORGANIZATION. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has full power and authority to enter into this Agreement and the
Related Agreements, to perform its obligations hereunder and thereunder, to own
its property and carry on its business and to issue the Shares. Purchaser and
each of its subsidiaries are duly qualified or licensed to do business as a
foreign corporation and are in good standing in each jurisdiction in which the
character and location of their respective properties (owned or leased) or the
nature of their respective business activities make such qualification or
licensing necessary, except for such jurisdictions where the failure to be so
qualified or licensed would not have a material adverse effect on the business,
properties or condition (financial or otherwise), of Purchaser and its
subsidiaries, taken as a whole.
7.02 AUTHORIZATION OF AGREEMENT. The execution and delivery of this
Agreement and the agreements required to be executed and delivered pursuant
hereto (also, the "Related Agreements") by Purchaser, the performance by
Purchaser of its obligations hereunder and thereunder and the issuance by
Purchaser of the Shares have been duly authorized and approved by all requisite
corporate action on the part of Purchaser, and are within its corporate powers.
This Agreement and the Related Agreements are valid and binding obligations of
Purchaser enforceable in accordance with their terms, except as limited by
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applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditor's rights
and by applicable equitable remedies. The execution and delivery of this
Agreement and the Related Agreements by Purchaser, the consummation of the
transactions contemplated hereby and thereby by Purchaser and the issuance of
the Shares do not and will not, in a material way, conflict with or result in a
breach of or constitute a default under, the terms and conditions of Purchaser's
Certificate of Incorporation, its By-Laws, any court or administrative order or
process, any agreement or instrument to which Purchaser is a party or by which
it is bound, or any statute or regulation of any governmental agency.
7.03 THE SHARES. The Shares are duly authorized, and when issued in
compliance with the provisions of this Agreement, will be validly issued, fully
paid and nonassessable, and will be free of all liens, encumbrances, preemptive
rights and restrictions (except restrictions arising under federal or applicable
state securities laws) and will have the rights and restrictions as provided in
Purchaser's Certificate of Incorporation. After giving effect to the Closing,
Seller will be a party to all agreements granting rights to any holder of any
shares of Purchaser's Class A Preferred Stock as a holder of such Class A
Preferred Stock. After giving effect to the issuance of the Shares and after the
Closing, the Shares constitute 19.9% of the capital stock of Purchaser on a
fully diluted basis (excluding 25,595 shares issued to Peter Santeuasanio).
7.04 NO DEFAULTS. To the best of Purchaser's knowledge, neither
Purchaser nor any of its subsidiaries is in violation of (i) its Certificate of
Incorporation or Bylaws as in effect on the date hereof; (ii) any statute or law
or any judgment, decree, order, regulation or rule of any court or governmental
authority, which violation could have, singly or in the aggregate, a material
adverse effect on the business, properties, condition (financial or otherwise),
or prospects of Purchaser and its subsidiaries, taken as a whole; or (iii) any
agreement to which Purchaser or any of its subsidiaries is a party or by which
any of their properties or assets are bound, which violation could have, singly
or in the aggregate, a material adverse effect on the business, properties,
condition (financial or otherwise) or prospects of Purchaser and its
subsidiaries, taken as a whole. To the best of Purchaser's knowledge, no basis
exists for any entity with whom Purchaser has such an agreement that is material
to the business, properties condition (financial or otherwise) or prospects of
Purchaser and its subsidiaries, taken as a whole, to assert that Purchaser has
breached any such agreement in any material respect. Purchaser is not in arrears
with respect to any indenture or other instrument of Purchaser concerning monies
borrowed or with respect to dividends on shares of capital stock.
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7.05 ACTIONS PENDING. There is no claim, action, suit, investigation
or proceeding, pending or, to the knowledge of Purchaser, threatened, against
Purchaser or any of its subsidiaries or any of their respective properties or
assets by or before any court, arbitrator or governmental body, department,
commission, board, bureau, agency or instrumentality, which questions the
validity of this Agreement or the issuance of the Shares or any action taken or
to be taken pursuant hereto or thereto. There is no claim, litigation or
governmental proceeding or investigation pending, or to the knowledge of the
Purchaser, threatened, against Purchaser or any of its subsidiaries which is
reasonably likely to result in a material adverse effect on the business,
properties, condition (financial or otherwise) or prospects of Purchaser and its
subsidiaries, taken as a whole. Neither Purchaser nor any of its subsidiaries is
in default in any respect with respect to any judgment, order, writ, injunction,
decree or award, except for any such default which would not have a material
adverse effect on the business properties, condition (financial or otherwise) or
prospects of Purchaser and its subsidiaries, taken as a whole.
7.06 FINANCIAL STATEMENTS. Purchaser has made available to Seller the
audited consolidated financial statements (balance sheet and income statement)
of Purchaser and its subsidiaries as at and for the twelve month period ended
June 30, 1994 (the "Financial Statements"). The Financial Statements fairly
present the financial condition and operating results of Purchaser and its
subsidiaries as of the dates and for the periods indicated therein on a
consolidated basis. Except as set forth in the Financial Statements, Purchaser
has no material liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to June 30, 1994, and
(ii) obligations under contracts and commitments incurred in the ordinary course
of business and not required under generally accepted accounting principles to
be reflected in the Financial Statements, which, in both cases, individually or
in the aggregate, are not material to the financial condition or operating
results or prospects of Purchaser and its subsidiaries, taken as a whole. Since
the date of the Financial Statements, except as set forth on Schedule 7.06
hereof, Purchaser has not, directly or indirectly, (a) disposed of any property
or assets used in the conduct of Purchaser's business other than in the ordinary
course of business consistent with past practice, or (b) entered into any
transaction, contract or agreement related to Purchaser's business other than in
the ordinary course of business consistent with past practices.
7.07 CAPITALIZATION. The authorized, issued and outstanding capital of
Purchaser is as set forth on the Schedule to this Section. Except as set forth
in the Schedule to this Section, there are not outstanding any options,
warrants, rights (including conversion or preemptive rights) or agreements for
the purchase or acquisition from Purchaser of any shares of its capital stock.
Except for the Shareholder Agreement (as
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hereinafter defined), Purchaser is not a party or subject to any agreement or
understanding, and, to Purchaser's knowledge, there is no agreement or
understanding between any persons and/or entities, that affects or relates to
the voting or giving of written consents with respect to any security or by a
director of Purchaser. The rights, privileges, preferences and restrictions of
all classes and series of Purchaser's capital stock are as stated in Purchaser's
Certificate of Incorporation attached hereto as Schedule 7.07.
7.08 REGULATORY APPROVALS. All consents, approvals, authorizations and
other requirements prescribed by any law, rule or regulation which must be
obtained or satisfied by Purchaser in connection with the execution, delivery or
performance by Purchaser of this Agreement or any documents to be executed and
delivered by Purchaser in connection herewith are set forth on the Schedule to
this Section.
7.09 NOT A "FOREIGN PERSON". Purchaser represents that it is not a
"foreign person" and is not an entity controlled by or acting on behalf of a
"foreign person" or a "foreign government" as such terms are defined in Section
721 of Title VII of the Defense Production Act of 1950 (50 U.S.C. App.
[section]2158 et seq.).
7.10 THIS SECTION INTENTIONALLY LEFT BLANK.
7.11 KNOWLEDGE. When a representation in this Agreement is made to the
knowledge of Purchaser, such knowledge shall be understood to be the actual
knowledge of the executive officers of Purchaser as acquired in the fulfillment
of their day-to-day responsibilities.
7.12 INTELLECTUAL PROPERTY. Purchaser has no knowledge that any person
or entity is infringing on any intellectual property or other asset currently
being used by Purchaser in the operation of Purchaser's business. Purchaser has
no knowledge that any intellectual property or other asset currently being used
by Purchaser in the operation of Purchaser's business infringes on any
intellectual property right or other right of any person or entity.
7.13 RELIANCE. Purchaser has not entered into this Agreement or any
related transaction based on any information, representation, document,
forecast, financial statement, fact or other statement which is not expressly
set forth in this Agreement, a Schedule to this Agreement, an attachment to this
Agreement, the Related Agreements, the related closing documents or other
agreements executed and delivered in connection with this Agreement.
7.14 UNDISCLOSED LIABILITIES. To Purchaser's knowledge Purchaser does
not have any liabilities which are material in the aggregate with respect to the
business of Purchaser and its
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<PAGE> 15
subsidiaries, taken as a whole, either accrued, absolute, contingent or
otherwise, except as set forth in the Financial Statements or the notes thereto,
other than liabilities incurred after the date of the Financial Statements in
the ordinary course of business or otherwise set forth on the Schedule to this
Section. For purposes of this Section 7.14, material means in excess of
$100,000.
7.15 SUBSIDIARIES. Each of Xionics International Holdings, Limited, a
UK company, Xionics International, Limited, a UK company, and Xionics, Inc., a
Delaware corporation, are direct or indirect wholly-owned subsidiaries of
Purchaser and no other person or entity has any right to acquire any ownership
interest in such subsidiaries.
7.16 PROJECTIONS. Neither this Agreement (including the Schedules
hereto), the Related Agreements nor any document or certificate delivered by
Purchaser to Seller at the Closing contains any statement by Purchaser that to
Purchaser's knowledge is materially untrue or materially misleading or that,
when taken as a whole, omits to state any fact necessary to make the information
presented herein or therein not misleading in a material respect. The
projections set forth in the Schedule to this Section reflect Purchaser's
reasonable good faith estimate, as of the date hereof, of the total projected
revenue of Purchaser's business for the applicable time periods. To Purchaser's
knowledge, except as set forth in Schedule 7.16 hereof, there is no material
fact that would make such projections unreasonable in any material respect;
provided however, Purchaser makes no representation or warranty (except as
expressly set forth in this Section 7.16) with respect to such projections.
7.17 PIXEL MANIC. It is not the intention of Purchaser to enter into
any agreement with Pixel Magic, Inc. which involves the issuance of any shares
of capital stock of Purchaser for value, determined in good faith by Purchaser's
Board of Directors, less on a per share basis, than paid by Seller, Purchaser
hereby acknowledging for purposes of this Section 7.17 that, included within the
transactions covered by this Agreement, Seller has paid $750,000 for 4.9% of the
capital stock of Purchaser on a fully diluted basis.
ARTICLE VIII
CONDITIONS PRECEDENT TO CLOSING
BY PURCHASER
------------
8. The obligations of Purchaser to consummate the transactions contemplated
by this Agreement are subject to the satisfaction of each of the following
conditions precedent on or before the Closing, subject to the right of Purchaser
to waive any one or more of such conditions:
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<PAGE> 16
8.01 LEGAL MATTERS. All actions, proceedings, instruments and
documents required to carry out this Agreement or any of the Related Agreements
or incidental hereto or thereto shall have been taken. No litigation,
proceeding, investigation or inquiry shall be pending or threatened which might
materially delay or prevent the consummation of the transactions contemplated
hereby or subject Purchaser to any liability or adversely affect the Business or
any of the Purchased Assets.
8.02 REPRESENTATIONS. The representations and warranties of Seller
contained in this Agreement shall be true and correct in all material respects
on and as of the Closing.
8.03 APPROVALS. All consents, approvals, authorizations and other
requirements prescribed by law, rule or regulation which must be obtained or
satisfied by Seller or Purchaser in connection with the execution, delivery and
performance by Seller or Purchaser of this Agreement or any of the Related
Agreements, or any of the transactions contemplated hereby or thereby, shall
have been obtained.
8.04 LEGAL INVESTMENT. At the time of the Closing, the issuance of the
Shares hereunder shall be legally permitted by all laws and regulations to which
Purchaser and/or Seller are subject.
8.05 MATERIAL ADVERSE CHANCE. Since the date hereof, there has not
been a material adverse change (or any condition, event or development involving
a prospective material adverse change) in the financial condition of the
Business or in the value of the Purchased Assets, taken as a whole.
8.06 CLOSING DOCUMENTS. Seller shall have delivered or caused to be
delivered to Purchaser or Purchaser shall have received, in a form reasonably
satisfactory to counsel for Purchaser:
(a) general bill of sale conveying the Purchased Assets to Purchaser as
required by this Agreement, duly executed by Seller (Seller and
Purchaser hereby agreeing that neither the representations and
warranties nor the rights and remedies of any party hereunder shall be
deemed to be enlarged, modified or altered in any way by such bill of
sale);
(b) duly executed assignments, in recordable form where appropriate, of
the Intellectual Property;
(c) certified copies of the resolutions adopted by Seller's Board of
Directors authorizing the sale of the Purchased Assets to Purchaser in
accordance with this Agreement and Seller's execution, delivery and
performance of this Agreement and the Related Agreements;
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<PAGE> 17
(d) a certificate of the Seller, dated as of the Closing, certifying the
fulfillment of the conditions specified in this Article VIII;
(e) a certificate of incumbency executed by the Secretary of Seller
certifying the names, titles and signatures of the officers authorized
to execute this Agreement and the Related Agreements;
(f) a duly executed Sublease Agreement dated as of the Closing;
(g) an agreement mutually acceptable to Purchaser and Seller pursuant to
which Seller's Japanese subsidiary will distribute Purchaser's
products in Japan;
(h) an opinion, addressed to Purchaser from counsel to Seller, dated as of
the Closing;
(i) execution by all holders of Purchaser's capital stock (i) of a written
consent in lieu of special meeting authorizing and permitting the
execution, delivery and performance by Purchaser of this Agreement
and the Related Agreements and the execution and filing of an
Amendment to the Certificate of Incorporation of Purchaser necessary
to permit the issuance of the Shares, (ii) of a valid and binding
waiver waiving the antidilution protection set forth in Purchaser's
Certificate of Incorporation with respect to the issuance of the
Shares and the issuance of shares of the Purchaser's common stock
upon conversion of the Shares and (iii) amendments to Purchaser's
Registration Rights Agreement, Shareholders Agreement and Stock
Purchase and Exchange Agreement, each dated as of June 30, 1993, in
order to permit Seller to become a party thereto, to appoint one
representative of the Board of Directors of Purchaser and to receive
the other benefits afforded thereby to other holders of the
Purchaser's Class A Preferred Stock;
(j) an agreement mutually acceptable to Purchaser and Seller pursuant to
which Seller licenses to Purchaser Seller's Eclipse FAX product; and
(k) such other documents and certificates as are contemplated hereby.
8.07 SCHEDULES. All Schedules to this Agreement and all Related Agreements
shall be completed and be in form and substance satisfactory to Purchaser.
8.08 MAINTENANCE. Seller and Purchaser shall have agreed to the flat
monthly fee to be paid pursuant to Section 11.12 hereof.
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ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS
OF SELLER
---------
9.0 CONDITIONS TO OBLIGATIONS OF SELLER. The obligations of Seller to
consummate the transactions contemplated by this Agreement are subject to the
satisfaction of each of the following conditions precedent on or before the
Closing, subject to the right of Seller to waive any one or more of such
conditions:
9.01 LEGAL MATTERS. All actions, proceedings, instruments and
documents required to carry out this Agreement or any of the Related Agreements
or incidental hereto or thereto shall have been taken. No litigation,
proceeding, investigation or inquiry shall be pending or threatened which might
materially delay or prevent the consummation of the transactions contemplated
hereby or subject Seller to any liability or adversely affect Purchaser's
business.
9.02 REPRESENTATIONS. The representations and warranties of Purchaser
contained in this Agreement shall be true and correct in all material respects
on and as of the Closing.
9.03 APPROVALS. All consents, approvals, authorizations and other
requirements prescribed by law, rule or regulation which must be obtained or
satisfied by Purchaser or Seller in connection with the execution, delivery and
performance by Purchaser or Seller of this Agreement or any of the Related
Agreements, or any of the transactions contemplated hereby or thereby, shall
have been obtained.
9.04 LEGAL INVESTMENT. At the time of the Closing, the issuance of the
Shares hereunder shall be legally permitted by all laws and regulations to which
Purchaser and/or Seller are subject.
9.05 MATERIAL ADVERSE CHANCE. Since the date hereof, there has not
been a material adverse change (or any condition, event or development involving
a prospective change) in the business, properties or condition (financial or
otherwise) of Purchaser and its subsidiaries, taken as a whole.
9.06 OTHER AGREEMENTS. Purchaser, Seller and all other required
persons and entities shall have executed and delivered to Seller an amendment to
each of Purchaser's Registration Rights Agreement dated as of June 30, 1993,
Purchaser's Shareholder Agreement dated as of June 30, 1993 and Purchaser's
Stock Purchase and Exchange Agreement dated as of June 30, 1993, each in a form
reasonably satisfactory to counsel for Seller.
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9.07 CLOSING DOCUMENTS. Purchaser shall have delivered to Seller or
Seller shall have received, in a form reasonably satisfactory to counsel for the
Seller:
(a) the Promissory Note duly executed;
(b) valid and duly executed certificates representing the Shares issued in
the name of Seller or a designee of Seller;
(c) an assignment and assumption agreement with respect to the Assumed
Liabilities duly executed by Purchaser;
(d) certified copies of the resolutions adopted by Purchaser's Board of
Directors authorizing the purchase of the Purchased Assets from Seller
in accordance with this Agreement and the Purchaser's execution,
delivery and performance of this Agreement and the Related Agreements
and the issuance of the Shares;
(e) a certificate of the Purchaser, dated as of the Closing, certifying
the fulfillment of the conditions specified in this Article IX;
(f) a certificate of incumbency executed by the Secretary of Purchaser
certifying the names, titles and signatures of the officers authorized
to execute this Agreement and the other documents referred to herein
and certifying that the Certificate of Incorporation and Bylaws
delivered to the Seller are in full force and effect without further
modification or amendment;
(g) an opinion, addressed to Seller from counsel to Purchaser, dated as of
the Closing;
(h) a duly executed Sublease Agreement dated as of the Closing;
(i) a certificate of good standing and legal existence of Purchaser issued
by the State of Delaware;
(j) an agreement mutually acceptable to Purchaser and Seller pursuant to
which Seller's Japanese subsidiary will distribute Purchaser's
products in Japan;
(k) execution by all holders of Purchaser's capital stock (i) of a written
consent in lieu of special meeting authorizing and permitting the
execution, delivery and performance by Purchaser of this Agreement
and the Related Agreements and the execution and filing of an
Amendment to the Certificate of Incorporation of Purchaser necessary
to permit the issuance of the Shares, (ii) of a valid and binding
waiver waiving the anti dilution protection set forth in Purchaser's
Certificate of Incorporation with respect to the issuance of the
Shares and the issuance of shares of the Purchaser's common stock
upon
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conversion of the Shares and (iii) amendments to Purchaser's
Registration Rights Agreement, Shareholders Agreement and Stock
Purchase and Exchange Agreement, each dated as of June 30, 1993, in
order to permit Seller to become a party thereto, to appoint one
representative of the Board of Directors of Purchaser and to receive
the other benefits afforded thereby to other holders of the
Purchaser's Class A Preferred Stock;
(l) an agreement mutually acceptable to Purchaser and Seller pursuant to
which Seller licenses to Purchaser Seller's Eclipse FAX product; and
(m) such other documents and certificates as are contemplated hereby.
9.08 SCHEDULES. All Schedules to this Agreement and all Related Agreements
shall be completed and be in form and substance satisfactory to Seller.
9.09 MAINTENANCE. Seller and Purchaser shall have agreed to the flat
monthly fee to be paid pursuant to Section 11.12 hereof.
ARTICLE X
INDEMNIFICATION RIGHTS
----------------------
10.01 INDEMNIFICATION BY SELLER. Notwithstanding the Closing, Seller
hereby agrees to indemnify, defend and hold Purchaser harmless from and against
any claim, suit, action, damage, liability, loss, diminution in value, cost or
deficiency (including, but not limited to, reasonable attorneys' fees, and other
costs and expenses incident to proceedings or investigations or the defense or
settlement of any claim) (hereinafter "Claims") threatened against or incurred
by Purchaser and arising out of, resulting from or relating to:
(a) any failure of Seller to duly perform or observe any term, provision,
covenant or agreement to be performed or observed by it pursuant to
this Agreement or any Related Agreement;
(b) any breach of a representation or warranty made by Seller in this
Agreement; any failure by Seller to comply with any applicable bulk
sales laws;
(c) any failure by Seller to comply with any applicable state or federal
plant closing laws;
(d) any failure by Seller to comply with any applicable state or federal
plant closing laws;
(e) any Excluded Liabilities; and/or
(f) any infringement or alleged infringement of the intellectual property
rights of any person or entity based on the use by Purchaser of the
Intellectual Property, provided that
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Purchaser provides Seller with reasonable assistance in defending
such infringements and alleged infringements.
10.02 INDEMNIFICATION BY PURCHASER. Notwithstanding the Closing,
Purchaser hereby agrees to indemnify, defend and hold Seller harmless from and
against all Claims (as defined in Section 10.01) threatened against or incurred
by Seller and arising out of, resulting from or relating to:
(a) any breach of a representation or warranty of Purchaser pursuant to
this Agreement;
(b) any failure to duly perform or observe any term, provision, covenant
or agreement to be performed or observed by Purchaser pursuant to this
Agreement or any Related Agreement;
(c) the conduct by Purchaser of the Business following the Closing; and/or
(d) any Assumed Liability.
10.03 CLAIM FOR INDEMNIFICATION. Whenever any claim shall arise for
indemnification hereunder, the party seeking indemnification (the indemnified
Party") shall promptly notify the party from whom indemnification is sought (the
"Indemnifying Party") of the claim and, when known, the facts constituting the
basis for such claim; PROVIDED HOWEVER, that the failure to give such
notification shall not affect the indemnification provided hereunder except to
the extent the Indemnifying Party shall have been actually prejudiced as a
result of such failure (except that the Indemnifying Party shall not be liable
for any expenses incurred during the period in which the Indemnified Party
failed to give such notice). In the event of any such claim for indemnification
hereunder resulting from or in connection with any claim or legal proceedings by
a third party, the notice to the Indemnifying Party shall specify, if known, the
amount or an estimate of the amount of the liability arising therefrom. The
Indemnified Party shall not settle or compromise any claim by a third party for
which it is entitled to indemnification hereunder without the prior written
consent of the Indemnifying Party unless the Indemnifying Party shall have
declined or failed to assume the defense of the claim as provided in Section
10.04 below.
10.04 DEFENSE BY INDEMNIFYING PARTY. In connection with any claim
giving rise to indemnity hereunder resulting from or arising out of any claim or
legal proceeding by a person who is not a party to this Agreement, the
Indemnifying Party at its sole cost and expense may, upon written notice to the
Indemnified Party, assume the defense of any such claim or legal proceeding. The
Indemnified Party shall be entitled to participate in (but not control) the
defense of any such action with its counsel and at its own expense. If the
Indemnifying Party does not assume
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the defense of any such claim or litigation resulting therefrom within 60 days
after the date it is given notice of such claim, (a) the Indemnified Party may
defend against such claim or litigation in such manner as it may deem
appropriate, including but not limited to, settling such claim or litigation,
after giving notice of the same to the Indemnifying Party, on such terms as the
Indemnified Party may deem appropriate, and (b) the Indemnifying Party shall be
entitled to participate (but not control) the defense of such action, with its
counsel and at its expense. The Indemnifying Party shall not thereafter seek to
question the manner in which the Indemnified Party defended such third party
claim or the amount or nature of any such settlement made pursuant to the terms
of Section 10.03 hereof.
10.05 LIMITATION OF LIABILITY. The liability of each of Purchaser and
Seller under this Agreement and the Related Agreements to the other party shall
in no event exceed the total Purchase Price as set forth in Schedule 12.04
hereof, without regard to the allocation of the Purchase Price set forth
therein.
10.06 REMEDIES. Subject to the set-off rights set forth in Section
11.13 hereof and subject to Section 12.15 hereof, the remedies set forth in this
Article X shall be the exclusive remedies, and are in lieu of all other remedies
at law and in equity, for any and all claims which a party hereto has the right
to bring under this Article X.
ARTICLE XI
CERTAIN COVENANTS
-----------------
11. POST-CLOSING COVENANTS. Provided a Closing occurs under this Agreement,
Purchaser and Seller hereby covenant and agree with each other as follows:
11.01 CONSENTS TO ASSIGNMENT. This Agreement shall not constitute an
agreement to assign any Contract, if any attempted assignment of the same
without the consent of the other party thereto would constitute a breach thereof
or in any way affect the rights of Seller or Purchaser thereunder. If such
consent is not obtained, or if any attempted assignment would be ineffective or
would affect the Seller's rights, then Purchaser may act as agents for Seller
under Section 11.02 in order to obtain for the Purchaser the benefits
thereunder; provided, however, that the Purchaser may not incur any liabilities
for the account of Seller, or require Seller to incur any liabilities in
connection therewith. Notwithstanding the foregoing, Seller will provide to
Purchaser all reasonable assistance requested by Purchaser in writing to obtain
consents to assignment of the Contracts.
11.02 POWER OF ATTORNEY. Without limiting any provisions hereof,
Seller hereby constitutes and appoints Purchaser the true and lawful attorney
for Seller in the name Purchaser and for the benefit of Purchaser: (a) to
collect, assert or enforce any claim, right or title of any kind in or of to
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any of the Purchased Assets or any right of Seller thereunder or with respect
thereto that, but for Section 11.01 hereof, would have been conveyed to
Purchaser under this Agreement; and (b) to take all action which Purchaser may
reasonably deem proper in order to provide for Purchaser the rights and benefits
under any of the Purchased Assets that, but for Section 11.01 hereof, would have
been conveyed to Purchaser under this Agreement; in each case where any required
consent of another party to the sale or assignment thereof to Purchaser pursuant
to this Agreement shall not have been obtained. Purchaser shall be entitled to
retain for its own account any amounts collected pursuant to the foregoing
powers, including any amounts payable as interest in respect thereof.
11.03 DATAPRODUCTS. If Xionics is required to issue credits as Pre
Paid Royalties for nonrecurring engineering ("NRE") work pursuant to section E
of Exhibit B to Amendment No. 2 dated as of September 30, 1994 (the "DP
Amendment") to the Computer Technology License Agreement dated March 31, 1992
between Phoenix and Dataproducts Corporation ("DP"), Phoenix will reimburse
Xionics for 76.2% of such credits. Such reimbursement shall be made on a
quarterly basis as the credits are utilized by DP and subject to receipt by
Phoenix of reasonable supporting documentation from Xionics. If DP exercises its
Source Code option and/or its Site Licensing option under the DP Amendment prior
to 6/30/95, Phoenix's obligation to reimburse Xionics for Pre Paid Royalty
credits shall be reduced by the percent obtained by dividing the amount paid by
DP for such source code and/or site licenses by 223-5,000 plus the amount paid
by DP for such source code and/or site licenses. As an example, if DP pays
Xionics the full source code and site license option fees of $170,000,
Phoenix's reimbursement obligation shall be reduced by 42%.
11.04 CONFIDENTIALITY. Purchaser and Seller each acknowledge that, in
the course of various dealings and in the preparation of this Agreement,
Purchaser and Seller have obtained from each other information concerning the
business and technology of the other which is of a confidential and/or
proprietary nature. Furthermore, in the future, Purchaser and Seller may
continue to obtain access to such confidential and/or proprietary information of
the other. Such confidential information includes information concerning
products of the Seller or Purchaser (as the case may be), technical information
concerning computer software source code and object code and related technical
documentation, trade secrets, and marketing, financial and customer information,
whether obtained prior to, or in connection with, this Agreement or to be
obtained in connection with carrying out the terms of this Agreement or the
Related Agreements, whether in tangible form and labeled as confidential or
proprietary or, if disclosed verbally, is designated as confidential or
proprietary at the time of disclosure and summarized in writing within thirty
(30) days thereafter (collectively, the "Confidential Information").
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Following the date hereof, Purchaser and Seller (including their respective
directors, officers, employees and agents) agree to retain in confidence and not
to disclose any of the Confidential Information of the other, except as may be
required by law or government regulation or unless the information sought to be
disclosed or used (i) is publicly known as of the date hereof or becomes
publicly known through no fault of the other party, or (ii) is lawfully received
by the other party from a third party not bound in a confidential relationship
regarding the Confidential Information, or (iii) was previously known to the
other party, or (iv) was or is independently developed by the other party.
Provided however, that the provisions of subsections 11.04 (iii) and (iv) shall
not apply to the Intellectual Property.
11.05 SELLER'S LICENSE/NO HIRE. At any time upon the written request
of Seller to Purchaser, Purchaser shall license to Seller all or any portion of
the Intellectual Property requested by Seller under terms, conditions and
pricing at least as favorable to Seller as the most favorable corresponding
terms, conditions and pricing offered by Purchaser to any of its customers for
the Intellectual Property. Notwithstanding anything in this Agreement or any
Related Agreement to the contrary, Purchaser may terminate Seller's license to
the Intellectual Property if Seller uses any of the Intellectual Property to
compete directly with Purchaser. Notwithstanding anything in this Agreement or
any Related Agreement to the contrary, Seller may terminate Purchaser's license
to Seller's Eclipse FAX products if Purchaser uses any of Seller's Eclipse FAX
products to compete directly with Seller. From the Closing and until two years
after the Closing, Seller shall not hire or solicit for hire any Employee or any
other employee of Purchaser unless such Employee or other employee of Purchaser
has not been an employee of Purchaser for more than six months prior to the date
of hire by Seller.
11.06 ACCOUNTS RECEIVABLE/OTHER MONIES. Seller agrees that it will
promptly deliver to Purchaser, duly endorsed by Seller where appropriate, any
monies, checks or instruments received by Seller after the Closing and which
belong to Purchaser pursuant to the terms of this Agreement, and prior to such
delivery, Seller shall hold such monies, checks and instruments in trust for
the benefit of Purchaser. Purchaser agrees that it will promptly deliver to
Seller, duly endorsed by Purchaser where appropriate, any monies, checks or
instruments received by Purchaser after the Closing and which belong to Seller
pursuant to the terms of this Agreement, and prior to such delivery, Purchaser
shall hold such monies, checks and instruments in trust for the benefit of
Seller. Purchaser and Seller agree that they will cooperate in specifically
identifying cash receipts to invoices of Seller and Purchaser.
11.07 REPURCHASE OF ACCOUNTS RECEIVABLE. Purchaser shall make all
reasonable efforts, consistent with its past
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business practices, to collect the Accounts Receivable. Purchaser agrees to
provide Seller with a list of uncollected Accounts Receivable at 30 day
intervals from the Closing showing the account name, the current amount due and
the aging of amounts due. Purchaser shall allow Seller to assist with collection
of any of the Accounts Receivable shown on Purchaser's reports, as mutually
agreed, in good faith, by the Purchaser and Seller. Seller, at Purchaser's
request given in writing on the applicable dates set forth in this Section,
shall repurchase any Accounts Receivable conveyed to Purchaser hereby and
uncollected as of the date of Purchaser's request, subject to the following
limits: (a) up to $200,000 on October 31, 1994, (b) up to an additional $200,000
on November 30, 1994, and (c) the balance of the uncollected Accounts Receivable
on December 31, 1994. The repurchase price of the Accounts Receivable shall be
the aggregate face amount of such Accounts Receivable (the "Repurchase Price").
Seller will pay the Repurchase Price to Purchaser in cash within fifteen (15)
days of Purchaser's request that Seller make the repurchase provided for in this
Section 11.07 and of Seller's receipt of a valid reassignment of the applicable
Accounts Receivable. Seller shall have no obligation to repurchase any Accounts
Receivable outstanding on December 31, 1994 with respect to which Seller has not
received notice to repurchase prior to January 10, 1995. Notwithstanding any
provision of this Agreement or any Related Agreement to the contrary, Seller
shall pay and perform the repurchase obligations set forth above as and when
required by this Section 11.07 without set-off, deduction or withholding of any
kind, and without regard to any payment obligation Purchaser may have, or be
alleged to have, to Seller under this Agreement or any Related Agreement.
Nothing herein shall limit Seller's rights to seek reimbursement for any amounts
it was improperly required to pay under this Section.
11.08 TRADEMARK LICENSE. Provided that the Closing actually occurs,
Seller hereby grants to Purchaser an exclusive, royalty-free license to
Phoenix's right to the trademark "PhoenixPage" in the style set forth in the
Schedule to this Section ("Phoenix's Rights") for use only in connection with
the Intellectual Property and any product which is a derivative of or includes,
as a material component, any portion of the Intellectual Property. Purchaser may
allow Purchaser's customers to include the trademark "PhoenixPage" on any of
their products (and the related documentation) which include, as a material
component, any product of Purchaser with which Purchaser is licensed to use such
trademark. Use of the trademark "PhoenixPage" by Purchaser's customers shall be
subject to all of the restrictions applicable to Purchaser's use of such
trademark. Notwithstanding the foregoing, Purchaser shall discontinue, and cause
Purchaser's customers to discontinue within ninety days, all uses of the Phoenix
Rights on the earlier of (i) the ninety-ninth anniversary following the Closing
Date, and (ii) thirty (30) days after receiving a notice from Seller to the
effect that Seller has determined, acting in good faith, that
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the quality of any of Purchaser's products or services used or marketed in
connection with the term "PhoenixPage" fail to conform, in any material way, to
the current quality standards established by Seller as of the date of this
Agreement and as reasonably changed from time to time by Seller, provided that
Seller applies any such changed quality standards to Seller's own products. Upon
request by Seller from time to time, Purchaser shall provide to Seller at no
charge, samples of all software provided by Purchaser to its customers for
incorporation into, or use with, Purchaser's customers' products with which the
"PhoenixPage" trademark will be used. Seller shall provide Purchaser with
written notice of any failure to conform to the foregoing standards and
Purchaser shall have thirty (30) days from receipt of such notice in which
either to remedy such deficiency or to provide Seller with a written plan
reasonably acceptable to Seller to correct the identified deficiency, otherwise
all of Purchaser's rights, and all of Purchaser's customers' rights, to use the
Phoenix's Rights shall be irretrievably lost, and Purchaser and Purchaser's
customers shall discontinue all use of the Phoenix Rights within the ninety day
period referenced above. Purchaser shall (1) not use the word "phoenix"
separately or with any word other than the word "page" in marketing Purchaser's
products or promoting Purchaser's business; (2) use Purchaser's company name
"Xionics" prominently with each use of the Phoenix Rights and on each product
with which the Phoenix Rights are associated in such a manner so as to clearly
indicate that the product referenced is a Xionics product and not a Phoenix
product; (3) not use the word "phoenix" in any manner disparaging to the
business or reputation of Seller; and (4) not transfer (except as expressly set
forth in the second sentence of this Section 11.08) any of the rights granted
to Purchaser under this Section 11.08 to any person or entity. Seller shall
have the right to terminate all of Purchaser's rights to use the Phoenix Rights
upon thirty days written notice to Purchaser if Purchaser violates any
provision of the preceding sentence and (a) such violation is not remedied, or
Purchaser has not provided to Seller a written plan to correct such violation
reasonably satisfactory to Seller, within such thirty day period, or (b) there
has been three or more violations in any twelve month period.
11.09 LOAN. In the event that the revenues attributable to the
Purchased Assets (which, for the purposes of this Section, shall not include any
revenue from Hewlett Packard Company ("HP") due under the agreement between
Seller and HP dated as of September 30, 1994) in the quarter ending December 31,
1994 are less than $2,500,000 and the cumulative cash collected by Xionics
relating to the Purchased Assets (including any payments made by Seller pursuant
to Section 11.07 hereof: Repurchase of Accounts Receivable, and all payments
received by Purchaser from HP) is less than $4,500,000 at the close of business
on March 31, 1995, then Seller will loan to Xionics an amount equal to the
difference between the actual cash so
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collected by Xionics at the close of business on March 31, 1995 and $4,500,000.
In no event will such loan amount exceed $375,000. Such loan will be made to
Xionics within fifteen (AS) days after receipt by Seller of supporting
documentation reasonably satisfactory to Seller detailing the revenues for the
quarter ended December 31, 1994 and the cash collected prior to April 1, 1995,
but no earlier than April 15, 1995. Such loan will bear interest from the date
that the proceeds thereof are received by Purchaser at the rate of 10% per
annum, payable in arrears on the first day of each calendar quarter with the
first payment due on July 1, 1995 and will be secured by the Purchased Assets.
The total principal amount of the loan together with any accrued interest will
be repaid to Seller no later than March 31, 1996. Xionics will execute a
promissory note and security agreement in form and substance satisfactory to
Seller to evidence this loan. Phoenix will subordinate such promissory note and
the related security interests to Xionics' bank factoring and operating credit
lines and related security interests to the same extent as the Promissory Note
and its related security interests. Xionics undertakes to exert all reasonable
efforts consistent with normal business practices to achieve revenues from the
Purchased Assets of at least $2,500,000 in the quarter ending December 31, 1994
and to maximize cash collections prior to April 1, 1995.
11.10 KME. Notwithstanding Section 1.04 hereof and the Schedule
thereto, the "Computer Technology License Agreement" dated December 26, 1993
between Phoenix and Kyushu Matsushita Electric (the "KME Agreements") is not
being assigned to Purchaser with the other Contracts at the Closing. Xionics
shall provide to Phoenix the services of the Employees, as reasonably and in
good faith agreed by Xionics and Phoenix from time to time, for Phoenix to
perform its obligations under the KME Agreement. Phoenix will provide Xionics
with at least two weeks notice prior to discontinuing such services. If Xionics
fails to provide such services to Phoenix, the KME Agreement shall be deemed
assigned to Xionics under this Agreement as of the date of such failure. Phoenix
shall pay Xionics for such services at the rate of $800 per engineering, project
management or quality assurance man-day. Xionics will issue invoices for such
services to Phoenix monthly, with net 30 day payment terms. At any time upon
receipt by Phoenix of written notice from Xionics, Phoenix will assign to
Xionics the KME Agreement subject and pursuant to all of the terms and
conditions of this Agreement, effective as of the date of receipt by Phoenix of
such notice. The KME Agreement shall not be deemed a Contract until receipt by
Phoenix of the notice from Xionics referenced in this Section and the KME
Agreement shall be deemed a Contract as of the date of receipt by Phoenix of
such notice. Phoenix will not, without the prior consent of Xionics which
consent shall not be unreasonably withheld or delayed, amend the KME Agreement.
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11.11 SHARP. In the event that Sharp Corporation ("Sharp") contests
NRE charges relating to the Sharp JX9680 printer project and Sharp is entitled
to a credit for NRE work done on that project prior to December 31, 1994 and
Xionics does in fact issue such a credit prior to March 31, 1995, then; (1) if
the basis for Sharp's claim for such credit is limited principally to
occurrences after the Closing, Phoenix shall have no obligation or liability
with respect to such credit: and (2) if the basis for Sharp's claim for such
credit either (a) includes material occurrences both prior to and after the
Closing or (b) is limited principally to occurrences prior to the Closing,
Phoenix agrees to reimburse Xionics for one half of the amount of such credit.
Xionics shall exercise all reasonable efforts to collect all amounts due from
Sharp and avoid the issuance of any credit to Sharp, including but not limited
to consulting with Phoenix on ways to eliminate the need to issue a credit. All
payments due under this Section shall be made by Phoenix to Xionics promptly
upon receipt by Phoenix of written evidence reasonably satisfactory to Phoenix
that Xionics has issued such a credit and otherwise complied with the provisions
of this Section. Phoenix shall have no obligation under this Section if Xionics
performs any NRE work for Sharp that is not agreed to by Sharp in a manner
consistent with the past practices between Sharp and Phoenix.
11.12 MAINTENANCE/WARRANTS OBLIAATIONS. As part of the Assumed
Liabilities, Xionics may, among other things, be required to perform (1) written
maintenance and training obligations for certain projects where Phoenix has
collected payment specifically allocated to such maintenance and training
obligations intended to be performed in the future and that are described on the
Schedule to this Section, or (2) written source code warranty obligations for
code delivered by Phoenix prior to the Closing, or (3) written NRE warranty
obligations for NRE work performed by Phoenix prior to the Closing. Xionics and
Phoenix will attempt to develop a mutually agreeable flat monthly fee to be paid
by Phoenix to Xionics as reimbursement for all of the obligations set forth
above in this Section 11.12. In the event that such mutual agreement is not
reached on or before October 31, 1994, Phoenix will reimburse Xionics for all
such obligations on a time and materials ("T&M") basis. The T&M rate will be
$800 per engineering, project management or quality assurance man-day and will
be billed to Phoenix monthly, with net 30 day payment terms. Xionics will also
provide Phoenix, on the last day of each month, with a monthly ninety-day
rolling forecast of services anticipated to be performed for the obligations
specified above in this Section (which forecast will not limit Phoenix's
obligations hereunder). Notwithstanding the foregoing, Phoenix's reimbursement
to Xionics for any warranty work performed by Xionics regarding the obligations
specified above in this Section and which is related to NRE projects where
Phoenix and Xionics both received revenue, shall be reduced proportionately
based on the NRE revenue received by Phoenix and Xionics.
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11.13 SET OFF. Purchaser may set off against any amount due to Seller
under this Agreement or any Related Agreement the full amount of any payment
obligation of Seller to Purchaser under this Agreement or any Related Agreement
that has come due but has not been paid but only if (i) Purchaser shall have
provided Seller with written notice (the "Set-Off Notice") of its intention to
set off amounts due to Seller not less than 15 days prior to setting off any
such amount, and (ii) the Set-Off Notice shall set forth in reasonable detail
the nature of such claim and the amount of the payment obligation to be set
off, and (iii) Seller shall have failed to cure or resolve the matters relating
to such set-off claim prior to the date any such amounts to be set off would
otherwise be required to be paid to Purchaser, and (iv) Purchaser's board of
directors has (a) determined in good faith that such a set-off is permitted
under this Section 11.13 and (b) has voted at a meeting of such board of
directors, or by unanimous written consent in lieu of meeting, to make such
set-off. Purchaser's rights set forth in this Section 11.13 shall in no way be
construed as limiting Seller's right to challenge any set-off claimed or
asserted by Purchaser. In the event that Seller disputes Purchaser's right of
set-off and Seller ultimately prevails in such dispute, Purchaser shall pay to
Seller the amount improperly set-off plus interest thereon at the rate of 24%
per annum or the highest rate allowed by law, whichever is lower, compounded
monthly. Except as expressly permitted by this Section 11.13, Purchaser shall
make all payments due under this Agreement and the Related Agreements without
set-off, deduction or withholding.
Seller may set off against any amount due to Purchaser under this
Agreement (except those due under Section 11.07 hereof) or any Related Agreement
the full amount of any payment obligation of Purchaser to Seller under the
Promissory Note that has come due but has not been paid but only if (i) Seller
shall have provided Purchaser with written notice (the "Set-Off Notice") of its
intention to set off amounts due to Purchaser not less than 15 days prior to
setting off any such amount, and (ii) the Set-Off Notice shall set forth in
reasonable detail the nature of such claim and the amount of the payment
obligation to be set off, and (iii) Purchaser shall have failed to cure or
resolve the matters relating to such set-off claim prior to the date any such
amounts to be set off would otherwise be required to be paid to Seller. Seller's
rights set forth in this Section 11.13 shall in no way be construed as limiting
Purchaser's right to challenge any set-off claimed or asserted by Seller. In the
event that Purchaser disputes Seller's right of set-off and Purchaser ultimately
prevails in such dispute, Seller shall pay to Purchaser the amount improperly
set-off plus interest thereon at the rate of 24% per annum or the highest rate
allowed by law, whichever is lower, compounded monthly. Except as expressly
permitted by this Section 11.13, Seller shall make all payments due under this
Agreement and the Related Agreements without set-off, deduction or withholding.
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11.14 OPERATION OF BUSINESS. From and after the date that this
Agreement is signed by both parties hereto and until the Closing, Seller shall
operate the Business in the usual and ordinary course consistent with past
practice. Seller shall use all reasonable efforts to preserve intact the
Purchased Assets and the good will of the Business and existing relationships
with suppliers, customers, employees and others having a business relationship
with Seller relative to the Business. Seller shall not, without the prior
consent of Purchaser, except in the ordinary course of business consistent with
past practices, (1) sell, transfer or otherwise dispose of any of the Purchased
Assets, (2) enter into any new contract, agreement or commitment relating to the
Business or any of the Purchased Assets, (3) amend or waive any material rights
of Seller with respect to any accounts receivable or contracts or agreements of
Seller relating to the Business or the Purchased Assets, or (4) terminate any of
the Employees or hire any new employees.
11.15 TRIGEM. Trigem Computer Inc. ("Trigem") has a prepaid royalty
credit with Seller which credit may be applied both to sales by Trigem of
products covered by the Computer Technology License Agreement dated May 10, 1993
between Seller and Trigem (the "Trigem Agreement") and which relate to sales by
Trigem of products covered under other agreements with Seller which other
agreements are not Contracts under Section 1.04 hereof. Upon receipt by Seller
of royalty reports from Trigem which relate to such prepaid royalty credit,
Seller will reduce Trigem's prepaid royalty credit by the total amount of
royalties due from Trigem and pay to Purchaser that portion of such royalties
applicable to products sold under the Trigem Agreement, until Trigem's prepaid
royalty credit has been fully utilized, after which no further payments will be
due from Seller regarding the Trigem prepaid royalty credit. Purchaser
acknowledges that the effect of this Section 11.15 is that Purchaser will
receive only a portion of the Trigem prepaid royalties and that such portion can
not be determined at this time.
ARTICLE XII
MISCELLANEOUS
-------------
12.01 BROKERS. Except for Broadview Associates, advisor to the Seller,
Purchaser and Seller represent and warrant to each other that there are no
brokerage or finders' fees in connection with the transactions contemplated
hereby resulting from any actions taken by them.
12.02 SURVIVAL. All of the representations and warranties contained in
Articles VI and VII hereof, and all of the obligations and liabilities of
Purchaser and Seller contained in this Agreement and/or any Related Agreement,
shall survive the Closing.
12.03 FURTHER ASSURANCES. From and after the Closing, upon the
reasonable request of either party from time to time,
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and at the requesting party's expense, the other party shall execute and deliver
all documents, make all rightful oaths, testify in any proceedings and do all
other acts which may be reasonably necessary or desirable in the opinion of the
requesting party to protect, perfect or defend the right, title or interest of
Xionics in the Purchased Assets and/or otherwise to effect the transactions
contemplated by this Agreement and the Related Agreements.
12.04 TAX MATTERS. The Purchase Price will be allocated among the
Purchased Assets by Purchaser and Seller in accordance with the Schedule to this
Section. Neither Purchaser nor Seller shall take any tax position inconsistent
with the allocation set forth in such schedule.
12.05 AMENDMENT. This Agreement may not be amended except by written
agreement of Seller and Purchaser.
12.06 GOVERNING LAW: Severability. This Agreement shall be construed
in accordance with, and governed by, the laws of the Commonwealth of
Massachusetts, excluding its conflict of law rules. Seller and Purchaser consent
to the jurisdiction of the Massachusetts state courts and the US federal courts
located within Massachusetts and agree that process may be served in any manner
allowed by Massachusetts or federal law. If any provision of this Agreement is
declared invalid by any tribunal, such provision shall be deemed automatically
adjusted to conform to the requirements for validity as declared at such time
and, as so adjusted, shall be deemed a provision of this Agreement as though
originally included herein. If the provision invalidated is of such a nature
that it cannot be so adjusted, the provision shall be deleted from this
Agreement as though it had never been included herein. In either case, the other
provisions of this Agreement shall remain in effect.
12.07 WAIVER. The failure of Seller or Purchaser to insist, in any one
or more instances, upon performance of any of the terms or conditions of this
Agreement, shall not be construed as a waiver or relinquishment of any rights
granted hereunder or the future performance of any such term, covenant or
condition.
12.08 HEADINGS. The descriptive headings in this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
12.09 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
12.10 NOTICES. Any notice to be given hereunder shall be given in
writing and delivered or mailed by registered or certified mail, return receipt
requested, in the case of Seller, to:
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Phoenix Technologies Ltd.
846 University Avenue
Norwood, MA 02062
Attn: Chairman
with a copy sent in a separate mailing to:
Phoenix Technologies Ltd.
846 University Avenue
Norwood, MA 02062
Attn: General Counsel
and, in the case of Purchaser, to:
Xionics International Holdings, Inc.
2 Corporation Way
Peabody, MA 01960
Attn: President
or to such other address Purchaser may designate by notice in writing to the
other, provided that no party may designate that notices be sent to more than
two locations at any particular time.
12.11 BENEFIT. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
12.12 EXPENSES. All expenses incurred by, on behalf of, or for the
benefit of Seller or Purchaser in connection with the negotiation, execution and
delivery of this Agreement and the Related Agreements, including without
limitation, legal, advisory, investment banking and accounting fees, shall be
the responsibility of and for the account of the party who ordered or for whose
benefit the particular service or particular expense was incurred.
12.13 PUBLIC ANNOUNCEMENT. Except as required by law, neither party
shall disclose, by public announcement or otherwise, the existence or contents
of this Agreement or the terms of the transactions contemplated hereby,
provided, however, the parties shall issue a joint press release in form and
substance, and at a time, mutually agreeable to Purchaser and Seller. Seller and
Purchaser shall also agree on appropriate statements, and the timing thereof, to
be made to customers, vendors and employees of both parties regarding this
transaction.
12.14 THIRD PARTY BENEFICIARIES. Each party hereto intends that this
Agreement shall not benefit or create any right or cause of action in or on
behalf of any person other than the parties hereto or their successors and
assigns, including without limitation the Employees.
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12.15 EQUITABLE REMEDIES. If in any instance under this Agreement or a
Related Agreement money damages are not an adequate remedy, either Purchaser or
Seller may seek equitable remedies, including specific performance and
injunctive relief. Also, Seller acknowledges that the Intellectual Property is
unique and that, if Seller fails to transfer the Intellectual Property to
Purchaser as required by this Agreement, Purchaser shall have the right to seek
specific performance and/or injunctive relief.
12.16 ENTIRE AGREEMENT. This Agreement and the Schedules and
attachments hereto, the Related Agreements, the related closing documents and
other agreements executed and delivered in connection herewith constitute the
entire agreement between Seller and Purchaser with respect to the transactions
contemplated hereby, superseding all prior understandings and agreements between
Seller and Purchaser with respect to the subject matter hereof.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed under seal as of the day and year first above written.
PHOENIX TECHNOLOGIES LTD.
By: /s/
------------------------------
Title: CEO
----------------------------
XIONICS INTERNATIONAL HOLDINGS, INC.
By:_____________________________
Title:____________________________
-31-
<PAGE> 34
THIS NOTE IS SUBORDINATE TO THE COMPANY'S "SENIOR DEBT" (AS DEFINED BELOW) AND
THE LIENS SECURING SUCH SENIOR DEBT, IN MANNER AND TO THE EXTENT SET FORTH IN
ONE OR MORE SUBORDINATION AGREEMENTS BETWEEN THE HOLDERS OF THIS NOTE AND THE
COMPANY'S SENIOR LENDERS.
Secured Promissory Note
-----------------------
XIONICS DOCUMENT TECHNOLOGIES, INC.
$2,734,000.00 January 1, 1996
For value received, Xionics Document Technologies, Inc., a Delaware
corporation (the "Company"), hereby promises to pay to the order of Phoenix
Technologies Ltd., a Delaware corporation ("Payee"), pursuant to the terms
hereof, the principal sum of Two Million Seven Hundred Thirty-Four Thousand
Dollars ($2,734,000.00), and to pay interest from the date hereof on the unpaid
balance of said principal sum remaining from time to time at an annual rate of
interest of eight percent (8%) (subject to adjustment as provided in Section 3
below). On the fifteenth day after the end of each calendar quarter after the
date hereof, with the first payment due on April 15, 1996, the Company shall pay
to the Payee all unpaid interest on the outstanding principal amount of this
Note that shall have accrued through the last day of such calendar quarter. In
addition to such interest payments, on the fifteenth day after the end of each
calendar quarter commencing with the calendar quarter ending September 30, 1998
and continuing for the next twelve (12) successive calendar quarters, the
Company will pay to the Payee an installment of principal. The first such
installment shall be in the amount of Sixty-Four Thousand Nine Hundred Dollars
($64,900.00); each of the next six (6) installments shall be in the amount of
One Hundred Sixty-Four Thousand Nine Hundred Fifty Dollars ($164,950.00); and
each of the remaining six (6) installments shall be in the amount of Two Hundred
Seventy Nine Thousand Nine Hundred Dollars ($279,900.00). The first installment
of principal shall be due on October 15, 1998. Installments of principal and
interest shall be allocated first to interest and the balance to principal. Any
remaining principal balance, together with interest thereon, shall be payable at
the Maturity Date, as set forth below. Principal and interest shall be payable
in lawful money of the United States of America, at the principal office of the
Payee or at such other place as the legal holder may designate from time to time
in writing to the Company. Interest shall be computed on the basis of a 360-day
year and a 30-day month.
1. The Payee has agreed to cancel and surrender that certain Secured Promissory
Note of the Company in the amount of Three Million Two Hundred Ninety-Nine
Thousand Dollars ($3,299,000) dated August 25, 1995 (the "August Note") in
exchange
<PAGE> 35
for the Company's issuance of this Note and the giving of a release of certain
matters as set forth in a letter agreement effective as of the date hereof
between the Company and the Payee. The Company acknowledges that the Payee has
marked the August Note "CANCELLED" as of January 1, 1996, and has surrendered it
to the Company.
2. MATURITY. Notwithstanding anything to the contrary, the entire unpaid
principal balance of this Note, together with all interest thereon, shall be
immediately due and payable on October 15, 2001 (the "Maturity Date"). Also, on
the date of closing of each sale of capital stock by the Company pursuant to a
registration statement filed by the Company with the Securities and Exchange
Commission in connection with the public offering of the Company's capital
stock, the Company shall pay to the Payee the lesser of (a) the entire unpaid
principal balance of this Note together with all interest thereon and (b)
one-half of the net proceeds (aggregate offering price to the public less
underwriter's discount, legal, accounting and filing fees) of such sale of
capital stock.
3. OVERDUE INTEREST RATE. Upon the occurrence of an Event of Default under
Section 5(a) hereof, interest on all overdue payments (whether of principal or
interest and whether due upon acceleration, scheduled payment or otherwise)
shall thereafter accrue at an annual rate often percent (10%) and be payable on
demand.
4. PREPAYMENT. The principal sum of this Note may be prepaid in whole or in part
by the Company at any time and from time to time without premium or penalty.
5. DEFAULTS. Upon the occurrence of any of the following events (each of which
is herein called an "Event of Default"):
a) default occurs in the payment when due of principal or interest
(whether due upon acceleration, scheduled payment or otherwise) on
this Note and such default continues for a period of seven calendar
days after receipt by the Company of written notice thereof from the
Payee;
b) any representation or warranty made by the Company in this Note, that
certain Asset Purchase Agreement dated as of September 30, 1994
between the Company and the Payee, any Related Agreement (as defined
in the Asset Purchase Agreement), or that certain Securities Purchase
Agreement among the Company, the Payee, and certain other stockholders
of the Company dated August 25, 1995, shall have been false in any
material respect when made;
c) default occurs in the due observance or performance of any covenant,
condition, obligation or agreement contained (1) in this Note; or (2)
in Article X of the Asset Purchase Agreement if the default involves a
Claim for $100,000 or more; or (3) in Section 11.06 or 11.10 of the
Asset Purchase Agreement;
2
<PAGE> 36
d) the Company shall
i) apply for or consent to the appointment of a receiver, trustee or
liquidator of it or any of its property;
ii) admit in writing its inability to pay its debts as they nature;
iii) make a general assignment or trust mortgage for the benefit of
creditors;
iv) commence any proceeding seeking relief under Title 11 of the
United States Code or under any other federal or state
bankruptcy, reorganization, insolvency, readjustment of debt,
dissolution or liquidation law or statute, or file any answer
admitting the material allegations of a petition filed against it in
any proceeding under any such law; or
v) take corporate action for the purpose of effecting any of the
foregoing;
e) there shall be entered against the Company an order of relief under
Title 11 of the United States Code, or any other order, judgment or
decree by any court of competent jurisdiction, approving the
dissolution, liquidation, or winding up of the Company or appointing a
receiver, trustee or liquidator of the Company or of an or a
substantial portion of the assets of the Company; or any petition
seeking an order of relief under Title 11 of the United States Code or
any other such petition is filed against the Company and is not stayed
or dismissed within 90 days after the date of such filing;
f) a final judgment shall be entered against the Company by any court for
the payment of money which, together with all other outstanding
judgments against the Company, exceeds $100,000 in the aggregate (net
of any insurance payments payable with respect thereto), or a warrant
of attachment or execution or similar process shall be issued or
levied against property of the Company which, together with all other
such property of the Company subject to such process exceeds $100,000
in the aggregate, and if, within 90 days after the entry, issue or
levy thereof, such judgment, warrant, or process shall not have been
discharged or stayed pending appeal, or if, within 30 days after the
expiration of any such stay, such judgment, warrant, or process shall
not have been discharged; or
g) default in any instrument governing any "Senior Debt" (as defined
below), if such default results in the acceleration of such Senior
Debt prior to its express maturity
3
<PAGE> 37
then, and in case of each and every such Event of Default, and at any time
thereafter during the continuance of such Event of Default, the holder of this
Note may, by written notice to the Company, declare the entire amount of this
Note forthwith to be due and payable, both as to principal and interest, without
presentment, demand, protest or notice of any kind, all of which are hereby
expressly waived, anything contained herein to the contrary notwithstanding.
6. SECURITY.
a) GRANT OF SECURITY INTEREST.
i) COLLATERAL. For purposes of this Note, the term "Collateral"
shall mean the Purchased Assets as defined in the Asset Purchase
Agreement and any and all additions, accessions and substitutions
thereto or therefor, and proceeds and products thereof.
ii) SECURITY INTEREST TO PAYEE. As security for the payment and
performance of any and all liabilities and obligations (direct or
indirect, absolute or contingent, sole, joint, several, secured or
unsecured, now existing or hereafter arising) of the Company to the
Payee arising under this Note, the Company hereby grants to the Payee
a continuing security interest in the Collateral.
b) FINANCING STATEMENTS AND OTHER ACTION. The Company agrees to do all
actions which the Seller reasonably deems necessary or desirable to
protect and perfect the security interests granted herein or to
otherwise carry out the provisions of this Section 6, including but
not limited to the execution of financing, continuation, amendment and
termination statements under the Uniform Commercial Code, assignments,
and similar instruments, and the procurement of waivers and
disclaimers of interest in the Collateral by the owners of any real
estate (including lessors and mortgagees) on which the Collateral
itself is located The Company hereby appoints the Payee as its
attorney in fact, irrevocably, to do all acts and things which the
Company may be required to do under this Note or which the Payee may
reasonably deem necessary to perfect and continue perfected the
security interests created by this Section 6. This power, being
coupled with an interest, is irrevocable as long as the Company is
indebted to the Payee under this Note. The Company will at the request
of the Payee execute and deliver any and all documents and instruments
and take any and all action as the Payee may reasonably require more
completely to vest in and assure to the Payee the rights under this
Note and/or in any of the Collateral.
c) COMPANY'S PRINCIPAL PLACE OF BUSINESS. The Company represents and
warrants to the Payee that the Company's principal place of business
is
4
<PAGE> 38
located at 70 Blanchard Road, Burlington, Massachusetts. The Company
shall give the Payee prior written notice of any change in the
information contained in this Section 6.
d) LOCATION OF COLLATERAL. The Company hereby represents and warrants to
the Payee that all of the Collateral is located in Burlington,
Massachusetts. The Company covenants that unless the Payee shall have
received at least thirty days prior written notice, none of the
Collateral shall be located at any location other than as set forth in
the preceding sentence or shall be removed from such location, except
in the ordinary course of business.
e) CHANGE OF NAME. ETC. The Company represents and warrants to the Payee
that the Company will not change its name or identity without giving
the Payee at least thirty days prior written notice thereof and, in
connection with any such change, the Company will execute and deliver,
or cause to be executed and delivered, to the Payee all such
additional security agreements, financing statements and other
documents as the Payee shall reasonably request.
f) ENCUMBRANCES. The Company represents and warrants to the Payee that
the Company has good title to the Collateral and that there are no
liens, security interests or other encumbrances against the Collateral
other than those of the Payee granted hereunder and those of the
Company's senior lenders now existing or hereafter arising under the
senior lender's financing and security documents. The Company
covenants to notify promptly the Payee of any claim, lien, security
interest or other encumbrance made against the Collateral and shall
defend the Collateral against any claim, lien, security interest or
other encumbrance adverse to the Payee's interest therein, except
those of the Company's senior lenders now existing or hereafter
arising under the senior lenders' financing and security documents.
g) SALES. The Company shall not sell, lease, transfer or otherwise
dispose of the Collateral or any interest therein, except the granting
of non-exclusive licenses to use the Intellectual Property in the
ordinary course of business, without the prior written consent of the
Payee, or unless the Company pays the Payee immediately on receipt
thereof the net proceeds of such sale, lease, transfer or disposition
and such net proceeds equal at least 85% of the fair market value of
the Collateral sold, leased, transferred or disposed of, nor shall the
Company mortgage, or create a security interest in or lien upon the
Collateral in favor of any person other than the Payee and the
Company's senior lenders to which this Note is subordinate as set
forth herein, or permit anything to be done that may impair, in a
material fashion, the value of the Collateral or the security intended
to be afforded by this Note, except for the granting of security
interests to the Company's senior
5
<PAGE> 39
lenders now existing or hereafter arising under the senior lenders'
financing and security documents as set forth in Section 9. below or
the exercise of rights with respect thereto by such senior lenders.
h) RIGHTS ON DEFAULT WITH RESPECT TO COLLATERAL. If an Event of Default
shall occur, the Payee may:
i) exercise the rights and remedies accorded to a secured party
under the Uniform Commercial Code or other law or under any
instrument or document securing the obligations of the Company to the
Payee (including without limitation thereto the right to take
immediate possession of the Collateral);
ii) perform any warranty, covenant or agreement which the Company has
failed to perform under this Section 6;
iii) take any and all other action which the Payee deems necessary or
desirable to protect the Collateral or the security interests granted
herein.
After an Event of Default, the Company, upon demand by the Payee,
shall assemble the Collateral at the Company's cost and make it
available to the Payee at a place to be reasonably designated by the
Payee. In addition, at the option of the Payee, upon the happening of
any Event of Default, the Payee may pay for insurance on the
Collateral, may pay for the maintenance and repair of the Collateral,
may pay any taxes, assessments or other charges on the Collateral
which it in good faith has determined to be due, and may discharge
any other security interest in or lien upon the Collateral and the
amount of such expenditures shall be added to the indebtedness of the
Company to the Payee under this Note, shall earn interest at the
applicable rate set forth in this Note, and shall be secured by the
security interests granted herein. The Payee shall have no obligation
to the Company to make any such expenditures nor shall the making
thereof relieve the Company of any Event of Default.
The requirement of the Uniform Commercial Code that the Payee give
the Company reasonable notice of any proposed sale or disposition of
the Collateral shall be met if such notice is given at least seven
(7) days before the time of such sale or disposition.
The reasonable expenses of retaking, holding, preparing for sale,
selling and the like incurred by the Payee shall be paid by the
Company to the Payee and shall include, but not be limited to,
reasonable fees of attorneys and legal expenses incurred by the Payee
and the payment thereof shall be secured by this Section 6.
6
<PAGE> 40
i) WAIVERS. The Company hereby waives demand, notice, protest, notice of
acceptance of this Note, notice of Collateral received or delivered or
other action taken in reliance hereon and an other demands and notices
of any description with respect to the Collateral. The Company assents to
any extension or postponement of the time of payment or any other
indulgence, to any substitution, exchange or release of Collateral to the
addition or release of any party or person primarily or secondarily liable,
to the acceptance of partial payment thereof and the settlement,
compromising or adjusting thereof, all in such manner and at such time or
times as the Payee may deem advisable. The Payee may exercise its rights
with respect to the Collateral without resorting to and without regard to
other collateral or sources for reimbursement for liability. The Payee
shall not be deemed to have waived any of its rights on or under any
obligation of the Company to the Payee or the Collateral unless such waiver
is in writing and signed by the Payee. No delay or omission on the part of
the Payee in exercising any right with respect to the Collateral shall
operate as a waive of such right or any other right. A waiver on any one
occasion shall not be construed as a bar to or waiver of any right on any
future occasion. All rights and remedies of the Payee with respect to the
Collateral shall be cumulative and may be exercised separately or
concurrently.
7. COSTS OF COLLECTION. In case any payment herein provided for shall not be
paid when due, the Company further promises to pay all costs of collection,
including but not limited to an reasonable attorneys' fees.
8. SET-OFF. The Company may, without limitation of any of its other remedies
hereunder, under the Asset Purchase Agreement or otherwise, set off against any
amount due to the Payee under this Note the full amount of any payment
obligation of the Payee to the Company under the Asset Purchase Agreement or any
Related Agreement that has come due but has not been paid but only if (i) the
Company shall have provided the Payee with written notice (the "Set-Off Notice")
of its intention to set off amounts due to the Payee not less than 15 days prior
to setting off any such amount, and (ii) the Set-Off Notice shall set forth in
reasonable detail the nature of such claim and the amount of the payment
obligation to be set off, and (iii) the Payee shall have failed to cure or
resolve the matters relating to such set-off claim prior to the date any such
amounts to be set off would otherwise be required to be paid to the Company, and
(iv) the Company's board of directors has (a) determined in good faith that such
a set-off is permitted under this Section 8 and (b) has voted at a meeting of
such board of directors, or by unanimous written consent in lieu of meeting, to
make such set-off. The Company's rights set forth in this Section 8 shall in no
way be construed as limiting the Payee's right to challenge any set-off claimed
or asserted by the Company. In the event that the Payee disputes the Company's
right of set-off and the Payee ultimately prevails in such dispute, the Company
shall pay to Payee the amount improperly set off plus interest thereon at the
rate of 24% per annum or the highest rate allowed by law, whichever is lower,
compounded monthly.
7
<PAGE> 41
Except as expressly permitted by this Section 8, the Company shall make all
payments due under this Note without set-off, deduction or withholding.
9. SUBORDINATION. This Note and the liens securing the Company's obligations
hereunder, shall be subordinate to the Company's "Senior Debt" (as that term is
defined in Exhibit B attached hereto) and the liens securing the Company's
obligations with respect to such Senior Debt, to the extent and as set forth in
such Exhibit. Upon the execution of senior financing agreements from time to
time by the Company, the Payee agrees to execute and deliver such subordination
agreements as may be required by the Company's senior lender, to subordinate the
obligations of the Company to the Payee under this Note, and all liens securing
such obligations, to such Senior Debt, and the liens securing the same, all
substantially on the terms set forth in Exhibit B attached hereto.
10. CONVERSION OF PRINCIPAL TO CLASS C PREFERRED STOCK. The Payee has the right
to convert up to Three Hundred Forty Thousand Dollars ($340,000.00) of the
principal amount of this Note to shares of the Company's Class C Preferred
Stock, at a price of Two Dollars and Ninety and Sixty-five Hundredths Cents
($2.9065) per share, by giving written notice to the Company on or before June
30, 1998. In the event the Payee exercises this option, the Company will pay
accrued interest on the principal amount converted up through the date of
conversion. The Company covenants to keep 116,979 shares of its authorized Class
C Preferred Stock reserved against the Payee's exercise of this option through
June 30, 1998.
11. DEFINITIONS. Those capitalized terms not defined herein shall have the
meanings accorded to them in the Asset Purchase Agreement.
12. GOVERNING LAW. This Note shall be governed by, and construed in accordance
with, the laws of the Commonwealth of Massachusetts, excluding its conflict of
law rules, and shall have the effect of a sealed instrument.
XIONICS DOCUMENT TECHNOLOGIES, INC.
By: /s/ Gerard T. Feeney
------------------------------------
Name: Gerard T. Feeney
----------------------------------
Title: CFO
---------------------------------
<PAGE> 42
[XIONICS letterhead]
EXHIBIT A
---------
February 1, 1996
Phoenix Technologies Ltd.
2770 De La Cruz Boulevard
Santa Clara, CA 95050
Re: Resolution of Lexmark Prepaid Royalty Issue
-------------------------------------------
Gentlemen:
This will confirm our understanding and agreement regarding the resolution of
the above-referenced matter.
Phoenix Technologies Ltd. ("Phoenix") agrees to cancel that certain
$3,299,000.00 promissory note dated August 25, 1995 from Xionics Document
Technologies, Inc. ("Xionics") in favor of Phoenix and to accept a new
promissory note from Xionics in the principal amount of $2,734,000.00
(representing a reduction of principal in the amount of $565,000.00) in lieu
thereof. In consideration of such reduction of principal, Xionics hereby
releases Phoenix from any and all claims Xionics may have against Phoenix
arising out of Phoenix's failure to disclose the correct amount of prepaid
royalties attributable to Lexmark International, Inc. as part of that certain
Asset Purchase Agreement by and between Phoenix and Xionics dated as of
September 30, 1994. Such cancellation of the August 25, 1995 note, issuance of
the new note and release are all effective as of January 1, 1996.
Please indicate your acceptance of the above by signing both copies of this
letter in the space provided below and returning one to Xionics, keeping the
other for your records.
Very truly yours,
XIONICS DOCUMENT TECHNOLOGIES, INC.
/s/ Gerard T. Feeney
- ------------------------------
Gerard T. Feeney
Chief Financial Officer
AGREED TO AND ACCEPTED
Phoenix Technologies Ltd.
By:___________________________ Date:_______________________
<PAGE> 43
EXHIBIT B
---------
TERMS OF SUBORDINATION
----------------------
The Company's obligations to Seller under this Note ("JUNIOR OBLIGATIONS"),
and the liens in favor of Seller securing such obligations ("Junior Liens"),
shall be subordinate and junior to the Company's obligations under one or more
working capital lines of credit and bank financing arrangements ("SENIOR DEBT"),
and to the liens from time to time securing such obligations ("SENIOR LIENS") on
the terms set forth herein.
1. PAYMENT BLOCKAGE UPON PAYMENT DEFAULT. During the continuance of any
payment event of default under the instruments governing any Senior Debt
("PAYMENT DEFAULT"), the Company will not make, and no holder of Junior
Obligations will accept, any payment or other distribution on account of such
Junior Obligations.
2. BLOCKAGE PERIOD UPON COVENANT DEFAULT. During the continuance of any
default or event of default under the instruments governing any Senior Debt
(other than a Payment Default) ("NON-PAYMENT DEFAULT"), the holder of Senior
Debt may, by giving a notice to the Company and the holder of the Junior
Obligations of such default or event of default, block payments or distributions
on account of Junior Obligations for up to 180 days in any period of 365
consecutive days.
3. REMEDY BLOCKAGE PERIOD. During the continuance of any Payment Default or
Non-Payment Default, the holder of Senior Debt may, by giving a notice to the
Company and the holder of the Junior Obligations of such Payment Default or
Non-Payment Default, block any enforcement action in respect of the Junior
Obligations by the holder thereof for up to 180 days in any period of 365
consecutive days, PROVIDED, that if the Senior Debt is accelerated, the holder
of Junior Obligations may give notices of default and/or accelerate the Junior
Obligations during any such blockage period, but may not take any further
enforcement action.
4. JUNIOR LIENS SUBORDINATED. The Junior Liens shall be subordinated to the
Senior Liens in all respects. All proceeds of any sale of any property covered
by any Senior Liens shall be paid to the holder of Senior Debt until all Senior
Debt is paid in full.
<PAGE> 1
EXHIBIT 10.11
LEASE
ONE TWENTY EIGHT CORPORATE CENTER
70 BLANCHARD ROAD
BURLINGTON, MASSACHUSETTS
LANDLORD: E&F REALTY ASSOCIATES LIMITED PARTNERSHIP
TENANT: XIONICS International Holding Inc.
Two Corporation Way
Peabody, Massachusetts 01960
PREMISES: 30,000 Rentable Square Feet on the First and Fifth Floors
DATED: November 29, 1994
<PAGE> 2
Table of Contents
----------------- Page
Exhibit 1 ----
1. Reference Data 1
2. Description of Demised Premises 3
2.1 Demised Premises 3
2.2 Appurtenant Rights 3
2.3 Exclusions and Reservations 3
3. Term of Lease 4
3.1 Definitions 4
3.2 Habendum 4
3.3 Declaration Fixing Term Commencement Date 4
3.4 Tenant's Option to Extend 4
3.5 Right of 1st Refusal 5
3.6 Tenant's Right of First Offer for Additional Space 5
4. Readiness for Occupancy - Entry by Tenant Prior
to Term Commencement Date 6
4.1 Condition of Premises 6
5. Use of Premises 6
5.1 Permitted Use 6
5.2 Prohibited Uses 6
5.3 Licenses and Permits 6
6. Rent 6
6.1 Rent 6
6.2 Intentionally Omitted -
7. Rentable Area 7
8. Services Furnished by Landlord 7
8.1 Electric Current 7
8.2 Water 8
8.3 Elevators, Heat, Cleaning 8
8.4 Air Conditioning 9
8.5 Additional Heat, Air Conditioning Services 9
i
<PAGE> 3
8.6 Additional Air Conditioning Equipment 10
8.7 Food Service Facility 10
8.8 Security 10
8.9 Repairs 10
8.10 Interruption or Curtailment of Services 10
8.11 Energy Conservation 11
8.12 Showers 11
9. Escalation 11
9.1 Definitions 11
9.2 Tax Excess 14
9.3 Operating Expense Excess 15
9.4 Part Years 15
9.5 Effect of Taking 15
9.6 Survival 15
10. Changes or Alterations by Landlord 15
10.1 Changes or Alterations 15
10.2 Intentionally Omitted -
11. Fixtures, Equipment and Improvements -
Removal by Tenant 16
12. Alterations and Improvements by Tenant 16
13. Tenants Covenants and Agreements, Tenant's
Contractors - Mechanics' and Other Liens -
Standard of Tenant's Performance -
Compliance with Laws 17
14. Tenant Repairs 18
14.1 Repairs by Tenant 18
14.2 Floor Load - Heavy Machinery 18
15. Insurance, Indemnification, Exoneration and
Exculpation 18
15.1 General Liability Insurance 18
15.2 Certificates of Insurance 19
15.3 General 19
15.4 Property of Tenant 20
15.5 Bursting of Pipes, etc. 20
15.6 Repairs and Alterations - No Diminution
of Rental Value 20
16. Assignment, Mortgaging and Subletting 20
ii
<PAGE> 4
17. Miscellaneous Covenants 22
17.1 Rules and Regulations 22
17.2 Access to Premises 22
17.3 Accidents to Sanitary and other Systems 23
17.4 Signs, Blinds and Drapes 23
17.5 Estoppel Certificate 25
17.6 Prohibited Materials and Property 25
17.7 Legal Requirements 25
17.8 Tenant's Acts - Effect on Insurance 25
17.9 Miscellaneous 26
18. Damage by Fire, Etc. 26
19. Waiver of Subrogation 27
20. Condemnation - Eminent Domain 29
21. Default 29
21.1 Conditions of Limitation - Re-Entry
Termination 29
21.2 Damages - Assignment for Benefit of Creditors 30
21.3 Damages - Termination 30
21.4 Fees and Expenses 31
21.5 Waiver of Redemption 31
21.6 Landlord's Remedies Not Exclusive 32
21.7 Grace Period 32
21.8 Abandonment 32
22. End of Term - Abandoned Property 32
23. Subordination 33
24. Quiet Enjoyment 35
25. Entire Agreement - Waiver Surrender 35
25.1 Entire Agreement 35
25.2 Waiver by Landlord 36
25.3 Surrender 36
26. Inability to Perform - Exculpatory Clause 36
27. Bills and Notices 37
28. Parties Bound - Seisin of Title 38
iii
<PAGE> 5
29. Miscellaneous 38
29.1 Separability 38
29.2 Captions, Etc. 38
29.3 Broker 38
29.4 Modifications 38
29.5 Governing Law 39
29.6 Assignment of Rents 39
29.7 Representation of Authority 39
29.8 Non-Disturbance Agreement 39
30. Signiture Page 40
Exhibit 2 & 2A Demising Plan's N/A
Exhibit 3 Cleaning Services Provided by Landlord 41
iv
<PAGE> 6
EXHIBIT 1, SHEET 1
128 Corporate Center
70 Blanchard Road
Burlington, Massachusetts 01803
("the Building")
Execution
Date: November 29, 1994
Tenant: XIONICS, a Delaware corporation
International Holdings Inc.
70 Blanchard Rd.
Burlington, MA
Landlord: E&F REALTY ASSOCIATES LIMITED PARTNERSHIP organized under the
laws of the Commonwealth of Massachusetts; General Partner is E&F
REALTY CORPORATION.
Building: The building in the Town of Burlington, Middlesex County, Commonwealth
of Massachusetts and known as 128 Corporate Center as shown on a plan
entitled "Plan of Land in Burlington, Massachusetts" dated December
28, 1984 by Harry R. Feldman, Inc. recorded with the Middlesex South
Registry of Deeds as Plan No. 994 of 1985 in Book 16319, Page 445
Art. 2 Premises: The entire rentable area on the fifth (5th) floor of the
building and the area on the first (lst) floor as shown on the lease
plan, which areas are agreed to contain 23,260 and 6,740 rentable
square feet respectively, totalling 30,000 rentable square feet.
Art. 3.1 Term Commencement Date: JANUARY 1, 1995 Landlord and Tenant agree to
waive first months rent (January 1995) except
for electricity as an inducement to the Tenant
to sign this lease.
Art. 3.2 Termination Date: DECEMBER 31, 1999 unless extended as
hereinafter set forth.
Art. 4.3 Final Plans Date: N/A
Art. 5 Use of Premises: Office space and uses incidental thereto.
General office (5th floor) and storage and
testing for image acceleration products.
1
<PAGE> 7
EXHIBIT 1, SHEET 2
Art. 6 Rent: Per R.S.F. Yearly Rent Monthly Payment
---------- ----------- ---------------
$15.00 $450,000.00 $37,500.00
Security Deposit: $ 37,500.00
Security Deposit plus first months rent to be paid at time of
signing of this Lease. No interest will accrue on security
deposit throughout lease.
Art. 7 Total Rentable Area (Premises): 30,000 square feet.
Art. 8 Electric current will be furnished by Landlord to Tenant but paid for
by tenant. beginning on the 1st day of use by the Tenant for any
purpose or the commencement date whichever is earlier.
Art. 9 Operating and Tax Escalations:
Operating Costs after the Base Year 1995.
Tax Base: Fiscal year ending June 30, 1995.
Tenant's Proportionate Share: 28.6%
Art. 29.3 Brokers:
Leggat-McCall, Grubb & Ellis and Lynch, Murphy, Walsh & Partners.
LANDLORD: TENANT:
E&F REALTY ASSOCIATES XIONICS INTERNATIONAL
LIMITED PARTNERSHIP HOLDING INC.
By: E&F REALTY, CORPORATION,
GENERAL PARTNER
By: /s/ Eleanor Pao By: /s/ Gerard T. Feeney
-------------------------- -------------------------
ELEANOR PAO, PRESIDENT GERARD T. FEENEY, VICE PRESIDENT
FINANCE & OPERATIONS, CFO
HEREUNTO DULY AUTHORIZED
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THIS INDENTURE OF LEASE made and entered into on the Execution Date as
stated in Exhibit 1 and between the Landlord and the Tenant named in Exhibit 1.
Landlord does hereby demise and lease to Tenant, and Tenant does hereby hire and
take from Landlord, the premises hereinafter mentioned and described
(hereinafter referred to as "premises"), upon and subject to the covenants,
agreements, terms, provisions and conditions of this Lease for the term
hereinafter stated:
1. REFERENCE DATA
Each reference in his Lease to any of the terms and contained in any
Exhibit attached to this Lease shall be deemed and construed to incorporate the
data stated under that term or title in such Exhibit.
2. DESCRIPTION OF DEMISED PREMISES
2.1 DEMISED PREMISES. The demised premises are that portion of the building
as described in Exhibit 1 (as such building may from time to time be constituted
after changes therein, additions, thereto and eliminations therefrom pursuant to
rights of Landlord hereinafter reserved) and is hereinafter referred to as
"Building", substantially as shown hatched or outlined on the Lease Plan
(Exhibit 2) hereto attached and incorporated by reference as a part hereof.
2.2 APPURTENANT RIGHTS. Tenant shall have, as appurtenant to the premises,
rights to use in common, with others entitled thereto, subject to reasonable
nondiscriminatory rules from time to time made by Landlord of which Tenant is
given notice: (a) the common lobbies, hallways, stairways, elevators, loading
docks, food service facility and showers of the Building, serving the premises
in common with others, (b) common walkways necessary for access to the Building,
(c) Tenant's Proportionate Share of the parking spaces (which is 99 spaces)
within the parking lot of the Building (as the same now exists or may hereafter
be expanded by Landlord) on an exclusive basis, and (d) if the premises include
less than the entire rentable area of any floor, the common toilets and other
common facilities of such floor; and no other appurtenant rights or easements.
2.3 EXCLUSIONS AND RESERVATIONS. All the perimeter walls of the premises
except the inner surfaces thereof, terraces or roofs adjacent to the premises,
and any space in or adjacent to the premises used for shafts, stacks, pipes,
conduits, wires and appurtenant fixtures, fan rooms, ducts, electric or other
utilities, sinks or other Building facilities, and the use thereof, as well as
the right of access through the premises for the purposes of operation,
maintenance, and repair, are expressly excluded from the premises and reserved
to Landlord. Landlord's right of access in the premises shall only be exercised
after reasonable advance notice (written or oral) to Tenant (except in
emergencies) and shall be exercised so as to reasonably minimize interference
with Tenant's conduct of its business in the premises.
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3. TERM OF LEASE
3.1 DEFINITIONS. As used in this Lease the words and terms which follow
mean and include the following:
(a) Term Commencement Date - The date stated in Exhibit 1,
3.2 HABENDUM. TO HAVE AND TO HOLD the premises for a term of years
commencing on the Term Commencement Date and ending on the Termination Date as
stated in Exhibit 1 or on such earlier or later date upon which said term may
expire or be terminated pursuant to any of the conditions of limitation or other
provisions of this Lease or pursuant to law (which date for the termination of
the term hereof will hereafter be called "Termination Date"). Notwithstanding
the foregoing, if the Termination Date as stated in Exhibit 1 shall fall on
other than the last day of a calendar month, said Termination Date shall be
deemed to be the last day of the calendar month in which said Termination Date
occurs.
3.3 DECLARATION FIXING TERM COMMENCEMENT DATE. Each of the parties hereto
agrees upon demand of the other party to join in the execution, in recordable
form, of a statutory notice of lease and/or written declaration in which shall
be stated such Term Commencement Date and (if need be) the Termination Date. If
this Lease is terminated before the term expires, then upon Landlord's request,
the parties shall execute, deliver and record an instrument acknowledging such
fact and the date of termination of this Lease, and Tenant hereby appoints
Landlord its attorney-in-fact in its name and behalf to execute such instrument
after the term has in fact been terminated, and Tenant shall have failed to
execute and deliver such instrument after Landlord's request therefor within ten
(10) days.
3.4 TENANT'S OPTION TO EXTEND. Tenant shall have one option, to be
exercised as hereinafter provided, to extend the term of this Lease for a period
of three years (the "Extended Term") upon the condition that, on the last date
on which Tenant is entitled to exercise such option and on the last day of the
then current term hereof, this Lease is in full force and effect and no event of
default (including the expiration of any grace and notice periods) described in
Section 21 hereof has occurred and is continuing. Tenant shall exercise such
option by giving written notice thereof to Landlord not more than twenty-four
(24) nor less than nine (9) months prior to the expiration of the then current
term. Upon such exercise, the term of this lease shall be automatically extended
for a period of three years upon all of the same terms, provisions and
conditions set forth in this Lease, except that the Yearly Rent hereunder shall
be the greater of the then fair market rent or the highest rent called for
during the base term of this lease, and Tenant shall have no additional option
to extend the term hereof. In the event the parties are unable to agree on what
the fair market rent of the premises then is, such shall be determined by
arbitration. If the parties are unable to agree on one arbitrator, then each
party shall nominate and appoint one arbitrator and the two arbitrators so
appointed shall select a third arbitrator. The fair market rent shall be as
determined by a majority of the arbitrators and in the event that two of the
arbitrators cannot agree on what the fair market rent is, said fair market rent
shall be determined by averaging the three figures which each of the arbitrators
determine to be the fair market rent. This option to extend shall be null and
void if the Tenant either sublets the premises, or any part thereof, or assigns
the Lease. Notwithstanding the above, this option is not void if the event
described in Section 16 (d) occurs.
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3.5 RIGHT OF FIRST REFUSAL 1ST FLOOR ADJACENT SPACE. Provided that no event
of default (including the expiration of any grace and notice periods) described
in Section 21 has occurred and is continuing, Tenant shall have a right of first
refusal to lease the remaining vacant space totaling 4,635 rentable square feet
on the first floor of the Building (the available space) as provided in this
Section 3.5. Before entering into any lease of the available space, Landlord
shall deliver to Tenant a written notice (the Lease Notice indicating another
party has expressed interest in leasing the available space). If Tenant wishes
to exercise Tenant's right of first refusal, Tenant shall do so by delivering to
Landlord, within five (5) days after delivery of the Lease Notice, a written
notice (the "Notice of Exercise") of Tenant's election lease the Available
Space. If Tenant shall give such Lease Notice, the Available Space shall be
deemed added to the premises effective as of receipt of the Notice of Exercise
on all the same terms and conditions of this Lease except that (A) the yearly
rent becomes $519,525/year and $43,293.75/month and (B) Tenants proportionate
share shall be 33%. If Tenant shall not exercise such right within such period,
or June 30, 1995, whichever is sooner, time being of the essence in respect to
such exercise, this Section 3.5 becomes null and void and Landlord shall be free
to enter into a lease of the Available Space with any other prospective tenant,
without any further offer to Tenant, upon any terms and conditions. The rights
granted in this Section 3.5 are intended for the sole benefit of XIONICS so long
as it is the major tenant in the Building and shall expire if and when (a) this
Lease or any interest herein or therein is assigned to any person or entity or
(b) XIONICS, itself, fails to occupy for the conduct of its business at least
30,000 rentable square feet of space in the Building.
3.6 TENANT'S RIGHT OF FIRST OFFER FOR ADDITIONAL SPACE.
(a) Landlord covenants and agrees with Tenant that if during the Term any
other space in the Building is available for leasing and Landlord intends such
space, then prior to making any offer to lease to a prospective tenant or
listing such space with a broker for lease, Landlord shall give notice to Tenant
of such intention setting forth the terms on which such space will be offered
("Offer Notice") and Tenant shall have the option, subject to the provisions set
forth in this paragraph, exercisable only be notice given to Landlord within
five (5) days from the receipt of the Offer Notice, to lease such space, for the
rent and other terms and conditions as described in the Offer Notice. Tenant
must accept any such offer to lease within five (5) days from receipt of the
Offer Notice by giving written notice of such acceptance to Landlord accompanied
by a deposit check payable to Landlord in the amount of the first month's rent
as set forth in the terms of the lease of such space.
(b) If any such offer is not so accepted by Tenant prior to five o'clock
p.m. on the fifth (5th) day after receipt of such Offer Notice, or if Tenant
shall have accepted such offer but failed to timely execute a lease or lease
amendment evidencing such acceptance, then such offer or the acceptance thereof
shall be null and void and of no further force or effect, and in such event
Tenant agrees on request of Landlord to promptly execute an instrument in
recordable form which recites that such option has not been exercised by Tenant
and is of no further force or effect. Thereafter, Landlord shall be free to
lease such space to any other party, provided that the rent is equal to at least
eighty percent (85%) of the rent set forth in the Offer Notice.
(c) Tenant recognizes and agrees that Landlord shall be under no obligation
to solicit or obtain any other tenant of such space, or receive any written
offer or commitment in order to comply with the requirements of this paragraph.
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(d) The terms of this Section 3.6 shall not apply to any offer, proposal,
lease or assignment by Landlord to or for any entity controlled by Landlord or
by any member of Landlord's immediate family. The terms of this Section shall
also not apply to any mortgagee or any party which purchases the Building at a
foreclosure sale or by deed in lieu of foreclosure.
4. READINESS FOR OCCUPANCY - ENTRY BY TENANT PRIOR TO TERM COMMENCEMENT DATE
4.1 CONDITION OF PREMISES. Except as hereinafter provided in this
paragraph, the Tenant is familiar with the physical condition of the premises
and the Building, and Tenant takes the premises in its "as is" condition. The
Landlord represents the premises are not in violation of the provisions of the
Americans With Disabilities Act, but otherwise, the Landlord has made and makes
no representation or warranty in connection with the condition of the premises
or the Building, and, except for obligations of the Landlord that are expressly
contained in this Lease, the Landlord shall not be liable for any latent or
patent defects in the Building or the premises. Notwithstanding the foregoing,
Landlord agrees to paint the walls using the matching color on the fifth floor
and touch up the walls on the first floor and to steam clean the carpets.
5. USE OF PREMISES
5.1 PERMITTED USE. Tenant may use the premises only for the purposes as
stated in Exhibit 1 and for no other purposes.
5.2 PROHIBITED USES. Notwithstanding any other provision of this Lease,
Tenant shall not use, or suffer or permit the use or occupancy of, or suffer or
permit anything to be done in or anything to be brought into or kept in or about
the premises or the Building or any part thereof (i) which would violate any of
the covenants, agreements, terms, provisions and conditions of this Lease; (ii)
for any unlawful purposes or in any unlawful manner; (iii) which, in the
reasonable judgment of Landlord shall materially (a) impair the reputation of
the Building or (b) impair, interfere with or otherwise diminish the quality of
any of the Building services or the proper and economic heating, cleaning, air
conditioning or other servicing of the Building or premises, or with the use or
occupancy of any of the other areas of the Building; or (iv) which is
inconsistent with the maintenance of the Building as an office building of the
first class in the quality of its maintenance, use, or occupancy.
5.3 LICENSES AND PERMITS. If any governmental license or permit shall be
required for the proper and lawful conduct of Tenant's business, and if the
failure to secure such license or permit would in any way affect Landlord, the
premises, the Building or Tenant's ability to perform any of its obligations
under this Lease, Tenant, at Tenant's expense, shall at dully procure and
thereafter maintain such license and submit the same to inspection by the
Landlord. Tenant, at Tenant's expense, shall at all times comply with the terms
and conditions of each such license or permit. Without limiting the foregoing,
Tenant shall, at its own cost and expense, obtain a certificate of occupancy
permitting the premises to be used for the Permitted Uses.
6. RENT
6.1 RENT. During the term of this Lease, the Yearly Rent and other charges
at the rate stated in Exhibit 1, shall be payable by Tenant to Landlord by
monthly payments, as stated in Exhibit 1, in advance and without demand on the
first day of each month for and in respect
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of such month. Yearly rent for JANUARY 1995 IS WAIVED BY THE LANDLORD and the
February rent and Security Deposit shall be paid at the signing of this Lease.
ALL OTHER CHARGES RESERVED AND COVENANTED TO BE PAID UNDER THIS LEASE SHALL
COMMENCE ON THE TERM COMMENCEMENT DATE. If by reason of any provisions of this
Lease, the rent reserved hereunder shall commence or terminate on any day other
than the first day of a calendar month, the rent for such calendar month shall
be prorated. The rent shall be payable to Landlord, or if Landlord shall so
direct in writing, to Landlord's agent or nominee, in lawful money of the United
States which shall be legal tender for payment of all debts and dues, public and
private, at the time of payment, at the office of Landlord or such place as
Landlord may designate, and the rent and other charges in all circumstances
shall be payable without any set off or deduction whatsoever. Rental and any
other sums due hereunder not paid within ten (10) days after the due date shall
bear interest for each month or fraction thereof from the due date until paid
computed at the annual rate of four (4) percentage points over the so-called
"prime rate" then currently from time to time charged by Bank of Boston to its
most favored corporate customers, or at any applicable lesser maximum legally
permissible rate for debts of this nature. In the event that the foregoing "base
rate" becomes unascertainable for any reason, the Landlord shall designate a
comparable rate which shall be deemed to be the "base rate" for the purpose of
computing the applicable interest rate pursuant to the immediately preceding
sentence.
7. RENTABLE AREA
The Total Rentable Area of the premises is indicated in Exhibit 1 hereof.
Any computation of Rentable Area required by the terms of this Lease shall be
performed in a manner consistent with the computation of the Total Rentable Area
of the Premises as specified in said Exhibit 1.
8. SERVICES FURNISHED BY LANDLORD
8.1 ELECTRIC CURRENT.
(a) Landlord will furnish to Tenant electric current for the operation of
lighting fixtures, the 120-volt electrical outlets initially installed in the
premises in accordance with plans approved by Landlord and such other
installations and facilities as may thereafter be approved by the Landlord,
provided that Tenant shall pay the costs of the same in accordance with
Landlord's submetering system at the rates charged to Landlord by the public
utility furnishing such electric current. Landlord shall provide a so-called
check meter to measure electricity consumption in the demised premises. Such
check meter shall be installed, at Landlord's cost, in conjunction with the
initial construction in the premises. At the request of a Tenant receiving an
apportionment of the cost of electricity measured by a particular meter or
submeter, Landlord shall conduct an electrical audit at such Tenant's expense
and shall reapportion the cost of electricity among tenants occupying the space
covered by the applicable meter or submeter if such audit demonstrates that one
or more of said tenants are utilizing electricity at a level disproportionate to
the proportion of the square footage that it or they occupy. Tenant shall pay
for the electricity so provided to the premises within fifteen (15) days after
receipt from Landlord of a bill therefor accompanied by evidence of the charges
therefor payable by Landlord. Notwithstanding the above, the landlord has the
right to maintain a check meter on the 1st floor and to apportion the Electric
Cost based on a prorata share of the square feet footage occupied by XIONICS and
the adjacent tenant should XIONICS choose not to expand as allowed in Article
3.5.
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(b) Landlord, at its option at any time, may require separate metering and
direct biling to Tenant for the electric power required for any special
equipment (such as computers and reproduction equipment that requires either
3-phase electric power or any voltage other than 120 and is not installed
as part of the initial construction of the premises.
(c) Intentionally omitted.
(d) Intentionally omitted.
(e) Landlord, at Tenant's expense and upon Tenant's request, shall purchase
and install all replacement lamps of types generally commercially available
(including, but not limited to incandescent and flourescent) used in the
Premises. All lamps shall be in good working order at the time of the
commencement of the lease.
(f) Landlord shall not in any way be liable or responsible to Tenant for
any loss, damage or expense which Tenant may sustain or incur if the quantity,
character or supply of electrical energy is changed or is no longer available or
suitable for Tenant's requirements, provided that such change or lack of
availability or suitability results from causes beyond ??????????????????????
?????????????????????? any action whatsoever to prevent such change or to assure
availability or suitablility unless it receives ???? ?????? ???????????????.
(g) Tenant agrees that it will not make any material alteration or material
addition to electrical equipment and/or appliances in the premises without the
prior written consent of Landlord in each instance first obtained, which
consent will not be unreasonably withheld, and will promptly advise Landlord of
any other alteration or addition to such electrical equipment and/or appliances.
8.2 Water. Landlord shall furnish hot and cold water for ordinary premises
cleaning, toilet, lavatory and ?????? purposes. ?????? ?????? ???????? water
for any purpose other than for the aforementioned purposes. Landlord may (i)
asses a reasonable charge for the additional water used or consumed by Tenant or
to install a water meter and thereby measure Tenant's water consumption for all
purposes.
In the latter event, Tenant shall pay, the cost of the meter and the cost of
installation thereof and shall keep said meter and installation equipment in
good working order and repair. Tenant agrees to pay for water consumed as sho??
?said meter together with the sewer charge based ????????????????? ???????????
in making such payment Landlord may pay such charges and collect the same from
Tenant. If Landlord so separately meters Tenant's water consumption. Operating
Costs shall thereafter exclude any changes to water and sewer charges
attributable to space leased to other tenants. All piping and other equipment
and facilities for use of water outside the building core will be installed and
maintained by Landlord at Tenant's sole cost and expense.
8.3 Elevtors, Heat, Cleaning.
(a) Landlord, at its expense shall: (i) provide necessary elevator
facilities (which may be manually or automatically operated, either or both, as
Landlord may from time to time elect) on Mondays through Fridays, from 7:00
a.m., to 6:30 p.m., and on Saturdays, from 8:00 a.m.
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to 2:00 p.m., excepting legal holidays (called "business days") and have one
elevator in operation available for Tenant's use, non-exclusively, together with
others having business in the Building, at all other times; (ii) furnish heat
(sufficient to maintain the premises at reasonably comfortable temperatures and
in any event at least substantially equivalent to that being furnished in
comparably aged similarly equipped office buildings in the Town of Burlington)
to the premises during the normal heating season on business days; and (iii)
cause the office areas, bathrooms and other habitable areas of the premises to
be cleaned on business days (except on Saturdays) provided the same are kept in
order by Tenant and provided further that Tenant shall be solely responsible for
cleaning all sinks installed in the premises. Exhibit 3 shall represent
substantially the extent and scope of the cleaning by Landlord referred to in
this Article 8.3. Landlord reserves the right reasonably to increase the hours
during which it will provide heat, air conditioning and other Building services
to its tenants.
(b) The parties agree and acknowledge that, despite reasonable precautions
in selecting cleaning and maintenance contractors and personnel, any property or
equipment in the premises of a delicate, fragile or vulnerable nature may
nevertheless be damaged in the course of cleaning and maintenance services being
performed. Accordingly, Tenant shall take reasonable protective precautions with
such property and equipment (including, without limitation, computers or other
data processing components or equipment and optical or electronic equipment,
etc.) E.G., housing the property and equipment in a separate, locked room, so as
to render it inaccessible to the Building's cleaning personnel.
8.4 AIR CONDITIONING. Landlord shall through the air conditioning equipment
of the Building furnish to and distribute in the premises air conditioning as
normal seasonal changes may require to maintain the premises at reasonably
comfortable temperatures (subject to the design capacity of the air conditioning
system) on business days during the hours as aforesaid in Article 8.3 when air
conditioning may reasonably be required for the comfortable occupancy of the
premises by Tenant. The air conditioning system referred to in this Article 8.4
shall be capable of providing 78 degrees fahrenheit dry bulb with outside
conditions of 92 degrees Fahrenheit dry bulb and 74 degrees fahrenheit wet bulb.
The foregoing design conditions shall be based upon an occupancy within each
separately partitioned area in the premises of not more than one person per 100
square feet of Net Rentable Area and a combined lighting and standard electrical
load not to exceed 2-1/2 watts per square foot of Net Rentable Area.
8.5 ADDITIONAL HEAT, CLEANING AND AIR CONDITIONING SERVICES.
(a) Landlord shall upon reasonable advance written notice from Tenant to
Landlord or its designated management contractor before 4:00 p.m., Mondays
through Fridays (in no event less than 24 hours) of its requirements in that
regard, furnish additional heat, cleaning or air conditioning services to the
premises on days and at times other than as above provided.
(b) Tenant will pay to Landlord a reasonable charge (i) for any such
additional heat, cleaning or air conditioning service required by Tenant, (ii)
for any extra cleaning of the premises required because of the carelessness or
indifference of Tenant or because of the unusual nature of Tenant's business,
and (iii) for any cleaning done at the request of Tenant of any portions of the
premises which may be used for storage, shipping room or other non-office
purposes. If the cost to Landlord for cleaning the premises shall be increased
due to the installation in the premises, at Tenant's request, of any materials
or finish other than those which are building standard, Tenant shall pay to
Landlord an amount equal to such increase in cost.
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8.6 ADDITIONAL AIR CONDITIONING EQUIPMENT. In the event Tenant requires
additional air conditioning for business machines, meeting rooms or other
special purposes, or because of occupancy or excess electrical loads, any
additional air conditioning units, chillers, condensers, compressors, ducts,
piping and other equipment so required will be installed and maintained by
Landlord at Tenant's sole cost and expense but only if, in Landlord's reasonable
judgment, the same will not cause damage or injury to the Building or create a
dangerous or hazardous condition or entail excessive or unreasonable
alterations, repairs or expense or interfere with or disturb other tenants; and
Tenant shall reimburse Landlord in such an amount as will compensate it for the
cost incurred by it in operating such additional air conditioning equipment.
8.7 FOOD SERVICE FACILITY. Except as otherwise provided herein, Landlord
shall furnish, on the first floor of the Building, a cafeteria food service
facility, the nature and operation of which shall be determined by Landlord in
its reasonable discretion. Such cafeteria food service facility shall be
available to Tenant's employees and others, and shall be subject to reasonable
rules and regulations promulgated from time to time by Landlord. Landlord shall
determine, in its absolute and sole discretion, the price which will be charged
for the food and other services provided at such facility. Tenant shall not pay
as part of operating Costs (as defined in Section 9) any part of (a) the cost of
food or beverages supplied at such facility or (b) the compensation paid to the
independent contractor or other personnel preparing such food or beverages. If
Landlord determines that the proceeds from such cafeteria are not sufficient to
pay, in full, the cost of operating such facility then Landlord may elect to
discontinue the cafeteria service and replace the same with vending or other
food dispensing machines selected by Landlord. Landlord agrees to give Tenant
not less than thirty (30) days' prior written notice of the effective date of
such discontinuation of cafeteria service.
8.8 SECURITY. Landlord has installed a card-key security system for the
entire Building. Landlord, at its expense, shall provide to the Tenant prior to
the Term Commencement Date five card-keys to the front door of the Building and
two keys to the door to the premises, provided that Tenant delivers to Landlord
a list of the people who will be given such card-keys. Additional keys and
card-keys shall be provided upon request at Tenant's expense, cost to be $10 per
card-key, provided that Tenant identifies the individuals who will be given such
card-keys.
8.9 REPAIRS. Except as otherwise provided in Articles 18 and 20, and
subject to Tenant's obligations in Article 14, Landlord shall keep and maintain
the roof, exterior walls, exterior landscaping, structural floor slabs, columns,
elevators, public stairways and corridors, lavatories, shower rooms, food
service facility, equipment (including, without limitation, sanitary,
electrical, heating, air conditioning, or other systems) and other common
facilities of the Building in good condition and repair appropriate to a first
class office building, provided, however, that the cost thereof shall be
included in Operating Costs, to the extent included in the definition thereof
set forth in Section 9.
8.10 INTERRUPTION OR CURTAILMENT OF SERVICES. When necessary by reason of
accident or emergency, or for repairs, alterations, replacements or improvements
which in the reasonable judgment of Landlord are desirable or necessary to be
made, or of difficulty or inability in securing supplies or labor, or of
strikes, or of any other cause beyond the reasonable control of Landlord,
whether such other cause be similar or dissimilar to those hereinabove
specifically mentioned, until said cause has been removed, Landlord reserves the
right to interrupt, curtail, stop or suspend (i) the furnishing of heating,
elevator, air conditioning, and cleaning services
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and (ii) the operation of the plumbing and electric systems. Landlord shall
exercise reasonable diligence to eliminate the cause of any such interruption,
curtailment, stoppage or suspension, but there shall be no diminution or
abatement of rent or other compensation due from Tenant to Landlord hereunder,
nor shall this Lease be affected or any of the tenant's obligations hereunder
reduced, and the Landlord shall have no responsibility or liability for any such
interruption, curtailment, stoppage, or suspension of services or systems.
Notwithstanding the foregoing, if such services or systems are curtailed,
interrupted, stopped, or suspended, rent shall abate hereunder to the extent of
any rent insurance proceeds received by Landlord as a result thereof, which are
properly attributable to the premises and if, as a result of such curtailment of
services or systems, the premises become untenantable for ten (10) business days
(that is, Mondays through Fridays, excluding legal holidays), then, at the
expiration or such period, the rent shall abate, regardless of the availability
of such proceeds, for so long as the premises continue to be untenantable.
8.11 ENERGY CONSERVATION. Notwithstanding anything to the contrary in this
Article 8 or in this Lease contained, Landlord may institute such policies,
programs and measures as may be appropriate, in Landlord's reasonable judgment
and which do not materially impair the services provided under this Article 8,
for the conservation and/or preservation of energy or energy services, or as may
be necessary or required to comply with applicable codes, rules, regulations or
standards.
8.12 SHOWERS. Landlord shall provide, maintain and clean for Tenant's use,
in common with others, a men's and a women's shower facility located on the
first floor of the Building.
9. ESCALATION
9.1 DEFINITIONS. As used in this Article 9, the words and terms which
follow mean and include the following:
(a) "Operating Year" shall be the 1995 calendar year and each succeeding
calendar year included, in whole or in part, in the term of this Lease.
(b) "Operating Costs in the Base Year" shall be the amount of Operating
Costs (as hereinafter defined) for the 1995 calendar year.
(c) "Tenant's Proportionate Share" shall be the figure as stated in Exhibit
1.
(d) "Taxes" shall mean the real estate taxes and other taxes, levies and
assessments imposed upon the Building and the land on which it stands, including
all common areas (including any future expansion thereof) and upon any personal
property of Landlord used in the operation thereof, or Landlord's interest in
the Building or such personal property; charges, fees and assessments for
police, fire or other governmental services or purported benefits to the
Building; service or user payments in lieu of taxes; and any and all other
taxes, levies, betterments, assessments and charges arising from the ownership,
leasing, operating, use or occupancy of the Building or based upon rentals
derived therefrom, which are or shall be imposed by Federal, State, Municipal or
other authorities. "Taxes" does not include any franchise, rental, income or
profit tax, capital levy or excise, provided, however, that any of the same and
any other tax, excise, fee, levy, purchase or assessment, however described,
that
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may in the future be levied or assessed as a substitute for or, if levied or
assessed by any state, county or municipal authority, an addition to, in whole
or in part, any tax, levy or assessment which would otherwise constitute
"Taxes," whether or not now customary or in the contemplation of the parties on
the Execution Date of this Lease, shall constitute "Taxes," but only to the
extent calculated as if the Building and the land upon which it stands is the
only real estate owned by Landlord. "Taxes" shall also include expenses or tax
abatement or other, proceedings contesting assessments or levies, provided that
Landlord exercised reasonable business judgment in instituting such abatement or
other proceedings. Landlord agrees that any betterment or similar assessment
imposed upon the Building or the land on which it stands shall be paid in
installments over the longest period permitted by applicable law. Landlord
represents and warrants that it has not entered into any agreement with the Town
of Burlington regarding future real estate taxes on the Building or the land on
which it stands.
(e) "Tax Base" shall be the amount of Taxes due and payable with respect to
the 1995 fiscal year (year ending June 30, 1995). THE TAX BASE SHALL BE REDUCED
PRORATA IF AND TO THE EXTENT THAT THE TAX PERIOD FOR WHICH TAX EXCESS IS DUE AND
PAYABLE CONTAINS FEWER THAN TWELVE (12) MONTHS.
(f) "Tax Period" shall be the 1995 calendar year and the portion of each
successive calendar year included in the term of this Lease.
(g) "Operating Costs" shall mean all costs incurred and expenditures of
whatever nature made by Landlord in the operation and management, for repair and
replacements, cleaning and maintenance of the Building and grounds including,
without limitation, all common parking areas (including any future expansion
thereof), vehicular and pedestrian passageways related to the Building, related
equipment, facilities, including the food service facility and appurtenances,
elevators, cooling and heating equipment (not including, however, mortgage
charges, brokerage commissions and other leasing expenses [including legal
expenses connected with leasing and lease enforcement], salaries of executives
and owners not directly employed in the management/operation of the Building,
costs (other than the amount of any reasonable deductible) resulting from
casualties, advertising and public relations expenses, the cost of work done by
Landlord for a particular tenant for which Landlord has the right to be
reimbursed by such tenant, the costs of services of a type which are not
supplied to or for the benefit of Tenant, and such portion of expenditures as
are not properly chargeable against income), provided, however, that (i) if,
during the term of this Lease, Landlord shall replace any capital items or make
any capital expenditures (collectively called "capital expenditures") the total
amount of which is not properly included in Operating Costs for the Operating
Year in which they were made, there shall nevertheless be included in such
Operating Costs and in Operating Costs for each succeeding Operating Year the
amount, if any, by which annual charge-off (determined as hereinafter provided)
of such capital expenditure (less insurance proceeds, if any, collected by
Landlord by reason of damage to, or destruction of the capital item being
replaced) exceeds the annual charge-of the capital expenditure for the item
being replaced; and (ii) if a new capital item is acquired which does not
replace another capital item which was worn out, has become obsolete, etc. and
which (a) is required to comply with applicable laws, rules or regulations, (b)
is intended to reduce Operating Costs or (C) costs less than $250,000, then
there shall be included in Operating Costs for each Operating Year in which and
after such capital expenditure is made the annual charge-off of such capital
expenditure. If a capital expenditure is required in order to meet a
governmental requirement which existed at the time the Building was first
completed (but which had not been performed), the cost of same (in order to meet
such
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preexisting governmental requirement) shall not be included as an Operating
Cost. (Annual charge-off shall be determined by (i) dividing the original costs
of the capital expenditure by the number of years of useful life thereof [The
useful life shall be reasonably determined by Landlord in accordance with
generally accepted accounting principles and practices in effect at the time of
acquisition of the capital item.]; and (ii) adding to such quotient an interest
factor computed on the unamortized balance of such capital expenditure at an
annual rate of either (x) the rate reasonably determined by Landlord as being
the rate of interest then charged by institutional lenders for loans to purchase
such capital items or (y) if the capital item is acquired through third-party
financing, then the actual [including fluctuating] rate paid by Landlord in
financing the acquisition of such capital item.) Provided, further, that, if
Landlord reasonably concludes on the basis of engineering estimates that a
particular capital expenditure will effect savings in Building operating
expenses including, without limitation, energy-related costs, and that such
annual projected savings will exceed the annual charge-off of capital
expenditure computed as aforesaid, then and in such events, the annual
charge-off shall be determined by dividing the amount of such capital
expenditure by the number of years over, which the projected amount of such
savings shall fully amortize the cost of such capital item or the amount of such
capital expenditure; and by adding the interest factor, as aforesaid. If during
any portion of the 1995 calendar year or of an Operating Year for which
Operating Costs are being computed, the Building was not fully occupied by
tenants or if Landlord is not supplying all tenants with the services and
utilities being supplied hereunder, actual operating Costs incurred shall be
reasonably projected by Landlord to the estimated Operating Costs that would
have been incurred if the Building were 95% occupied for such Year and such
services and utilities were being supplied to all tenants, and such projected
amount shall, for the purposes hereof, be deemed to be the Operating Costs for
such Year.
Operating Costs shall include, but not be limited to the following: Taxes (other
than real estate taxes): Sales, Federal, Social Security, Unemployment and Old
Age Taxes and contributions and State Unemployment taxes and contributions
accruing to and paid by the Landlord on account of all employees of Landlord who
are employed in, about or on account of the Building but only to the extent so
employed, except that taxes levied upon the net income of the Landlord and taxes
withheld from employees, and "Taxes" as defined in Article 9.1(d) shall not be
included herein. This paragraph is intended to clarify and not to expand the
scope of Operating Costs.
WATER: All charges and rates connected with water supplied to the Building and
related sewer use charges and not separately metered or charged to Tenant.
HEAT AND AIR CONDITIONING: All charges connected with heat and air conditioning
supplied to the Building and not separately metered or charged to Tenant.
WAGES: Fees of all consultants and wages and cost of all employee benefits of
all employees of the Landlord who are employed in, about or on account of the
Building but only to the extent so employed.
CLEANING: The cost of labor and material for cleaning the Building, surrounding
areaways and windows in the Building.
ELEVATOR MAINTENANCE: All expenses for or on account of the upkeep and
maintenance of all elevators in the Building.
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COMMON AREA MAINTENANCE: All expenses for or on account of the upkeep of all
common areas including but not limited to landscaping and snow removal.
ELECTRICITY: The cost of all electric current for the operation of any machine,
appliance or device used for the operation of the Building, including the cost
of electric current for the elevators, lights, air conditioning and heating, but
not including electric current which is billed separately and paid for directly
to the Landlord or to the utility by the user/tenant in the Building, pursuant
to the terms of the lease.
INSURANCE, ETC.: Fire, casualty, rent, liability and such other insurance as may
from time to time be required by lending institutions on first-class office
buildings in the Town of Burlington and all other expenses customarily incurred
in connection with the operation and maintenance of first-class office buildings
in the Town of Burlington.
SECURITY: All expenses for or on account of the upkeep and maintenance of any
common security system or security personnel to the extent employed at the
Building.
SNOW PLOWING: All costs associated with plowing or removing snow and ice from
the sidewalks, parking areas, drives and other areas serving the Building.
MANAGEMENT FEES: All reasonable costs associated with the hiring and retention
of a professional management company for the Building, provided, however, that
in no event shall the management fees paid to an affiliate of Landlord exceed
five percent of the gross rentals payable by tenants in the Building. Landlord
shall provide Tenant with reasonably detailed statements of Operating Costs with
appropriate back-up, including appropriate explanations. Tenant shall have the
right to audit Landlord's books and records with respect to Operating Costs.
9.2 TAX EXCESS. If for any Tax Period the Taxes exceed the Tax Base, Tenant
shall pay to Landlord Tenant's Proportionate Share of such excess, such amount
being hereinafter referred to as "Tax Excess". Tax Excess shall be due within
thirty (30) days after being billed by Landlord. In implementation and not in
limitation of the foregoing, Tenant shall remit to Landlord prorata monthly
installments on account of projected Tax Excess, calculated by Landlord on the
basis of the most recent tax data available. If the total of such monthly
remittances on account of any Tax Period is greater than the actual Tax Excess
for such Tax Period, Landlord, at its option, either shall pay such excess to
Tenant or shall allow Tenant to credit the difference against the next
installment of rental or other charges due to Landlord hereunder. If the total
of such remittances is less that the actual Tax Excess for such Tax Period,
Tenant shall pay the difference to Landlord within thirty (30) days after being
billed therefor. No escalation for taxes shall be passed on to the Tenant prior
to the expiration of the base year as noted in Exhibit #l.
Appropriate credit against Tax Excess shall be given for any refund
obtained by reason of a reduction in any Taxes (except on account of vacancies)
by the Assessors or the administrative, judicial or other governmental agency
responsible therefor. The original computations, as well, as reimbursement or
payments of additional charges, if any, or allowances, if any, under the
provisions of this Article 9.2 shall be based on the original assessed
valuations with adjustments to be made at a later date when the lax refund, if
any, shall be paid to Landlord by the taxing authorities. Expenditures for legal
fees and for other similar
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or dissimilar expenses incurred in obtaining the tax refund, to the extent not
previously included in "Taxes," may be charged against the tax refund before the
adjustments are made, or the Tax Period.
9.3 OPERATING EXPENSE EXCESS. If the Operation Costs in any Operating Year
exceed the Operating Costs in the Base Year, Tenant shall pay to Landlord
Tenant's Proportionate Share of such excess, such amount being hereinafter
referred to as "Operating Expense Excess." Operating Expense Excess shall be due
within thirty (30) days after being billed by Landlord. In implementation and
not in limitation of the foregoing, Tenant shall remit to Landlord prorata
monthly installments on account of projected Operating Expense Excess,
calculated by Landlord on the basis of the most recent Operating Costs data or
budget available. If the total of such monthly remittances on account of any
Operating Year is greater than the actual Operating Expense Excess for such
Operating Year, Landlord, at its option, either shall pay such excess to Tenant
or shall allow Tenant to credit the difference against the next installment of
rent or other charges due to Landlord hereunder. If the total of such
remittances is less than actual Operating Expense Excess for such Operating
Year, Tenant shall pay the difference to Landlord within fifteen (l5) days after
being billed therefor.
9.4 PART YEARS. If the Term Commencement Date or the Termination Date
occurs in the middle of an Operating Year or Tax Period, Tenant shall be liable
for only that portion of the Operating Expense or Tax Excess, as the case may
be, in respect of such Operating Year or Tax Period represented by a fraction
the numerator of which is the number of days of the herein term which fall
within the Operating Year or Tax Period and the denominator of which is three
hundred sixty-five (365), or the number of days in said Tax Period, as the case
may be.
9.5 EFFECT OF TAKING. In the event of any taking of the Building or the
land upon which it stands under circumstances whereby this Lease shall not
terminate under the provisions of Article 20, then, for the purposes of
determining Tax Excess, there shall be substituted for the Tax Base originally
provided for herein a fraction of such Tax Base, the numerator of which fraction
shall be the Taxes for the first Tax Period subsequent to the condemnation or
taking which takes into account such condemnation or taking, and the denominator
of which shall be the Taxes for the last Tax Period prior to the condemnation or
taking, which did not take into account such condemnation or taking. Tenant's
Proportionate Share shall be adjusted appropriately to reflect the proportion of
the premises and/or the Building remaining after such taking.
9.6 SURVIVAL. Any obligations under this Article 9 which shall not have
been paid at the expiration or sooner termination of the term of this Lease
shall survive such expiration and shall be paid when and as the amount of same
shall be determined to be due.
10. CHANGES OR ALTERATIONS BY LANDLORD
10.1 CHANGES OR ALTERATIONS. Landlord reserves the right, exercisable by
itself or its nominee, at any time and from time to time without the same
constituting an actual or constructive eviction and without incurring any
liability to Tenant therefor or otherwise affecting Tenant's obligations under
this Lease, to make such changes, alterations, additions, improvements, repairs
or replacements in or to the Building and the fixtures and equipment thereof, as
well as in or to the entrances, halls, passages, elevators, escalators, and
stairways thereof, as it may deem necessary or desirable, and to change the
arrangement and/or location
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of entrances or passageways, doors and doorways, and corridors, elevators,
stairs, toilets, showers, food service areas or other public parts of the
Building, provided, however, that there be no unreasonable obstruction of the
right of access to the premises by Tenant and that Landlord uses reasonable
efforts to minimize any material interference with Tenant's rights under this
Lease, including without limitation the provision of services and systems to the
premises. Nothing contained in this Article 10 shall be deemed to relieve Tenant
of any duty, obligation or liability of Tenant with respect to making any
repair, replacement or improvement or complying with any law, order or
requirement of any governmental or other authority except to the extent made
impossible by Landlord's actions. Notwithstanding the above, changes provided in
this paragraph are not to diminish the general character of the building.
11. FIXTURES, EQUIPMENT AND IMPROVEMENTS - REMOVAL BY TENANT
All fixtures, equipment, improvements and appurtenances attached to or
built into the premises prior to or during the term, whether by Landlord at its
expense or at the expense of Tenant (either or both) or by Tenant shall be and
remain part of the premises and shall not be removed by Tenant during or at the
end of the term unless otherwise expressly provided in this Lease. Where not
built into the premises, all removable electric fixtures, drinking or tap water
facilities, furniture, or trade fixtures or business equipment shall not be
deemed to be included in such fixtures, equipment, improvements and
appurtenances and may be, and upon the request of Landlord will be, removed by
Tenant at the expiration or termination of the term of this Lease upon the
condition that such removal shall not materially damage the premises or the
Building and that the cost of repairing any damage to the premises or the
Building arising from installation or such removal shall be paid by Tenant.
12. ALTERATIONS AND IMPROVEMENTS BY TENANT
Tenant shall make no alterations, installations, removals, additions or
improvements in or to the premises without Landlord's prior written consent,
which consent shall not be unreasonably withheld or delayed. Landlord shall be
responsible for the fees of Landlord's architect relating to the initial
leasehold improvements by Tenant. No Installations or work shall be undertaken
or begun by Tenant until Landlord has approved written plans and specifications
therefor, which approval shall not be unreasonably withheld or delayed. No
amendments or additions to such plans and specifications shall be made without
the prior written consent of the Landlord, which consent shall not be
unreasonably withheld or delayed. In the event that, following completion of the
initial leasehold improvements by Tenant and the commencement of occupancy of
the Premises by Tenant for the purposes stated in Exhibit 1 hereof, Tenant
requests Landlord's consent or approval with respect to any work costing, in the
aggregate, less than $25,000 and Landlord does not respond to such request
within fifteen (15) days after receipt thereof, Landlord shall be deemed to have
consented to the work specified in such request PROVIDED THAT the request
contained the following statement in capitalized print: THIS REQUEST COVERS WORK
COSTING, IN THE AGGREGATE, LESS THAN $25,000. AS STATED IN SECTION 12 OF THE
LEASE, YOU WILL BE DEEMED TO HAVE CONSENTED TO SUCH WORK IF YOU DO NOT RESPOND
TO THIS REQUEST WITHIN FIFTEEN (15) DAYS AFTER YOU RECEIVE IT. Any such work,
alterations, installations, removals, additions and improvements shall be done
at Tenant's sole expense and at such times and in such manner as Landlord may
from time to time reasonably designate. If Tenant shall make any alterations,
installations, removals, additions or improvements following completion of the
initial leasehold improvements approved by Landlord then Landlord may elect to
require the Tenant
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at the expiration or sooner termination of the term of this Lease to restore the
premises to substantially the same condition as existed upon completion of such
initial leasehold improvements. At the time that Tenant requests Landlord's
consent to any such work, Tenant may request Landlord to indicate whether, such
work will have to be removed and the premises restored as aforesaid. If so
requested, and if Landlord consents to such work, Landlord shall notify Tenant
at the time of such consent whether the premises must be restored as aforesaid
and Landlord shall be bound by such response. Tenant shall pay, as an additional
charge, the entire increase in real estate taxes assessed on the Building during
the term of this Lease which Landlord demonstrates result from or are
attributable to any alteration, addition or improvement to the, premises made by
or for the account of Tenant, other than the initial leasehold improvements
approved by Landlord.
13. TENANT'S COVENANTS AND AGREEMENTS, TENANT'S CONTRACTORS - MECHANICS' AND
OTHER LIENS - STANDARD OF TENANT'S PERFORMANCE - COMPLIANCE WITH LAWS
Whenever Tenant shall make any alterations, decorations, installations,
removals, additions or improvements in or to the premises - whether such work be
done prior to or after the Term Commencement Date - Tenant will strictly observe
the following covenants and agreements:
(a) Tenant agrees that it will not, either directly or indirectly, use any
contractors and/or materials if their use will create any difficulty, whether,
in the nature of a labor dispute or otherwise, with other contractors and/or
labor engaged by Tenant or Landlord or others in the construction, maintenance
and/or operation of the Building or any part, thereof. All contractors shall be
subject to Landlord's prior written consent which consent shall not be
unreasonably withheld or delayed.
(b) Any mechanics' lien filed against the premises or the Building for work
claimed to have been done for, or materials claimed to have been furnished to,
Tenant shall be discharged by Tenant within ten (10) days thereafter, at
Tenant's expense, by filing the bond required by law or otherwise.
(c) All installations or work done by Tenant shall be at its own expense
and shall at all times comply with (i) laws, rules, orders and regulations of
governmental authorities having jurisdiction thereof; (ii) orders, rules and
regulations of any Board of Fire Underwriters, or any other body hereafter
constituted exercising similar functions, and governing insurance rating
bureaus; (iii) Rules and Regulations of Landlord; and (iv) plans and
specifications prepared by and at the expense of Tenant theretofore submitted to
and reasonably approved by Landlord as set forth above.
(d) Tenant shall procure all necessary permits before undertaking any work
in the premises; do all of such work in a good and workmanlike manner, employing
materials of good quality and complying with all governmental requirements; and
defend, save harmless, exonerate and indemnify Landlord from all injury, loss or
damage to any person or property occasioned by or growing out of such work.
Tenant shall cause contractors employed by Tenant to carry Workmen's
Compensation Insurance in accordance with statutory requirements, and
Comprehensive General Liability Insurance, naming Landlord as an additional
insured, covering such contractors on or about the premises in the amounts
stated in Article 15 hereof or in such
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other reasonable amounts as Landlord shall require and to submit certificates
evidencing such coverage to Landlord prior to, the commencement of such work.
14. TENANT REPAIRS
14.1 REPAIRS BY TENANT. Tenant shall keep all and singular the premises
neat and clean and in such repair, order and condition as the same are in on the
Term Commencement Date or may be put in during the term hereof, reasonable use
and wearing thereof, damage by fire or by other casualty and repairs required to
be made by Landlord hereunder excepted. Without limiting the generality of the
foregoing, Tenant shall make, as and when needed as a result of misuse by, or
neglect or improper conduct of, Tenant or Tenant's servants, employees, agents,
contractors, invitees, or licensees, all repairs in and about the premises not
required to be performed by Landlord and necessary to preserve them in such
repair, order and condition, which repairs shall be in quality and class at
least equal to the original work. Landlord may elect after notice to Tenant and
Tenant's failure to cure within the applicable cure period (except that no
notice cure period shall be required in an emergency situation), at the expense
of Tenant, to make any such repairs or to repair any damage or injury to the
Building or the premises caused by moving property of Tenant in or out of the
Building, or by installation or removal of furniture or other property (except
that Landlord shall be responsible for the cost of such repair if resulting from
the negligence or improper conduct of Landlord or Landlord's employees, agents
or contractors), or by misuse by, or neglect, or improper conduct of, Tenant or
Tenant's servants, employees, agents, contractors or licensees.
14.2 FLOOR LOAD - HEAVY MACHINERY. Tenant shall not place a load upon any
floor of the premises exceeding the floor load per square foot of area which
such floor was designed to carry and which is allowed by law. Landlord reserves
the right to prescribe the weight and position of all business machines and
mechanical equipment, including safes, which shall be placed so as to distribute
the weight, provided that such weights and positions to the extent shown on
plans approved by Landlord may not subsequently be changed by Landlord except at
Landlord's sole cost and expense. Business machines and mechanical equipment
shall be placed and maintained by Tenant at Tenant's expense in settings
sufficient in Landlord's reasonable judgment to absorb and prevent vibration,
noise and annoyance. Tenant shall not move any safe, heavy machinery, heavy
equipment, freight, bulky matter, or fixtures into or out of the Building
without Landlord's prior written consent, which consent shall not be
unreasonably withheld. If such safe, machinery, equipment, freight, bulky matter
or fixtures requires special handling, Tenant agrees to employ only persons
holding a Master Rigger's License to do said work, and that all work in
connection therewith shall comply with applicable laws and regulations. Any such
moving shall be at the sole risk and hazard of Tenant and Tenant will defend,
indemnify and save Landlord harmless against and from any liability, loss,
injury, claim or suit resulting directly or indirectly from such moving. Proper
placement of all such business machines, etc., in the premises shall be Tenant's
responsibility.
15. INSURANCE, INDEMNIFICATION, EXONERATION AND EXCULPATION
15.1 GENERAL LIABILITY INSURANCE. Tenant shall procure, keep in force and
pay for Comprehensive General Liability Insurance insuring Tenant on an
occurrence basis against all claims and demands for personal injury liability
(including, without limitation, bodily injury and death) or damage to property
which may be claimed to have occurred from and after the time Tenant and/or its
contractors enter the premises in accordance with Article 4 of this Lease, of
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not less than Two Million ($2,000,000) Dollars in the event of personal injury
to any number of persons or damage to property, arising out any one occurrence,
and from time to time thereafter shall be not less than such higher amounts, if
procurable, as may be reasonably required by Landlord and are customarily
carried by responsible office tenants in the Town of Burlington.
15.2 CERTIFICATES OF INSURANCE. Such insurance shall be underwritten with
insurers reasonably approved by Landlord, authorized to do business in The
Commonwealth of Massachusetts under valid and enforceable policies wherein
Tenant names Landlord, and such other entities as Landlord may from time to time
identify, as additional insureds. Such insurance shall provide that it shall not
be canceled or modified without at least thirty (30) days' prior written notice
to each insured named therein. On or before the time Tenant and/or its
contractors enter the premises in accordance with Articles 4 and 14 of this
Lease and thereafter not less than fifteen (15) days prior to the expiration
date of each expiring policy, original copies of the policies provided for in
Article 15.1 issued by the respective insurers, or certificates of such policies
setting forth in full the provisions thereof required hereby and issued by such
insurers together with evidence satisfactory to Landlord of the payment of all
premiums for such policies, shall be delivered by Tenant to Landlord and
certificates as aforesaid of such policies shall upon request of Landlord, be
delivered by Tenant to the holder of any mortgage affecting the premises.
15.3 GENERAL.
15.3.1 Tenant will save Landlord harmless, and will exonerate, defend
and indemnify Landlord, from and against any and all claims, liabilities or
penalties asserted by or on behalf of any person, firm, corporation or public
authority arising from the Tenant's breach of the Lease or:
(a) On account of or based upon any injury to person, or loss of
or damage to property, sustained or occurring on the premises on account of or
based upon the act, omission, fault, negligence or misconduct of any person
whomsoever (other than Landlord its agents, contractors and employees);
(b) On account of or based upon any injury to person, or loss of
or damage to property, sustained or occurring elsewhere (other than on the
premises) in or about the Building arising on account of or based upon the act,
omission, fault, negligence or misconduct of Tenant, its agents, employees or
contractors; and
(c) On account of or based upon (including monies due on account
of) any work or thing whatsoever done (other than by Landlord or its
contractors, or agents or employees of either) on the premises during the term
of this Lease and during the period of time, if any, prior to the Term
Commencement Date that Tenant may have been given access to the premises.
(d) Tenant's obligations under this Article 15.3 shall be insured
either under the Comprehensive General Liability Insurance required under
Article 15.1, above, or by a contractual insurance rider or other coverage; and
certificates of insurance in respect thereof shall be provided by Tenant to
Landlord upon request.
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15.3.2 Except as otherwise provided in this Lease, Landlord will save
Tenant harmless, and will exonerate, defend and indemnify Tenant from and
against any and all claims, liabilities or penalties asserted by or on behalf of
any person, firm, corporation or public authority arising on account of or based
upon any injury to person, or loss of or damage to property, arising out of or
based upon the negligence or misconduct of Landlord, its agents or employees.
15.4 PROPERTY OF TENANT. In addition to and not in limitation of the
foregoing, and notwithstanding anything else contained herein to the contrary,
Tenant covenants and agrees that all merchandise, furniture, fixtures and
property of every kind, nature and description related to or arising out of
Tenant's leasehold estate hereunder, which may be in or upon the premises or
Building, in the public corridors, or on the sidewalks, areaways, parking areas
or approaches adjacent thereto, shall be at the sole risk and hazard of Tenant,
and that if the whole or any part thereof shall be damaged, destroyed, stolen or
removed from any cause or reason whatsoever no part of said damage or loss shall
be charged to, or borne by, Landlord.
15.5 BURSTING OF PIPES, ETC. Landlord shall not be liable for any injury or
damage to persons or property resulting from fire, explosion, falling plaster,
steam, gas, electricity, electrical or electronic emanations or disturbance,
water, rain or snow or leaks from any part of the Building or from the pipes,
appliances, equipment or plumbing works or from the roof, street or sub-surface
or from any other place or caused by dampness, vandalism, malicious mischief or
by any other cause of whatever nature, unless caused by or due to the negligence
of Landlord, its agents, servants or employees, and then only after (i) notice
to Landlord from Tenant or from any public official of the condition claimed to
constitute negligence and (ii) the expiration of a reasonable time after such
notice has been received by Landlord without Landlord having taken all
reasonable and practicable means to cure or correct such condition; and pending
such cure or correction by Landlord, Tenant shall take all reasonably prudent
temporary measures and safeguards to prevent any injury, loss or damage to
persons or property. In no event shall Landlord be liable for any loss, the risk
of which covered by Tenant's insurance or is required to be so covered by this
Lease; nor shall Landlord or its agents be liable for any such damage caused by
other tenants or persons in the Building or caused by operations in construction
of any private, public, quasi-public work; nor shall Landlord be liable for any
latent defect in the premises or in the Building.
15.6 REPAIRS AND ALTERATIONS - NO DIMINUTION OF RENTAL VALUE. Except as
otherwise provided in this Lease, there shall be no allowance to Tenant for
diminution of rental value and, except as otherwise expressly provided herein,
no liability on the part of Landlord by reason of inconvenience, annoyance or
injury to Tenant arising from any repairs, alterations, additions, replacements
or improvements made by Landlord, Tenant or others in or to any portion of the
Building or premises or any property adjoining the Building, or in or to
fixtures, appurtenances, or equipment thereof, or for failure of Landlord or
others to make any repairs, alterations, additions or improvements in or to any
portion of the Building or of the premises, or in or to the fixtures,
appurtenances or equipment thereof. Landlord agrees to use reasonable efforts to
minimize any interference with Tenant's use of the premises.
16. ASSIGNMENT, MORTGAGING AND SUBLETTING
(a) Tenant covenants and agrees that neither this Lease nor the lease term
and estate hereby granted, nor any interest herein or therein, will be assigned,
mortgaged, pledged,
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encumbered or otherwise transferred, and that neither the premises, nor any part
thereof, will be encumbered in any manner by reason of any act or omission of
Tenant, or used or occupied, or permitted to be used or occupied, by anyone
other than Tenant, its servants, agents and employees, or for any use or purpose
other than as above stated, or be sublet, or offered, or advertised for
subletting, without in each case, Landlord's prior written consent.
Notwithstanding the foregoing, subject to the third sentence of this paragraph,
Landlord agrees that such consent shall not be unreasonably withheld or delayed
as to any subletting so long as the proposed subtenant is reputable, that its
credit and financial standing is acceptable to Landlord, that it shall utilize
the subleased portion of the premises solely for first-class business office or
professional office purposes, and that it is not a tenants in the Building
unless there is no other space in the Building available from Landlord. Tenant
further covenants and agrees that it will not sublease space from or take an
assignment of a lease covering space in the Building from any other Building
tenants, without Landlord's prior written consent unless there is no other space
in the Building available from Landlord. If Tenant shall propose the assignment
or subletting on all or substantially all of the premises, Landlord shall have
the option of terminating this lease by giving notice thereof to Tenant, in
which event the lease shall be terminated on the proposed effective date of such
assignment or subletting, except for any previous obligations not performed by
Tenant. In the event Tenant shall propose any assignment or subletting of less
than all or substantially all of the premises, then Landlord shall have the
right to suspend this lease pro tanto (i.e. the term of the lease with respect
to the are proposed to be assigned or sublet shall be terminated during the term
of such assignment or subletting) in which event Tenant's obligations,
including, without limitation, monetary obligation, shall be reduced for such
term in proportion to the area as to which the lease has been suspended.
(b) Any assignment of this lease made hereunder shall be upon the express
condition that the assignee and Tenant shall promptly execute, acknowledge and
deliver to Landlord an agreement in form and substance reasonably satisfactory
to Landlord whereby assignee shall agree to be bound by the terms, covenants,
and conditions of this lease on Tenant's part to be performed and whereby
assignee shall expressly agree that the provisions of this Section shall,
notwithstanding such assignment or transfer, continue to be binding upon it with
respect to all future assignments and transfers. Any sublease of the leased
premises or any part thereof shall be expressly subject to the terms of this
lease and shall contain the agreement of the subtenant thereunder that, upon
Landlord's written request, after default by tenant and the expiration of any
applicable grace period, it will pay all rents under the sublease directly to
Landlord. If, pursuant to the provision of this Section, Tenant sublets the
premises or any part thereof, Tenant shall pay to Landlord at the times such
amounts are due to Tenant and in the manner specified by Landlord, an amount
equal to seventy-five percent (75%) of the difference between all amounts which
Tenant is due to receive from a subtenant by virtue of such subletting and the
total of the rent due under this lease for the sublet are proportioned on a
square foot basis, provided said difference is greater than zero. (Such
difference is hereinafter called the "Sublet Profit".) No such assignment on
subletting of the premises be Tenant shall relieve Tenant from the observance or
performance of any of the terms, covenants and conditions of this lease, and no
consent to any assignment or subletting is a particular instance shall be deemed
to be a waiver of the obligation to obtain the Landlord's approval in the case
of any other assignment or subletting.
(c) If this Lease be assigned, or if the premises or any part thereof be
sublet or occupied by anybody other than Tenant and its employees, Landlord,
after default by Tenant hereunder and after notice and the expiration of any
applicable grace period, may collect the
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rents from such assignee, subtenant or occupant, as the case may be, and apply
the net amount collected to the rent herein reserved, but no such assignment,
subletting, occupancy or collection shall be deemed a waiver of the requirements
set forth in subparagraphs (a) and (b) of this Section, the acceptance by
Landlord of such assignee, subtenant or occupant as the case may be, as a
tenant, or a release by Tenant of its covenants, agreements and obligations
contained in this lease. The consent by Landlord to an assignment or subletting
shall not in any way be constructed to relieve Tenant from obtaining the express
consent in writing of Landlord to any further assignment or subletting. No
assignment, subletting or use of the premises shall affect the purpose for which
the premises may be used as stated in Section 5.
(d) Notwithstanding any of the foregoing, in the event Tenant merges with
or is consolidated into another corporation, Tenant shall have the right,
without the consent of Landlord, to assign Tenant's interest in this lease to
the resulting merged or consolidated corporation ("assignee") provided (i) the
assignee shall succeed to the business, goodwill and all or substantially all of
the assets of Tenant, (ii) Tenant shall execute, acknowledge and deliver to
Landlord an assignment, in form reasonably satisfactory to Landlord, of Tenant's
interest in this lease to said assignee, and (iii) the assignee shall execute,
acknowledge and deliver to Landlord an agreement, in form reasonably
satisfactory to Landlord, assuming the observance and performance of all of the
terms, covenants and conditions of this lease on Tenant's part to be observed
and/or performed.
17. MISCELLANEOUS COVENANTS
Tenant covenants and agrees as follows:
17.1 RULES AND REGULATIONS. Tenant will faithfully observe and comply with
the Rules and Regulations, of any, annexed hereto and such other and further
reasonable nondiscriminatory Rules and Regulations as Landlord hereafter at any
time or from time to time may make and may communicate in writing to Tenant,
which in the reasonable judgment of Landlord shall be necessary for the
reputation, safety, care or appearance of the Building, or the preservation of
good order herein, or the operation or maintenance of the Building, or the
equipment thereof, or the comfort of tenants or others in the Building,
provided, however, that in the case of any conflict between the provisions of
this Lease and any such regulations, the provisions of this Lease shall control,
and provided further that nothing contained in this Lease shall be construed to
impose upon Landlord any duty or obligation to enforce the Rules and Regulations
or the terms, covenants or conditions in any other lease as against any other
tenant and Landlord shall not be liable to Tenant for violation of the same by
any other tenant, its servants, employees, agents, contractors, visitors,
invitees or licensees. Landlord shall not enforce against Tenant any Rule or
Regulation which Landlord is then waiving with respect to any other similarly
situated tenant in the Building.
17.2 ACCESS TO PREMISES. Tenant shall: (i) permit Landlord to erect, use
and maintain pipes, ducts and conduits in and through the premises, provided the
same do not materially reduce the floor area or materially adversely affect the
appearance or function thereof; (ii) upon prior oral notice (except that no
notice shall be required in emergency situations), permit Landlord and any
mortgagee of the Building or the Building and land or of the interest of
Landlord therein, and their representatives, to have access to and to enter upon
the premises at all reasonable hours for the purposes of inspection or of making
repairs, replacements or improvements in or to the premises or the Building or
equipment or of complying with all laws,
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orders and requirements of governmental or other authority or of exercising any
right reserved to Landlord by this Lease, provided that such activities shall be
conducted so as to minimize interference with Tenant's conduct of its business
in the premises; and (iii) permit Landlord, at reasonable times and upon
reasonable advance notice (oral or written), to show the premises during
ordinary business hours to any existing or prospective mortgagee, space lessee,
purchaser, or assignee or any mortgage, of the Building or of the Building and
the land or of the interest of Landlord therein, and during the period of nine
(9) months next preceding the Termination Date, or at any time after Tenant
shall have deserted or abandoned the premises, to any person contemplating the
leasing of the premises or any part thereof. If during the last month of the
term, Tenant shall have removed all or substantially all of Tenant's property
therefrom, Landlord may immediately enter and alter, renovate and redecorate the
premises, without elimination or abatement of rent, or incurring liability to
Tenant for any compensation, and such acts shall have no effect upon this Lease.
If Tenant shall not be personally present to open and permit an entry into the
premises at any time when for any reason an entry therein shall be necessary, in
Landlord's reasonable judgment, or permissible hereunder, Landlord or Landlord's
agents may enter the same by a master key, or may forcibly enter the same,
without rendering Landlord or such agents liable therefor (if during such entry
Landlord or Landlord's agents shall accord reasonable care to Tenant's
property), and without in any manner affecting the obligations and covenants of
this Lease. Provided that Landlord shall incur no additional expense thereby,
Landlord shall exercise its rights of access to the premises permitted under any
of the terms and provisions of this Lease in such manner as to minimize to the
extent practicable interference with Tenant's use and occupation of the
premises.
17.3 ACCIDENTS TO SANITARY AND OTHER SYSTEMS. Tenant shall give to Landlord
prompt notice of any fire or accident in the premises or in the Building and of
any damage to, or defective condition in, any part or appurtenance of the
Building including, without limitation, sanitary, electrical, heating and air
conditioning or other systems located in, or passing through, the premises.
Except as otherwise provided in Articles 18 and 20, and subject to Tenant's
obligations in Article 14, such damage or defective condition shall be remedied
by Landlord with reasonable diligence, but if such damage or defective condition
was caused by Tenant or by the employees, licensees, contractors or invitees of
Tenant, the cost to remedy the same shall be paid by Tenant. Tenant shall not be
entitled to claim any eviction from the premises or any damages arising from any
such damage or defect unless the same (i) shall have been occasioned by the
negligence of the Landlord, its agents, servants or employees and (ii) shall
not, after notice to Landlord of the condition claimed to constitute negligence,
have been cured or corrected within a reasonable time after such notice has been
received by Landlord; and in case of a claim of eviction unless such damage or
defective condition shall have rendered the premises untenantable and they shall
not have been made tenantable by Landlord within a reasonable time.
Notwithstanding the foregoing, in the event of any such eviction, rent shall
abate hereunder to the extent of any rent insurance proceeds received by
Landlord as a result thereof which are properly attributable to the premises
and, the premises are untenantable for ten (10) business days (that is, Mondays
through Fridays, excluding legal holidays), then, at the expiration of such
period, the rent shall abate, regardless of the availability of such proceeds,
for so long as the premises continue to be untenantable.
17.4 SIGNS, BLINDS AND DRAPES. Except as otherwise expressly provided
herein, no signs or blinds may be put on or in any window or elsewhere if
visible from the exterior of the Building, nor may the building standard drapes
or blinds be removed by Tenant. Tenant may hang its own drapes, provided that
they shall not in any way interfere with the building standard
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drapery or blinds or be visible from the exterior of the Building and that such
drapes are so hung and installed that when drawn, the building standard drapery
or blinds are automatically also drawn. Any signs or lettering in the public
corridors or on the doors shall conform to Landlord's building standard design,
provided that Landlord will not unreasonably withhold its approval of the use of
Tenant's standard logo and lettering. Neither Landlord's name, nor the name of
the Building, shall be used without Landlord's consent in any advertising
material (except on business stationery or as an address in advertising matter),
nor shall any such name, as aforesaid, be used in any undignified, confusing,
detrimental or misleading manner.
Landlord at Landlord's expense will provide a tenant sign on the lobby
directory and on the tenant entry doors.
Tenant shall have the right to remove the "Powersoft" sign which is
currently located on the Building and to replace it with its own Tenant
identification sign (the XIONICS Sign"). Tenant shall bear all costs associated
with the removal of such existing signs (including, without limitation, the cost
of repairing all damage to the Building caused by the attachment or removal of
such signs) and with the construction and attachment of the XIONICS Sign. Tenant
shall be responsible for obtaining all governmental approvals necessary to
lawfully remove the existing signs and to erect the XIONICS Sign. The XIONICS
Sign shall comply in all respects with all applicable laws, including, without
limitation, the Zoning By-Laws of the Town of Burlington. Prior to erecting the
XIONICS Sign, Tenant shall submit plans and specifications therefor to Landlord
for Landlord's approval. Landlord may withhold its approval and require Tenant
to redesign the XIONICS Sign if Tenant's proposed sign would, in Landlord's
reasonable judgment, adversely affect the architectural integrity or aesthetic
appeal of the Building. In no event shall such sign contain any words other than
"XIONICS". The rights granted in this paragraph are intended for the sole
benefit of XIONICS so long as it is the major tenant in the Building and shall
expire if and when (a) this Lease or any interest herein or therein is assigned
to any person or entity or (b) XIONICS, itself, fails to occupy for the conduct
of its business at least 30,000 rentable square feet of space in the Building.
Tenant shall be solely responsible for the cost of removing the XIONICS Sign and
restoring the Building to its original condition upon the expiration or earlier
termination of (a) the term of this Lease or (b) the rights granted herein to
erect and maintain the XIONICS Sign, whichever shall first occur.
Landlord shall have the right to remove the XIONICS Sign if and when an
event of default (including the expiration of any applicable grace and notice
periods) described in Section 21 has occurred and is continuing and the cost
thereof shall be deemed an additional payment of rent due under this Lease. The
costs incurred by Landlord in so removing the sign may be recovered from Tenant
in any summary process or other judicial proceeding brought by Landlord to
recover possession of the premises. If it is determined by a final order issued
in such proceeding that no event of default existed and was continuing at the
time that Landlord removed the sign, then Tenant shall not be responsible for
paying any of Landlord's costs incurred in so removing the sign and Landlord
shall reerect the sign at its sole cost and expense. Tenant may reerect the
sign, at its own expense and subject to the conditions specified in the
immediately preceding paragraph and elsewhere in this Lease, if and when all
events of default have been cured, provided that no summary process or other
judicial proceeding to recover possession of the premises has commenced and is
continuing, and provided further that Tenant reimburses Landlord for all costs
incurred by Landlord in so removing the sign. For the purposes of this
paragraph, an order is final when all applicable appeal periods have expired and
all timely filed appeals have been finally determined.
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17.5 ESTOPPEL CERTIFICATE. Tenant shall at any time and from time to time
upon not less than ten (10) days' prior notice by Landlord to Tenant, execute;
acknowledge and deliver to Landlord a statement in writing certifying that this
Lease is unmodified and in full force and effect (or if there have been
modifications, that the same is in full force and effect as modified and stating
the modifications), and the dates to which the Yearly Rent and other charges
have been paid in advance, if any, stating whether or not to Tenant's knowledge
Landlord is in default in performance of any covenant, agreement, term,
provision or condition contained in this Lease and, if so, specifying each such
default and such other facts as Landlord may reasonably request, it being
intended that any such statement delivered pursuant hereto may be relied upon by
any prospective purchaser of the Building or of the Building and the land or of
any interest of Landlord therein, any mortgagee or prospective mortgagee
thereof, any lessor or prospective lessor thereof, any lessee or prospective
lessee thereof, or any prospective assignee of any mortgage thereof. Time is of
the essence in respect of any such requested certificate, Tenant hereby
acknowledging the importance of such certificates in mortgage financing
arrangements, prospective sale and the like. Tenant hereby appoints Landlord
Tenant's attorney-in-fact in its name and behalf to execute such statement if
Tenant shall fail to execute such statement within such ten-(10)-day period.
17.6 PROHIBITED MATERIALS AND PROPERTY. Tenant shall not bring or permit to
be brought or kept in or on the premises or elsewhere in the Building any
inflammable, combustible or explosive fluid, material, chemical or substance
(except for standard office supplies stored in proper containers). Nor shall
Tenant cause or permit any odors of cooking or other processes, or any unusual
or other objectionable odors to emanate from or permeate the premises.
17.7 LEGAL REQUIREMENTS. Tenant at its sole expense shall comply with all
laws, rules, orders and regulations of Federal State, County and Municipal
Authorities and with any direction of any public officer or officers, pursuant
to law, which shall impose any duty upon Landlord or Tenant with respect to or
arising out of any special requirements associated with Tenant's use or
occupancy of the premises. Tenant shall reimburse and compensate Landlord for
all expenditures made by, or damages or fines sustained or incurred by, Landlord
due to nonperformance or noncompliance with or breach or failure to observe any
item, covenant, or condition of this Lease upon Tenant's part to be kept,
observed, performed or complied with. If Tenant receives notice of any violation
of law, ordinance, order or regulation applicable to the premises, it shall give
prompt notice thereof to Landlord.
17.8 TENANT'S ACTS - EFFECT ON INSURANCE. Tenant shall not knowingly do or
permit to be done any act or thing upon the premises or elsewhere in the
Building which will invalidate or be in conflict with any insurance policies
covering the Building and the fixtures and property therein; and shall not do,
or permit to be done, any act or thing upon the premises which shall subject
Landlord to any liability or responsibility for injury to any person or persons
or to property by reason of any business of operation being carried on upon said
premises or for any other reason. Tenant at its own expense shall in the conduct
of its business in the premises comply with all rules, orders, regulations and
requirements of the Board of Fire Underwriters, or any other similar body having
jurisdiction, and shall not (i) do, or permit anything to be done, in or upon
the premises, or bring or keep anything therein, except as now or hereafter
permitted by the Fire Department, Board of Underwriters, Fire Insurance Rating
Organization, or other authority having jurisdiction, and then only in such
quantity and manner of storage as will not increase the rate for any insurance
applicable to the Building, or (ii) use the premises in a manner which shall
increase such insurance rates on the Building or on property located
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therein, over that applicable when Tenant first took occupancy of the premises
hereunder by reason of the failure of Tenant to comply with the provisions
hereof the insurance rate applicable to any policy of insurance shall at any
time thereafter be higher than it otherwise would be, the Tenant shall reimburse
Landlord for that part of any insurance premiums thereafter paid by Landlord,
which shall have been charged because of such failure by Tenant.
17.9 MISCELLANEOUS. Tenant shall not suffer or permit the premises or any
fixtures, equipment or utilities therein or serving the same, to be overloaded,
damaged or defaced. Tenant shall not suffer or permit any employee, contractor,
business invitee or visitor to violate any covenant, agreement or obligation of
the Tenant under this Lease.
18. DAMAGE BY FIRE, ETC.
During the entire term of this Lease, Tenant shall keep its personal
property in and about the premises and, except as otherwise provided herein, the
work, installations, improvements and betterments in the premises which exceed
the specifications in Exhibit 3 of the Existing Lease [called "Over-Building
Standard Property"] insured against loss or damage caused by any peril covered
under fire, extended coverage and all risk insurance in an amount equal to at
least eighty percent (80%) of the full insurable value thereof. Such Tenant's
insurance shall insure the interests of both Landlord and Tenant as their
respective interests may appear from time to time and shall name Landlord as an
additional insured; and the proceeds thereof shall be used only for the
replacement or restoration of such personal property and the
Over-Building-Standard Property. The foregoing notwithstanding, Landlord's
casualty insurance policy with respect to the Building shall also cover the
Over-Building-Standard Property, provided that such additional coverage is
obtainable and that Tenant pays the cost of such additional coverage. Landlord
shall notify Tenant if such insurance is not, or ceases to be, obtainable.
If any portion of the premises (other than any property required to be
insured by Tenant under the preceding paragraph) shall be damaged by fire or
other insured casualty, Landlord shall proceed with diligence, and at the
expense of Landlord (but only to the extent of insurance proceeds made available
to Landlord by any mortgagee of the real property of which the premises are a
part) to repair or cause to be repaired such damage, provided, however, any
Over-Building-Standard Property as shall have been damaged by such fire or other
casualty, which is not covered by insurance to be maintained by Landlord
pursuant to the immediately preceding paragraph and which (in the judgment of
Landlord) can more effectively be repaired as an integral part of Landlord's
repair work on the premises, that such repairs to such tenant's alterations,
decorations, additions and improvements shall be performed by Landlord but at
Tenant's expense; in all other respects, all repairs to and replacements of
Tenant's property and Over-Building-Standard Property which is not covered by
insurance to be so maintained by Landlord shall be made by and at the expense of
Tenant. If the premises or any part thereof-including reasonable access and
parking - shall have been rendered unfit for use and occupation hereunder by
reason of such damage the Yearly Rent and additional rent for Operating Costs
and Taxes or a just and proportionate part thereof, according to the nature and
extent to which the premises shall have been so rendered unfit, shall be
suspended or abated until the premises (except as to the property which is to be
repaired by or at the expense of Tenant) shall have been restored, as nearly as
may be practicable, to the condition in which they were immediately prior to
such fire or other casually. Landlord shall not be liable for delays in the
making of any such repairs which are due to government regulation, casualties
and strikes, unavailability of labor and materials, and other causes beyond the
reasonable control of Landlord, nor shall Landlord
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be liable for any inconvenience or annoyance to Tenant or injury to the business
of Tenant resulting from delays in repairing such damage. If the premises are so
damaged by fire or other casualty (whether or not insured) at any time during
the last twelve (12), months or the term hereof that the cost to repair such
damage is reasonably estimated to exceed one-third of the total Yearly Rent
payable hereunder for the period from the estimated date of restoration until
the Termination Date, or (ii) the Building (whether or not including any portion
of the premises) is so damaged by fire or other casualty (whether or not
insured) that substantial alteration or reconstruction or demolition of the
Building shall in Landlord's judgment be required, then and in either of such
events, this Lease and the term hereof may be terminated at the election of
Landlord by a notice in writing of its election so to terminate which shall be
given by Landlord to Tenant within sixty (60) days following such fire or other
casualty, the effective termination date of which shall be not less than thirty
(30) days after the day on which such termination notice is received by Tenant.
If the premises or a substantial part thereof shall not be restored within nine
(9) months after the occurrence of a fire or other casualty, Tenant shall have
the right to terminate this Lease by notice to Landlord, prior to the completion
of such restoration, within thirty (30) days after the expiration of such nine
(9) month period, the effective date of which shall be not less than thirty (30)
days after such notice is received by Landlord. In the event of any termination,
this Lease and the term hereof shall expire as of such effective termination
date as though that were the Termination Date as stated in Exhibit 1 and the
Yearly Rent and additional rent for Operating Costs and Taxes shall be
apportioned as of such date; and if the premises or any part thereof shall have
been rendered unfit for use and occupation by reason of such damage the Yearly
Rent and additional rent for Operating Costs and Taxes for the period from the
date of the fire or other casualty to the effective termination date, or a just
and proportionate part thereof, according to the nature and extent to which the
premises shall have been so rendered unfit, shall be abated.
19. WAIVER OF SUBROGATION
In any case in which Tenant shall be obligated to pay to Landlord any loss,
cost, damage, liability, or expense suffered or incurred by Landlord, Landlord
shall allow to Tenant as an offset against the amount thereof the net proceeds
of any insurance collected by Landlord for or on account of such loss, cost,
damage, liability or expense, provided that the allowance of such offset does
not invalidate or prejudice the policy or policies under which such proceeds
were payable.
In any case in which Landlord shall be obligated to pay to Tenant any loss,
cost, damage, liability or expense suffered or incurred by Tenant, Tenant shall
allow to Landlord as an offset against the amount thereof the net proceeds of
any insurance collected or collectible by tenant for or on account of such loss,
cost, damage, liability, or expense, provided that the allowance of such offset
does not invalidate the policy or policies under which such proceeds were
payable.
The parties hereto shall each procure an appropriate clause in, or
endorsement on, any property insurance policy covering the premises and the
Building and personal property, fixtures and equipment located thereon and
therein, pursuant to which the insurance companies waive subrogation or consent
to a waiver of right of recovery. Having obtained such clauses and/or
endorsements each party hereby agrees that it will not make any claim against or
seek to recover from the other for any loss or damage to its property or the
property of others resulting from fire or other perils covered by such property
insurance.
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20. CONDEMNATION - EMINENT DOMAIN
In the event that the premises or any material part thereof, or the whole
or any material part of the Building, shall be taken or appropriated by eminent
domain or shall be condemned for any public or quasi-public use, or (by virtue
of any such taking, appropriation or condemnation) shall suffer any material
damage (direct, indirect or consequential) for which Landlord or Tenant shall be
entitled to compensation, then (and in any such event) this Lease and the term
hereof may be terminated at the election of Landlord by notice in writing of its
election so to terminate which shall be given by Landlord to Tenant within sixty
(60) days following the date on which Landlord shall have received notice of
such taking, appropriation or condemnation. In the event that a substantial part
of the premises or parking or of the means of access thereto shall be so taken,
appropriated or condemned, then (and in any such event) this lease and the term
hereof may be terminated at the election of Tenant by notice in writing of its
election so to terminate which shall be given by Tenant to Landlord within sixty
(60) days following the date on which, Tenant shall have received notice of such
taking, appropriation or condemnation.
Upon the giving of any such notice of termination (either by Landlord or
Tenant) this Lease and the term hereof shall terminate on or retroactively as of
the date on which Tenant shall be required to vacate any part of the premises or
parking or shall be deprived of the means of access thereto, provided, however,
that Landlord may in Landlord's notice elect to terminate this Lease and the
term hereof retroactively as of the date on which such taking, appropriation or
condemnation became legally effective. In the event of any such termination,
this Lease and the term hereof shall expire as of such effective termination
date as though that were the Termination Date as stated in Exhibit 7-, and the
Yearly Rent and additional rent for Operating Costs and Taxes shall be
apportioned as of such date. If neither party (having the right so to do) elects
to terminate Landlord will, with reasonable diligence and at Landlord's expense,
restore the remainder of the premises or the parking, or the remainder of the
means of access, as nearly as may be practicable, to the same condition as
obtained prior to such taking, appropriation or condemnation in which event (i)
the Total Rentable Area of the Building and the premises and the Tenant's
Proportionate Share shall be equitably adjusted, (ii) a just proportion of the
Yearly Rent, according to the nature and extent of the taking, appropriation or
condemnation and the resulting permanent to the premises and the means of access
thereto, shall be permanently abated, and (iii) a just proportion of the
remainder of the Yearly Rent, according to the nature and extent of the taking,
appropriation or condemnation and the resultant injury sustained by the premises
and the means of access thereto, shall be abated until what remains of the
premises and the means of access thereto shall have been restored as fully as
may be practicable for permanent use and occupation by Tenant hereunder. Except
for any award specifically reimbursing Tenant for moving or relocation expenses,
there are expressly reserved to Landlord all rights to compensation and damages
created, accrued or accruing by reason of any such taking, appropriation or
condemnation, in implementation and in confirmation of which Tenant does hereby
(i) acknowledge that Landlord shall be entitled to receive all such compensation
and damages, (ii) grant to Landlord all and whatever rights (if any) Tenant may
have to such compensation and damages, and (iii) agree to execute and deliver
all and whatever further instruments of assignment as Landlord may from time to
time request. In the event of any taking of the premises or any part thereof for
temporary use of less than one (1) year's duration, (i) this Lease shall be and
remain unaffected thereby, and (ii) Tenant shall be entitled to receive for
itself any award made for such use, provided, that if any taking is for a period
extending beyond the term of this Lease, such award shall be apportioned between
Landlord and
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Tenant as of the Termination Date or earlier termination of this Lease.
21. DEFAULT
21.1 CONDITIONS OF LIMITATION - RE-ENTRY - TERMINATION. This Lease and
the herein term and estate are upon the condition that if (a) Tenant shall
neglect or fail to perform or observe any of the Tenant's covenants or
agreements herein, including (without limitation) the covenants or agreements
with regard to the payment when due of rent or any other charge payable by
Tenant to Landlord (all of which shall be considered as part of Yearly Rent for
the purposes of invoking Landlord's statutory or other rights and remedies in
respect of payment defaults); or (b) Tenant shall neglect or fail, after the
expiration of any applicable grace period, to perform or observe any of the
Tenant's covenants or agreements in the Existing Lease or if any other event
specified in Section 21.1 of the Existing Lease shall occur or (c) Tenant shall,
be involved in financial difficulties as evidenced by an admission in writing by
Tenant of Tenant's inability to pay its debts generally as they become due, or
by the making or offering to make a composition of its debts with its creditors;
or (d) Tenant shall make an assignment or trust mortgage, or other conveyance or
transfer of like nature, of all or a substantial part of its property for the
benefit of its creditors, or (e) an attachment on mesne process, on execution or
otherwise, or other legal process shall issue against Tenant or its property and
a sale of any of its assets shall be held thereunder; or (f) any judgment, final
beyond appeal or any lien, attachment or the like in excess of $250,000, in the
aggregate, shall be entered, recorded or filed against Tenant in any court,
registry, etc. and Tenant shall fail to pay such judgment within thirty (30)
days after the judgment shall have become final beyond appeal or to discharge
or secure by surety bond such lien, attachment, etc. within thirty (30) days of
such entry, recording or filing, as the case may be; or (g) the leasehold hereby
created shall be taken on execution or by other process of law; or (h) a
receiver, sequestered trustee or similar officer shall be appointed by a court
of competent jurisdiction to take charge of all or any part of Tenant's property
and such appointment shall not be vacated within sixty (60) days; or (i) any
proceeding shall be instituted by or against Tenant pursuant to any of the
provisions of any Act of Congress or State law relating to bankruptcy,
reorganizations, arrangements, compositions or other relief from creditors, and,
in the case of any proceeding instituted against it, if Tenant shall fail to
have such proceeding dismissed within sixty (60) days or if Tenant is adjudged
bankrupt or insolvent as a result of any such proceeding, or (j) any event shall
occur or any contingency shall arise whereby this Lease, or the term and estate
thereby created, would (by operation of law or otherwise) devolve noon or pass
to any person, firm or corporation other than Tenant, except as expressly
permitted under Article 16 hereof - then, and in any such event (except as
hereinafter in Article 21.2 otherwise provided) Landlord may, by notice to
Tenant, elect to terminate this Lease; and thereupon (and without prejudice to
any remedies which might otherwise be available for arrears of rent or other
charges due hereunder or preceding breach of covenant or agreement and without
prejudice to Tenant's liability for damages as hereinafter stated), upon the
giving of such notice, this Lease shall terminate as of the date specified
therein as though, that were the Termination Date as stated in Exhibit 1.
Without being taken or deemed to be guilty of any manner of trespass or
conversion, and without being liable to indictment, prosecution or damages
therefor, Landlord may, forcibly if necessary, enter into and upon the premises
(or any part thereof in the name of the whole); repossess the same as of its
former estate; and expel Tenant and those claiming under Tenant. Whenever
"Tenant" is used in subdivisions (c), (d), (e), (f), (g), (h) and (i) of this
Article 21.1, it shall be deemed to include any one of (i) any corporation of
which Tenant is a controlled subsidiary and (ii) any guarantor of any of
Tenant's obligations under this Lease. The words "re-entry" and "re-enter" as
used
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in this Lease are not restricted to their technical legal meanings.
21.2 DAMAGES - ASSIGNMENT FOR BENEFIT OF CREDITORS. For the more effectual
securing to Landlord of the rent and other charges and payments reserved
hereunder, it is agreed as a further condition of this Lease that if at any time
Tenant shall make any transfer similar to or in the nature of an assignment of
its property for the benefit of its creditors, the term and estate hereby
created shall terminate ipso facto, without entry or other action by Landlord;
and notwithstanding any other provisions or this Lease, Landlord shall forthwith
upon such termination, without prejudice to any remedies which might otherwise
be available for arrears of rent or other charges due hereunder or for any
preceding breach of this Lease, be ipso facto entitled to recover as liquidated
damages the sum of (a) the amount described in clause (x) of Article 21.3 and
(b) (in view of the uncertainty of prompt re-letting and the expense entailed in
re-letting the premises) an amount equal to the rent and other charges payable
for and in respect of the nine (9)-month period next preceding the date of
termination, as aforesaid.
21.3 DAMAGES - TERMINATION. Upon the termination of this Lease under the
provisions of this Article 21, then except as hereinabove in Article 21.2
otherwise provided, Tenant shall pay to Landlord the rent and other charges
payable by Tenant to Landlord up to the time of such termination, shall continue
to be liable for any preceding breach of covenant, and in addition, shall pay to
Landlord as damages, at the election of Landlord
either:
(x) the amount by which, at the time of the termination of this Lease (or
at any time thereafter if Landlord shall have initially elected damages under
subparagraph (y), below), (i) the aggregate of the rent and other charges
projected over the period commencing with such termination and ending on the
Termination Date as stated in Exhibit 1 discounted to present value exceeds (ii)
the aggregate projected rental value of the premises for such period, discounted
to present value.
or:
(y) amounts equal to the rent and other charges which would have been
payable by Tenant had this Lease not been so terminated, payable upon the due
dates therefor specified herein following such termination and until the
Termination Date as specified in Exhibit 1, provided, however, if Landlord shall
re-let the premises during such period, then Landlord shall credit Tenant with
the net rents received by Landlord from such re-letting, such net rents to be
determined by first deducting from the gross rents as and when received by
Landlord from such re-letting the expenses incurred or paid by Landlord in
terminating this Lease, as well as the reasonable expenses of re-letting,
including altering and preparing the premises for new tenants, brokers'
commissions, and all other, similar and dissimilar expenses properly chargeable
against the premises and the rental therefrom, it being understood that any such
re-letting may be for a period equal to or shorter or longer than the remaining
term of this Lease; and provided, further, that (i) in no event shall Tenant be
entitled to receive any excess of such net rents over the sums payable by Tenant
to Landlord hereunder and (ii) in no event shall Tenant be entitled in any suit
for the collection of damages pursuant to this Subparagraph (y) to a credit in
respect to any net rents from a re-letting except to the extent that such net
rents are actually received by Landlord prior to the commencement of such suit.
If the premises or any part thereof should be re-let in combination with other
space, then proper apportionment on a square foot area basis shall be made of
the rent received from such re-letting and of the expenses of
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re-letting. Landlord shall use reasonable efforts to relet the premises if
Landlord chooses to collect damages under this subparagraph (y).
In calculating the rent and other charges under Subparagraph (x), above,
there shall be included, in addition to the Yearly Rent, Tax Excess and
Operating Expense Excess and all other considerations agreed to be paid or
performed by Tenant, on the assumption that all such amounts and considerations
would have remained constant (except as herein otherwise provided) for the
balance of the full term hereby granted.
Suit or suits for the recovery of such damages, or any installments
thereof, may be brought by Landlord from time to time at its election, and
nothing contained herein shall be deemed to require Landlord to postpone suit
until the date when the term of this Lease would have expired if it had not
been terminated hereunder.
Except in the case Landlord elects the liquidated damage remedy provided
for above, nothing herein contained shall be construed as limiting or precluding
the recovery by Landlord against Tenant of any sums or damages to which, in
addition to the damages particularly provided above, Landlord may lawfully be
entitled by reason of any default hereunder on the part of Tenant.
21.4 FEES AND EXPENSES.
(a) If Tenant shall default in the performance of any covenant on Tenant's
part to be performed as in this Lease contained, Landlord may after notice to
Tenant and an opportunity to cure (except in emergencies) perform the same for
the account of Tenant. If Landlord at any time is compelled to pay or elects to
pay any sum of money, or do any act which will require payment of any sum of
money, by reason of the failure of Tenant to comply with any provision hereof,
or if Landlord is compelled to or does incur any expense, including reasonable
attorneys' fees, in instituting, prosecuting, and/or defending any action or
proceeding instituted by reason of any default of Tenant hereunder, Tenant shall
on demand pay to Landlord by way of reimbursement the sum or sums so paid by
Landlord with all costs and damages, plus interest computed as provided in
Article 6 hereof.
(b) Tenant shall pay Landlord's costs and expense, including reasonable
attorneys' fees, incurred (i) in enforcing any obligation of Tenant under this
Lease or (ii) as a result of Landlord, without its fault, being made party to
any litigation pending by or against Tenant or any persons claiming through or
under Tenant.
(c) Landlord shall pay Tenant's cost and expense, including reasonable
attorneys' fees, incurred (i) in enforcing any obligation of Landlord under this
Lease or (ii) as a result of Tenant, without its fault, being made party to any
litigation pending by or against Landlord or any persons claiming through or
under Landlord.
21.5 WAIVER OF REDEMPTION. Tenant does hereby waive and surrender all
rights and privileges which it might have under or by reason of any present or
future law to redeem the premises or to have a continuance of this Lease for the
term hereby demised after being dispossessed or ejected therefrom by process of
law or under the terms of this lease or after the termination of this Lease as
herein provided.
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21.6 LANDLORD'S REMEDIES NOT EXCLUSIVE. Except in the case Landlord elects
the liquidated damage remedy provided for above, the specified remedies to which
Landlord may resort hereunder are cumulative and are not intended to be
exclusive of any remedies or means of redress to which Landlord may at any time
be lawfully entitled, and Landlord may invoke any remedy (including the remedy
of specific performance) allowed at law or in equity as if specific remedies
were not herein provided for.
21.7 GRACE PERIOD. Notwithstanding anything to the contrary in this Article
contained, Landlord agrees not to take any action to terminate this Lease (a)
for default by Tenant in the payment when due of any sum of money, if Tenant
shall cure such default within ten (10) days after written notice
thereof is given by Landlord to Tenant, provided, however, that no such notice
need be given and no such default in the payment of money shall be curable if on
two (2) prior occasions in any twelve (12) month period there had been a default
in the payment of money which had been cured either after or without notice
thereof had been given by Landlord to Tenant as herein provided or (b) for
default by Tenant in the performance of any covenant other than a covenant to
pay a sum of money, if Tenant shall cure such default within a period of thirty
(30) days after written notice thereof given by Landlord to Tenant or within
such additional period as may reasonably be required to cure such default if
(because of any cause beyond the reasonable control of Tenant) the default is of
such a nature that it cannot be cured within such thirty (30)-day period,
provided, however, (I) that Tenant shall, as soon as reasonably practicable,
duly institute and thereafter diligently prosecute to completion all steps
necessary to cure such default and, (2) that no notice of the opportunity to
cure a default need be given, and no grace period whatsoever shall be allowed to
Tenant, if the default is incurable of if the covenant or condition the breach
of which gave rise to default had, by reason of a breach on a prior occasion,
been the subject of three (3) prior notices hereunder to cure such default.
Notwithstanding anything to the contrary in this Article 21.7 contained,
Landlord's written notice commencing Tenant's grace periods hereunder may also
serve as Landlord's statutory notice to quit, and such grace periods as are
provided herein may run concurrently with any statutory notice periods; and,
except to the extent prohibited by applicable law, any such statutory notice and
grace periods are hereby waived by Tenant.
21.8 ABANDONMENT. In the event that Tenant shall desert or abandon the
premises, Landlord may, at its option, give Tenant a written notice terminating
this Lease with respect to all or any portion of the premises, such notice to
specify the space being "recaptured by Landlord and the effective date of such
termination. In the event of such Recaptures of space by Landlord, the Yearly
Rent and Tenant's Proportionate Share shall be proportionately reduced. Nothing
contained herein shall be deemed to release, waive or modify in any manner
whatsoever the obligations of Tenant under this Lease, except that Tenant's
obligations with respect to "recaptured space shall be modified as provided in
the immediately preceding sentence.
22. END OF TERM - ABANDONED PROPERTY
Upon the expiration or other termination of the term of this Lease, Tenant
shall peaceably quit and surrender to Landlord the premises and all alterations
and additions thereto, broom clean, in good order, repair and condition (except
as provided herein and in Articles 18 and 20) excepting only ordinary wear and
use and damage by fire or other casualty for which, under other provisions of
this Lease, Tenant has no responsibility of repair or restoration. Tenant shall
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remove all of its property and, to the extent allowed by Landlord pursuant to
Section 12 hereof, shall remove all alterations and additions made by Tenant and
all partitions wholly within the premises, and shall repair any damages to the
premises or the Building caused by such installation or such removal. Tenant's
obligation to observe or perform this covenant shall survive the expiration or
other termination of the term of this Lease.
Tenant will remove any personal property from the Building and the premises
upon or prior to the expiration or termination of this Lease and any such
property which shall remain in the Building or the premises thereafter shall be
conclusively deemed to have been abandoned, and may either be retained by
Landlord as its property or sold or otherwise disposed of in such manner as
Landlord may see fit. If any part thereof shall be sold, then Landlord may
receive and retain the proceeds of such sale and apply the same, at its option,
against the expenses of the sale, the cost of moving and storage, any arrears of
Yearly Rent, additional or other charges payable hereunder by Tenant to Landlord
and any damages to which Landlord may be entitled under Article 21 hereof or
pursuant to law, with the balance, if any, to be paid to Tenant.
If Tenant or anyone claiming under Tenant shall remain in possession of the
premises or any part thereof after the expiration or prior termination of the
term of this Lease without any agreement in writing between Landlord and Tenant
with respect thereto, then, prior to the acceptance of any payments for rent or
use and occupancy by Landlord, the person remaining in possession shall be
deemed a tenant-at-sufferance. Whereas the parties hereby acknowledge that
Landlord may need the premises after the expiration or prior termination of the
term of the Lease for other tenants and that the damages which Landlord may
suffer as the result of Tenant's holding-over cannot be determined as of the
Execution Date hereof, in the event that Tenant so holds over, Tenant shall pay
to Landlord in addition to the rental and other charges due and accrued under
the Lease prior to the date of termination, charges (based upon the greater of
the fair market rental value of the premises or the highest rent called for
under this lease prior to its termination) for use and occupation of the
premises thereafter and, in addition to such sums and any and all other rights
and remedies which Landlord may have at law or in equity, an additional use and
occupancy charge in the amount of fifty percent (50%) of the Yearly Rent and
other charges calculated (on a daily basis) at the highest rate payable under
the terms of this Lease, but measured from the day on which Tenant's hold-over
commenced and terminating on the day on which Tenant vacates the premises.
Notwithstanding the foregoing, Landlord shall have the right to elect to recover
any other damages which Landlord is permitted to recover under this Lease or at
law or in equity in lieu of said liquidated damages by giving Tenant written
notice of such election. From and after the date on which Landlord gives Tenant
such notice, said liquidated damages shall cease to accrue and Tenant shall be
liable to Landlord for any damages recoverable under Lease or at law or in
equity which accrue thereafter.
23. SUBORDINATION
(a) Subject to any mortgagee's or ground lessor's election, as hereinafter
provided for and subject to the condition that Landlord obtain from its
mortgagee or ground lessor a nondisturbance and attornment agreement in favor of
Tenant in a commercially reasonable form, this Lease is subject and subordinate
in all respects to all matters of record ground leases and/or underlying leases
and all mortgages, any of which may hereafter be placed on or affect such leases
and/or the real property of which the premises are a part, or any part of such
real property, and/or Landlord's interest or estate therein, and to each advance
made and/or hereafter to be made under any such mortgages, and to all renewals,
modifications, consolidations,
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replacements and extensions thereof and all substitutions therefor. This Article
23 shall be self-operative and no further instrument of subordination shall be
required. In confirmation of such subordination, Tenant shall execute,
acknowledge and deliver promptly any certificate or instrument that Landlord
and/or any mortgagee and/or lessor under any ground or underlying lease and/or
their respective successors in interest may reasonably request, subject to
Landlord's, mortgagee's and ground lessor's right to do so for, on behalf and in
the name of Tenant under certain circumstances, as hereinafter provided. Tenant
acknowledges that, where applicable, any consent or approval hereafter given by
Landlord may be subject to the further consent or approval of such mortgagee
and/or ground lessor; and the failure or refusal of such mortgagee and/or ground
lessor to give such consent or approval shall, notwithstanding anything to the
contrary in this Lease contained, constitute reasonable justification for
Landlord's withholding its consent or approval.
(b) Any such mortgagee or ground lessor may from time to time subordinate
or revoke any such subordination of the mortgage or ground lease held by it to
this Lease. Such subordination or revocation, as the case may be, shall be
effected by written notice to Tenant and by recording an instrument of
subordination or of such revocation, as the case may be, with the appropriate
registry of deeds or land records and to be effective without any further act or
deed on the part of Tenant. In confirmation of such subordination or of such
revocation, as the case may be, Tenant shall execute, acknowledge and promptly
deliver any certificate or instrument that Landlord, any mortgagee or ground
lessor may reasonably request, subject to Landlord's, mortgagee's and ground
lessor's right to do so for, on behalf and in the name of Tenant under certain
circumstances, as hereinafter provided.
(c) Without limitation of any of the provisions of this Lease, if any
ground lessor or mortgagee shall succeed to the interest of Landlord by reason
of the exercise of its rights under such ground lease or mortgage (or the
acceptance of voluntary conveyance in lieu thereof) or any third party
(including, without limitation, any foreclosure purchaser or mortgage receiver)
shall succeed to such interest by reason of any such exercise or the expiration
or sooner termination of such ground lease, however caused, then such successor
may, upon notice and request to Tenant (which, in the case of a ground lease,
shall be within thirty (30) days after such expiration or sooner termination),
succeed to the interest of Landlord under this Lease provided, however, that
such successor shall not: (i) be liable for any previous act or omission of
Landlord under this Lease; (ii) be subject to any offset, defense, or
counterclaim which shall theretofore have accrued to Tenant against Landlord;
(iii) have any obligation with respect to any security deposit unless it shall
have been paid over or physically delivered to such successor; or (iv) be bound
by any previous modification of this Lease or by any previous payment of Yearly
Rent for a period greater than one (1) month, made without such ground lessor's
or mortgagee's consent where such consent is required by applicable ground lease
or mortgage documents. In the event of such succession to the interest of the
Landlord and notwithstanding that any such mortgage or ground lease may antedate
this Lease - the Tenant shall attorn to such successor and shall ipso facto be
and become bound directly to such successor in interest to Landlord to perform
and observe all the Tenant's obligations under this Lease without the necessity
of the execution of any further instrument. Nevertheless, Tenant agrees at any
time and from time to time during the term hereof to execute a suitable
instrument in confirmation of Tenant's agreement to attorn, as aforesaid,
subject to Landlord's, mortgagee's and ground lessor's right to do so for, on
behalf and in the name of Tenant under certain circumstances, as hereinafter
provided.
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(d) The term "mortgage(s)" as used in this Lease shall include any
mortgage or deed of trust. The term "mortgagee(s)" as used in this Lease shall
include any mortgagee or any trustee and beneficiary under a deed of trust or
receiver appointed under a mortgage or deed of trust. The term "mortgagor(s)" as
used in this Lease shall include any mortgagor or any grantor under a deed of
trust.
(e) Tenant hereby irrevocably constitutes and appoints Landlord or any such
mortgagee or ground lessor, and their respective successors in interest, acting
singly, Tenant's attorney-in-fact to execute and deliver any such certificate or
instrument for, on behalf and in the name of Tenant, but only if Tenant
wrongfully fails to execute, acknowledge and deliver any such certificate or
instrument within ten (10) days after Landlord or such mortgagee or such ground
lessor has made written request therefor.
(f) Notwithstanding anything to the contrary contained in this Article 23,
if all or part of landlord's estate and interest in the real property of which
the premises are a part shall be a leasehold estate held under a ground lease,
then: (i) the foregoing subordination provisions of this Article 23 shall not
apply to any mortgages of the fee interest in said real property to which
Landlord's leasehold estate is not otherwise subject and subordinate; and (ii)
the provisions of this Article 23 shall in no way waive, abrogate or otherwise
affect any agreement by any ground lessor (x) not to terminate this Lease
incident to any termination of such ground lease prior to its term expiring or
(y) not to name or join Tenant in any action or proceeding by such ground lessor
to recover possession of such real property or for any other relief.
24. QUIET ENJOYMENT
Landlord covenants that if, and so long as, Tenant keeps and performs each
and every covenant, agreement, term, provision and condition herein contained on
the part and on behalf of Tenant to be kept and performed, Tenant shall quietly
enjoy the premises from and against the claims of all persons claiming by,
through or under Landlord subject, nevertheless, to the covenants, agreements,
terms provisions and conditions of this Lease. Landlord represents and warrants
that Landlord is vested with good record fee simple title to the Building and
the land on which the Building is located and that said property is not subject
to any mortgage or to any encumbrance which materially interferes with Tenant's
use or enjoyment of the premises.
Without incurring any liability to Tenant, Landlord may permit access to
the premises and open the same, whether or not Tenant shall be present, upon any
demand of any receiver, trustee, assignee for the benefit of creditors, sheriff,
marshal or court officer entitled to, or reasonably purporting to be entitled
to, such access for the purpose of taking possession of, or removing Tenant's
property or for any other lawful purpose (but this provision and any action by
Landlord hereunder shall not be deemed a recognition by Landlord that the person
or official making such demand has any right or interest in or to this Lease, or
in or to the premises), or upon demand of any representative of the fire,
police, building, sanitation or other department of the city, state or federal
governments.
25. ENTIRE AGREEMENT - WAIVER - SURRENDER
25.1 ENTIRE AGREEMENT. This Lease and the Exhibits made a part hereof
contain the entire and only agreement between the parties and any and all
statements and representations, written and oral, including previous
correspondence and agreements between the parties hereto,
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are merged herein. Tenant acknowledges that all representations and statements
upon which it relied in executing this Lease are contained herein and that the
Tenant in no way relied upon any other statements or representations, written or
oral. Any executory agreement hereafter made shall be ineffective to change,
modify, discharge or effect an abandonment of this Lease in whole or in part
unless such executory agreement is in writing and signed by the party against
whom enforcement of the change, modification, discharge or abandonment is
sought.
25.2 WAIVER BY LANDLORD. The failure of Landlord to seek redress for
violation, or to insist upon the strict performance, of any covenant or
condition of this Lease, or any of the Rules and Regulations promulgated
hereunder, shall not prevent a subsequent act, which would have originally
constituted a violation, from having all the force and effect of an original
violation. The receipt by Landlord of rent with knowledge of the breach of any
covenant of this Lease shall not be deemed a waiver of such breach. The failure
of Landlord to enforce any of such Rules and Regulations against Tenant and/or
any other tenant in the Building shall not be deemed a waiver of any such Rules
and Regulations. No provision of this Lease shall be deemed to have been waived
by Landlord unless such waiver be in writing signed by Landlord. No payment by
Tenant or receipt by Landlord of a lesser amount than the monthly rent herein
stipulated shall be deemed to be other than on account of the stipulated rent,
nor shall any endorsement or statement on any check or any letter accompanying
any check or payment as rent be deemed an accord and satisfaction, and Landlord
may accept such check or payment without prejudice to Landlord's right to
recover the balance of such rent or pursue any other remedy in this Lease
provided.
25.3 SURRENDER. No act or thing done by Landlord during the term hereby
demised shall be deemed an acceptance of a surrender of the premises, and no
agreement to accept such surrender shall be valid, unless in writing signed by
Landlord. No employee of Landlord or of Landlord's agents shall have any power
to accept the keys of the premises prior to the termination of this Lease. The
delivery of keys to any employee of Landlord or of Landlord's agents shall not
operate as a termination of the Lease or a surrender of the premises. In the
event that Tenant at any time desires to have Landlord underlet the premises for
Tenant's account, Landlord or Landlord's agents are authorized to receive the
keys for such purposes without releasing Tenant from any of the obligations
under this Lease, and Tenant hereby relieves Landlord of any liability for loss
of or damage to any of Tenant's effects in connection with such underletting.
26. INABILITY TO PERFORM - EXCULPATORY CLAUSE
This Lease and the obligations of Tenant to pay rent hereunder and perform
all the other covenants, agreements, terms, provisions and conditions hereunder
on the part of Tenant to be performed shall in no way be affected, impaired or
excused because Landlord is unable to fulfill any of its obligations under this
Lease or is unable to supply or is delayed in supplying any service expressly or
impliedly to be supplied or is unable to make or is delayed in making any
repairs, replacement, additions, alterations, improvements or decorations or is
unable to supply or is delayed in supplying any equipment or fixtures if
Landlord is prevented or delayed from so doing by reason of strikes or labor
troubles or any other similar or dissimilar cause whatsoever beyond Landlord's
reasonable control, including but not limited to, governmental preemption in
connection with a national emergency or by reason of any rule, order or
regulation of any department or subdivision thereof of any governmental agency
or by reason of the conditions of supply and demand which have been or are
affected by war, hostilities or
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other similar or dissimilar emergency. In each such instance of inability of
Landlord to perform, Landlord shall exercise reasonable diligence to eliminate
the cause of such inability to perform.
Tenant shall neither assert nor seek to enforce any claim for breach of
this Lease against any of Landlord's assets other than Landlord's interest in
the Building of which the premises are a part and in the rents, issues and
profits thereof, and Tenant agrees to look solely to such interest for the
satisfaction of any liability of Landlord under this Lease, it being
specifically agreed that in no event shall Landlord (or any of the officers,
trustees, directors, partners, beneficiaries, joint venturers, members,
stockholders or other principals or representatives, and the like, disclosed or
undisclosed, thereof) ever be personally liable for any such Liability. In no
event shall Landlord (or any of the officers, trustees, directors, partners,
beneficiaries, joint venturers, members, stockholders or other principals or
representatives and the like, disclosed or undisclosed, thereof) ever be liable
for consequential damages.
This Lease and the obligations of Landlord to perform all the covenants,
agreements, terms, provisions and conditions hereunder on the part of Landlord
to be performed shall in no way be affected, impaired or excused because Tenant
is unable to fulfill any of its non-monetary obligations under this Lease if
Tenant is prevented or delayed from so doing by reason of strikes or labor
troubles or any other similar or dissimilar cause whatsoever beyond Tenant's
reasonable control, including but not limited to, governmental preemption in
connection with a national emergency or by reason of any rule, order or
regulation of any department or subdivision thereof of any governmental agency
or by reason of the conditions of supply and demand which have been or are
affected by war, hostilities or other similar, or dissimilar emergency. In each
such instance of inability of Tenant to perform any non-monetary obligation,
Tenant shall exercise reasonable diligence to eliminate the cause of such
inability to perform. This paragraph shall not apply to or excuse delay in the
payment of rent, additional rent or any other monetary obligation of Tenant.
27. BILLS AND NOTICES
Any notice, consent, request, bill, demand or statement hereunder by either
party to the other party shall be in writing and, if received at Landlord's or
Tenant's address, shall be deemed to have been duly given when either delivered
or served personally or mailed in a postpaid envelope, deposited by Certified
Mail in the United States mails addressed to Landlord at its address as stated
in Exhibit 1 and to Tenant at the premises (or at Tenant's address as stated in
Exhibit 1, if mailed prior to Tenant's occupancy of the premises), or if any
address for notices shall have been duly changed as hereinafter provided, if
mailed as aforesaid to the party at such changed address. Either party may at
any time change the address or specify an additional address for such notices,
consents, requests, bills, demands or statements by delivering or mailing, as
aforesaid, to the other party a notice stating the change and setting forth the
changed or additional address, provided such changed or additional address is
within the United States.
All bills and statements for reimbursement or other payments or charges due
from Tenant to Landlord hereunder shall be due and payable in full thirty (30)
days, unless herein otherwise provided, after submission thereof by Landlord to
Tenant. Tenant's failure to make timely payment of any amounts indicated by such
bills and statements, whether for work done by Landlord at Tenant's request,
reimbursement provided for by this Lease or for any other sums properly owing by
Tenant to Landlord, shall be treated as a default in the payment of rent, in
37
<PAGE> 43
which event Landlord shall have all rights and remedies provided in this Lease
for the nonpayment of rent.
28. PARTIES BOUND - SEISIN OF TITLE
The covenants, agreements, terms, provisions and conditions of this Lease
shall bind and benefit the successors and assigns of the parties hereto with the
same effect as if mentioned in each instance where a party hereto is named or
referred to, except that no violation of the provisions of Article 16 hereof
shall operate to vest any rights in any successor or assignee of Tenant and that
the provisions of this Article 28 shall not be construed as modifying the
conditions of limitation contained in Article 21 hereof.
If in connection with or as a consequence of the sale, transfer or other
disposition of the real estate (land and/or Building, either or both, as the
case may be) of which the premises are a part Landlord ceases to be the owner of
the reversionary interest in the premises, Landlord shall be entirely freed and
relieved from the performance and observance thereafter of all covenants and
obligations hereunder on the part of Landlord to be performed and observed, it
being understood and agreed in such event (and it shall be deemed and construed
as a covenant running with the land) that the person succeeding to Landlord's
ownership of said reversionary interest shall thereupon and thereafter assume,
and perform and observe, any and all of such covenants and obligations of
Landlord.
29. MISCELLANEOUS
29.1 SEPARABILITY. If any provision of this lease or portion of such
provision or the application thereof to any person or circumstance is for any
reason held invalid or unenforceable, the remainder of the Lease (or the
remainder of such provision) and the application thereof to other persons or
circumstances shall not be affected thereby.
29.2 CAPTIONS, ETC. The captions are inserted only as a matter of
convenience and for reference, and in no way define, limit or describe the scope
of this Lease nor the intent of any provisions thereof.
29.3 BROKER. Tenant represents and warrants that it has not directly or
indirectly dealt, with respect to the leasing of office space in the Building
with any broker or had its attention called to the premises or other space to
let in the Building by anyone other than the broker, person or firm, if any,
designated in Exhibit 1. Tenant agrees to defend, exonerate and save harmless
and indemnify Landlord and anyone claiming by, through or under Landlord against
any claims for a commission arising out of the execution and delivery of this
Lease or out of negotiations between Landlord and Tenant with respect to the
leasing of other space in the Building, provided that Landlord shall be solely
responsible for the payment of brokerage commissions to the brokers, person or
firm, if any, designated in Exhibit 1.
29.4 MODIFICATIONS. If in connection with obtaining financing for the
Building, a bank, insurance company, pension trust or other institutional lender
shall request reasonable modifications in this Lease as a condition to such
financing, Tenant will not withhold, delay or condition its consent thereto,
provided that such modifications do not increase the obligations of Tenant
hereunder or materially adversely affect the leasehold interest hereby created.
38
<PAGE> 44
29.5 GOVERNING LAW. This Lease is made pursuant to, and shall be governed
by, and construed in accordance with, the laws of the Commonwealth of
Massachusetts and any applicable local municipal rules, regulations, by-laws,
ordinances and the like.
29.6 ASSIGNMENT OF RENTS. With reference to any assignment by Landlord of
its interest in this Lease, or the rents payable hereunder, conditional in
nature or otherwise, which assignment is made to or held by a bank, trust
company, insurance company or other institutional lender holding a mortgage or
ground lease on the Building, Tenant agrees:
(a) that the execution thereof by Landlord and the acceptance thereof by
such mortgagee and/or ground lessor shall never be deemed an assumption by such
mortgagee and/or ground lessor of any of the obligations of the Landlord
thereunder, unless such mortgagee and/or around lessor shall, by written notice
sent to the Tenant, specifically otherwise elect; and
(b) that, except as aforesaid, such mortgagee and/or ground lessor shall be
treated as having assumed the Landlord's obligations thereunder only upon
foreclosure of such mortgagee's mortgage or termination of such ground lessor's
ground lease and the taking of possession of the demised premises after having
given notice of its exercise of the option stated in Article 23 hereof to
succeed to the interest of the Landlord under this Lease.
29.7 REPRESENTATION OF AUTHORITY. By his or her execution hereof each of
the signatories on behalf of the respective parties hereby warrants and
represents to the other that he or she is duly authorized to execute this Lease
on behalf of such party. If Tenant is a corporation, Tenant hereby appoints the
signatory whose name appears below on behalf of Tenant as Tenant's
attorney-in-fact for the purpose of executing this Lease for and on behalf of
Tenant.
29.8 NON-DISTURBANCE AGREEMENT. Landlord shall use its best efforts to
obtain a non-disturbance agreement from its lender with language that is
acceptable to the Tenant. Failure of the Landlord to obtain such an agreement
shall not constitute a default on the part of the Landlord.
39
<PAGE> 45
IN WITNESS WHEREOF the parties hereto have executed this Indenture of Lease
in multiple copies, each to be considered an original hereof, as a sealed
instrument on the day and year noted in Exhibit 1 as the Execution Date.
LANDLORD: TENANT:
E & F REALTY ASSOCIATES XIONICS INTERNATIONAL
LIMITED PARTNERSHIP HOLDING, INC.
By: E & F REALTY, CORPORATION,
GENERAL PARTNER
By: By:
--------------------------- ---------------------------------
ELEANOR PAO, PRESIDENT GERARD T. FEENEY, VICE PRESIDENT
FINANCE AND OPERATIONS, CFO
HEREUNTO DULY AUTHORIZED
A SECRETARY'S OR CLERK'S CERTIFICATE OF THE AUTHORITY AND THE INCUMBENCY OF
THE PERSON SIGNING ON BEHALF OF TENANT SHOULD BE ATTACHED.
40
<PAGE> 46
[XIONICS letter header]
June 12, 1995
Mr. James F. O'Neil
E & F Realty
709 Main Street
Waltham, MA 02154
Re: 128 Corporate Center
Burlington, MA 01803
Dear Jim:
In accordance with paragraph 3.5 of our lease dated November 29, l994, we are
exercising our right of first refusal on the first floor adjacent space
effective July 1, 1995.
In accordance with our exercising our option, we understand the yearly rent
becomes $519,525.00 and the monthly rent becomes $43,293.25. We also understand
that in accordance with our lease agreement that our total proportionate share
becomes 33%.
Please do not hesitate to contact me should you have any questions or concerns.
Sincerely,
/s/ Gerard T. Feeney
- ---------------------
Gerard T. Feeney
Vice President
<PAGE> 47
FIRST AMENDMENT TO LEASE
This agreement made this 9TH day of AUGUST, 1995, by and between E & F REALTY
ASSOCIATES (hereinafter referred to as LESSOR), and XIONICS INTERNATIONAL
HOLDINGS, INC., a Delaware Corporation having its principal place of business at
70 Blanchard Road, Burlington, MA (hereinafter referred to as LESSEE),
Witnesseth:
WHEREAS, by a certain Lease Agreement dated November 29, 1994 (hereinafter
referred to as the "LEASE"), the LESSOR, E & F. Realty Associates Limited
Partnership leased to LESSEE a certain premises described as 30,000 rentable
square feet on the first and fifth floor of 128 Corporate Center, 70 Blanchard
Road, Burlington, Massachusetts, 01803, and subsequently exercised its option
to lease 4,635 rentable square feet of additional space on the first floor for a
total area of 34,635 rentable square feet, more particularly described therein
as (Premises), and,
NOW, THEREFORE, for valuable consideration, the receipt of which is hereby
acknowledged each to the other, the above named parties do hereby agree to
expand said Lease as follows:
1) To add to said lease 4,860 rentable square feet located on the first floor
as shown on the attached exhibit A, bringing the total rentable square
footage to 39,495 square feet.
2) The Term of this First Amendment to Lease shall be for coterminous with the
existing lease and shall commence October 1, 1995 and terminate December
31, 1999, unless otherwise terminated in accordance with the provisions
contained in the lease.
3) The annualized rent for years one and two shall be $599,715.00 payable in
equal monthly installments of $49,796.25; annual rent for years three and
four shall be $604,575.00 payable in equal monthly installments of
$50,381.25; annual rent for year five shall be $609,435.00 payable in equal
monthly installments of $50,786.25. Monthly rent is due and payable upon
the first day of the month.
4) The Lessor and Lessee agree for the purpose of definition that in
calculating the monthly rents payable as described in paragraph 3 above,
year one commences October 1, 1995, year 2 commences January 1, 1996, year
3 commences January 1, 1997, year 4 commences January 1, 1998, and year 5
commences January 1, 1999.
5) The tenant accepts the premises in "as is~ condition. However, the landlord
agrees to paint the walls (one coat) and shampoo the carpet.
6) It is agreed by both parties that no brokers are associated with this
amendment and no brokers fees are due to any parties.
7) Tenant shall pay its proportionate share of any increase in operating
costs over the base year as provided for in Article 9 of the lease. Base
year under this amendment is to be defined in the lease. The tenants
proportionate share of operating cost as defined in Article 9 is hereby
revised to 37.6%.
<PAGE> 48
8) Tenant shall pay its proportionate share of any increase in operating
costs over the base year as provided for in Article 9 of the lease. The
base year for real estate tax escalations under this amendment remains as
defined in the lease. The proportionate share of real estate tax
escalations as defined in Article 9 is 37.6%.
9) Tenant agrees to pay its proportionate share of its electric cost monthly
as provided for the lease.
10) All other terms, conditions and covenants of the Lease shall apply to the
First Amendment to Lease and shall remain the same, where applicable, and
are hereby affirmed.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
LESSOR: E & F Realty Associates
Limited Partnership
- --------------------------- ----------------------------
Witness By
Its Authorized Agent
LESSEE: XIONICS International Holding, Inc.
/s/ [?????????????????????] /s/ [??????????????????????]
- --------------------------- ----------------------------
Witness By
Its Authorized Agent
<PAGE> 1
Exhibit 10.12
STOCK REPURCHASE AGREEMENT
--------------------------
This STOCK REPURCHASE AGREEMENT (this "AGREEMENT") is dated as of May
16, 1996, by and between XIONICS DOCUMENT TECHNOLOGIES, INC., a Delaware
corporation (the "COMPANY"), and ADOBE SYSTEMS INCORPORATED, a California
corporation (the "STOCKHOLDER").
WHEREAS, the Company and the Stockholder are parties to a Class D
Preferred Stock Purchase Agreement, dated as of December 22, 1995 (the "STOCK
PURCHASE AGREEMENT"), pursuant to which the Stockholder purchased 1,000,000
shares of the Company's Class D Redeemable Convertible Preferred Stock, par
value $.01 per share (the "SHARES"), for an aggregate purchase price of
$4,500,000.
WHEREAS, the Company and the Stockholder are also parties to an MFP
Cooperative Development and Distribution License Agreement, dated as of December
22, 1995 (the "LICENSE AGREEMENT"), pursuant to which the Company and the
Stockholder agreed to jointly develop controller technology for computer
peripheral devices.
WHEREAS, the parties have agreed to terminate the joint development
arrangements contemplated by the License Agreement, to effect a repurchase of
the Shares and to terminate the investment arrangements contemplated by the
Stock Purchase Agreement and the documents executed in connection therewith.
WHEREAS, the termination of the License Agreement will be effected
pursuant to a Termination Agreement, dated as of the date hereof (the
"TERMINATION AGREEMENT"), between the Company and the Stockholder.
WHEREAS, the Company is willing to repurchase and the Stockholder is
willing to sell the Shares and the Company and the Stockholder are willing to
terminate the investment arrangements contemplated by the Stock Purchase
Agreement and the other investment documents, provided that the parties enter
into this Agreement, effect the transactions contemplated hereby and make the
representations, warranties, acknowledgments and agreements set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and agreements
set forth herein, the Company and the Stockholder agree as follows:
1. PURCHASE AND SALE OF SHARES. Subject to the terms and conditions
hereinafter set forth and in reliance on the representations, warranties,
acknowledgments and agreements contained herein, the Company hereby agrees to
repurchase from the Stockholder, and the Stockholder hereby agrees to sell to
the Company, on the Closing Date (as defined below), all of the Shares.
<PAGE> 2
-2-
1.1 TRANSACTIONS ON THE CLOSING DATE. On the Closing Date:
--------------------------------
(a) the Company will pay to the Stockholder, by wire transfer
of immediately available funds to an account specified by the Stockholder,
$4,500,000;
(b) the Stockholder and the Company will duly and validly
execute and deliver to the other party the Termination Agreement and each of the
other certificates and documents required to be delivered thereunder;
(c) the Stockholder will duly and validly execute and deliver
to the Company a General Release Agreement, in the form attached hereto as
EXHIBIT A ("STOCKHOLDER RELEASE AGREEMENT");
(d) the Company will duly and validly execute and deliver to
the Stockholder a General Release Agreement, substantially in the form of
EXHIBIT B ("COMPANY RELEASE AGREEMENT"); and
(e) the Stockholder will deliver to the Company the stock
certificate evidencing the Shares, together with a duly executed stock transfer
power transferring the Shares to the Company.
The parties acknowledge and agree that the transactions entered into on the
Closing Date, as described above, are an integrated series of transactions, and
that each party's obligations described in this Section 1.1 are being performed
by such party in consideration for the performance by the other party of all its
obligations described in this Section 1.1.
1.2 TERMINATION OF RIGHTS AS STOCKHOLDER. The Stockholder
acknowledges that, from and after the Closing Date, all of the rights of the
Stockholder in respect of the Shares, pursuant to the Company's Certificate of
Incorporation or By-laws, the Stock Purchase Agreement, the Amended and Restated
Registration Rights Agreement, dated as of December 22, 1995, or under any other
agreement or instrument entered into in connection therewith or pursuant
thereto, including, without limitation, any rights to receive any accrued
dividends with respect to the Shares, shall be automatically terminated without
any further action by the Stockholder.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS
------------------------------------------
2.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. As of the date
hereof and as of the Closing Date, the Company represents and warrants to the
Stockholder that:
(a) AUTHORIZATION. The execution, delivery and performance by
the Company of this Agreement and the repurchase by the Company of the Shares
hereunder (i) are within the Company's corporate power and authority, (ii) have
been duly authorized by all
<PAGE> 3
-3-
necessary corporate proceedings, and (iii) do not conflict with or result in any
breach of any provision of, or require any consent or approval (including any
consent or approval of the stockholders or Board of Directors of the Company)
pursuant to, the Certificate of Incorporation or By-Laws of the Company or any
law, regulation, order, judgment, writ, injunction, license, permit, agreement
or instrument, except for consents and approvals that have been duly obtained
and are in full force and effect.
(b) ENFORCEABILITY. This Agreement constitutes the legally
binding obligation of the Company, enforceable against the Company in accordance
with the terms and provisions hereof, except to the extent that (i) such
enforceability is limited by bankruptcy, insolvency, reorganization, moratorium
or other laws relating to or affecting generally the enforcement of creditors'
rights and (ii) the availability of the remedy of specific performance or
injunctive or other equitable relief will be subject to the discretion of the
court before which any proceeding therefor may be brought.
(c) GOVERNMENTAL APPROVALS. The execution, delivery and
performance by the Company of this Agreement, and the purchase by the Company of
the Shares hereunder, do not require the approval or consent of, or any filing
with, any governmental authority or agency.
(d) COMPLIANCE WITH DELAWARE LAW. The redemption of the Shares
by the Company hereunder will comply with all laws, or applicable requirements
of the Delaware General Corporation Law. As of the Closing Date, the Company
will have capital (as defined in [Section]154 of the Delaware General
Corporation Law) in excess of $5,500,000.
2.2. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. As of
the date hereof and as of the Closing Date, the Stockholder represents and
warrants to the Company that:
(a) AUTHORIZATION. The execution, delivery and performance by
the Stockholder of this Agreement and the sale by the Stockholder of the Shares
hereunder (i) are within the Stockholder's corporate power and authority, (ii)
have been duly authorized by all necessary corporate proceedings, and (iii) do
not conflict with or result in any breach of any provision of, or require any
consent or approval (including any consent or approval of the stockholders or
Board of Directors of the Stockholder) pursuant to, the charter or bylaws of the
Stockholder or any law, regulation, order, judgment, writ, injunction, license,
permit, agreement or instrument, except for consents and approvals that have
been duly obtained and are in full force and effect.
(b) ENFORCEABILITY. This Agreement constitutes the legally
binding obligation of the Stockholder, enforceable against the Stockholder in
accordance with the terms and provisions hereof, except to the extent that (i)
such enforceability is limited by bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or affecting generally the enforcement of
creditors' rights and (ii) the availability of the remedy of
<PAGE> 4
-4-
specific performance or injunctive or other equitable relief will be subject to
the discretion of the court before which any proceeding therefor may be brought.
(c) GOVERNMENTAL APPROVALS. The execution, delivery and
performance by the Stockholder of this Agreement, and the sale by the
Stockholder of the Shares hereunder, do not require the approval or consent of,
or any filing with, any governmental authority or agency.
(d) OWNERSHIP; NO LIENS. The Stockholder is the legal and
beneficial owner of the Shares, has good and marketable title to the Shares, and
has full right and authority to sell the Shares hereunder, free and clear of all
liens, security interests and other encumbrances, and free and clear of all
options, rights or claims of any third party (except, in each case, for the
rights and obligations regarding the purchase and sale of the Shares hereunder).
(e) INDEPENDENT INVESTMENT DECISION. The Stockholder has,
based on such financial and other information as the Stockholder has deemed
appropriate, and based on its own business judgment to terminate the joint
development arrangements contemplated by the License Agreement and the
investment arrangements contemplated by the Stock Purchase Agreement, made its
own independent investment decision to sell the Shares to the Company on the
terms set forth herein. The Stockholder has made its decision to enter into this
Agreement and to effect the transactions contemplated hereby with as much
knowledge and information regarding the Company and its business and affairs as
the Stockholder has deemed necessary or desirable. The Stockholder acknowledges
that the Company has offered the Stockholder, in connection with the negotiation
of the transactions contemplated hereby and the preparation and negotiation of
this Agreement, access to its books, records and financial and other information
to allow the Stockholder to perform its own evaluation of the financial
condition and prospects of the Company and of the value of the Shares.
The Stockholder has been informed by the Company that:
(i) the fair market value of the Shares may be significantly
greater than the consideration received by the Stockholder for the
Shares as described in Section 1.1 hereof; and
(ii) the Company plans to conduct and has commenced work on an
initial public offering of shares of the Company's Common Stock which,
if consummated, would provide the Stockholder with a market for
disposing of the Shares (or shares of Common Stock into which the
Shares would be converted), subject to restrictions under applicable
securities laws, at prices that would likely be significantly greater
than the consideration per share being received by the Stockholder
described in Section 1.1 hereof.
<PAGE> 5
-5-
Notwithstanding the foregoing, the Stockholder has made the independent
investment decision, after consultation with counsel and such other advisors as
it has deemed necessary, to sell the Shares to the Company on the terms set
forth herein.
(f) NO OTHER REPRESENTATIONS. Other than the representations
set forth in Section 2.1 of this Agreement, the Stockholder has not relied on
any representation or warranty, express or implied, from the Company in entering
into this Agreement.
2.3 NO LIABILITIES OF THE COMPANY. THE STOCKHOLDER HEREBY
EXPRESSLY AGREES WITH THE COMPANY THAT THE COMPANY SHALL HAVE NO LIABILITY TO
THE STOCKHOLDER OF ANY KIND WHATSOEVER ARISING OUT OF ANY CLAIM THAT THE VALUE
OF THE SHARES AS OF THE CLOSING DATE WAS GREATER THAN THE CONSIDERATION RECEIVED
BY THE STOCKHOLDER DESCRIBED IN SECTION 1.1 HEREOF.
3. CONDITIONS PRECEDENT.
--------------------
3.1. CLOSING. The transactions described in Section 1.1 hereof
shall be consummated on May 17, 1996, or on such earlier date as the Company
shall specify to the Stockholder in writing ("CLOSING DATE").
3.2. CONDITIONS TO THE COMPANY'S OBLIGATIONS. The Company's
obligations to consummate the transactions described in Section 1.1 hereof shall
be subject to the satisfaction, on or prior to the Closing Date, of each of the
following conditions precedent:
(a) The Stockholder shall have complied in all respects with
its obligations set forth in Section 1.1 hereof;
(b) The representations and warranties made by the Stockholder
hereunder shall be true and correct as of the Closing Date; and
(c) The Company shall have received the satisfactory opinion
of Cooley Godward Castro Huddleson & Tatum, in the form attached hereto as
EXHIBIT C.
3.3 CONDITIONS TO THE STOCKHOLDER'S OBLIGATIONS. The Stockholder's
obligations to consummate the transactions described in Section 1.1 hereof shall
be subject to the satisfaction, on or prior to the Closing Date, of each of the
following conditions precedent:
(a) The Company shall have complied in all respects with its
obligations set forth in Section 1.1 hereof;
(b) The representations and warranties made by the Company
hereunder shall be true and correct as of the Closing Date; and
<PAGE> 6
-6-
(c) The Stockholder shall have received the satisfactory
opinion of Bingham, Dana & Gould, in the form attached hereto as Exhibit D.
---------
4. GENERAL
-------
4.1. CERTAIN ACKNOWLEDGMENTS AND AGREEMENTS. Each of the parties
hereto acknowledges and agrees that it is entering into this Agreement and the
transactions contemplated hereby in an effort to terminate, peacefully and
without conflict, cost or expense, the joint development arrangements
contemplated by the License Agreement and the investment arrangements
contemplated by the Stock Purchase Agreement and related investment documents
(together with the License Agreement, the "TRANSACTION DOCUMENTS"). Each party
represents and warrants to the other party that, based on such investigation as
such party has deemed necessary or appropriate, and based on all the information
available to it, such party does not know of, or have any reason to suspect that
there exists any basis for, any claims, actions or causes of action arising out
of any of the Transaction Documents or any of the transactions, arrangements,
relationships or duties contemplated thereby or arising thereunder, and that it
is in such party's best interest for independent business reasons to terminate
the transactions and arrangements contemplated by the Transaction Documents and
to pursue other transactions and business relationships.
In furtherance of the foregoing, and without limiting in any way any of
the obligations of the parties under the Company Release Agreement or the
Stockholder Release Agreement, in the event that the Company or the Stockholder
commences or threatens to commence any claim, action or cause of action against
the other party or any of its officers, directors, shareholders or other
affiliates, based on any claim arising out of any of the Transaction Documents,
any of the transactions, arrangements, relationships or duties contemplated
thereby or arising thereunder, or any of the circumstances, negotiations or
discussions out of which the transactions contemplated by the Transaction
Documents arose, the party commencing or threatening to commence such claim,
action or cause of action (the "INDEMNIFYING PARTY") shall indemnify and hold
harmless the other party (the "INDEMNIFIED PARTY") from and against all damages,
losses, costs and expenses incurred by the indemnified party in connection with
the preparation for or defense of any such claim, action or cause of action
(including all legal expenses, all costs of conducting discovery or responding
to discovery requests and all costs relating to the engagement or testimony of
expert witnesses, all travel and lodging expenses and all other related costs
and expenses), unless the indemnifying party shall prevail on the merits of such
claim, action or cause of action (as determined by a final order of the court,
agency or arbitrator having jurisdiction over such claim, action or cause of
action) .
4.2. NON-DISCLOSURE. The parties hereto agree to treat this
Agreement, the Termination Agreement, the Stockholder Release Agreement and the
Company Release
<PAGE> 7
-7-
Agreement and the existence hereof and thereof, the transactions contemplated
hereby and thereby, and the conduct, circumstances, and nature of negotiations
and discussions among the parties hereto regarding the transactions contemplated
hereby and thereby (collectively the "CONFIDENTIAL MATTERS") as strictly
confidential. Each of the parties hereto agrees not to disclose to any third
parties, or to cause or permit any of its representatives or agents to disclose
to any third parties, any Confidential Matters, EXCEPT THAT:
(a) Any party may disclose Confidential Matters to their
representatives and agents who agree to comply with the foregoing
confidentiality obligations;
(b) Any party may disclose Confidential Matters to the extent
required by a court or other governmental authority having authority to require
such disclosure; PROVIDED, HOWEVER, that each party will limit such disclosure
to only that which is reasonably necessary to comply with the orders of any such
court or governmental authority;
(c) Any party may make such disclosure as may be required by
applicable securities laws or the rules and regulations of the Securities and
Exchange Commission, or as such party shall deem necessary, in its reasonable
discretion, in any registration statement, prospectus or other filing with the
Securities and Exchange Commission; and
(d) Any party may disclose to any of such party's customers or
potential customers the existence of the Termination Agreement, the termination
of the business relationship between the Company and the Stockholder
contemplated by the License Agreement and, as to the cause of the termination of
such relationship, the parties' divergence in strategic direction rather than
the failure of either party to perform its obligations under the License
Agreement.
NO PARTY SHALL MAKE ANY COMMENTS TO THE GENERAL PUBLIC, THE MEDIA OR ANY
CUSTOMER OR POTENTIAL CUSTOMER OF THE OTHER PARTY IN RESPECT OF ANY OF THE
TRANSACTIONS OR ARRANGEMENTS CONTEMPLATED BY ANY OF THE TRANSACTION DOCUMENTS,
THE TERMINATION AGREEMENT OR THIS AGREEMENT THAT COULD REASONABLY BE EXPECTED TO
DISPARAGE THE INTEGRITY OR REPUTATION OF THE OTHER PARTY (OR ANY OF ITS OR THEIR
PRODUCTS, SERVICES, AGENTS OR REPRESENTATIVES).
4.3. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
4.4. ASSIGNS. This Agreement shall be binding upon and inure to the
benefit of the successors of each of the parties hereto.
4.5. SURVIVAL. The representations, warranties, acknowledgments and
agreements of the parties hereto shall survive the Closing Date.
<PAGE> 8
-8-
4.6. ENTIRE AGREEMENT. This Agreement, the Termination Agreement,
the Stockholder Release Agreement and the Company Release Agreement contain the
entire understanding of the parties with respect to, and supersede all prior
agreements and understandings relating to, the subject matter hereof and
thereof. This Agreement shall not be amended except by a written instrument
hereafter signed by each of the parties hereto.
4.7. GOVERNING LAW. This Agreement and the obligations of the
parties hereunder shall be deemed to be a contract under seal and shall for all
purposes be governed by and construed in accordance with the internal laws of
The Commonwealth of Massachusetts without reference to principles of conflicts
of law.
4.8. SPECIFIC PERFORMANCE. The parties will be entitled to enforce
their respective rights under this Agreement specifically (without posting a
bond or other security), to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights existing in their
favor. The parties hereto agree and acknowledge that money damages may not be an
adequate remedy for any breach of the provisions of this Agreement and that the
parties may in their sole discretion apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive relief in
order to enforce or prevent any violation of the provisions of this Agreement.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
parties hereto have caused this Agreement to be duly executed as of the date and
year first above written.
THE COMPANY: XIONICS DOCUMENT TECHNOLOGIES, INC.
By:
----------------------------
Title:
THE STOCKHOLDER: ADOBE SYSTEMS INCORPORATED
By:
----------------------------
Title:
<PAGE> 9
EXHIBIT A
GENERAL RELEASE AGREEMENT (STOCKHOLDER)
---------------------------------------
This RELEASE AGREEMENT (this "AGREEMENT"), dated as of May 17, 1996, is
entered into between Adobe Systems Incorporated (together with its successors in
title and assigns, "ADOBE") and Xionics Document Technologies, Inc. (together
with its successors in title and assigns, "XIONICS").
1. RELEASES. Adobe, on its own behalf and also on behalf of its
present and former officers, directors, employees, affiliates, agents,
successors, assigns and other representatives (Adobe and all such other persons
being hereinafter referred to, collectively, as "RELEASORS"), hereby releases
and forever discharges Xionics and each of its present and former officers,
directors, employees, affiliates, agents, successors, assigns and other
representatives (Xionics and all of such other persons being hereinafter
referred to, collectively, as the "RELEASEES") from any and all claims, actions,
demands, causes of action, covenants, contracts, accounts, bills, damages and
liabilities of every name and nature, whether presently known or unknown,
suspected or unsuspected, both at law and in equity and whether related or
unrelated to the agreements, arrangements and transactions listed below as to
law or facts or both (collectively, "CLAIMS"), which the Releasors or any of
them may now own, hold, have or claim to have against the Releasees or any of
them for, upon or by reason of any nature, cause or thing whatsoever existing or
arising at any time on or prior to the day and date of this Agreement,
including, without limitation, all Claims in any way based upon, arising out of,
or connected with:
(i) the MFP Cooperative Development and Distribution License
Agreement, dated as of December 22, 1995 (the "LICENSE AGREEMENT")
between Xionics and Adobe;
(ii) the Class D Preferred Stock Purchase Agreement, dated as
of December 22, 1995 (the "STOCK PURCHASE AGREEMENT"), between Xionics
and Adobe;
(iii) any instrument or agreement executed by such Releasor
pursuant to or in connection with the License Agreement or the Stock
Purchase Agreement (together with the License Agreement and the Stock
Purchase Agreement, thE "TRANSACTION DOCUMENTS");
(iv) any of the arrangements or other transactions
contemplated by or effected pursuant to the Transaction Documents,
including, without limitation, any of the joint development
arrangements, investment arrangements or stockholder arrangements
contemplated by the Transaction Documents;
(iv) any acts, omissions or dealings by any Releasee under or
in respect of any of the Transaction Documents; or
<PAGE> 10
-2-
(v) any breach by any Releasee of any of its agreements,
covenants, obligations, duties or responsibilities of any kind (whether
arising by contract, operation of law or otherwise) under or in respect
of any of the Transaction Documents or any of the arrangements or other
transactions contemplated thereby.
Notwithstanding the foregoing, any and all obligations of Xionics under
(i) the Termination Agreement, dated as of May 17, 1996, between Xionics and
Adobe, (ii) the Stock Repurchase Agreement, dated as of May 16, 1996, between
Xionics and Adobe, and (iii) the General Release Agreement (Company), dated as
of May 17, 1996 ("COMPANY RELEASE AGREEMENT"), between Xionics and Adobe, do not
constitute Claims and are not hereby remised, released or discharged.
2. CERTAIN ACKNOWLEDGMENTS. Adobe acknowledges that the releases
set forth in Section 1 of this Agreement constitute a general release of all
Claims, whether known or unknown, and whether suspected or unsuspected. Adobe
represents that it is its intention to fully release and discharge each of the
Releasees from all Claims described above, whether such Claims are discovered
after the date hereof or are different in nature or degree than any such Claims
that are now known, anticipated or expected.
Adobe specifically waives any right or claim of right to hereafter
assert that any cause of action or alleged cause of action or claim or demand of
any nature or kind whatsoever has been, through oversight or error or
intentionally or unintentionally, omitted from the releases set forth in Section
1 above (except as set forth in the last paragraph of such Section 1).
Adobe further acknowledges that (i) this Agreement is being executed
and delivered by Adobe as consideration for (among other things) the execution
and delivery to Adobe by Xionics of the Company Release Agreement, (ii) this
General Release has not been delivered in haste by Adobe, (iii) Adobe was not
(in agreeing to deliver this Agreement) at a bargaining disadvantage because of
the nature of the transactions or matters contemplated by this Agreement or
otherwise, and (iv) Adobe has been represented by legal counsel throughout the
course of negotiations leading to the execution by Adobe of this Agreement.
3. CIVIL CODE SECTION 1542. Adobe (i) represents, warrants and
acknowledges that it has been fully advised by its attorney(s) of the contents
of Section 1542 of the Civil Code of the State of California, and (ii) hereby
expressly waives the benefits thereof and any rights it may have thereunder, to
the extent that the provisions of such Section 1542 would otherwise govern the
transactions contemplated hereby. Section 1542 of the Civil Code of the State of
California provides as follows:
<PAGE> 11
-3-
"A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the time of
executing the release, which if known to him must have materially
affected his settlement with the debtor."
Adobe also hereby waives the benefits of, and any rights Adobe may have under,
any statute or common law principle of similar effect in any other jurisdiction.
4. COVENANTS NOT TO SUE. Adobe, on behalf of itself and the other
Releasors, hereby absolutely, unconditionally and irrevocably covenants and
agrees with each Releasee that it will not sue (at law, in equity, in any
regulatory proceeding or otherwise) any of the Releasees on the basis of any
Claim herein released and discharged, and further represents that it has not
assigned or transferred all or any part or portion of any Claim herein released
and discharged to any third party, person, corporation or other legal entity of
any kind. If any of the Releasors violates the foregoing covenant, Adobe, on
behalf of itself and on behalf of the other Releasors, hereby jointly and
severally agrees to pay, on demand, in addition to such other damages as any of
the Releasees may sustain as a result of such violation, all attorneys' fees and
costs incurred by any of the Releasees as a result of such violation.
5. MISCELLANEOUS. This instrument is intended to take effect
as a sealed instrument and shall be governed by and construed and enforced in
accordance with the internal substantive laws of The Commonwealth of
Massachusetts.
IN WITNESS WHEREOF, the undersigned have entered into this General
Release Agreement (Stockholder) as a sealed instrument as of this 17th day of
May, 1996.
ADOBE SYSTEMS INCORPORATED
By:
-------------------------------
Title:
XIONICS DOCUMENT TECHNOLOGIES, INC.
By:
-------------------------------
Title:
<PAGE> 12
-4-
State of California }
} ss.
County of }
----------
On this 17th day of May, 1996, before me, a Notary Public in and for
the State of California, personally appeared ______________________, the person
who executed the foregoing Stockholder Release Agreement as
______________________ on behalf of Adobe Systems Incorporated, and he
acknowledged to me that the execution thereof was the free act and deed of said
corporation.
WITNESS my hand and official seal.
------------------------------------
Notary Public
My Commission expires
---------------
<PAGE> 13
EXHIBIT B
GENERAL RELEASE AGREEMENT (COMPANY)
-----------------------------------
This RELEASE AGREEMENT (this "AGREEMENT"), dated as of May 17, 1996, is
entered into between Xionics Document Technologies, Inc. (together with its
successors in title and assigns, "XIONICS") and Adobe Systems Incorporated
(together with its successors in title and assigns, "ADOBE").
1. RELEASES. Xionics, on its own behalf and also on behalf of its
present and former officers, directors, employees, affiliates, agents,
successors, assigns and other representatives (Xionics and all such other
persons being hereinafter referred to, collectively, as "RELEASORS"), hereby
releases and forever discharges Adobe and each of its present and former
officers, directors, employees, affiliates, agents, successors, assigns and
other representatives (Adobe and all of such other persons being hereinafter
referred to, collectively, as the "RELEASEES") from any and all claims, actions,
demands, causes of action, covenants, contracts, accounts, bills, damages and
liabilities of every name and nature, whether presently known or unknown,
suspected or unsuspected, both at law and in equity and whether related or
unrelated to the agreements, arrangements and transactions listed below as to
law or facts or both (collectively, "CLAIMS"), which the Releasors or any of
them may now own, hold, have or claim to have against the Releasees or any of
them for, upon or by reason of any nature, cause or thing whatsoever existing or
arising at any time on or prior to the day and date of this Agreement,
including, without limitation, all Claims in any way based upon, arising out of,
or connected with:
(i) the MFP Cooperative Development and Distribution License
Agreement, dated as of December 22, 1995 (the "LICENSE AGREEMENT")
between Adobe and Xionics;
(ii) the Class D Preferred Stock Purchase Agreement, dated as
of December 22, 1995 (the "STOCK PURCHASE AGREEMENT"), between Adobe
and Xionics;
(iii) any instrument or agreement executed by such Releasor
pursuant to or in connection with the License Agreement or the Stock
Purchase Agreement (together with the License Agreement and the Stock
Purchase Agreement, the "TRANSACTION DOCUMENTS");
(iv) any of the arrangements or other transactions
contemplated by or effected pursuant to the Transaction Documents,
including, without limitation, any of the joint development
arrangements, investment arrangements or stockholder arrangements
contemplated by the Transaction Documents;
<PAGE> 14
-2-
(iv) any acts, omissions or dealings by any Releasee under or
in respect of any of the Transaction Documents; or
(v) any breach by any Releasee of any of its agreements,
covenants, obligations, duties or responsibilities of any kind (whether
arising by contract, operation of law or otherwise) under or in respect
of any of the Transaction Documents or any of the arrangements or other
transactions contemplated thereby.
Notwithstanding the foregoing, any and all obligations of Adobe under
(i) the Termination Agreement, dated as of May 17, 1996, between Adobe and
Xionics, (ii) the Stock Repurchase Agreement, dated as of May 16, 1996, between
Adobe and Xionics, and (iii) the General Release Agreement (Stockholder), dated
as of May 17, 1996 ("STOCKHOLDER RELEASE AGREEMENT"), between Adobe and Xionics,
do not constitute Claims and are not hereby remised, released or discharged.
2. CERTAIN ACKNOWLEDGMENTS. Xionics acknowledges that the
releases set forth in Section 1 of this Agreement constitute a general release
of all Claims, whether known or unknown, and whether suspected or unsuspected.
Xionics represents that it is its intention to fully release and discharge each
of the Releasees from all Claims described above, whether such Claims are
discovered after the date hereof or are different in nature or degree than any
such Claims that are now known, anticipated or expected.
Xionics specifically waives any right or claim of right to hereafter
assert that any cause of action or alleged cause of action or claim or demand of
any nature or kind whatsoever has been, through oversight or error or
intentionally or unintentionally, omitted from the releases set forth in Section
1 above (except as set forth in the last paragraph of Section 1).
Xionics further acknowledges that (i) this Agreement is being executed
and delivered by Xionics as consideration for (among other things) the execution
and delivery to Xionics by Adobe of the Stockholder Release Agreement, (ii) this
General Release has not been delivered in haste by Xionics, (iii) Xionics was
not (in agreeing to deliver this Agreement) at a bargaining disadvantage because
of the nature of the transactions or matters contemplated by this Agreement or
otherwise, and (iv) Xionics has been represented by legal counsel throughout the
course of negotiations leading to the execution by Xionics of this Agreement.
3. CIVIL CODE SECTION 1542. Xionic: (i) represents, warrants
and acknowledges that it has been fully advised by its attorney(s) of the
contents of Section 1542 of the Civil Code of the State of California, and (ii)
hereby expressly waives the benefits thereof and any rights it may have
thereunder, to the extent that the provisions of such Section 1542 would
otherwise govern the transactions
<PAGE> 15
-3-
contemplated hereby. Section 1542 of the Civil Code of the State of California
provides as follows:
"A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the time of
executing the release, which if known to him must have materially
affected his settlement with the debtor."
Xionics also hereby waives the benefits of, and any rights Xionics may have
under, any statute or common law principle of similar effect in any other
jurisdiction.
4. COVENANTS NOT TO SUE. Xionics, on behalf of itself and the
other Releasors, hereby absolutely, unconditionally and irrevocably covenants
and agrees with each Releasee that it will not sue (at law, in equity, in any
regulatory proceeding or otherwise) any of the Releasees on the basis of any
Claim herein released and discharged, and further represents that it has not
assigned or transferred all or any part or portion of any Claim herein released
and discharged to any third party, person, corporation or other legal entity of
any kind. If any of the Releasors violates the foregoing covenant, Xionics, on
behalf of itself and on behalf of the other Releasors, hereby jointly and
severally agrees to pay, on demand, in addition to such other damages as any of
the Releasees may sustain as a result of such violation, all attorneys' fees and
costs incurred by any of the Releasees as a result of such violation.
5. MISCELLANEOUS. This instrument shall be governed in all
respects by and construed and enforced in accordance with the laws of the State
of California without giving effect to its conflicts of law principles.
<PAGE> 16
-4-
IN WITNESS WHEREOF, the undersigned have entered into this General
Release Agreement (Company) as a sealed instrument as of this 17th day of May,
1996.
XIONICS DOCUMENT TECHNOLOGIES, INC.
By:
------------------------------------
Title:
ADOBE SYSTEMS INCORPORATED
By:
------------------------------------
Title:
<PAGE> 17
-5-
Commonwealth of Massachusetts }
} ss.
County of }
---------------------------
On this 17th day of May, 1996, before me, a Notary Public in and for
The Commonwealth of Massachusetts, personally appeared ______________________,
the person who executed the foregoing General Release Agreement (Company) as
______________________ on behalf of Xionics Document Technologies, Inc., and he
acknowledged to me that the execution thereof was the free act and deed of said
corporation.
WITNESS my hand and official seal.
------------------------------------
Notary Public
My Commission expires
---------------
<PAGE> 1
Exhibit 10.13
[LOGO]
XIONICS
XIONICS DOCUMENT TECHNOLOGIES, INC.
STOCK OPTION AGREEMENT
(TIME VESTED)
AGREEMENT dated this 28th day of June, 1995 between Xionics Document
Technologies, Inc., a corporation organized under the laws of the State of
Delaware (the "Company"), and the individual identified below, residing at the
address there set out (the "Optionee").
1. GRANT OF OPTION. Pursuant to the Company's 1995 Stock Option Plan as
attached hereto as EXHIBIT A (the "Plan"), the Company grants to the Optionee an
option (the "Option") to purchase from the Company all or any part of a total of
40,000 shares (the "Optioned Shares") of the Company's Common Stock, par value
$.01 per share (the "Stock"), at a price of TWENTY cents per share. This Option
is granted as of the date hereof.
2. CHARACTER OF OPTION. This Option is intended to be treated as an
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended.
3. DURATION OF OPTION. This Option shall expire on the earlier of (a)
the tenth anniversary of the date of this Agreement , or (b) the ninetieth
(90th) day following the Optionee's termination of the employment or other
association with the Company and its Affiliates for any reason.
4. EXERCISE OF OPTION. Optioned Shares shall become available for
purchase under this Option in the following equal installments:
(a) one installment of 5,120 Optioned Shares, available from and after
the date of this Agreement,
(b) 13 installments of 2,480 Optioned Shares each, one such installment
available from and after the first day of each calendar quarter to begin
subsequent to the date of this Agreement, and
(c) one installment of 2,640 Optioned Shares available from and after
the first day of the calendar quarter to begin subsequent to the last quarter
for which shares become available pursuant to clause (b) above;
PROVIDED, HOWEVER, that each installment of Optioned Shares that has not yet
become available for purchase under Sections 4(b) and (c) hereof shall become
immediately available for purchase hereunder upon closing of a Disposition or an
IPO (as each such
- --------------------------------------------------------------------------------
XIONICS DOCUMENT TECHNOLOGIES, INC. 70 Blanchard Road Burlington, Massachusetts
01803 Phone 617-229-7000 Fax 617-229-7119
<PAGE> 2
term is defined in EXHIBIT B hereto); PROVIDED, FURTHER, that after termination
of the Optionee's employment or other association with the Company no additional
installments of the Optioned Shares shall become available for purchase. Until
its expiration, exercise of this Option at any time may be for any number of
Optioned Shares then available for purchase under this Option and shall be
effected in the manner specified in Section 11 of the Plan.
5. TRANSFER OF OPTIONS. This Option may not be transferred except by
will or the laws of descent and distribution, and, during the lifetime of the
Optionee, may be exercised only by the Optionee.
6. INCORPORATION OF PLAN TERMS. This Option is granted subject to all
of the applicable terms and provisions of the Plan, including but not limited to
the limitations on the Company's obligation to deliver Optioned Shares upon
exercise set forth in Section 12 (RESTRICTIONS ON ISSUE OF SHARES), Section 13
(PURCHASE FOR INVESTMENT; SUBSEQUENT REGISTRATION), and Section 14 (WITHHOLDING
NOTICE OF DISPOSITION OF STOCK PRIOR TO EXPIRATION OF SPECIFIED HOLDING PERIOD).
7. MISCELLANEOUS. This Agreement shall be construed and enforced in
accordance with the laws of the Commonwealth of Massachusetts and shall be
binding upon and inure to the benefit of any successor or assign of the Company
and any executor, administrator, trustee, guardian, or other legal
representative of the Optionee.
IN WITNESS WHEREOF, the parties have executed this Agreement as a
sealed instrument as of the date first above written.
XIONICS DOCUMENT TECHNOLOGIES, INC.
By: Robert E. Gilkes
/s/ Robert Gilkes
------------------------------
Optionee: Robert Gilkes
/s/ Robert E. Gilkes
- ------------------------------
Title: Chief Executive Office Optionee's Address:
----------------------
Box 3496
------------------------------
12 Lawrence Rd
------------------------------
Pocasset, MA 02559-3496
------------------------------
2
<PAGE> 3
[LOGO]
XIONICS
XIONICS DOCUMENT TECHNOLOGIES, INC.
STOCK OPTION AGREEMENT
(TIME VESTED)
AGREEMENT dated this 9th day of November, 1995, between Xionics
Document Technologies, Inc., a corporation organized under the laws of the
State of Delaware (the "Company"), and the individual identified below,
residing at the address there set out (the "Optionee").
1. GRANT OF OPTION. Pursuant to the Company's 1995 Stock Option Plan as
attached hereto as EXHIBIT A (the "Plan"), the Company grants to the Optionee an
option (the "Option") to purchase from the Company all or any part of a total of
300,000 shares (the "Optioned Shares") of the Company's Common Stock, par value
$.01 per share (the "Stock"), at a price of SIXTY-SEVEN AND ONE-HALF cents per
share. This Option is granted as of the date hereof.
2. CHARACTER OF OPTION. This Option is intended to be treated as an
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended.
3. DURATION OF OPTION. This Option shall expire on the earlier of (a)
the tenth anniversary of the date of this Agreement , or (b) the ninetieth
(90th) day following the Optionee's termination of the employment or other
association with the Company and its Affiliates for any reason.
4. EXERCISE OF OPTION. Optioned Shares shall become available for
purchase under this Option in the following installments:
(a) one installment of 75,000 Optioned Shares, available from and after
the date of this Agreement,
(b) 15 equal installments of 15,000 Optioned Shares each, one such
installment available from and after the first day of each of the fifteen
consecutive calendar quarters beginning subsequent to the date of this
Agreement;
PROVIDED, HOWEVER, that any installments of Optioned Shares that have not yet
become available for purchase as set forth above, up to a maximum of four (4)
such installments, shall become immediately available for purchase hereunder
upon closing of a Disposition as defined below; and provided further,
- --------------------------------------------------------------------------------
XIONICS DOCUMENT TECHNOLOGIES, INC. 70 Blanchard Road Burlington, Massachusetts
01803 Phone 617-229-7000 Fax 617-229-7119
<PAGE> 4
that after termination of the Optionee's employment or other association with
the Company no additional installments of the Optioned Shares shall become
available for purchase. Until its expiration, exercise of this Option at any
time may be for any number of Optioned Shares then available for purchase under
this Option and shall be effected in the manner specified in Section 11 of the
Plan. For purposes of this Agreement "DISPOSITION" shall mean any consolidation
or merger of the Company with or into another company or any sale or conveyance
of the property of the Company as a whole or substantially as a whole, expressly
excluding initial public offering of the Company's stock.
5. TRANSFER OF OPTIONS. This Option may not be transferred except by
will or the laws of descent and distribution, and, during the lifetime of the
Optionee, may be exercised only by the Optionee.
6. INCORPORATION OF PLAN TERMS. This Option is granted subject to all
of the applicable terms and provisions of the Plan, including but not limited to
the limitations on the Company's obligation to deliver Optioned Shares upon
exercise set forth in Section 12 (RESTRICTIONS ON ISSUE OF SHARES), Section 13
(PURCHASE FOR INVESTMENT; SUBSEQUENT REGISTRATION), and Section 14 (WITHHOLDING
NOTICE OF DISPOSITION OF STOCK PRIOR TO EXPIRATION OF SPECIFIED HOLDING PERIOD).
7. MISCELLANEOUS. This Agreement shall be construed and enforced in
accordance with the laws of the Commonwealth of Massachusetts and shall be
binding upon and inure to the benefit of any successor or assign of the Company
and any executor, administrator, trustee, guardian, or other legal
representative of the Optionee.
IN WITNESS WHEREOF, the parties have executed this Agreement as a
sealed instrument as of the date first above written.
XIONICS DOCUMENT TECHNOLOGIES, INC.
By: John W. Devine
/s/ Robert Gilkes
------------------------------
Optionee: Robert Gilkes
/s/ John W. Devine
- --------------------------------------
Title: Vice President Human Resources Optionee's Address:
------------------------------
Box 3496
-------------------------------
12 Lawrence Rd
-------------------------------
Pocasset, MA 02559-3496
-------------------------------
2
<PAGE> 5
that after termination of the Optionee's employment or other association with
the Company no additional installments of the Optioned Shares shall become
available for purchase. Until its expiration, exercise of this Option at any
time may be for any number of Optioned Shares then available for purchase under
this Option and shall be effected in the manner specified in Section 11 of the
Plan. For purposes of this Agreement "DISPOSITION" shall mean any consolidation
or merger of the Company with or into another company or any sale or conveyance
of the property of the Company as a whole or substantially as a whole, expressly
excluding initial public offering of the Company's stock.
5. TRANSFER OF OPTIONS. This Option may not be transferred except by
will or the laws of descent and distribution, and, during the lifetime of the
Optionee, may be exercised only by the Optionee.
6. INCORPORATION OF PLAN TERMS. This Option is granted subject to all
of the applicable terms and provisions of the Plan, including but not limited to
the limitations on the Company's obligation to deliver Optioned Shares upon
exercise set forth in Section 12 (RESTRICTIONS ON ISSUE OF SHARES), Section 13
(PURCHASE FOR INVESTMENT; SUBSEQUENT REGISTRATION), and Section 14 (WITHHOLDING
NOTICE OF DISPOSITION OF STOCK PRIOR TO EXPIRATION OF SPECIFIED HOLDING PERIOD).
7. MISCELLANEOUS. This Agreement shall be construed and enforced in
accordance with the laws of the Commonwealth of Massachusetts and shall be
binding upon and inure to the benefit of any successor or assign of the Company
and any executor, administrator, trustee, guardian, or other legal
representative of the Optionee.
IN WITNESS WHEREOF, the parties have executed this Agreement as a
sealed instrument as of the date first above written.
XIONICS DOCUMENT TECHNOLOGIES, INC.
By: John W. Devine
/s/ Robert Gikes
------------------------------
Optionee:
/s/ John W. Devine
- -------------------------------
Title: Chief Executive Officer Optionee's Address:
-----------------------
Box 3496
------------------------------
12 Lawrence Rd
------------------------------
Pocasset, MA 02559-3496
------------------------------
2
<PAGE> 1
EXHIBIT 10.14
CONSULTING SERVICES AGREEMENT
-----------------------------
Xioincs Document Techologies, Inc. of 70 Blanchard Road, Burlington, MA 01803
("Xionics") shall retain Thomas A. St. Germain of 16 Ga11oway Road, Chelmsford,
MA 01824 ("Consultant") to furnish the services described be1ow upon the
following terms and conditions:
1. SERVICES
Consltant shall provide to Xionics general services related to Xionics
Document Technologies, Inc. business, including but not limited to: Providing
assistance and guidance to our CFO and to assist the CFO by acting as Director
of Investor Relations.
Consultant agrees to perform all services hereunder to Xionics' reasonable
satisfaction.
2. COMPENSATION
In consideration of Consultant's performance of services as described above,
Xionics shall pay Consultant at the rate of One Thousand Dollars ($1,000.00) per
day, for approximately two days per week. This estimate may be exceeded if
additional hours are expressly requested or authorized by Xionics. In addition,
subject to the approval of Xionics' Board of Directors, Xionics wi11 grant to
Consultant options to purchase 10,000 shares of Xionics Common Stock at an
exercise price of $1.84. These shares will vest in four quarterly installments,
the first of which will vest after one quarter after the effective date of this
agreement.
Consultant shall submit an invoice to Xionics once every two (2) weeks, and
Xionics shall pay such invoices within ten (10) business days after receipt.
Xionics shall also reimburse Consultant for actual out-of-pocket expenses
incurred in the performance of the services described above, provided that such
expenses have been approved in advance by Xionics and that Consultant submits an
itemized account of them with appropriate supporting documentation.
3. TERM AND TERMINATON
This Agreement shall be effective as of March 21, 1996 and shall continue until
the services described above are completed. Notwithstanding the above, either
party may terminate this Agreement for its convenience by giving ninety (90)
days' written notice to the other. Xionics may terminate this agreement, without
prior notice, with a one time payment of $15,000.00.
4. NON-DISCLOSURE OF INFORMATION
Al1 materials and information given or disc1osed to Consultant by Xionics or
prepared by Consultant for Xionics under this Agreement, whether proprietary to
Xionics or not, shall be deemed confidential. Consultant agrees to keep such
materials strictly confidential and not to disc1ose them to any third party at
any time, before or after the term of this Agreement, without Xionics' written
consent. Upon termination or expiration of this Agreement, Consultant shall
surrender to Xionics all written and descriptive matter, including but not
limited to drawings, blueprints, models, partially completed work, descriptions
and all
<PAGE> 2
other papers and documents and materials relating to any work performed for or
on behalf of Xionics under this Agreement. This Section shall apply regardless
of whether Xionics' confidential information is produced by Consultant or not.
This Section 4. shall survive termination of this Agreement. This Section 4.
shall not apply to any information that is (a) generally known in the computer
industry; (b) rightfully received from a third party; (c) independently
discovered or developed by Consultant without reference to confidential
information of Xionics; (d) required to be disclosed by law; or (e) disclosed
with Xionics' consent, not to be unreasonably withheld.
5. OWNERSHIP
All materials originated and prepared for Xionics by Consultant pursuant to
this Agreement are and shall remain the exclusive property of Xionics.
Consultant acknowledges and agrees that works of authorship created within the
scope of this Agreement constitute works made for hire and that ownership of the
copyrights and any other intellectual property rights in such works belongs to
Xionics. To the extent such works may not be regarded as works made for hire,
Consultant hereby assigns any and all copyrights and other intellectual property
rights in such works to Xionics, and hereby waives any and all moral rights to
the extent permitted by law. Xionics shall have no obligation to designate
Consultant as the author of any such works when distributing them publicly, nor
to make any distribution of such works.
6. INVENTIONS
Consultant agrees to promptly and fully disclose to Xionics any and all
inventions, discoveries and developments made, conceived or reduced to practice
by Consultant in connection with the services performed hereunder, and
Consultant hereby assigns to Xionics, without further compensation, all right,
title and interest in and to such inventions, discoveries and developments and
any and all related patents, patent applications, and copyrights in the United
States and elsewhere. Consultant agrees to keep adequate and current written
records of all such inventions, discoveries and developments, which records
shall be available to and remain the sole property of Xionics at all times, and
to provide reasonable assistance to Xionics in obtaining and enforcing patent,
copyright and other forms of legal protection for such inventions, discoveries
and developments in any country, both during and after the term of this
Agreement.
7. INDEPENDENT CONTRACTOR STATUS
It is expressly agreed and understood that Consultant is performing services
under this Agreement as an independent contractor for Xionics and not as an
employee, agent, servant or representative of Xionics. Consultant agrees that
Xionics will not provide any benefits of the type typically offered to employees
to Consultant hereunder. Xionics' liability hereunder shall be limited to
payment of the fees set forth in this Agreement.
8. TAXES
Consultant agrees to pay all applicable taxes that may arise as a result of this
Agreement, including but not limited to income tax, social security and other
payroll tax requirements.
9. GENERAL
This Agreement may be amended only in writing by both parties. Consultant shall
not assign this Agreement, or any right or obligation hereunder, without
Xionics' written consent, and any attempted assignment without Xionics' written
consent shall be deemed void. Failure of either party to insist in any instance
upon strict performance by the other party of any term, condition or obligation
set forth in this
2
<PAGE> 3
Agreement shall not be deemed a waiver of such or any other provision of this
Agreement. This Agreement represents the entire understanding of the parties
hereto and supersedes all prior written or oral agreements with respect to the
subject matter hereof. This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts, excluding its conflict of laws rules.
XIONICS DOCUMENT TECHNOLOGIES, INC. CONSULTANT
By: Signature:
------------------------- ------------------------
Print Name: Taxpayer I.D. No.
----------------- ------------------
Date: Date:
----------------------- -----------------------------
3
<PAGE> 1
EXHIBIT 10.15
SEVERANCE AGREEMENT
-------------------
THIS SEVERANCE AGREEMENT ("AGREEMENT") is made and entered into this
23rd day of March, 1995, by and between Peter M. Santeusanio
("Mr. Santeusanio") and Xionics Document Technologies, Inc., formerly known
as Xionics International Holdings, Inc. ("Xionics").
Mr. Santeusanio has been requested by Xionics to resign from the
Board of Directors of Xionics. Mr. Santeusanio has agreed to resign from the
Board of Directors of Xionics provided that Xionics enters into this
Agreement and provides the benefits conferred hereby. Xionics has agreed to
provide certain severance benefits to Mr. Santeusanio, provided that Mr.
Santeusanio enters into this Agreement and performs his obligations
hereunder.
In consideration of the mutual covenants set forth below, the parties
hereto hereby agree as follows:
1. This Agreement and the Releases (as defined below) represent a
compromise and settlement. None of the signing, effectiveness or compliance
with the terms of this Agreement or the Releases will be considered or
construed as an admission by Xionics or Mr. Santeusanio of any breach of any
statutory, regulatory, contractual or common law obligation owed to the other
party. Accordingly, it is the parties' intention that this Agreement and the
Releases shall not be used in evidence in any proceeding except: (a) a
proceeding in which one of the parties hereto seeks to enforce this Agreement
or one of the Releases, or (b) a proceeding or conference involving the
Internal Revenue Service or other taxing authority in which the tax
consequence of this Agreement are in issue.
<PAGE> 2
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2. Xionics will make the following payments of continuing salary and
benefits:
(a) For the period commencing with the date hereof through
February 15, 1996, Xionics will pay Mr. Santeusanio's salary in
the amount of $12,500 per month, payable each month in two
installments of $6,250 on the first and fifteenth days of such
month in accordance with the Company's payroll practices, and
subject to deductions for withholding taxes, (dental insurance
premiums and 401K contributions, in accordance with past
practices;
(b) For the period commencing with the date hereof through
February 15, 1997, Xionics will continue to provide medical,
dental and life insurance for Mr. Santeusanio under Xionics'
group plans in accordance with past practices, payment for which
will be made directly by Xionics in accordance with its payroll
practices, and, with respect to dental insurance, with the
proceeds of deductions from Mr. Santeusanio's salary payments in
accordance with past practices; and
(c) For the period from the (date hereof through February 15,
1996, Xionics will continue to pay Mr. Santeusanio a car
allowance in the amount of $600 per month, in accordance with
past practices.
All of such payments will be made by Xionics without set-off or counterclaim of
any kind.
3. As promptly as possible after the date hereof, Xionics will
assign to Mr. Santeusanio all of Xionics' rights, title and interest in and to
the Key Man Life Insurance policies maintained with Northwestern Mutual Life
Insurance Company, identified as account no. 0010010924 and account no.
00002828. To the extent any such policy may have
<PAGE> 3
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lapsed, Xionics will use its best efforts to assist Mr. Santeusanio in having
such policy reinstated.
4. As of the date hereof, Xionics agrees to release from its
repurchase option all shares of common stock of Xionics sold to Mr. Santeusanio
pursuant to the Restricted Stock Purchase Agreement, dated as of December 20,
1993, as amended by the Amendment dated January 6, 1995, between Mr. Santeusanio
and Xionics.
5. As of the date hereof, Xionics agrees to transfer to Mr.
Santeusanio all of Xionics' rights, title and interest in and to the personal
computer and related hardware used at Mr. Santeusanio's home, and the cellular
phone mounted in Mr, Santeusanio's car.
6. Xionics will continue to deduct from Mr. Santeusanio's salary
payments that are directed by Mr. Santeusanio to be deposited in Xionics' 401K
Plan. All contributions to the 401K Plan for Mr. Santeusanio by Xionics will
vest as of December 31, 1995.
7. Xionics will reimburse all reasonable costs and expenses
incurred by Mr. Santeusanio in the conduct of business of Xionics or its
subsidiaries at any time on or prior to February 16, 1995. Mr. Santeusanio will
pay all expenses, including all cellular phone expenses, incurred after that
date, and will be responsible for all premiums and other payments required to
maintain the Key Man Life Insurance policies assigned to Mr. Santeusanio
hereunder.
7A. For as long as Mr. Santeusanio continues to be a shareholder
of Xionics, Xionics will deliver to Mr. Santeusanio copies of all unaudited
quarterly and audited annual financial statements (including balance
<PAGE> 4
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sheets and income statements) for Xionics and its subsidiaries, as and when the
same are available for distribution to the "Investors" pursuant to the
Securities Purchase and Exchange Agreement, dated as of June 30, 1993.
8. Until February 15, 1996, Mr. Santeusanio will not, directly
or indirectly, on his own behalf or as owner, manager, stockholder, consultant,
director, officer or employee of any business entity, participate in any
capacity in the development or provision of goods or services which are
competitive with goods or services provided by Xionics or any of its
subsidiaries as of February 15, 1995, or which, as of February 15, 1995, was
proposed to be provided by Xionics or any of its subsidiaries. Notwithstanding
the foregoing, Xionics agrees that Mr. Santeusanio may own stock of a
corporation that provides goods or services which are competitive with goods or
services provided (or proposed to be provided) by Xionics and its subsidiaries
if: (a) such stock is traded on a regular basis on recognized securities
exchanges or in over-the-counter markets; (b) Mr. Santeusanio promptly provides
written notice to Xionics of his ownership of such stock; and (c) the amount of
such stock owned by Mr. Santeusanio does not constitute more than two percent
(2%) of the outstanding stock of such corporation.
Xionics hereby agrees to provide Mr. Santeusanio or any of his potential
employers, within seven (7) days after receiving a written request from Mr.
Santeusanio containing a reasonably detailed description of the functionality
and target market of the products and/or services provided or to be provided by
him or his potential employer, the
<PAGE> 5
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reasonable opinion of Xionics, after consultation with counsel, as to whether
Mr. Santeusanio's participation in the development or provision of such goods or
services would violate this Agreement. If, in Xionics' reasonable opinion, Mr.
Santeusanio's participation in the development or provision of such goods or
services would violate this Agreement, Xionics will also indicate in its
response whether Xionics consents to Santeusanio's participation in such
activities. If Xionics does not consent, Mr. Santeusanio will nevertheless
continue to have the legal right to contest or dispute whether his engagement in
such activities violates this Agreement.
Mr. Santeusanio hereby confirms and agrees to perform, for the benefit of
Xionics and its subsidiaries, all of his obligations set forth in the Invention,
Noncompetition and Nondisclosure Agreement, dated as of April 2, 1993
("NONCOMPETITION AND NONDISCLOSURE AGREEMENT"), between Mr. Santeusanio and
Xionics, in accordance with the terms thereof (as the same may be amended by the
next subparagraph of this paragraph 8). The parties hereto agree that the
provisions of the first two paragraphs of this Section supersede and replace in
all respects the provisions of Section 3(b) of the Noncompetition and
Nondisclosure Agreement.
The provisions of paragraph 3(c) of the Noncompetition and Nondisclosure
Agreement shall not prohibit Mr. Santeusanio from hiring or attempting to hire
any former employee of Xionics or any of its subsidiaries whose employment has
been terminated by Xionics, provided that Mr. Santeusanio (lid not breach. the
provisions of such paragraph 3(c) at any time prior to the date of such
termination.
<PAGE> 6
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9. Mr. Santeusanio, by his execution and delivery of this
Agreement, resigns from the Board of Directors of Xionics and its subsidiaries.
10. The parties agree to execute and deliver the following
instruments (collectively, the "RELEASES"):
(a) Mr. Santeusanio shall execute and deliver to Xionics a General
Release and Covenant Not to Sue in the form attached hereto as EXHIBIT A;
and
(b) Xionics shall execute and deliver to Mr. Santeusanio a General
Release and Covenant Not to Sue in the form attached hereto as EXHIBIT B.
11. Mr. Santeusanio hereby agrees that, from the date hereof through
February 15, 1996, at the request of Xionics at reasonable times during normal
business hours or at such other times as Mr. Santeusanio may designate to meet
his scheduling demands, to spend up to five (5) hours per month with technical
staff to respond, in good faith to technical and other questions to Xionics on
matters that Mr. Santeusanio was involved with during his employment by Xionics.
Xionics will pay, promptly upon receipt of valid invoices therefor, all
out-of-pocket costs and expenses incurred by Mr. Santeusanio in connection with
providing such technical and other advice.
12. The parties hereto agree that the subject matter of this Agreement
and the Releases, and any statements or information exchanged by the parties in
the negotiations leading to this Agreement,
<PAGE> 7
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(hereinafter referred to, collectively, as "CONFIDENTIAL MATTERS") are private
to them and shall be held by them in the strictest confidence to the fullest
extent legally permissible. More specifically, the parties (including, with
respect to Xionics, any of its officers or directors) shall not disclose, at any
time on or after the date hereof, directly or indirectly to any person or
entity, any Confidential Matters, nor shall they express any opinion or
statement concerning the value, fairness or adequacy of the terms of this
Agreement or the Releases, except as expressly provided below:
(a) In response to a direct inquiry from any member of the general public
or any media concerning Confidential Matters, either party may state, in
substance, the following:
Mr. Santeusanio was employed at Xionics
for several years as President and Chief
Executive Officer. Mr. Santeusanio has
resigned as a member of the Board of
Directors. Mr. Santeusanio is continuing
to provide services for Xionics as a
technical advisor.
(b) The parties may disclose Confidential Matters to their attorneys,
accountants, and members of their immediate families, PROVIDED,
HOWEVER, that any such person to whom such disclosure is made shall have
first been made aware of the confidentiality provisions of this Agreement
and shall have agreed to honor the confidentiality provisions set forth
in this paragraph.
(c) Disclosure of Confidential Matters may be made as required by legal
process from a court or agency having jurisdiction to issue such process
or otherwise as required by law or to the Internal
<PAGE> 8
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Revenue Service or other taxing authority in connection with a
determination of the tax consequences of this Agreement.
(d) It is the intent of the parties that the Confidential Matters remain
strictly confidential, and that neither party shall make any comments to
the general public or to the media disparaging the integrity or
reputation of the other, but it is further recognized that each may
discuss in terms not disparaging of the other Mr. Santeusanio's career
with Xionics.
(e) Until February 15, 1996, all telephone calls to Xionics for Mr.
Santeusanio will be forwarded to Donna Wright, or, in her absence, to an
employee reasonably acceptable to Mr. Santeusanio, who will take messages
for Mr. Santeusanio, Any inquiries concerning Mr. Santeusanio's
employment status will be forwarded to Mr. Devine or to the acting
Director of Human Resources.
13. Mr. Santeusanio agrees and acknowledges that his obligations set
forth or referred to in paragraph 8 of this Agreement are of a unique and
special nature and that Xionics is, therefore, without an adequate legal remedy
in the event of Mr. Santeusanio's violation of any of such obligations. Mr.
Santeusanio agrees, therefore, that each of the covenants made by Mr.
Santeusanio in paragraph 8 of this Agreement shall be specifically enforceable
in equity, in addition to all other rights and remedies at law or in equity or
otherwise that may be available. Xionics agrees and acknowledges that any breach
by Xionics of its payment obligations under..paragraph 2 of this Agreement which
is not cured within 10 days after receipt of written notice of such breach, and
any breach by Xionics of its obligations under paragraph 12 of this Agreement
which is not cured within 5 days after receipt of written notice of such breach,
shall relieve Mr. Santeusanio from all of his obligations
<PAGE> 9
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under paragraph 8 of this Agreement and under the Noncompetition and
Nondisclosure Agreement.
14. Mr. Santeusanio acknowledges that he has been advised by Xionics to
consult an attorney regarding his rights under this Agreement, and that he has
done so to his satisfaction. Mr. Santeusanio and Xionics acknowledge that they
have read and understand fully the terms of this Agreement and the Releases, and
that they have executed this Agreement and the Releases executed by them
voluntarily.
15. This Agreement and the Releases shall be binding upon and inure to
the benefit of the respective legal representatives, heirs, successors, assigns,
officers, employees, and agents of the parties hereto to the full extent
permitted by law.
16. This Agreement and the Releases are intended by the parties as a
final expression of their agreement and as a complete and exclusive statement of
the terms thereof. This Agreement and the Releases shall supersede all prior
understandings, oral and written, heretofore had between the parties in
connection with Mr. Santeusanio's relationship with Xionics and its
subsidiaries.
17. This Agreement shall be executed in two counterparts. Each of said
counterparts together shall constitute but one and the same instrument.
18. This Agreement shall in all respects be interpreted, enforced,
governed and construed by and under the laws of The Commonwealth of
Massachusetts.
<PAGE> 10
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
PETER M. SANTEUSANIO
WITNESS: ___________________________________
_______________________
XIONICS DOCUMENT
TECHNOLOGIES, INC.
By: ________________________________
Title:
<PAGE> 11
EXHIBIT A
---------
GENERAL RELEASE AND COVENANT NOT TO SUE
---------------------------------------
In consideration of the execution, delivery and performance by
XIONICS DOCUMENT TECHNOLOGIES, INC. (herein, together with its successors in
title and assigns, called "Xionics") of a Severance Agreement ("SEVERANCE
AGREEMENT") to be entered into by Xionics with the undersigned, in
consideration of the execution and delivery to the undersigned by Xionics of
an Instrument of General Release and Covenant Not To Sue ("XIONICS RELEASE")
pursuant to which the undersigned is to be released by Xionics of all of its
claims against the undersigned, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
undersigned, PETER M. SANTEUSANIO (herein, together with his successors,
assigns heirs, executors, administrators and other legal representatives,
called the "RELEASOR"), on behalf of himself and also on behalf of his
successors, assigns, heirs, executors, administrators and other legal
representatives, hereby absolutely, unconditionally and irrevocably releases,
remises, waives and forever discharges Xionics, its successors and assigns,
and its present and former shareholders, affiliates, subsidiaries, divisions,
predecessors. directors, officers, attorneys, employees, agents and other
representatives (Xionics and each of such other persons, being hereinafter
called. collectively, the "RELEASEES" and, individually, a "RELEASEE"), of
and from any and all claims, demands, actions, causes of action, suits,
covenants. contracts, controversies, agreements, promises, sums of money,
accounts, bills, reckonings, damages and any and all other claims,
counterclaims, defenses, rights of set-off, demands and liabilities.
whatsoever of every name and nature, known or unknown, suspected or
unsuspected, both at Law and in equity, which the Releasor may now or from
time to time hereafter own, hold, have or claim to have against the Releasees
or any of them for, upon, or by reason of any nature, cause or thing
whatsoever from the beginning of the world to the day and date of this
Release and Covenant Not to Sue (this "RELEASE")(collectively, "CLAIMS" and,
singly, a "CLAIM"), including any Claims in any way based upon or arising out
of or by reason of any matter, cause or thing whatsoever in connection with
any relationships, contracts, agreements or arrangements of any kind by and
between the Releasor and Xionics or any of the other Releasees, and also
including, without limitation, any Claims against the Releasees or any of
them arising out of or resulting from or in any way relating to any of the
following:
<PAGE> 12
(i) the Employment Agreement, dated November 1, 1994 between
Xionics and the Releasor, as amended, supplemented or otherwise modified from
time to time ("EMPLOYMENT AGREEMENT"), and any other employment agreement
between Releasor and any Releasee;
(ii) any other agreements, instruments or contracts (written
or oral) entered into in connection with or pursuant to or in replacement of
the Employment Agreement, in each case, as amended, supplemented, restated,
replaced or otherwise modified from time to time (all of the agreements,
instruments, contracts and other documents identified in clause (i) or (ii) of
this paragraph being herein called, collectively, "EMPLOYMENT DOCUMENTS");
(iii) any actions or omissions of any kind whatsoever by any
of the Releasees under or in respect of any of the Employment Documents, or any
breach by any of the Releasees of any of their respective agreements,
covenants, obligations, duties (including fiduciary duties) or responsibilities
of any kind with or to the Releasor (whether arising under any applicable law
or by contract, operation of law or otherwise), or the termination of the
Releasor's employment with any Releasee or the termination of the Releasor's
position as the chief executive officer and president of Xionics, a member of
the Board of Directors of Xionics or otherwise;
(iv) any rights under any federal laws or any laws of any State
of the United States or any municipality to file charges, complaints or lawsuits
or to assert Claims against Xionics or any of its subsidiaries, any of Xionics'
present or former shareholders or directors or any other Releasees concerning
any matters arising out of the Releasor's employment relationship with any of
the Releasees; or the termination of the Releasor's employment with the
Releasees;
(v) any Claims for wrongful discharge or any compensation
claims, or any other claims under any statute, rule, regulation or under the
common law, including, without limitation, any Claims for damages arising out of
or resulting from infliction of emotional distress or other personal injury
caused by termination of employment, and any Claims for damages resulting from
injury to the Releasor's character or personal reputation caused by any acts of
defamation, whether occurring before, during or after the termination of his
employment by Xionics; or
(vi) any Claims based on any theory that (A) the Releasor and
any Releasee were partners or joint venturers, (B) any fiduciary
<PAGE> 13
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relationship existed between the Releasor and any Releasee, or (C) any
transactions contemplated by any of the Employment Documents were the
result of any duress, coercion, fraud or lack of good faith.
The Releasor, on behalf of himself and also on behalf of his
successors, assigns, heirs, executors, administrators and other legal
representatives, hereby absolutely, unconditionally and irrevocably
covenants and agrees with each Releasee that he will not sue or commence
any regulatory or administrative proceedings (whether at law, in equity,
in any regulatory proceeding or otherwise) against any Releasee on the
basis of any Claim or Claims released, remised, waived and discharged by
the Releasor pursuant to the first paragraph of this Release. If the
Releasor violates the foregoing covenant, the Releasor agrees to pay, on
demand, in addition to any other damages any Releasee may sustain as a
result of such violation, all attorneys' fees and costs incurred by any
Releasee as a result of such violation.
The Releasor does hereby expressly warrant that he has not
assigned or otherwise transferred to any other person all or any part of
any Claim released, remised, waived or discharged by him pursuant to the
first paragraph of this Release.
Anything in the first two paragraphs of this Release to the
contrary notwithstanding, it is understood by the Releasor and the
Releasees that neither the release contained in the first paragraph of
this Release nor the covenant not to sue contained in the second
paragraph of this Release shall apply to any rights or claims of the
Releasor under the Severance Agreement or the XIONICS Release to be
delivered to the Releasor by Xionics, under the Amended and Restated
Shareholders Agreement, dated as of November 8, 1994, under any
instrument governing contingent payment arrangements any Releasee may
have to Releasor with respect to Vermont Microsystems, Inc. or Watermark
Software, Inc., under the Securities Purchase and Exchange Agreement,
dated as of June 30, 1993 or under any instrument executed in
connection therewith, or under the Restricted Stock Purchase Agreement,
dated as of December 20, 1993 or under any instruments executed in
connection therewith.
The Releasor hereby represents and warrants to each of the
Releasees as follows:
(A) the Releasor has full mental and physical capacity to
enter into, execute and perform this Release; this Release has been
duly executed by the Releasor; and the agreements and obligations of the
<PAGE> 14
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Releasor contained in this Release represent the legal, valid, binding and
enforceable obligations of the Releasor;
(B) the Releasor has read carefully and fully understands both
the nature of this Release and the contents of each of the provisions hereof,
and the Releasor is executing this Release of his own free will;
(C) the Releasor has been represented by his counsel in
connection with his review, negotiation, execution and delivery of this
Release; the Releasor has discussed and assessed the merits of any Claims or
potential Claims against the Releasees with his counsel; and the Releasor has
been duly apprised of his rights in connection therewith; and
(D) the Releasor understands that this Release may be pleaded as
a full and complete defense and may be used as a basis for an injunction against
any action, suit or other proceeding which may be instituted, prosecuted or
attempted in breach of the provisions of this Release.
The Releasor understands that this Release is a general release of all
Claims, and that no fact. event, circumstance, evidence or transaction which
could now be asserted or which may hereafter be discovered shall affect in any
manner the final and unconditional nature of this Release. The Releasor
represents that it is his intent to fully release and discharge the Releasees
from all Claims described above, whether such Claims are discovered after the
date hereof or are different in nature or degree than any such Claims that are
now known.
This Release shall be binding upon the Releasor and his successors,
assigns, heirs, executors, administrators and other legal representatives.
This Release shall take effect as a sealed instrument. THIS RELEASE SHALL
BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS
OF THE COMMONWEALTH OF MASSACHUSETTS, WITHOUT REGARD TO ITS CONFLICT OF LAWS
PROVISIONS. This Release may be amended or otherwise varied only by an
instrument in writing executed by the Releasor and the Releasees.
<PAGE> 15
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IN WITNESS WHEREOF, this RELEASE AND COVENANT NOT TO SUE has been duly
executed by the undersigned, PETER M. SANTEUSANIO, on and as of March 23, 1995.
The Releasor:
-------------
Witness:______________________ ___________________________________
PETER M. SANTEUSANIO
<PAGE> 16
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COMMONWEALTH OF MASSACHUSETTS )
)ss.
COUNTY OF___________________ )
On this 23rd day of March, 1995, before me personally came PETER M.
SANTEUSANIO, to me personally known to be the person who signed the foregoing
GENERAL RELEASE AND COVENANT NOT TO SUE, and he acknowledged the foregoing
GENERAL RELEASE AND COVENANT NOT TO SUE to be his free act and dead.
Before me,____________________________
[Affix Notarial Seal] Notary Public
My Commission Expires:________________
<PAGE> 17
EXHIBIT B
---------
GENERAL RELEASE AND COVENANT NOT TO SUE
---------------------------------------
In consideration of the execution, delivery and performance by PETER M.
SANTEUSANIO ("MR. SANTEUSANIO") of a Severance Agreement ("SEVERANCE
AGREEMENT") to be entered into by Mr. Santeusanio with the undersigned, in
consideration of the execution and delivery to the undersigned by Mr.
Santeusanio of an Instrument of General Release and Covenant Not To Sue (the
"SANTEUSANIO RELEASE") pursuant to which the undersigned is to be released by
Mr. Santeusanio from all of his claims against the undersigned, and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the undersigned, XIONICS DOCUMENT TECHNOLOGIES INC. ("XIONICS"),
on behalf of itself and also on behalf of its successors, assigns, and its
present and former shareholders, affiliates, subsidiaries, divisions,
predecessors, directors, officers, attorneys, employees, agents and other
representatives (Xionics, together with its successors in title and assigns, and
together with each of such other persons, being hereinafter called,
collectively, the "RELEASER"), hereby absolutely, unconditionally and
irrevocably releases, remises, waives and forever discharges Mr. Santeusanio,
his successors, assigns, heirs, executors, administrators and other legal
representatives (Mr. Santeusanio and each of such other persons being
hereinafter called, collectively, the "RELEASEES" and, individually, a
"RELEASEE"), of and from any and all claims, demands, actions, causes of
action, suits, covenants, contracts, controversies, agreements, promises, sums
of money, accounts, bills, reckonings, damages and any and all other claims,
counterclaims, defenses, rights of set-off, demands and liabilities whatsoever
of every name and nature, known or unknown, suspected or unsuspected, both at
law and in equity, which the Releaser may now or from time to time hereafter
own, hold, have or claim to have against the Releasees or any of them upon, or
by reason of any nature, cause or thing whatsoever from the beginning of the
world to the day and date of this Release and Covenant Not to Sue (this
"RELEASE") (collectively, "CLAIMS" and, singly, a "CLAIM"), including any
Claims in any way based upon or arising out of or by reason of any matter, cause
or thing whatsoever in connection with any relationships, contracts, agreements
or arrangements of any kind by and between Mr. Santeusanio and the Releasor, and
also including, without limitation, any Claims against any Releasee arising out
of or resulting from or in any way relating to any of the following:
(i) the Employment Agreement, dated November 1, 1994, between
Mr. Santeusanio and the Releasor, as amended, supplemented or otherwise modified
from time to time ("EMPLOYMENT AGREEMENT") and any other employment agreement
between Mr. Santeusanio and the Releasor;
<PAGE> 18
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(ii) any other agreements, instruments or contracts (written
or oral) entered into in connection with or pursuant to or in replacement of the
Employment Agreement, in each case, as amended, supplemented, restated, replaced
or otherwise modified from time to time (all of the agreements, instruments,
contracts and other documents identified in clause (i) and (ii) of this
paragraph being herein called, collectively, "EMPLOYMENT DOCUMENTS");
(iii) any actions or omissions of any kind whatsoever by Mr.
Santeusanio under or in respect of any of the Employment Documents, or any
breach by Mr. Santeusanio of any of his agreements, covenants, obligations,
duties (including fiduciary duties) or responsibilities of any kind with or to
the Releasor (whether arising under any applicable law or by contract, operation
of law or otherwise), or the termination of Mr. Santeusanio's employment with
the Releasor or the termination of Mr. Santeusanio's position as the chief
executive officer and president of the Releasor;
(iv) any rights under any federal laws or any laws of any
State of the United States or any municipality to file charges, complaints or
lawsuits or to assert Claims against any Releasee concerning any matters arising
out of Mr. Santeusanio's employment relationship with the Releasor; or
(v) any Claims based on any theory that (A) the Releasor and
Mr. Santeusanio were partners or joint venturers, (B) any fiduciary relationship
existed between the Releasor and Mr. Santeusanio, or (C) any transactions
contemplated by any of the Employment Documents were the result of any duress,
coercion, fraud or lack of good faith.
The Releasor, on behalf of itself and also on behalf of its successors,
assigns, and its present and former shareholders, affiliates, subsidiaries,
divisions, predecessors, directors, officers, attorneys, employees, agents and
other representatives, hereby absolutely, unconditionally and irrevocably
covenants and agrees with the Releasees that it will not sue or commence any
regulatory or administrative proceedings (whether at law, in equity, in any
regulatory proceeding or otherwise) against the Releasees or any of them on the
basis of any Claim or Claims released, remised, waived and discharged by the
Releasor pursuant to the first paragraph of this Release. If the Releasor
violates the foregoing covenant, the Releasor agrees to pay, on demand, in
addition to any other damages any Releasee may sustain as a result of such
violation, all attorneys' fees and costs incurred by any Releasee as a result of
such violation.
<PAGE> 19
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The Releasor does hereby expressly warrant that it has not assigned or
otherwise transferred to any other person all or any part of any Claim
released, remised, waived or discharged by the Releasor pursuant to the first
paragraph of this Release.
Anything in the first two paragraphs of this Release to the contrary
notwithstanding, it is understood by the Releasor and the Releasees that neither
the release contained in the first paragraph of this Release nor the covenant
not to sue contained in the second paragraph of this Release shall apply to any
rights or claims of the Releasor under the Severance Agreement or the
Santeusanio Release, under the Amended and Restated Shareholders Agreement,
dated as of November 8, 1994, or after the date hereof under the Invention,
Noncompetition and Nondisclosure Agreement, dated April 2, 1993.
The Releasor hereby represents and warrants to each of the Releasees as
follows:
(A) the Releasor has full corporate power and authority to
enter into, execute and perform this Release; this Release has been duly
executed by the Releasor; and the agreements and obligations of the Releasor
contained in this Release represent the legal, valid, binding and enforceable
obligations of the Releasor;
(B) the Releasor has read carefully and fully understands both
the nature of this Release and the contents of each of the provisions hereof,
and the Releasor is executing this Release of its own free will, and is under no
duress, compulsion or coercion to execute this Release:
(C) the Releasor has been represented by its counsel in
connection with its review, negotiation, execution and delivery of this Release;
the Releasor has discussed and assessed the merits of any Claims or potential
Claims against the Releasees with its counsel; and the Releasor has been duly
apprised of its rights in connection therewith; and
(D) the Releasor understands that this Release may be pleaded
as a full and complete defense and may be used as a basis for an injunction
against any action, suit or other proceeding which may be instituted, prosecuted
or attempted in breach of the provisions of this Release.
The Releasor understands that this Release is a general release of all
Claims, and that no fact, event, circumstance, evidence or transaction which
could now be asserted or which may hereafter be discovered shall affect in any
manner the final and unconditional nature of this Release.
<PAGE> 20
-4-
The Releasor represents that it is its intent to fully release and discharge
the Releasees from all Claims described above, whether such Claims are
discovered after the date hereof or are different in nature or degree than any
such Claims that are now known.
This Release shall be binding upon the Releasor and its successors,
assigns, and its present and former shareholders, affiliates, subsidiaries,
divisions, predecessors, directors, officers, attorneys, employees, agents and
other representatives.
This Release shall take effect as a sealed instrument. THIS RELEASE
SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL
LAWS OF THE COMMONWEALTH OF MASSACHUSETTS, WITHOUT REGARD TO ITS CONFLICT OF
LAWS PROVISIONS. This Release may be amended or otherwise varied only by an
instrument in writing executed by the Releasor and the Releasees.
IN WITNESS WHEREOF, this RELEASE AND COVENANT NOT TO SUE has been duly
executed by the undersigned, XIONICS DOCUMENT TECHNOLOGIES, INC, on and as of
March 23, 1995.
[SEAL] The Releasor:
------------
XIONICS DOCUMENT TECHNOLOGIES, INC.
Witness: By:
------------------------- --------------------------------
Title:
-----------------------------
<PAGE> 1
EXHIBIT 10.16
[LOGO]
10/31/95
XIONICS
INVENTION AND NONDISCLOSURE AGREEMENT
-------------------------------------
In consideration of my employment or continued employment by Xionics
Document Technologies, Inc. or any of its subsidiaries (collectively,
"Xionics"), I hereby agree as follows:
1. INVENTIONS AND PATENTS
(a) I will promptly and fully disclose to Xionics any and all
inventions, discoveries, trade secrets and improvements, whether or not
patentable and whether or not they are made, conceived or reduced to
practice during working hours or using Xionics' data or facilities,
which I develop, make, conceive or reduce to practice during my
employment by Xionics, either solely or jointly with others
(collectively, "Developments"). All such Developments shall be the sole
property of Xionics, and I hereby assign to Xionics, without further
compensation, all my right, title and interest in and to such
Developments and any and all related patents, patent applications,
copyrights, copyright registrations, trademarks and trade names in the
United States and elsewhere. Notwithstanding the foregoing, the term
"Developments," as used in this Agreement, shall not include any
invention, discovery, trade secret or improvement which is made,
conceived and reduced to practice not during working hours and not using
Xionics' data or facilities and which, in the sole and reasonable
judgment of Xionics, does not relate to the present business of Xionics
or any business in which Xionics plans, or reasonably would be expected,
to become engaged. I will promptly disclose to Xionics all such
inventions, discoveries, trade secrets and improvements so that Xionics
may determine whether they constitute "Developments" for purposes of
this Agreement.
(b) I will keep and maintain adequate and current written records of
all Developments (in the form of notes, sketches, drawings or in any
other form that may be specified by Xionics), which records shall be
available to and remain the sole property of Xionics at all times.
(c) I will assist Xionics in obtaining and enforcing patent, copyright
and other forms of legal protection for the Developments in any country.
Upon request, I will sign all applications, assignments, instruments and
papers and perform all acts necessary or desired by Xionics to assign
all such Developments fully and completely to Xionics and to enable
Xionics, its successors, assigns and nominees, to secure and enjoy the
full and exclusive benefits and advantages thereof.
(d) I understand that my obligations under this section will continue
after the termination of my employment with Xionics and that during my
employment I will perform such obligations without further compensation,
except for reimbursement of expenses incurred at the request of Xionics.
I further understand that if I am not employed by Xionics as an employee
at the time I am requested to perform any obligations under this
section, I shall receive for such performance a reasonable per diem fee,
as well as reimbursement of any expenses incurred at the request of
Xionics.
<PAGE> 2
2. PROPRIETARY INFORMATION
(a) I recognize that my relationship with Xionics is one of high trust
and confidence by reason of my access to and contact with the trade
secrets and confidential and proprietary information of Xionics. I will
not at any time, either during my employment with Xionics or
thereafter, disclose to others (except as I may be instructed to do so
by Xionics), or use for my own benefit or the benefit of others, (i)
any of the Developments or (ii) any confidential, proprietary or secret
information owned, possessed or used by Xionics including, without
limitation, trade secrets, processes, data, know-how, marketing plans,
forecasts, unpublished financial statements, budgets, licenses, prices,
and employee, customer and supplier lists (collectively, "Proprietary
Information").
(b) My undertakings and obligations under this Section 2. will not
apply, however, to any Proprietary Information which: (i) is or becomes
generally known to the public through no action on my part, (ii) is
generally disclosed to third parties by Xionics without restriction on
such third parties, (iii) is approved for release by written
authorization of Xionics or (iv) which is clearly marked "confidential"
and is being disclosed by me to a third party who has undertaken to
maintain the confidentiality of such information by executing and
becoming bound by a standard form of confidentiality agreement which
has been approved by Xionics.
(c) Upon termination of my employment with Xionics or at any other time
upon request of Xionics, I will promptly deliver to Xionics all notes,
memoranda, notebooks, drawings, records, reports, files and other
documents (and all copies or reproductions of such materials) in my
possession or under my control, whether prepared by me or others, which
contain Proprietary Information. I acknowledge that this material is
the sole property of Xionics.
3. NONCOMPETITION
(a) As long as I am employed by Xionics, and for a period of six (6)
months after I cease to be employed by Xionics, I shall not at any
time, directly or indirectly, on my own behalf or as owner, manager,
stockholder, consultant, director, officer or employee of any business
entity, participate in any capacity in the development or provision of
goods or services which are competitive with goods or services provided
(or which I know are then proposed to be provided) by Xionics.
Notwithstanding the foregoing, Xionics agrees that I may own stock of a
corporation that provides goods or services which are competitive with
goods or services provided (or proposed to be provided) by Xionics if:
(i) such stock is traded on a regular basis on recognized securities
exchanges or in over-the-counter markets; (ii) I promptly provide
written notice to Xionics of my ownership of such stock; and (iii) the
amount of such stock owned by me does not constitute more than two
percent (2%) of the outstanding stock of any such corporation.
(b)(i) For a period of six (6) months after I cease to be employed by
Xionics, I shall not, directly or indirectly, on my behalf or as owner,
manager, stockholder, consultant, director, officer or employee of any
business entity, participate in any capacity in the development or
provision of goods or services which are competitive with goods or
services provided by Xionics (or for which written product plans have
been developed by the Company prior to the time I ceased to be so
employed) without the express written authorization of Xionics.
(b)(ii) If my employment with Xionics is terminated by Xionics other
than for cause, the duration of my obligations set forth in subsection
(ii) above shall continue for only as long as Xionics continues to make
the severance payments set forth in the Offer Letter in accordance with
the terms thereof (but for a maximum period of six months); PROVIDED,
that if Xionics stops making the severance payments as a result of my
taking other employment, such obligations shall continue for six (6)
months after my employment with Xionics ceased. The term "cause" as
used
2
<PAGE> 3
in this subsection shall mean any material failure by me to diligently
perform my responsibilities assigned to me in writing by Xionics
(except as a result of any mental or physical disability), as
determined in the reasonable judgment of the Board of Directors, or any
act that would constitute a crime or act of material dishonesty.
4. ABSENCE OF RESTRICTIONS UPON DISCLOSURE AND COMPETITION
(a) I hereby represent that, except as I have disclosed in writing to
Xionics, I am not bound by the terms of any agreement with any previous
employer or other party to refrain from using or disclosing any trade
secret or confidential or proprietary information in the course of my
employment with Xionics or to refrain from competing, directly or
indirectly, with the business of such previous employer or any other
party.
(b) I further represent that my performance of all the terms of this
'Agreement and as an employee of Xionics does not and will not breach
any agreement to keep in confidence proprietary information, knowledge
or data acquired by me in confidence or in trust prior to my employment
with Xionics, and I will not disclose to Xionics or induce Xionics to
use any confidential or proprietary information or material belonging
to any previous employer or others.
5. OTHER OBLIGATIONS
I acknowledge that Xionics from time to time may have agreements with
other persons or with the U.S. Government, or agencies thereof, which
impose obligations or restrictions on Xionics regarding inventions made
during the course of work under such agreements or regarding the
confidential nature of such work. I agree to be bound by all such
obligations and restrictions which are made known to me in writing and
to take all action necessary to discharge the obligations of Xionics
under such agreements.
6. MISCELLANEOUS
(a) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(b) Except as set forth below, this Agreement supersedes all other
prior agreements, written or oral, between me and Xionics relating to
the subject matter of this Agreement. This Agreement may not be
modified, changed or discharged in whole or in part except by an
agreement in writing signed by me and by Xionics. I agree that any
change or changes in my duties, salary or compensation after the
signing of this Agreement shall not affect the validity or scope of
this Agreement. The provisions of this paragraph (b) shall not
supersede the terms of any written employment agreement between myself
and Xionics, and if any such terms contradict or are inconsistent with
the provisions hereof, the forms of such written employment agreement
shall govern.
(c) This Agreement will be binding upon my heirs, executors and
administrators and will inure to the benefit of Xionics and its
successors and assigns.
(d) No delay or omission by Xionics in exercising any right under this
Agreement will operate as a waiver of that or any other right. A waiver
or consent given by Xionics on any one occasion is effective only in
that instance and will not be construed as a bar to or waiver of any
right on any other occasion.
(e) I expressly consent to be bound by the provisions of this Agreement
for the benefit of Xionics or any subsidiary or affiliate thereof to
whose employ I may be transferred (subject to any
3
<PAGE> 4
written employment agreement I may have with Xionics) without the
necessity that this Agreement be re-signed at the time of such
transfer.
(f) understand that this Agreement is not a contract of employment,
does not alter my status as an employee at will of Xionics, and does
not create any obligation on the part of Xionics to continue my
employment.
(g) As my obligations under this Agreement are special, unique and
extraordinary, breach by me of any term or provision of this Agreement
shall be deemed material, and shall be deemed to cause irreparable
injury not properly compensable by damages in an action at law, and the
fights and remedies of Xionics hereunder may therefore be enforced at
law or in equity, by injunction or otherwise.
(h) This Agreement is governed by and will be construed in accordance
with the internal substantive laws of the Commonwealth of
Massachusetts.
I HAVE READ ALL OF THE PROVISIONS OF THIS AGREEMENT AND I UNDERSTAND AND
AGREE TO EACH OF SUCH PROVISIONS.
---------------------------------
Signature of Employee
Print Name:
----------------------
Date:
---------------------------
Agreed to and accepted by Xionics:
By:
-------------------------------
Print Name:
-----------------------
Date:
-----------------------------
4
<PAGE> 1
EXHIBIT 10.17
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
------- --- -------- ------------ ------ ---------
This Amended and Restated Registration Rights Agreement ("THIS AGREEMENT"),
dated as of December 22, 1995, is entered into by and among (i) Xionics Document
Technologies, Inc., a Delaware corporation (together with its successors, the
"COMPANY"), and (ii) those persons designated as Investors on the signature
pages hereto (the "INVESTORS").
WHEREAS, the Company and the Investors (other than Adobe Systems
Incorporated ("ADOBE")) entered into a Securities Purchase Agreement, dated as
of August 25, 1995 (the "PURCHASE AGREEMENT"), pursuant to which the Company
sold to such Investors, and such Investors purchased from the Company, shares of
the Company's Class C Preferred Stock;
WHEREAS, in order to induce such Investors to enter into the Purchase
Agreement, the Company provided to such Investors the registration rights set
forth in the Registration Rights Agreement, dated as of August 25, 1995 (the
"EXISTING AGREEMENT"), by and among the Company and such Investors;
WHEREAS, the Company and Adobe have entered into a Class D Preferred Stock
Purchase Agreement, dated as of December 22, 1995 (the "ADOBE PURCHASE
AGREEMENT"), pursuant to which the Company has agreed to sell to Adobe, and
Adobe has agreed to purchase from the Company, shares of the Company's Class D
Preferred Stock; and
WHEREAS, in order to induce Adobe to enter into the Adobe Purchase
Agreement, the Company has agreed to grant to Adobe certain registration rights.
NOW, THEREFORE, in consideration of these premises and of the mutual
covenants, agreements and obligations herein set forth, and fully intending to
be legally bound hereby, each of the parties hereto hereby agrees that the
Existing Agreement shall be amended and restated in its entirety to read as
follows:
[SECTION]1. DEFINITIONS. As used in this Agreement the following terms
shall have the following respective meanings:
"ADOBE REGISTRABLE SECURITIES" shall mean, collectively, at any particular
time, all shares of Common Stock issued or issuable upon conversion of Class D
Preferred Stock (including Common Stock issued pursuant to stock splits, stock
dividends and similar distributions with respect to the Class D Preferred Stock
or with respect to the Common Stock issuable upon conversion of the Class D
Preferred Stock) of the Company held of record at such time by Adobe or its
<PAGE> 2
-2-
transferees to whom the rights to the registration of such shares pursuant to
this Agreement shall have been assigned.
"COMMISSION" shall mean the Securities and Exchange Commission.
"COMMON STOCK" shall mean the Company's Class A Common Stock, $.01 par
value per share.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended,
or any federal statute or code which is a successor thereto.
"FORM S-1", "FORM S-2" and "FORM S-3" shall mean the forms so designated,
promulgated by the Commission for registration of securities under the
Securities Act, and any forms succeeding to the functions of such forms, whether
or not bearing the same designation.
"MAJORITY OF REGISTRABLE SECURITIES" shall mean, in relation to any
registration, more than fifty percent (50%) of all Registrable Securities
included or to be included in such registration.
"REGISTER", "REGISTERED" and "REGISTRATION" shall refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act and the declaration or ordering by the Commission of
effectiveness of such registration statement.
"REGISTRABLE SECURITIES" shall mean, collectively, at any particular time,
(i) all shares of Common Stock issuable upon conversion of or in exchange for or
upon exercise of rights under any capital stock or other securities (including,
without limitation, convertible capital stock) of the Company held of record at
such time by the Investors or their transferees to whom the rights to the
registration of such shares pursuant to this Agreement shall have been assigned,
and (ii) all shares of Common Stock held of record at such time by the Investors
or their transferees to whom the rights to the registration of such shares
pursuant to this Agreement shall have been assigned.
"RULE 144" shall mean Rule 144 issued by the Commission under the
Securities Act, or any subsequent rule pertaining to the disposition of
securities without registration.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any
federal statute or code which is a successor thereto.
"UNDERWRITTEN REGISTRATION" or "UNDERWRITTEN OFFERING" shall refer to any
registration in which securities of the Company are sold or to be sold pursuant
to a firm commitment underwriting.
<PAGE> 3
-3-
[SECTION]2. DEMAND REGISTRATIONS.
(a) REQUESTS FOR DEMAND REGISTRATIONS.
(i) Subject to the limitations contained in the following paragraphs
of this [Section]2, the holders of not less than thirty percent (30%) of
the Adobe Registrable Securities at any time outstanding may, at any time
after the earlier of one year from the date hereof or one hundred and
eighty (180) days after the Company's initial public offering, give to the
Company, pursuant to this clause (i), a written request for the
registration on Form S-1 or S-2 by the Company under the Securities Act of
all or any part of the Registrable Securities of such holders (each such
registration, with respect to any Registrable Securities, being herein
called a "DEMAND REGISTRATION"). Within ten (10) days after the receipt by
the Company of any such written request, the Company will give written
notice of such registration request to all holders of Registrable
Securities.
(ii) Subject to the limitations contained in the following paragraphs
of this [Section]2, the holders of not less than fifty percent (50%) of all
Registrable Securities at any time outstanding may, at any time after June
30, 1996, give to the Company, pursuant to this clause (ii), a written
request for a Demand Registration with respect to the Registrable
Securities of such holders. Within ten (10) days after the receipt by the
Company of any such written request, the Company will give written notice
of such registration request to all holders of Registrable Securities. Each
registration effected by the Company that is initiated by holders of 50% or
more of outstanding Registrable Securities (other than any registration
effected pursuant to clause (i) above) shall constitute a Demand
Registration under this clause (ii), regardless of whether the holders of
such Registrable Securities specifically refer to this Agreement or this
clause (ii) in initiating such registration.
(iii) Subject to the limitations contained in the following paragraphs
of this [Section]2, after the receipt of such written request for a Demand
Registration pursuant to paragraph (i) or (ii) above, (a) the Company will
be obligated and required to include in such Demand Registration all
Registrable Securities with respect to which the Company shall receive from
holders of Registrable Securities, within thirty (30) days after the date
on which the Company shall have given to all such holders a written notice
of registration request pursuant to paragraph (i) or (ii) above, the
written requests of such holders for inclusion in such Demand Registration
of Registrable Securities held by such holders, and (b) the Company will
use its best efforts in good faith to effect promptly the registration of
all such Registrable Securities. All written
<PAGE> 4
-4-
requests made by holders of Registrable Securities pursuant to this clause
(iii) will specify the number of shares of Registrable Securities to be
registered and will also specify the intended method of disposition
thereof. Such method of disposition shall, in any case, be an underwritten
offering if an underwritten offering is requested by the holders of a
Majority of Registrable Securities to be included in such Demand
Registration.
(b) LIMITATIONS ON DEMAND REGISTRATIONS.
(i) The holders of Adobe Registrable Securities will be entitled to
require the Company to effect one (1) Demand Registration pursuant to
[Section]2(a)(i) hereof.
(ii) The holders of Registrable Securities (including Adobe
Registrable Securities) will be entitled to require the Company to effect
two (2) Demand Registrations pursuant to [Section]2(a)(ii) hereof.
(iii) The Company shall not be obligated or required to effect any
Demand Registration of any Registrable Securities pursuant to
[Section]2(a)(i) hereof unless and until the holders of Adobe Registrable
Securities shall have requested, pursuant to [Section]2(a)(i) hereof, the
inclusion in such Demand Registration of not less than thirty percent (30%)
of the Adobe Registrable Securities outstanding at the time of such
request. The Company shall not be obligated or required to effect any
Demand Registration of any Registrable Securities pursuant to
[Section]2(a)(ii) hereof unless and until the holders of Registrable
Securities shall have requested, pursuant to [Section]2(a)(ii) hereof, the
inclusion in such Demand Registration of not less than fifty percent (50%)
of the Registrable Securities outstanding at the time of such request.
(iv) Any registration initiated by holders of Registrable Securities
as a Demand Registration pursuant to [Section]2(a) hereof shall not, for
purposes of this [Section]2, count as a Demand Registration unless and
until such registration shall have become effective and all Registrable
Securities included in such registration, and which were actually offered
for sale by the holders thereof, shall have been actually sold.
(v) The Company shall not be obligated or required to effect any
Demand Registration of any Registrable Securities pursuant to [Section]2(a)
hereof during the period commencing on the date falling ninety (90) days
prior to the Company's estimated date of filing of, and ending on the date
ninety (90) days following the effective date of, any registration
statement pertaining to any underwritten registration initiated by the
Company, for the account of the Company, if the written request of holders
of Registrable Securities for such Demand Registration pursuant to
[Section]2(a)(i) or [Section]2(a)(ii) hereof shall have
<PAGE> 5
-5-
been received by the Company after the Company shall have given to all
holders of Registrable Securities a written notice stating that the Company
is commencing an underwritten registration initiated by the Company;
PROVIDED, HOWEVER, that the Company will use its best efforts in good faith
to cause any such registration statement to be filed and to become
effective as expeditiously as shall be reasonably possible.
(vi) The Company shall not be obligated or required to effect any
Demand Registration of any Registrable Securities pursuant to [Section]2(a)
hereof for any 90-day period following receipt of any written request for
registration if, in the good faith judgment of the Board of Directors of
the Company, the filing of any registration statement during such 90-day
period would adversely affect a material proposed or pending acquisition,
merger or other similar corporate event to which the Company or any of its
subsidiaries is or expects to be a party.
(c) EFFECTIVE REGISTRATION - EXPENSES. In any registration initiated by the
holders of Registrable Securities as a Demand Registration pursuant to
[Section]2(a) hereof, the Company will pay all Registration Expenses (as defined
in [Section]8 hereof) of each such registration.
(d) RIGHTS TO PIGGYBACK ON DEMAND REGISTRATIONS.
(i) Subject to the provisions of [Section]2(e) hereof, the Company or
any of its other securityholders (including holders of Registrable
Securities requesting registration pursuant to [Section]3 hereof) may
include any of the Company's securities in any registration initiated by
the holders of Registrable Securities as a Demand Registration pursuant to
[Section]2(a) hereof, PROVIDED, that (A) such securities are of the same
class as the Registrable Securities to be included in such Demand
Registration, (B) the holders of a Majority of Registrable Securities to be
included in such Demand Registration shall have given to the Company the
prior written consent of such holders for such inclusion, and (C) if such
Demand Registration is an underwritten offering, the Company or (as the
case may be) such securityholders shall have duly and properly agreed in
writing to sell their securities on the same terms and conditions as shall
apply to the Registrable Securities to be included in such Demand
Registration.
(ii) The Company will not grant or agree to grant to any person any
registration rights which will conflict or be inconsistent in any respect
with any of the provisions of clause (i) of this [Section]2(d). In the
event of any such conflict or inconsistency, the provisions of such clause
(i) shall in any case prevail and be controlling.
<PAGE> 6
-6-
(e) PRIORITY ON DEMAND REGISTRATIONS. If any Demand Registration is an
underwritten offering, and the managing underwriters shall give written advice
to the Company and the holders of Registrable Securities requesting such Demand
Registration that, in the reasonable opinion of such managing underwriters,
marketing factors require a limitation on the total number of securities to be
underwritten (in this paragraph (e) called the "UNDERWRITERS' MAXIMUM NUMBER"),
then: (i) the Company will be obligated and required to include in such
registration that number of Registrable Securities requested by the holders
thereof to be included in such registration which does not exceed the
Underwriters' Maximum Number, and such number of Registrable Securities shall be
allocated (A) if such Demand Registration was initiated pursuant to
[Section]2(a)(i), FIRST, PRO RATA among the holders of Adobe Registrable
Securities requesting such Demand Registration on the basis of the number of
Adobe Registrable Securities requested to be included therein by each such
holder, and SECOND, PRO RATA among the holders of other Registrable Securities
on the basis of the number of shares of Registrable Securities (other than Adobe
Registrable Securities) requested to be included therein by each such holder,
and (B) if such Demand Registration was initiated pursuant to [Section]2(a)(ii),
PRO RATA among such holders requesting such Demand Registration on the basis of
the number of Registrable Securities requested to be included therein by each
such holder; (ii) if the Underwriters' Maximum Number exceeds the number of
Registrable Securities requested by the holders thereof to be included in such
registration, then, subject to [Section]2(d)(i) hereof, the Company will be
entitled to include in such registration that number of securities which other
securityholders shall have requested be included in such registration which
shall not be greater than such excess, and such number of securities shall be
allocated among such securityholders in such proportion as the Company and such
securityholders may agree; and (iii) if the Underwriters' Maximum Number exceeds
the sum of the number of Registrable Securities which the Company shall be
required to include in such Demand Registration and the number of securities
which other securityholders have requested to include in such Demand
Registration, then, subject to [Section]2(d)(i) hereof, the Company may include
in such registration that number of other securities which shall have been
requested by the Company to be included in such registration for the account of
the Company and which shall not be greater than such excess.
(f) SELECTION OF UNDERWRITERS. If any Demand Registration or any
registration effected pursuant to [Section]2 hereof is an underwritten offering,
or a best efforts underwritten offering, the Company shall (unless the Company
shall otherwise agree) have the right to select the investment bankers and
managing underwriters in such registration, subject to the approval of the
holders of a Majority of Registrable Securities (which approval will not be
unreasonably withheld or delayed).
[SECTION]3. PIGGYBACK REGISTRATIONS.
<PAGE> 7
-7-
(a) RIGHTS TO PIGGYBACK.
(i) If (and on each occasion that) the Company proposes to register
any of its securities under the Securities Act, either for the Company's
own account or for the account of any of its securityholders, on a form
which would permit registration of Registrable Securities for resale by
holders thereof to the public under the Securities Act (each such
registration being herein called a "PIGGYBACK REGISTRATION"), the Company
will give written notice to all holders of Registrable Securities of the
Company's intention to effect such Piggyback Registration not later than
the earlier to occur of (A) the tenth day following the receipt by the
Company of notice of exercise of any registration rights by any person, and
(B) thirty (30) days prior to the anticipated filing date of such Piggyback
Registration.
(ii) Subject to the provisions contained in paragraph (c) of this
[Section]3 and in the last sentence of this clause (ii), (A) the Company
will be obligated and required to include in each Piggyback Registration
all Registrable Securities with respect to which the Company shall receive
from holders thereof, within thirty (30) days after the date on which the
Company shall have given written notice of such Piggyback Registration to
all such holders pursuant to [Section]3(a)(i) hereof, the written requests
of such holders for inclusion in such Piggyback Registration, and (B) the
Company will use its best efforts in good faith to effect promptly the
registration of all such Registrable Securities. Any holder of Registrable
Securities shall be permitted to withdraw all or any part of the
Registrable Securities of such person from any Piggyback Registration at
any time prior to the effective date of such Piggyback Registration. Any
registration of Registrable Securities pursuant to this [Section]3 shall
not be counted as a Demand Registration pursuant to [Section]2 hereof. The
Company will not be obligated or required to include any Registrable
Securities in any registration effected solely to implement an employee
benefit plan or a transaction to which Rule 145 of the Commission is
applicable.
(iii) If any Piggyback Registration is an underwritten primary
registration initiated by the Company, all persons whose securities are
included in such Piggyback Registration shall be obligated to sell their
securities on the same terms and conditions as shall apply to the
securities being issued and sold by the Company. If any Piggyback
Registration is an underwritten secondary registration initiated by holders
of the Company's securities, all persons whose securities are included in
such Piggyback Registration shall be obligated to sell their securities on
the same terms and conditions as shall apply to the securities being sold
by the holders who initiated the underwritten secondary registration.
<PAGE> 8
-8-
(b) PIGGYBACK REGISTRATION EXPENSES. The Company will pay all Registration
Expenses (as defined in 8 hereof) of each Piggyback Registration attributable to
Registrable Securities or otherwise incurred or sustained in connection with or
arising out of the inclusion in each such Piggyback Registration of Registrable
Securities.
(c) PRIORITY ON PIGGYBACK REGISTRATIONS. If a Piggyback Registration is an
underwritten registration and the managing underwriters shall give written
advice to the Company that, in the reasonable opinion of such managing
underwriters, marketing factors require a limitation on the total number of
securities to be underwritten (in this clause (c) called the "UNDERWRITERS'
MAXIMUM NUMBER"), then: (i) the Company shall be entitled to include in such
registration, to the extent of the Underwriters' Maximum Number, that number of
securities which the Company proposes to offer and sell for its own account in
such registration (if such registration is initiated by the Company) or which
securityholders initiating such registration shall have requested to be included
in such registration, as the case may be, such securities to be allocated among
the Company and such securityholders in such proportion as the Company and such
securityholders may agree; (ii) if, and only if, the Piggyback Registration is
subsequent to the Company's initial public offering, and if the Underwriters'
Maximum Number exceeds the number of securities to be included in such
registration by the Company or by securityholders initiating such registration,
as the case may be, then the Company will be obligated and required to include
in such registration that number of Adobe Registrable Securities which shall
have been requested by holders thereof to be included in such registration,
which shall not be greater than such excess, up to a number of Adobe Registrable
Securities equal to fifteen percent (15%) of the Underwriter's Maximum Number;
(iii) if the Underwriters' Maximum Number exceeds the sum of (A) the number of
securities to be included in such registration by the Company or by
securityholders initiating such registration, as the case may be, and (B) the
number, if any, of Adobe Registrable Securities which the Company shall be
required to register in such registration pursuant to [Section]3(c)(ii) hereof,
then the Company will be obligated and required to include in such registration
that number of Registrable Securities which shall have been requested by holders
thereof to be included in such registration, which shall not be greater than
such excess, and such number of Registrable Securities shall be allocated PRO
RATA among such holders on the basis of the number of Registrable Securities
requested to be included therein by each such holder; and (iv) if the
Underwriters' Maximum Number exceeds the sum of (A) the number of securities
which the Company proposes to offer and sell for its own account or for the
account of the securityholders initiating such registration, as the case may be,
and (B) the number, if any, of Adobe Registrable Securities which the Company
shall be required to register in such registration pursuant to [Section]3(c)(ii)
hereof, and (C) the number of Registrable Securities which the Company shall be
required to register in such registration pursuant to [Section]3(c)(iii) hereof,
then the Company may include in
<PAGE> 9
-9-
such registration that number of other securities which its other
securityholders having rights to include such securities in a Piggyback
Registration shall have requested be included in such registration, which shall
not be greater than such excess, and the number of securities which such persons
shall have requested to include in such registration shall be allocated among
such persons making such requests as the Company and such persons may agree.
(d) SELECTION OF UNDERWRITERS. In any Piggyback Registration, the Company
shall (unless the Company shall otherwise agree) have the right to select the
investment bankers and managing underwriters in such registration.
[SECTION]4. FORM S-3. The Company will use its best efforts in good faith
to register its Common Stock under the Exchange Act as expeditiously as shall be
reasonably possible following the effective date of the first registration of
any shares of Common Stock of the Company on Form S-1 or S-2 or any successor
form. The Company will thereafter use its best efforts in good faith to satisfy
all such requirements as would permit or facilitate the sale and distribution by
the Company of its Common Stock on Form S-3. After the Company has qualified for
the use of Form S-3, all holders of Registrable Securities will have the right
to request an unlimited number of registrations on Form S-3 (such requests shall
be in writing and shall state the number of shares of Registrable Securities to
be disposed of and the intended method of disposition), PROVIDED, HOWEVER that
the Company will not be required to effect a registration pursuant to this 4
more frequently than once every twelve (12) months.
The Company will give notice to all holders of Registrable Securities of
the receipt of any request for registration pursuant to this [Section]4 and will
provide a reasonable opportunity for such holders to participate in the
registration. Subject to the foregoing, the Company will use its best efforts in
good faith to effect promptly the registration of all shares of Registrable
Securities on Form S-3 to the extent requested by any holder thereof. The
Company will pay all Registration Expenses (as defined in [Section]8 hereof) of
each registration of Registrable Securities pursuant to this [Section]4.
[SECTION]5. LOCKUP AGREEMENTS.
(A) RESTRICTIONS ON PUBLIC SALE BY INVESTORS. Each Investor, if the Company
or the managing underwriters so request in connection with any underwritten
registration of the Company's securities, will not, without the prior written
consent of the Company or such underwriters, effect any public sale or other
distribution of any equity securities of the Company, including any sale
pursuant to Rule 144, during the thirty (30) days prior to, and during the one
hundred eighty (180) day period commencing on, the effective date of such
underwritten registration, except in connection with such underwritten
registration, provided,
<PAGE> 10
-10-
that, each executive officer, director and holder of 1% or more of the
outstanding Common Stock shall be similarly bound.
(B) RESTRICTIONS ON PUBLIC SALE BY COMPANY. The Company agrees not to
effect any public sale or other distribution of its equity securities, or any
securities convertible into or exchangeable or exercisable for such equity
securities, during the period commencing on the thirtieth day prior to, and
ending on the ninetieth day following, the effective date of any underwritten
Demand Registration or any underwritten Piggyback Registration, except in
connection with any such underwritten registration.
[SECTION]6. REGISTRATION PROCEDURES. If (and on each occasion that) the
Company shall, in accordance with the terms of this Agreement, become obligated
to effect any registration (whether a Demand Registration, a Piggyback
Registration or a registration pursuant to [Section]4 hereof) of any Registrable
Securities, the Company will use its best efforts in good faith to effect
promptly the registration of such Registrable Securities under the Securities
Act and to permit the public offering and sale of such Registrable Securities in
accordance with the intended method of disposition thereof, and, in connection
therewith, the Company, as expeditiously as shall be reasonably possible, will:
(a) prepare and file with the Commission a registration statement with
respect to such Registrable Securities, and use its best efforts in good faith
to cause such registration statement to become and remain effective as provided
herein;
(b) prepare and file with the Commission such amendments and supplements to
such registration statement and the prospectus included in such registration
statement as may be necessary or advisable to comply in all material respects
with the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement or as may be necessary to keep
such registration statement effective and current, but for no longer than nine
(9) months subsequent to the effective date of such registration in the case of
a registration statement on Form S-1 or Form S-2 and for no longer than ninety
(90) days in the case of a registration statement on Form S-3;
(c) furnish to each seller of Registrable Securities such number of copies
of such registration statement, each amendment and supplement thereto (in each
case including all exhibits thereto), the prospectus included in such
registration statement (including each preliminary prospectus), and such other
documents as any such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities held by such seller;
(d) enter into such customary agreements (including, if applicable,
underwriting agreements) and take all such other action in connection therewith
as the holders of a Majority of Registrable Securities being registered
reasonably
<PAGE> 11
-11-
request in order to expedite or facilitate the disposition of such Registrable
Securities;
(e) use its best efforts in good faith to register and qualify the
Registrable Securities covered by such registration statement under such
securities or Blue Sky laws of such jurisdictions as any seller or underwriter
shall reasonably require and do any and all such other acts and things as may be
reasonably necessary or advisable to enable such seller or underwriter to
consummate the disposition in such jurisdictions of the Registrable Securities
held by such seller or underwriter; PROVIDED, that the Company shall not be
required to qualify generally to do business in any jurisdiction where it is not
then so qualified or to take any action which would subject it to general
service of process in any jurisdiction where it is not then so subject; and
(f) furnish to each prospective seller a signed counterpart, addressed to
the prospective sellers, of (i) an opinion of counsel for the Company, dated the
effective date of the registration statement, and (ii) a "comfort" letter signed
by the independent public accountants who have certified the Company's financial
statements included in the registration statement, covering substantially the
same matters with respect to the registration statement (and the prospectus
included therein) and (in the case of the "comfort" letter) with respect to
events subsequent to the date of the financial statements, as are customarily
covered (at the time of such registration) in opinions of issuer's counsel and
in "comfort" letters delivered to the underwriters in underwritten public
offerings of securities.
[SECTION]7. COOPERATION BY PROSPECTIVE SELLERS, ETC.
(a) Each prospective seller of Registrable Securities will furnish to the
Company in writing such information as the Company may reasonably require from
such seller in connection with any registration statement with respect to such
Registrable Securities.
(b) The failure of any prospective seller of Registrable Securities to
furnish any information or documents in accordance with any provision contained
in this Agreement shall not affect the obligations of the Company under this
Agreement to any remaining sellers who furnish such information and documents
unless, in the reasonable opinion of counsel to the Company or the underwriters,
such failure impairs or may impair the viability of the offering or the legality
of the registration statement or the underlying offering.
(c) The holders of Registrable Securities included in any registration
statement will not (until further notice) effect sales thereof after receipt of
telegraphic or written notice from the Company to suspend sales to permit the
Company to correct or update such registration statement or prospectus; but the
obligations of the Company with respect to maintaining any registration
statement
<PAGE> 12
-12-
current and effective shall be extended by a period of days equal to the period
such suspension is in effect.
(d) At the end of any period during which the Company is obligated to keep
any registration statement current and effective as provided by [Section]6
hereof (and any extensions thereof required by the preceding paragraph (c) of
this 7), the holders of Registrable Securities included in such registration
statement shall discontinue sales of shares pursuant to such registration
statement upon receipt of notice from the Company of its intention to remove
from registration the shares covered by such registration statement which remain
unsold, and such holders shall notify the Company of the number of shares
registered which remain unsold promptly after receipt of such notice from the
Company.
[SECTION]8. REGISTRATION EXPENSES.
(a) All costs and expenses incurred or sustained in connection with or
arising out of each registration pursuant to [Section]2, [Section]3 or (as the
case may be) [Section]4 hereof, including, without limitation, all registration
and filing fees, fees and expenses of compliance with securities or Blue Sky
laws (including reasonable fees and disbursements of counsel for the
underwriters in connection with the Blue Sky qualification of Registrable
Securities), printing expenses, messenger, telephone and delivery expenses, fees
and disbursements of counsel for the Company and for the sellers of Registrable
Securities (subject to the limitations contained in paragraph (b) of this
[Section]8), fees and disbursements of all independent certified public
accountants (including the expenses relating to the preparation and delivery of
any special audit or "comfort" letters required by or incident to such
registration), and fees and disbursements of underwriters (excluding discounts
and commissions, but including underwriters' liability insurance if the Company
or if the underwriters so require), the reasonable fees and expenses of any
special experts retained by the Company of its own initiative or at the request
of the managing underwriters in connection with such registration, and fees and
expenses of all (if any) other persons retained by the Company (all such costs
and expenses being herein called, collectively, the "REGISTRATION EXPENSES"),
will be borne and paid by the Company as provided by the provisions contained in
this Agreement. The Company will, in any case, pay its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit, the expense of liability insurance referred to above, and the fees and
expenses incurred in connection with the listing of the securities to be
registered on each securities exchange on which similar securities of the
Company are then listed.
(b) In connection with each registration of Registrable Securities pursuant
to this Agreement, the Company will reimburse the holders of Registrable
Securities being registered in such registration for the reasonable fees and
disbursements of any one counsel chosen by the holders of a Majority of
Registrable
<PAGE> 13
-13-
Securities participating in such registration. The Company will not bear the
cost of nor pay for any stock transfer taxes imposed in respect of the transfer
of any Registrable Securities to any purchaser thereof by any holder of
Registrable Securities in connection with any registration of Registrable
Securities pursuant to this Agreement.
(c) To the extent that Registration Expenses incident to any registration
are, under the terms of this Agreement, not required to be paid by the Company,
each holder of Registrable Securities included in such registration will pay all
Registration Expenses which are attributable to the registration of such
holder's Registrable Securities so included in such registration, and all other
Registration Expenses not so attributable to one holder will be borne and paid
by all sellers of securities included in such registration in proportion to the
number of securities so included by each such seller.
[SECTION]9. INDEMNIFICATION.
(a) INDEMNIFICATION BY COMPANY. The Company will indemnify each holder of
Registrable Securities requesting or joining in a registration, the officers,
directors and partners of each such holder, each person who controls any thereof
(within the meaning of the Securities Act) and each underwriter of the
securities so registered, against any and all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of any material fact contained in
any prospectus, offering circular or other document incident to any
registration, qualification or compliance (or in any related registration
statement, notification or the like) or any omission (or alleged omission) to
state therein any material fact required to be stated therein or necessary to
make the statements therein not misleading, or any violation by the Company of
any rule or regulation promulgated under the Securities Act applicable to the
Company and relating to any action or inaction required of the Company in
connection with any such registration, qualification or compliance, and the
Company will reimburse each such holder, officer, director, partner, controlling
person, and underwriter for any legal and any other expenses reasonably incurred
in connection with investigating or defending any such claim, loss, damage,
liability or action; PROVIDED, HOWEVER, that the Company will not be liable in
any such case to the extent that any such claim, loss, damage or liability
arises out of or is based on any untrue statement or omission based upon written
information furnished to the Company in an instrument duly executed by such
holder, officer, director, partner, controlling person, or underwriter and
stated to be exclusively and specifically for use therein.
(b) INDEMNIFICATION BY EACH HOLDER. Each holder of Registrable Securities
requesting or joining in a registration, and each underwriter of the securities
so registered, will indemnify each other holder, the Company and its officers
and directors and each person, if any, who controls any thereof (within the
meaning of
<PAGE> 14
-14-
the Securities Act) and their respective successors in title and assigns against
any and all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of any material fact contained in any prospectus, offering circular
or other document incident to any registration, qualification or compliance (or
in any related registration statement, notification or the like) or any omission
(or alleged omission) to state therein any material fact required to be stated
therein or necessary to make the statement therein not misleading, and such
holder will reimburse the Company and each other person indemnified pursuant to
this paragraph (b) for any legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action; PROVIDED, HOWEVER, that this paragraph (b) shall apply only
if (and only to the extent that) such statement or omission was made in reliance
upon information furnished to the Company in any instrument duly executed by
such holder or underwriter and stated by such holder or underwriter to be
specifically for use in such prospectus, offering circular or other document (or
related registration statement, notification or the like) or any amendment or
supplement thereto. The maximum liability under this paragraph (b) of each
holder joining in any registration shall be limited to the aggregate amount of
all sales proceeds actually received by such holder upon the sale of such
holder's Registrable Securities in connection with such registration.
(c) INDEMNIFICATION PROCEEDINGS. Each party entitled to indemnification
pursuant to this [Section]9 (the "INDEMNIFIED PARTY") shall give notice to the
party required to provide indemnification pursuant to this [Section]9 (the
"INDEMNIFYING PARTY") promptly after such indemnified party acquires actual
knowledge of any claim as to which indemnity may be sought, and shall permit the
indemnifying party (at its expense) to assume the defense of any claim or any
litigation resulting therefrom; PROVIDED that counsel for the indemnifying
party, who shall conduct the defense of such claim or litigation, shall be
reasonably acceptable to the indemnified party, and the indemnified party may
participate in such defense at such party's expense; and PROVIDED FURTHER, that
if any indemnified party shall have reasonably concluded that there may be one
or more legal defenses available to such indemnified party which are different
from or additional to and are inconsistent with those available to the
indemnifying party, or that such claim or litigation involves or could have an
effect upon matters beyond the scope of the indemnity agreement provided in this
[Section]9, the indemnifying party shall not have the right to assume the
defense of such action on behalf such indemnified party and such indemnifying
party shall reimburse such indemnified party and any person controlling such
indemnified party for that portion of the fees and expenses of any counsel
retained by the indemnified party which are reasonably related to the matters
covered by the indemnity agreement provided in this [Section]9; and PROVIDED,
FURTHER, that the failure by any indemnified party to give notice as provided in
this paragraph (c) shall not relieve the indemnifying party of its obligations
under this [Section]9 except to the extent that the failure results in a failure
of actual notice to the indemnifying party and such indemnifying party is
damaged (or the indemnification liability of such
<PAGE> 15
-15-
indemnifying party hereunder would be increased) solely as a result of the
failure to give notice. No indemnifying party, in the defense of any such claim
or litigation, shall, except with the consent of each indemnified party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation. The reimbursement required by this 9 shall be made by periodic
payments during the course of the investigation or defense, as and when bills
are received or expenses incurred.
[SECTION]10. RULE 144 REQUIREMENTS. From time to time after the earlier to
occur of (a) the ninetieth day following the date on which there shall first
become effective a registration statement filed by the Company under the
Securities Act, or (b) the date on which the Company shall register a class of
securities under Section 12 of the Exchange Act, the Company will make every
effort in good faith to make publicly available and available to the holders of
Registrable Securities, pursuant to Rule 144 of the Commission under the
Securities Act, such information as shall be necessary to enable the holders of
Registrable Securities to make sales of Registrable Securities pursuant to that
Rule. The Company will furnish to any holder of Registrable Securities, upon
request made by such holder at any time after the undertaking of the Company in
the preceding sentence shall have first become effective, a written statement
signed by the Company, addressed to such holder, describing briefly the action
the Company has taken or proposes to take to comply with the current public
information requirements of Rule 144. The Company will, at the request of any
holder of Registrable Securities, upon receipt from such holder of a certificate
certifying (i) that such holder currently intends to transfer such Registrable
Securities, (ii) that such holder has held such Registrable Securities for a
period of not less than three (3) consecutive years within the meaning of Rule
144(k) or any successor rule (or such lesser period as then provided by Rule
144(k) or any successor rule), and (iii) that such holder has not been an
affiliate (as defined in Rule 144) of the Company for more than the ninety (90)
preceding days, remove from the stock certificates representing such Registrable
Securities that portion of any restrictive legend which relates to the
registration provisions of the Securities Act.
[SECTION]11. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No person may
participate in any underwritten registration pursuant to this Agreement unless
such person (a) agrees to sell such person's securities on the basis provided in
any underwriting arrangements approved by the persons entitled, under the
provisions contained in this Agreement, to approve such arrangements, and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required by the terms of
such underwriting arrangements, PROVIDED, HOWEVER, that no such indemnities or
underwriting agreements shall provide for indemnification or contribution
obligations of any holder of Registrable Securities to a greater extent than the
obligations of such holder set forth in [Section]9(b) hereof. Any holder of
Registrable
<PAGE> 16
-16-
Securities to be included in any underwritten registration shall be entitled at
any time to withdraw such Registrable Securities from such registration in the
event that such holder shall disapprove of any of the terms of the related
underwriting agreement.
[SECTION]12. NO INCONSISTENT AGREEMENTS. The Company will not, at any time
after the effective date of this Agreement, enter into, and is not now a party
to or otherwise bound by, any agreement or contract (whether written or oral)
with respect to any of its securities which is inconsistent in any respect with
the registration rights granted by the Company to the holders of Registrable
Securities pursuant to this Agreement.
[SECTION]13. NO OTHER GRANT OF REGISTRATION RIGHTS. The Company will not at
any time, without the prior written consent of the holders of a majority of the
outstanding Registrable Securities, grant to any other persons any rights with
respect to the registration of any of securities of the Company which have
priority over or are inconsistent with the registration rights granted by the
Company to the holders of Registrable Securities pursuant to this Agreement.
[SECTION]14. REGISTRABLE SECURITIES HELD BY THE COMPANY. Whenever the
consent or approval of holders of Registrable Securities is required pursuant to
this Agreement, Registrable Securities held by the Company shall not be counted
in determining whether such consent or approval was duly and properly given by
such holders pursuant to and in compliance with any of the terms of this
Agreement.
[SECTION]15. NOTICES.
(a) All notices and other communications pursuant to this Agreement shall
be in writing, either delivered in person or duly sent by registered mail,
postage prepaid, return receipt requested, or by overnight air courier
guaranteeing next day delivery, or sent addressed to such party at the address
specified below or at such other address as may hereafter be designated in
writing by the addressee to the addressor:
IF TO THE COMPANY: Xionics Document Technologies, Inc.
70 Blanchard Road
Burlington, MA 01803
Attn: Chief Executive Officer
with a copy to: Neil W. Townsend, Esq.
Bingham, Dana & Gould
150 Federal Street
Boston, MA 02110
IF TO ANY INVESTOR: at their respective addresses set
<PAGE> 17
-17-
forth on the signature pages hereto
(b) Any notice or other communication shall be deemed given at the time
delivered by hand, if personally delivered, four business days after being
deposited in the mail, postage prepaid, if mailed; and the next business day
after timely delivery to the courier, if sent by overnight air courier
guaranteeing next day delivery.
[SECTION]16. GOVERNING LAW. This Agreement shall be construed in accordance
with and governed by the internal substantive laws of The Commonwealth of
Massachusetts.
[SECTION]17. AMENDMENTS AND WAIVERS.
(a) Except as otherwise provided by paragraph (b) of this [Section]17, none
of the terms or provisions contained in this Agreement, and none of the
agreements, obligations or covenants of the Company contained in this Agreement,
may be amended, modified, supplemented, waived or terminated unless (i) the
Company shall execute an instrument in writing agreeing or consenting to such
amendment, modification, supplement, waiver or termination, and (ii) the Company
shall receive, in writing, the consent, approval, or vote of the holders of more
than fifty percent (50%) in interest of all Registrable Securities, and (iii) in
the event that any such amendment, modification, supplement, waiver or
termination would adversely affect the rights of holders of Adobe Registrable
Securities hereunder (other than any such amendment that affects all holders of
Registrable Securities in the same manner), the Company shall receive, in
writing, the consent, approval, or vote of the holders of more than fifty
percent (50%) in interest of all outstanding Adobe Registrable Securities.
(b) Any action taken pursuant to and in compliance with paragraph (a) of
this [Section]17 shall be binding upon the Company and upon all holders of
Registrable Securities, including all of such holders who shall have failed or
refused to give a written consent or approval for such action.
[SECTION]18. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among the parties hereto with respect to the subject matter hereof and
supersedes any prior understandings or agreements concerning the subject matter
hereof. By their signature hereof, the holders of Registrable Securities that
were a party to the Existing Agreement agree that this Agreement shall amend,
restate and supersede the Existing Agreement in its entirety as of the date
hereof.
[SECTION]19. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for express
assignment, subsequent holders of Registrable Securities.
<PAGE> 18
-18-
[SECTION]20. COUNTERPARTS. This Agreement may be executed simultaneously in
several counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same agreement. In making proof of
this Agreement, it shall not be necessary to produce or account for more than
one such counterpart signed by each of the parties hereto.
THE COMPANY:
- --- -------
XIONICS DOCUMENT TECHNOLOGIES, INC.
By: ________________________________
Title:
INVESTORS
- ---------
MYTECH FUNDS, L.P.
By: ________________________________
Title: _____________________________
By: ________________________________
Title: _____________________________
Address: MyTech Funds, L.P.
c/o Mr. and Mrs. Frank C. Pao
Penthouse No. 1
10 Rowes Wharf
Boston, MA 02110
PUSH INCORPORATED
By: ________________________________
Title: _____________________________
Address: PUSH Incorporated
c/o 2, Oxford Road
Kowloon, Hong Kong
Attention: Mr. Yunni Pao
<PAGE> 19
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ADD VENTURE ASSOCIATES, L.P.
By: ________________________________
Title: _____________________________
Address: ADD Venture Associates, L.P.
c/o Posternak, Blankstein & Lund
100 Charles River Plaza
Boston, MA 02114
ADD VENTURE ASSOCIATES II, L.P.
By: ________________________________
Title: _____________________________
Address: ADD Venture Associates II, L.P.
c/o Posternak, Blankstein & Lund
100 Charles River Plaza
Boston, MA 02114
HAMBRO INTERNATIONAL VENTURE FUND II
By: ________________________________
Title: General Partner
------- -------
Address for Notices:
- ------- --- -------
Hambro International Venture Partners
404 Wyman Street - Suite 365
Waltham, MA 02154
Attention: Mr. William J. Geary
HAMBRO INTERNATIONAL VENTURE FUND
OFFSHORE II
By: ________________________________
Title: Attorney-in-Fact
----------------
Address for Notices:
- ------- --- -------
Hambro International Venture Partners
404 Wyman Street - Suite 365
Waltham, MA 02154
Attention: Mr. William J. Geary
<PAGE> 20
-20-
MONUMENT TRUST COMPANY
By: ________________________________
Title:
Address for Notices:
- ------- --- -------
PHOENIX TECHNOLOGIES LTD.
By: ________________________________
Title: _____________________________
Address for Notices:
- ------- --- -------
Phoenix Technologies Ltd.
846 University Avenue
Norwood, MA 02062
Attention: Mr. Ronald Fisher, CEO
with a copy to:
2770 De La Cruz Boulevard
Santa Clara, CA 95050
Attention: Legal Department
ADOBE SYSTEMS INCORPORATED
By: ________________________________
Title: _____________________________
Address for Notices:
- ------- --- -------
Adobe Systems Incorporated
1585 Charleston Road
P.O. Box 7900
Mountain View, California 94039-7900
Attention: Colleen Pouliot, General Counsel
<PAGE> 21
-21-
With a copy to:
Diane Savage, Esq.
Cooley Godward Castro Huddleson & Tatum
Five Palo Alto Square
300 El Camino Real
Palo Alto, CA 94306
<PAGE> 1
EXHIBIT 11.1
XIONICS DOCUMENT TECHNOLOGIES, INC.
STATEMENT OF COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
PRO FORMA NET LOSS
PER COMMON AND
COMMON EQUIVALENT SHARES MARCH 31, 1996
- --------------------------------------------------------------------------- --------------
<S> <C>
Weighted Average Class A Common Stock outstanding during the year, assuming
conversion to Common Stock............................................... 1,156,638
Weighted Average Class B Common Stock outstanding during the year, assuming
conversion to Common Stock............................................... 320,569
Weighted Average Convertible Preferred Stock outstanding during the year,
assuming conversion to Common Stock...................................... 5,787,687
Dilutive effect of Common Stock equivalents issued prior to May 28,
1995(1).................................................................. 149,518
Dilutive effect of Common Stock equivalents issued subsequent to May 28,
1995(1).................................................................. 785,153
Weighted Average Convertible Preferred Stock upon conversion of Secured
Promissory Note payable, assuming conversion to common stock............. 116,979
--------------
8,316,543
===============
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL NET INCOME
PER COMMON AND
COMMON EQUIVALENT SHARES
- ---------------------------------------------------------------------------
<S> <C>
Weighted Average number of Common and Common Equivalent Shares used to
calculate Pro forma Net Income per Common and Common Equivalent Share.... 8,316,543
Number of shares of Common Stock to be issued pursuant to the proposed
initial public offering sufficient to generate the proceeds for the
payment of $2.1 million of Secured Promissory Note payable upon the
consummation of the proposed initial public offering(2).................. 217,636
--------------
8,534,179
===============
Interest expense during period saved as a result of the assumed reduction
in the Secured Promissory Note payable(2)................................ $ 143,640
===============
<FN>
- ---------------
(1) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
83, common and preferred stock, options and warrants issued at prices below
the initial public price of $11.00 per share ("cheap stock") during the
twelve month period immediately preceding the initial filing date of the
Company's Registration Statement for its initial public offering have been
included as outstanding for all periods presented. The dilutive effect of
the common and common share equivalents was computed in accordance with the
treasury stock method.
(2) After giving pro forma effect to the repayment by the Company of
approximately $2,094,000 of principal and $93,000 of accrued interest
payable on the secured promissory note payable to Phoenix Technologies Ltd.,
and the resulting reduction in interest expense, the pro forma supplemental
net loss per common and common equivalent share would be $(0.25) for the
nine months ended March 31, 1996.
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF XIONICS DOCUMENT TECHNOLOGIES, INC.
<TABLE>
There follows a list of the subsidiaries of the registrant, all wholly owned:
<CAPTION>
NAME OF SUBSIDIARY JURISDICTION OF ORGANIZATION
------------------ ----------------------------
<S> <C>
Xionics Holdings Limited United Kingdom
Xionics Document Technologies GmbH Germany
Xionics Kabushiki Kaisha Japan
Xionics International Limited United Kingdom
</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
May 28, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> JUN-30-1995
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 10,056,575
<SECURITIES> 0
<RECEIVABLES> 3,798,566
<ALLOWANCES> 165,000
<INVENTORY> 1,018,005
<CURRENT-ASSETS> 14,983,510
<PP&E> 2,374,608
<DEPRECIATION> 801,442
<TOTAL-ASSETS> 16,819,176
<CURRENT-LIABILITIES> 8,729,677
<BONDS> 3,014,333
<COMMON> 18,644
12,599,814
3,606,658
<OTHER-SE> 1,914,568
<TOTAL-LIABILITY-AND-EQUITY> 16,819,176
<SALES> 0
<TOTAL-REVENUES> 15,535,616
<CGS> 0
<TOTAL-COSTS> 4,280,734
<OTHER-EXPENSES> 13,378,863
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 226,337
<INCOME-PRETAX> (2,275,847)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,275,847)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,275,847)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> 0
</TABLE>
