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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended June 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number: 0-20777
XIONICS DOCUMENT TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 04-3186685
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
70 BLANCHARD ROAD
BURLINGTON, MASSACHUSETTS 01803
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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Registrant's telephone number, including area code: (781) 229-7000
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K. [X]
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant (without admitting that any person whose shares
are not included in such calculation is an affiliate) as of September 8, 1997,
was $124,013,918, based on the last sale price as reported by The Nasdaq Stock
Market.
As of September 8, 1997, there were 11,958,154 shares of the registrant's
common stock issued and 11,734,091 shares of the registrant's common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information from the registrant's Proxy Statement for its Annual
Meeting of Stockholders to be held December 8, 1997 is incorporated by reference
in Part III of this Annual Report on Form 10-K.
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PART I
ITEM 1. BUSINESS.
THE COMPANY
Xionics Document Technologies, Inc. ("Xionics" or the "Company") designs,
develops and markets advanced embedded systems technology for use in mainstream
office devices such as printers, copiers and scanners. The Company offers
integrated, modular software products, along with firmware and silicon
technology products, that enable the high-speed capture, processing, printing,
copying and display of complex electronic documents both locally and across
networks. Xionics provides standards-based technology around which its customers
can design, develop and market differentiated products in a timely manner.
Currently, the Company markets both embedded systems software for printing
peripherals (which may include traditional laser and inkjet printers as well as
devices that perform other functions such as copying, faxing and scanning in
addition to printing) and plug-in image accelerator boards for personal
computers and peripherals. The Company's Intelligent Peripheral System(TM)
("IPS") software products allow printing peripherals to convert commands
generated by a software application such as a word-processing program into marks
on the printed page; IPS includes page description language software which is
compatible with the industry's PostScript and PCL standards. IPS provides the
Company's customers who are original equipment manufacturers ("OEMs") of
printing peripherals with a number of key benefits including improved
price/performance, reduced time and risk to market and architectural
efficiencies. In addition to IPS, 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 printing peripherals with multiple functions
("multifunction peripherals" or "MFPs").
The Company was incorporated in Delaware on December 30, 1992 under the
name Xionics International Holdings, Inc., although a predecessor to the Company
was formed prior to 1985. In May 1995, the Company changed its name to Xionics
Document Technologies, Inc. Unless the context otherwise requires, references
herein to the "Company" refer to Xionics Document Technologies, Inc. and its
wholly-owned subsidiaries. The Company's executive offices are at 70 Blanchard
Road, Burlington, Massachusetts 01803. Its telephone number is 781-229-7000.
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 printing peripherals sold to
end users. The products incorporate relevant industry standards and include an
applications programming interface ("API") that enables OEMs to create the
applications and features necessary to differentiate their products in a
competitive marketplace.
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 printing peripherals. 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 real-time, multitasking core services system which controls conventional
RISC processors in printer-only configurations. The Company's IPS-MFP offering,
which is under development and now nearing completion, is oriented toward the
processing needs of MFPs and will include an expanded core services system that
will control the XipChip(TM) family of parallel image data processing ASICs
being developed by the Company. The XipChip processor family is expected to
provide the massive bandwidth required to drive advanced MFPs. XipChip 1.5,
which is anticipated to be the first member of the XipChip family to be
commercially released, is expected to ship in volume in an MFP in
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the first calendar quarter of 1998. There can, however, be no assurance that the
Company's OEMs will be successful in implementing products incorporating IPS-MFP
or XipChip, that unanticipated problems or delays in future development and
production will not be encountered, or that, once completed, IPS-MFP or XipChip
will meet their performance specifications under all conditions or for all
anticipated applications.
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 PeripheralPower API. OEMs may modify the applications
provided with IPS or incorporate their own value-added applications through the
PeripheralPower API interface and access to certain source code. A real-time
operating system, customized by the Company for use in printing peripherals, is
also provided as a key portion of the IPS architecture.
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 ("PDLs"). 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. Xionics expects that its IPS-PRINT
offering will be expanded to include a low-cost, low-memory, host-based GDI
printing solution, to be known as the Xionics HIKARI Printing System, early in
calendar year 1998.
Sales of printer software products are generally based upon negotiated
non-exclusive license agreements. Typical terms include a one-time source code
license fee, royalties based on published prices for units sold by the OEM and
non-recurring engineering fees.
IPS-MFP Products Under Development. IPS-MFP is being developed as a
software developer package that includes all of the components of IPS-PRINT plus
additional components, including the Company's XipChip ASICs, that are being
designed to allow OEMs to build high-performance, cost-effective controllers for
multifunction peripheral devices. The additional software components being
developed will include embedded applications for copy, scan and fax functions
plus the extended core system services needed to support the concurrent
operation of MFP applications. When completed, IPS-MFP is expected to include
XipChannel, a built-in device driver system which, without modification, will
permit existing single-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 will allow OEMs to create their own MFP product
extensions and enhancements.
Device Drivers. Through its acquisition of Gesellschaft fur
Computer-Anwendung mbH ("GCA") of Freiberg/Neckar, Germany, in February 1997,
the Company obtained the capability to develop and sell printer driver software
for popular personal computer operating systems. It also gained access to GCA's
proprietary automated system for driver development.
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 $940 to $5,665.
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Xionics' XipPrint II family of plug-in accelerators allows Hewlett-Packard
printers to decompress, rotate and print complex image files at the full rated
speed of the printer. This technology will also be built into the IPS-MFP
product under development. The list prices of XipPrint II range from $795 to
$995.
Xionics' XipView family of display accelerators plug into standard PC bus
slots and drive high resolution, large diagonal, fast refresh display devices.
These products range in list price from $295 to $1,095.
As of August 13, 1997, the Company acquired all of the outstanding shares
of Seaport Imaging for $2,200,000, of which $1,100,000 was paid in cash at
closing and the balance is evidenced by promissory notes. Seaport Imaging
develops and manufactures scanner control board products and bar code
recognition software. Xionics intends to integrate these products into its line
of products addressing the document imaging market.
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 Intelligent Peripheral System and document imaging product lines. As of
September 2, 1997, the direct OEM sales force had a staff of 15 people, and the
direct imaging sales force had a staff of 10 people. Both sales forces are
distributed among the Company's headquarters in Burlington, Massachusetts and
the additional sales offices in Tokyo, Japan, Freiberg/Neckar, Germany, San
Jose, California 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. To support the Company's sales efforts, an active
events marketing program is maintained with dedicated symposiums in the United
States and Japan and trade show participation. In addition, the Company's
marketing communications group manages public relations efforts, produces and
distributes marketing and product support materials and maintains a World Wide
Web site.
Document Imaging Product Sales. The Company's document imaging products
are primarily sold by distributors. The Company's sales force provides training,
pricing and product information to distributors, and will also make direct
customer calls to large volume purchasers. The sales force encourages
independent software vendors and system integrators to support Xionics'
products. Marketing activities include key trade show attendance, direct
telephone response and selective advertising.
CUSTOMERS
The Company's customers include OEMs that manufacture laser printers,
copiers and scanners as well as distributors and VARs of document imaging
products and certain direct imaging end users. As of September 8, 1997, the
Company had licensed its products for office devices to over 38 OEMs, and had
over 20 distributors of its document imaging products. For the fiscal year ended
June 30, 1997, one customer, Hewlett-Packard Company, accounted for
approximately 44% of the Company's net revenue.
Since September 1994, the Company has had a significant relationship with
Hewlett-Packard Company to supply printer software and related technology and
support. For the three years ended June 30, 1997, 1996, and 1995, revenue from
Hewlett-Packard accounted for approximately 44%, 30%, and 12%, respectively, of
the Company's net revenue. The Company expects that revenue from its
relationship with Hewlett-Packard will continue to represent a material
percentage of the Company's total revenue for the foreseeable future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
In March 1996, the Company entered into an amendment of its preexisting
agreement with Hewlett-Packard. Under the amended agreement (the "HP
Agreement"), the Company licensed certain of its page description technology,
including its version of the PostScript page description language, to
Hewlett-Packard.
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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. The Company has satisfied
all such 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 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 expired on September 26, 1997.
For the fiscal year ended June 30, 1997, Lexmark International Group, Inc.
("Lexmark") accounted for approximately 7% of the Company's net revenue. Lexmark
has indicated that it is in the process of phasing out the use of the Company's
software in Lexmark's printers. The Company believes that this will not have a
material impact on future operating results.
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 September 2,
1997, the Company employed 122 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 1997, 1996 and 1995 was $14.9 million,
$10.0 million and $6.2 million, respectively. The Company anticipates that it
will continue to commit substantial resources to research and development.
Through Xionics Document Technologies GmbH ("Xionics GmbH"), a wholly owned
subsidiary located in Dortmund, Germany, the Company has a dedicated ASIC design
staff working to design the XipChip ASIC through version 2.0 thereof, as well as
other future silicon technology. In 1995, the Company acquired this entity in
order to gain access to the experience of its principal in the design,
development and deployment of complex silicon technology to be used in products
under development. The Company is participating in IBM Microelectronics'
core-plus-ASIC program. Xionics and IBM Microelectronics are working jointly to
produce, to Xionics' proprietary design, a family of microcontroller chips
designed specifically for the processing needs of MFPs.
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 Systems Incorporated, 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. In 1996
Adobe
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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, including Peerless Systems
Corporation, 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 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. Companies such as Peerless Systems Corporation and Electronics for
Imaging, Inc. 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, notably Kofax Image Products.
INTELLECTUAL PROPERTY
The Company possesses four United States patents. In addition to its
patents, the Company also relies on a combination of copyright, trademark and
trade secret laws, employee and third-party non-disclosure agreements, and
license agreements for the protection of its intellectual property. The source
code for the Company's products is protected as an unpublished work under the
copyright laws as they currently exist. Despite these precautions unauthorized
third parties may be able to copy or reverse-engineer all or portions of the
Company's products.
The Company believes that neither its existing products nor those under
development infringe any existing patents. There can be no assurance, however,
that the Company is aware of all patents that might be infringed by its
products, or that third parties will not claim such infringement by the Company
with respect to current or future products. If infringement is alleged, the
Company may seek to obtain a license to use the subject technology. There can be
no assurance that the necessary licenses will be available to the Company on
acceptable terms, if at all, or that the Company would prevail in any related
legal proceeding.
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. In some cases, the Company also contracts for
and manages the manufacturing of printed circuit boards on behalf of its OEM
customers. 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 1.5 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 September 2, 1997, Xionics had 195 full-time employees. The Company
employs 122 people in product development, 31 in sales and marketing, 18 in
manufacturing and operations, and 24 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.
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ITEM 2. PROPERTIES.
The Company's principal administrative, sales, marketing, and research and
development facility is located in a leased facility with approximately 62,000
square feet of space in Burlington, Massachusetts. On August 1, 1997, the
Company extended the lease on this space through July 2002, and leased
approximately 12,000 square feet of additional space in the same facility.
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, and conducts
some sales and development activities of its recently acquired subsidiary GCA at
a leased facility in Freiberg/Neckar, Germany. The Company conducts the sales
and development activities of its recently acquired subsidiary Seaport Imaging
at a leased facility in San Jose, California. The Company believes that its
facilities are adequate for its current needs and for its future needs at least
through the end of its 2002 fiscal year.
ITEM 3. LEGAL PROCEEDINGS.
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. As of the date
of this Annual Report on Form 10-K, the Company is not a party to any legal
proceedings the outcome of which, in the opinion of management, is likely to
have a material adverse effect on the Company's business, results of operations
or financial condition, either individually or in the aggregate.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended June 30, 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
The Company's Common Stock began trading on The Nasdaq Stock Market on
September 26, 1996 under the symbol "XION." The following table sets forth, for
the periods indicated, the high and low sales prices for the Common Stock, as
reported by Nasdaq, since the Common Stock commenced public trading:
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<CAPTION>
COMMON STOCK
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HIGH LOW
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QUARTERS ENDED:
September 30, 1996.................................................. $ 15.00 $14.25
December 31, 1996................................................... $15.375 $12.00
March 31, 1997...................................................... $ 22.25 $12.00
June 30, 1997....................................................... $ 17.50 $10.00
</TABLE>
On September 8, 1997, the last sale price of the Common Stock was $16.75.
STOCKHOLDERS
As of September 8, 1997, there were approximately 79 stockholders of record
and 11,734,091 outstanding shares of Common Stock. The Company believes there
are in excess of 2,500 beneficial owners of the Company's Common Stock.
DIVIDENDS
The Company has not paid dividends to its stockholders since its inception
and does not plan to pay cash dividends in the foreseeable future. The Company
currently intends to retain earnings, if any, to finance the growth of the
Company.
RECENT SALES OF UNREGISTERED SECURITIES
During the quarter ended June 30, 1997, the Company sold 928,214 shares of
unregistered common stock in reliance on exemptions available under Securities
and Exchange Commission Rule 701, pursuant to the exercise of employee stock
options granted under the Company's 1995 and 1996 Stock Option Plans (the
"Plans") prior to the effectiveness of the Company's registration statement on
Form S-1, declared effective September 24, 1996. The average exercise price for
the shares was $0.36, and the total consideration received by the Company for
the sale of such shares was $334,217.
USE OF PROCEEDS
A portion of the net proceeds of the Company's initial public offering of
its common stock pursuant to its registration statement on Form S-1, declared
effective September 24, 1996, have been used for repaying certain indebtedness
and for the acquisition of complementary businesses, namely GCA and Seaport
Imaging. A majority of the net proceeds remain invested in short-term,
interest-bearing, investment-grade securities.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The Selected Consolidated Financial Data set forth below with respect to
the Balance Sheet Data at June 30, 1996 and at June 30, 1997 and the Statement
of Operations Data for each of the three years in the period ended June 30,
1997, have been derived from the Consolidated Financial Statements of the
Company included elsewhere in this Form 10-K that have been audited by Arthur
Andersen L.L.P., independent certified public accountants, as indicated by their
report thereon contained elsewhere herein. The Balance Sheet Data as of June 30,
1993, 1994, and 1995 has been derived from consolidated financial statements of
the Company not included in this Form 10-K that have been audited by Arthur
Andersen L.L.P., independent certified public accountants. The Statement of
Operations Data for the fiscal year ended June 30, 1993 is derived from the
Company's unaudited Consolidated Financial Statements not included herein. The
Selected Consolidated Financial Data should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Form 10-K.
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<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------
1993 1994 1995 1996 1997
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
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STATEMENT OF OPERATIONS DATA:
Net revenue...................................... $ 8,691 $ 9,131 $15,577 $23,809 $37,800
Cost of revenue.................................. 3,895 2,896 4,681 5,791 7,454
------- ------- ------- ------- -------
Gross profit..................................... 4,796 6,235 10,896 18,018 30,346
Operating expenses:
Research and development.................... 958 1,308 6,235 10,037 14,945
Selling, general and administrative......... 3,755 4,674 6,901 9,395 9,258
Charge for purchased research and
development............................... -- -- 3,492 -- 5,400
------- ------- ------- ------- -------
Income (loss) from operations.................... 83 252 (5,733) (1,414) 743
Other income (expense), net...................... 5 (9) (292) (119) 852
------- ------- ------- ------- -------
Income (loss) before provision for income
taxes.......................................... 88 243 (6,025) (1,533) 1,595
Provision for income taxes....................... -- -- -- -- 743
------- ------- ------- ------- -------
Net income (loss)................................ $ 88 $ 243 $(6,025) $(1,533) $ 852
======= ======= ======= ======= =======
Net income (loss) per common and common
equivalent share............................... $ 0.07
=======
Weighted average number of common and common
equivalent shares outstanding.................. 12,106
=======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
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1993 1994 1995 1996 1997
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(IN THOUSANDS)
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BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 408 $ 851 $ 1,226 $ 2,116 $20,844
Working capital.................................. (508) (493) 517 992 29,778
Total assets..................................... 1,808 2,639 7,179 9,905 42,599
Long-term debt, net of current maturities........ 184 -- 4,849 2,658 --
Redeemable preferred stock....................... 1,868 2,055 2,276 8,231 --
Stockholders' equity (deficit)................... (2,235) (2,177) (5,377) (6,570) 35,278
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, including without limitation statements
regarding the anticipated shipment date of products containing the Company's
XipChip 1.5 ASIC and the development of and demand for the Company's future
products. Investors are cautioned that forward-looking statements are inherently
uncertain. Actual performance and results of operations may differ materially
from those projected or suggested in the forward-looking statements due to
various risks and uncertainties, including, without limitation: (i) the
possibility of termination of the Company's relationship with Hewlett-Packard
Company, from which the Company derives a significant portion of its revenue
from the supply of software and related technology and support; (ii) the
Company's dependence for its revenue upon the success of its customers in
developing and selling their own products, which incorporate the Company's
technology, to end users; (iii) the possible phasing out of the Company's
royalty payments from Lexmark International Group, Inc.; (iv) the Company's
dependence on its relationships with a relatively small number of significant
customers; (v) the difficulties and risks associated with the development and
timely introduction of new products, such as the Company's embedded technology
for multifunction peripheral devices, and the market acceptance of those
products; (vi) the difficulties and risks associated with competing in a market
characterized by rapidly changing technology, evolving industry standards and
frequent new product introductions, and in which the market success of entities
providing embedded software products for office devices has historically been
largely determined by their success in becoming one of the industry's standards;
(vii) the Company's dependence for the success of its MFP-oriented products upon
broad market acceptance of devices of this type, and upon its OEM customers'
ability to develop and market MFPs that meet market demands for functionality,
performance, speed, and network connectivity; (viii) the pressures of intense
competition from the Company's competitors, including Adobe Systems Incorporated
and others with significantly greater resources and name recognition than the
Company; (ix) the possibility of increased competition from Adobe, in
particular; and (x) the difficulties and risks associated with effective
management of the Company's growth. In addition, the market price of the
Company's common stock could be subject to significant fluctuations in response
to quarter-to-quarter variations in the Company's operating results,
announcements of technological innovations or new products by the Company or its
competitors and other events or factors. Further, the stock market in recent
years has experienced extreme price and volume fluctuations that have
particularly affected the market price of the stock of many technology
companies. These fluctuations, as well as general economic and market
conditions, may materially and adversely affect the market price of the
Company's common stock. Because of these and other factors, past financial
performance should not be considered an indicator of future performance. Any and
all forward-looking statements contained herein represent the Company's judgment
as of the date of this Annual Report on Form 10-K, and the Company cautions
readers not to place undue reliance on such statements.
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 "Phoenix acquisition"). The Phoenix 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. In February 1997, the Company acquired GCA Gesellschaft
fur Computer-Anwendung mbH (GCA) for $5.0 million in cash (the "GCA
acquisition"). The GCA acquisition was also accounted for as a purchase in
accordance with APB Opinion No. 16. The Company allocated the purchase price
based on the fair value of assets acquired and liabilities assumed. A
significant portion of the purchase price was identified in an independent
appraisal as intangible assets using proven valuation
9
<PAGE> 11
procedures and techniques, including approximately $5.4 million of in-process
research and development. Acquired intangibles include the assembled workforce
of GCA and goodwill.
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 23.8%, 24.6%
and 43.2% of the Company's net revenue for the fiscal years ended June 30, 1997,
1996 and 1995, respectively. The Company's export revenue is primarily
denominated and collected in United States dollars.
In March 1996, the Company entered into an amendment of its preexisting
development and license agreement with Hewlett-Packard. Under the amended
agreement (the "HP Agreement"), the Company licensed certain of its page
description technology, including its version of the PostScript page description
language, to Hewlett-Packard. Revenue from the HP Agreement will be recognized
by the Company over three years using percentage of completion contract
accounting. Such revenue accounted for 44.2% and 30.0% of the Company's net
revenue for the fiscal years ended June 30, 1997 and 1996, respectively.
Payments under the HP Agreement include the Company's charges for source code
access, engineering services, license rights and ongoing maintenance and
support. 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.
The Company had no provision for income taxes for fiscal 1995 or 1996 due
to net losses incurred in those periods. In fiscal 1997, the Company recorded a
tax provision of approximately $743,000. As of June 30, 1997, the Company had
available net operating loss carryforwards of approximately $4.7 million for
federal income tax reporting purposes. In addition, the Company had available
net operating loss carryforwards of approximately $1.0 million for foreign
income tax reporting purposes. These carryforwards may be used to offset future
taxable income, if any.
10
<PAGE> 12
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>
YEAR ENDED JUNE 30,
-----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net revenue............................................. 100.0% 100.0% 100.0%
Cost of revenue......................................... 19.7 24.3 30.1
----- ----- -----
Gross profit............................................ 80.3 75.7 69.9
Operating expenses:
Research and development........................... 39.5 42.2 40.0
Selling, general and administrative................ 24.5 39.5 44.3
Charge for purchased research and development...... 14.3 -- 22.4
----- ----- -----
Income (loss) from operations........................... 2.0 (6.0) (36.8)
Other income (expense), net............................. 2.2 (0.5) (1.9)
----- ----- -----
Income (loss) before provision for income taxes......... 4.2 (6.5) (38.7)
Provision for income taxes.............................. 2.0 -- --
----- ----- -----
Net income (loss)....................................... 2.2% (6.5)% (38.7)%
===== ===== =====
</TABLE>
FISCAL YEARS ENDED JUNE 30, 1997 AND JUNE 30, 1996
Revenue. Revenue increased 58.8% to $37.8 million for fiscal 1997 compared
to $23.8 million for fiscal 1996. This increase resulted primarily from growth
in sales of the Company's printer software products, including approximately
$9.4 million of incremental revenue recognized under the HP Agreement, offset by
a decline in revenues derived from the Company's image acceleration products.
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 68.4% to $30.3 million for fiscal 1997
from $18.0 million for fiscal 1996. Gross margin increased to 80.3% for fiscal
1997 compared to 75.7% for fiscal 1996. These increases were attributable
primarily to increased sales of higher-margin Intelligent Peripheral System
("IPS") products and related engineering services, primarily related to the HP
Agreement, partially offset by a reduction in gross margin attributable to the
Company's image acceleration products.
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 48.9% to
$14.9 million for fiscal 1997 from $10.0 million in fiscal 1996. The higher
expense level resulted primarily from increased expenditures relating to the
Company's MFP, PDL and color technologies, which are currently in development.
As a percentage of revenue, research and development expenses decreased to 39.5%
for fiscal 1997 from 42.2% for fiscal 1996.
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 decreased 1.5% to $9.3 million for fiscal 1997 from $9.4
million in fiscal 1996. As a percentage of revenue, selling, general and
administrative expenses decreased to 24.5% for fiscal 1997 from 39.5% for fiscal
1996.
Charge for Purchased Research and Development. On February 21, 1997, the
Company completed the acquisition of Gesellschaft fur Computer-Anwendung mbH
(GCA), Freiberg/Neckar, Germany, a leading developer of printer drivers for the
worldwide multifunction and printer peripheral market (the GCA acquisition). The
Company acquired all of the outstanding shares of GCA in a $5.0 million cash
transaction
11
<PAGE> 13
through its wholly-owned subsidiary Xionics Document Technologies GmbH,
Dortmund, Germany. The GCA acquisition resulted in a charge of $5.4 million for
purchased in-process research and development costs. This amount represents the
value of acquired in-process research and development projects as determined by
an 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 GCA acquisition has required substantial additional
development by the Company.
Other Income (Expense). Net interest expense decreased by 66.9% to $95,000
for fiscal 1997 from $287,000 for fiscal 1996. This decrease resulted primarily
from the reduction in bank lines of credit and note payable to a shareholder,
which were completely paid down by December 31, 1996. Interest income and other
income increased by 465% to $949,000 for fiscal 1997 from $168,000 for fiscal
1996. The increases in interest income resulted primarily from increased cash
balances as a result of receiving net proceeds from the Company's September 26,
1996 initial public offering.
FISCAL YEARS ENDED JUNE 30, 1996 AND JUNE 30, 1995
Revenue. Revenue increased 52.6% to $23.8 million for fiscal 1996 compared
to $15.6 million for fiscal 1995. This increase resulted primarily from growth
in sales of the Company's printer software products, including approximately
$6.0 million of revenue recognized under the HP Agreement. In addition, revenue
from sales of the Company's printer software products was included for the
entire twelve month period ended June 30, 1996, compared to only nine months
during fiscal 1995 because of the date of the Phoenix acquisition, accounting
for an increase of approximately $2.4 million.
Gross Profit. Cost of revenue consists primarily of costs associated with
components, subcontracted manufacturing, labor and overhead for quality
assurance, warehousing and shipping of the Company's imaging products, and costs
associated with non-recurring engineering services. In addition, cost of revenue
includes amortization of acquired intangibles and the cost of providing services
and maintenance. Gross profit increased 65.1% to $18.0 million for fiscal 1996
from $10.9 million for fiscal 1995. Gross margin increased to 75.7% for fiscal
1996 compared to 69.9% for fiscal 1995. These increases were attributable
primarily to increased sales of higher-margin Intelligent Peripheral System
("IPS") products and related engineering services, primarily related to the HP
Agreement, partially offset by a reduction in gross margin attributable to the
Company's image acceleration products. In addition, gross profit from sales of
the Company's printer software products was included for the entire twelve month
period ended June 30, 1996, compared to only nine months during fiscal 1995
because of the date of the Phoenix acquisition.
Research and Development. Research and development expenses consist
primarily of personnel costs, costs of engineering contractors and outside
consultants, engineering supplies, computer equipment depreciation and overhead
costs, all of which are associated with development of the Company's IPS, MFP
and imaging technologies. Research and development expenses increased 61.3% to
$10.0 million for fiscal 1996 from $6.2 million in fiscal 1995. The higher
expense level resulted primarily from increased expenditures relating to the
Company's MFP technology, which is currently in development, partially offset by
a small reduction in expenditures relating to the Company's image acceleration
products. In addition, research and development expenses for the Company's IPS
products were included for the entire twelve month period ended June 30, 1996
compared to only nine months during fiscal 1995 because of the date of the
Phoenix acquisition. As a percentage of revenue, research and development
expenses increased to 42.2% for fiscal 1996 from 40.0% for fiscal 1995.
Selling, General and Administrative. Selling, general and administrative
expenses include personnel and related overhead costs for sales, marketing,
finance, human resources and general management. Selling, general and
administrative expenses increased 36.2% to $9.4 million for fiscal 1996 from
$6.9 million in fiscal 1995. The higher expense level resulted primarily from
increased staffing and additional expenses attributable to rent, overhead and
professional fees. In addition, selling, general and administrative expenses for
the Company's IPS products were included for the entire twelve month period
ended June 30, 1996 compared to only nine months during fiscal 1995 because of
the date of the Phoenix acquisition. As a percentage of
12
<PAGE> 14
revenue, selling, general and administrative expenses decreased to 39.5% for
fiscal 1996 from 44.3% for fiscal 1995.
Charge for Purchased Research and Development. Purchased research and
development expense relating to the Phoenix acquisition totaled approximately
$3.5 million and was charged to expense as of the Phoenix 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 Phoenix
acquisition has required substantial additional development by the Company.
Other Expense, Net. Other expense, net is comprised primarily of interest
expense attributable to the interest payable on the Company's indebtedness,
interest income earned on cash and cash equivalents, and gains and losses on
foreign currency translation and transactions. Other expense, net decreased
59.2% to $119,000 for fiscal 1996 from $292,000 for fiscal 1995. This decrease
resulted primarily from a decrease in interest expense and an increase in
interest and other income.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had cash and cash equivalents of $20.8
million, an increase of $18.1 million from the $2.8 million of cash and cash
equivalents at June 30, 1996. This increase is primarily due to the net proceeds
from the September 26, 1996 initial public offering, partially offset by $5.0
million used in the February 21, 1997 acquisition of GCA.
At present, the Company has available a $4.0 million working capital
revolving line of credit and a $2.0 million term loan facility with a bank, both
of which are secured by substantially all assets of the Company. The working
capital line of credit terminates on December 1, 1997, and no borrowings under
the term loan can be made after June 30, 1997. Under the loan facilities, the
Company is required to comply with certain restrictive covenants, with which the
Company was in compliance as of June 30, 1997. The interest rate for the working
capital line of credit is the bank's prime rate; the interest for the term loan
facility is the bank's prime rate plus 0.5%. As of June 30, 1997, there were no
outstanding borrowings under the working capital line of credit or term loan
facility. Under the terms of the working capital and term loan facilities, the
Company is prohibited from declaring or paying dividends on its Common Stock. It
is possible that the Company may in the future use private or public sales of
its securities as a source of liquidity.
The Company believes that its existing cash and cash equivalent balances,
together with funds generated from operations and available borrowings under its
loan facilities, 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.
13
<PAGE> 15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
XIONICS DOCUMENT TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA NUMBER
---------------------------------------------------- ------
<S> <C>
FINANCIAL STATEMENTS:
Report of Independent Public Accountants............................................ F-1
Consolidated Balance Sheets as of June 30, 1997 and June 30, 1996................... F-2
Consolidated Statements of Operations for the Fiscal Years Ended June 30, 1997,
June 30, 1996, and June 30, 1995.................................................. F-3
Consolidated Statements of Stockholders' Equity (Deficit) for the Fiscal Years Ended
June 30, 1997, June 30, 1996 and June 30, 1995.................................... F-4
Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 1997,
June 30, 1996 and June 30, 1995................................................... F-7
Notes to Consolidated Financial Statements.......................................... F-8
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The response to this item is incorporated by reference from the discussion
responsive thereto under the captions "Directors and Executive Officers" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's Proxy
Statement for the December 8, 1997 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION.
The response to this item is incorporated by reference from the discussion
responsive thereto under the caption "Executive Compensation" in the Company's
Proxy Statement for the December 8, 1997 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The response to this item is incorporated by reference from the discussion
responsive thereto under the caption "Security Ownership of Certain Beneficial
Owners and Management" in the Company's Proxy Statement for the December 8, 1997
Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The response to this item is incorporated by reference from the discussion
responsive thereto under the captions "Certain Relationships and Related
Transactions" and "Executive Compensation" in the Company's Proxy Statement for
the December 8, 1997 Annual Meeting of Stockholders.
14
<PAGE> 16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
<TABLE>
<S> <C>
ITEM 14(A) The following documents are filed as part of this Annual Report on Form 10-K.
ITEM 14(A)(1) See "Index to Consolidated Financial Statements and Supplementary Data" at
Item 8. of this Annual Report on Form 10-K.
ITEM 14(A)(2) Financial Statement Schedule Included in Part IV of this Annual Report on
Form 10-K.
Schedule II--Valuation and Qualifying Accounts
Other financial statement schedules have not been included because they are
not applicable or the information is included in the financial statements or
notes thereto.
</TABLE>
ITEM 14(A)(3) EXHIBITS.
The following exhibits are incorporated herein by reference:
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------------------------------------------------------------------------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of the Registrant (filed as
Exhibit 3.1 to the Company's Registration Statement on Form S-1 dated May 28,
1996,
File No. 333-4613)
3.2 Amended and Restated By-Laws of the Registrant (filed as Exhibit 3.2 to the
Company's Registration Statement on Form S-1 dated May 28, 1996,
File No. 333-4613)
4.1 Specimen Certificate for shares of the Registrant's stock (filed as Exhibit
4.1 to the Company's Registration Statement on Form S-1 dated May 28, 1996,
File No. 333-4613)
10.1 1996 Stock Option Plan and related form of stock option agreement (filed as
Exhibit 10.1 to the Company's Registration Statement on Form S-1 dated May
28, 1996,
File No. 333-4613)
10.2 1995 Stock Option Plan and related form of stock option agreement (filed as
Exhibit 10.2 to the Company's Registration Statement on Form S-1 dated May
28, 1996,
File No. 333-4613)
10.3 1993 Stock Option Plan and related form of stock option agreement (filed as
Exhibit 10.3 to the Company's Registration Statement on Form S-1 dated May
28, 1996,
File No. 333-4613)
10.4 1996 Director Stock Option Plan (filed as Exhibit 10.4 to the Company's
Registration Statement on Form S-1 dated May 28, 1996, File No. 333-4613)
10.5 1996 Employee Stock Purchase Plan (filed as Exhibit 10.5 to the Company's
Registration Statement on Form S-1 dated May 28, 1996, File No. 333-4613)
10.6 Second Amended and Restated Shareholder Agreement, dated December 22, 1995
(filed as Exhibit 10.7 to the Company's Registration Statement on Form S-1
dated May 28, 1996, File No. 333-4613)
10.7 Credit Agreement, dated September 25, 1995, between the Company and Fleet
Bank of Massachusetts, N.A. (filed as Exhibit 10.8 to the Company's
Registration Statement on Form S-1 dated May 28, 1996, File No. 333-4613)
10.7.1 Modification of Credit Agreement, dated August 21, 1996, between the Company
and Fleet National Bank ((filed as Exhibit 10.8.1 to the Company's
Registration Statement on Form S-1 dated May 28, 1996, File No. 333-4613)
10.8 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) (filed as
Exhibit 10.10 to the Pre-effective Amendment No. 1 to the Company's
Registration Statement on Form S-1 dated June 7, 1996,
File No. 333-4613)
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C>
10.9 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 (filed as Exhibit 10.11 to the
Company's Registration Statement on Form S-1 dated May 28, 1996, File No.
333-4613)
10.10 Adobe Repurchase Agreement (together with related General Release
Agreements), dated May 17, 1996 (filed as Exhibit 10.12 to the Company's
Registration Statement on Form S-1 dated May 28, 1996, File No. 333-4613)
10.11 Stock Option Agreement between the Company and Robert E. Gilkes (filed as
Exhibit 10.13 to the Company's Registration Statement on Form S-1 dated May
28, 1996,
File No. 333-4613)
10.12 Form of Invention and Nondisclosure Agreement (filed as Exhibit 10.16 to the
Company's Registration Statement on Form S-1 dated May 28, 1996,
File No. 333-4613)
99.1 Agreement for the Purchase of Shares, dated as of February 21, 1997, by and
between the Company and Wilfried Welsch and Oliver Fohr (filed as Exhibit
99.1 to the Company's Current Report on Form 8-K filed March 7, 1997)
</TABLE>
The following is a list of exhibits filed as part of this Annual Report on
Form 10-K.
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C>
10.13 Second Amendment dated August 1, 1997 to Lease by and between the Company
and E & F Realty Associates Limited Partnership of Property at One Twenty
Eight Corporate Center, 70 Blanchard Road, Burlington, Massachusetts dated
November 29, 1994.
10.14 Securities Purchase Agreement between WaveMark Technologies, Inc. and the
Company dated June 20, 1997.
10.15 Stock Option Agreements between the Company and Peter J. Simone dated June
27, 1997.
11.1 Statement re Computation of Per Share Earnings
21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen L.L.P.
27 Financial Data Schedule
</TABLE>
ITEM 14(B) REPORTS ON FORM 8-K.
On May 6, 1997, the Company filed a current report on Form 8-K which
included the historic financial statements and pro forma combined financial
statements and notes thereto of the Company in connection with the completion of
the Company's acquisition of GCA.
16
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Burlington, Commonwealth of Massachusetts, on this 15th day of September, 1997.
XIONICS DOCUMENT TECHNOLOGIES, INC.
By: /s/ ROBERT E. GILKES
----------------------------------
ROBERT E. GILKES
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report 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 Chairman of the Board and September 15, 1997
- ------------------------------------------ Chief Executive Officer
ROBERT E. GILKES (principal executive
officer)
/s/ PETER J. SIMONE President and Chief September 15, 1997
- ------------------------------------------ Operating Officer
PETER J. SIMONE
/s/ RICHARD A. D'AMORE Director September 15, 1997
- ------------------------------------------
RICHARD A. D'AMORE
/s/ RONALD D. FISHER Director September 15, 1997
- ------------------------------------------
RONALD D. FISHER
/s/ DAVID R. SKOK Director September 15, 1997
- ------------------------------------------
DAVID R. SKOK
/s/ PAUL R. LOW Director September 15, 1997
- ------------------------------------------
PAUL R. LOW
/s/ THOMAS A. ST. GERMAIN Director September 15, 1997
- ------------------------------------------
THOMAS A. ST. GERMAIN
/s/ GERARD T. FEENEY Vice President-Finance, September 15, 1997
- ------------------------------------------ Chief Financial Officer,
GERARD T. FEENEY and Treasurer (principal
financial and accounting
officer)
</TABLE>
17
<PAGE> 19
SCHEDULE II
XIONICS DOCUMENT TECHNOLOGIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1995, 1996, AND 1997
<TABLE>
<CAPTION>
BALANCE,
BEGINNING OF CHARGED TO BALANCE,
ALLOWANCE FOR DOUBTFUL ACCOUNTS: YEAR EXPENSE WRITE-OFFS END OF YEAR
-------------------------------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
June 30, 1995 $157,000 $ 63,000 $ (16,000) $ 204,000
June 30, 1996 204,000 (23,000) (41,000) 140,000
June 30, 1997 140,000 67,000 (88,000) 119,000
</TABLE>
<TABLE>
<CAPTION>
BALANCE,
BEGINNING OF CHARGED TO BALANCE,
INVENTORY RESERVE ACCOUNT ACTIVITY: YEAR EXPENSE WRITE-OFFS END OF YEAR
----------------------------------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
June 30, 1995 $ 60,000 $172,000 $ -- $ 232,000
June 30, 1996 232,000 185,000 (8,000) 409,000
June 30, 1997 409,000 200,000 (395,000) 214,000
</TABLE>
18
<PAGE> 20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Xionics Document Technologies, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Xionics
Document Technologies, Inc. (a Delaware corporation) and subsidiaries as of June
30, 1996 and 1997, and the related consolidated statements of operations,
redeemable preferred stock and stockholders' equity (deficit) and cash flows for
each of the three years in the period ended June 30, 1997. 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, 1996 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1997, in conformity with generally accepted accounting
principles.
Boston, Massachusetts
July 28, 1997 (except with respect to the
matter discussed in Note 11, as to which
the date is August 13, 1997)
F-1
<PAGE> 21
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
----------------------------
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................................................... $ 20,843,911 $ 2,115,859
Short-term investments............................................................. -- 644,613
Accounts receivable, less reserves of approximately $119,000 and $140,000 at June
30, 1997 and 1996................................................................. 5,445,913 2,398,033
Contract receivable................................................................ 7,411,288 --
Inventories........................................................................ 1,026,980 1,020,035
Prepaid expenses and other current assets.......................................... 1,370,908 398,264
------------- ------------
Total current assets........................................................... 36,099,000 6,576,804
------------- ------------
PROPERTY AND EQUIPMENT, NET............................................................ 2,836,669 2,169,091
------------- ------------
DEFERRED OFFERING COSTS................................................................ -- 926,439
DEFERRED TAX ASSET..................................................................... 930,000 --
ACQUIRED INTANGIBLES, NET OF ACCUMULATED AMORTIZATION OF APPROXIMATELY $782,000 AND
$606,000 AT JUNE 30, 1997 AND 1996................................................... 420,833 194,167
OTHER ASSETS, NET OF ACCUMULATED AMORTIZATION OF APPROXIMATELY $450,000 AND $0 AT JUNE
30, 1997 AND 1996.................................................................... 2,312,611 38,000
------------- ------------
$ 42,599,113 $ 9,904,501
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Term loans, current portion........................................................ $ -- $ 322,667
Accounts payable................................................................... 1,965,055 1,988,470
Other accrued expenses............................................................. 3,356,819 1,122,870
Accrued payroll.................................................................... 694,354 382,039
Accrued offering costs............................................................. -- 400,000
Deferred revenue................................................................... 1,305,033 1,368,833
------------- ------------
Total current liabilities...................................................... 7,321,261 5,584,879
------------- ------------
TERM LOANS, NET OF CURRENT PORTION..................................................... -- 564,166
------------- ------------
SECURED PROMISSORY NOTE PAYABLE TO A STOCKHOLDER, NET OF CURRENT PORTION............... -- 2,094,000
------------- ------------
COMMITMENTS (Note 8)
REDEEMABLE PREFERRED STOCK:
Class C Redeemable Convertible Preferred Stock, $.01 par value-
Authorized -- 2,779,615 shares Issued and outstanding -- none at June 30, 1997 and
2,698,938 shares, stated at liquidation value, at June 30, 1996................... -- 8,231,410
STOCKHOLDERS' EQUITY (DEFICIT):
Class A Convertible Preferred Stock, $.01 par value- Authorized -- 3,603,305 shares
Issued and outstanding -- none at June 30, 1997 and 3,125,051 shares at June 30,
1996.............................................................................. -- 3,606,658
Common Stock, Class A, $.01 par value- Authorized -- 20,000,000 shares
Issued -- none at June 30, 1997 and 1,386,066 shares at June 30, 1996
Outstanding -- none at June 30, 1997 and 1,161,755 shares at June 30, 1996........ -- 13,861
Common Stock, Class B, $.01 par value- Authorized -- 10,000,000 shares Issued and
outstanding -- none at June 30, 1997 and 558,931 shares at June 30, 1996.......... -- 5,589
Common Stock, $.01 par value- Authorized -- 40,000,000 shares Issued -- 11,831,762
shares at June 30, 1997 and none at June 30, 1996 Outstanding -- 11,607,699 shares
at June 30, 1997 and none at June 30, 1996........................................ 118,317 --
Additional paid-in capital......................................................... 45,815,462 1,312,381
Accumulated deficit................................................................ (10,504,681) (11,357,030)
Treasury stock, at cost-224,063 shares of common stock and 224,311 shares of Class
A Common Stock at June 30, 1997 and 1996, respectively............................ (151,246) (151,413)
------------- ------------
Total stockholders' equity (deficit)........................................... 35,277,852 (6,569,954)
------------- ------------
$ 42,599,113 $ 9,904,501
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE> 22
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net revenue......................................... $37,800,277 $23,809,322 $15,577,249
Cost of revenue..................................... 7,454,379 4,681,539 5,791,055
----------- ----------- -----------
Gross profit................................... 30,345,898 18,018,267 10,895,710
Operating expenses:
Research and development.......................... 14,945,536 10,037,240 6,235,034
Selling, general and administrative............... 9,257,762 9,394,876 6,901,394
Charge for purchased research and development..... 5,400,000 -- 3,492,000
----------- ----------- -----------
Income (loss) from operations.................. 742,600 (1,413,849) (5,732,718)
Interest and other income (expense):
Interest expense.................................. (95,462) (286,613) (312,881)
Interest income................................... 956,402 163,686 35,789
Other (expense) income............................ (8,001) 4,099 (15,115)
----------- ----------- -----------
Income (loss) before provision for income
taxes........................................ 1,595,539 (1,532,677) (6,024,925)
Provision for income taxes..................... 743,190 -- --
----------- ----------- -----------
Net income (loss).............................. $ 852,349 $(1,532,677) $(6,024,925)
=========== =========== ===========
Net income (loss) per common and common equivalent
share............................................. $ 0.07
===========
Weighted average number of common and common
equivalent shares outstanding..................... 12,106,324
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 23
XIONICS DOCUMENT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
REDEEMABLE PREFERRED STOCK
----------------------------------------------------------------------------------------
CLASS B CLASS C REDEEMABLE CLASS D
REDEEMABLE CONVERTIBLE REDEEMABLE
-------------------------- -------------------------- --------------------------
NUMBER OF LIQUIDATION NUMBER OF LIQUIDATION NUMBER OF LIQUIDATION
SHARES VALUE SHARES VALUE SHARES VALUE
---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1994............ 1,867,877 $ 2,054,665 -- $ -- -- $ --
Issuance of Class A Convertible
Preferred Stock............... -- -- -- -- -- --
Accretion of Class B Redeemable
Preferred Stock dividend...... -- 221,162 -- -- -- --
Net loss........................ -- -- -- -- -- --
---------- ----------- ---------- ----------- ---------- -----------
BALANCE, JUNE 30, 1995............ 1,867,877 2,275,827 -- -- -- --
Accretion of Class B Redeemable
Preferred Stock dividend...... -- 34,769 -- -- -- --
Issuance of Class C Redeemable
Convertible Preferred Stock,
net of issuance costs of
$25,651....................... (1,867,877) (2,310,596) 2,662,636 7,738,951 -- --
Conversion of Class A
Convertible Preferred Stock to
Class B Common Stock.......... -- -- -- -- -- --
Stock repurchase................ -- -- -- -- -- --
Issuance of Class D Redeemable
Preferred Stock............... -- -- -- -- 1,000,000 4,500,000
Exercise of stock options....... -- -- -- -- -- --
Exercise of stock options,
issued from treasury.......... -- -- -- -- -- --
Issuance of treasury stock...... -- -- -- -- -- --
Related party forgiveness of
debt.......................... -- -- -- -- -- --
Accretion of Class C Redeemable
Convertible and Class D
Redeemable Preferred Stock
dividend...................... -- -- -- 386,947 -- 90,000
Repurchase of Class D Preferred
Stock......................... -- -- -- -- (1,000,000) (4,590,000)
Noncash compensation charge..... -- -- -- -- -- --
Conversion of secured promissory
notes payable to a stockholder
to Class C Redeemable
Convertible Preferred Stock... -- -- 116,979 340,000 -- --
Conversion of Class C Redeemable
Convertible Preferred Stock to
Class B Common Stock.......... -- -- (80,677) (234,488) -- --
Net loss........................ -- -- -- -- -- --
---------- ----------- ---------- ----------- ---------- -----------
BALANCE, JUNE 30, 1996............ -- -- 2,698,938 8,231,410 -- --
Exercise of stock options....... -- -- -- -- -- --
Exercise of stock options,
issued from treasury.......... -- -- -- -- -- --
Issuance of Common Stock under
Employee Stock Purchase Plan
(ESPP)........................ -- -- -- -- -- --
Tax benefit from exercise of
incentive stock options....... -- -- -- -- -- --
Conversion of Preferred Stock to
Common Stock.................. -- -- (2,698,938) (8,231,410) -- --
Issuance of Common Stock from
initial public offering, net
of issuance costs of
$926,439...................... -- -- -- -- -- --
Net income...................... -- -- -- -- -- --
---------- ----------- ---------- ----------- ---------- -----------
BALANCE, JUNE 30, 1997............ -- $ -- -- $ -- -- $ --
========== =========== ========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 24
XIONICS DOCUMENT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
(CONTINUED)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------------------------
CLASS A
CONVERTIBLE CLASS A CLASS B
PREFERRED STOCK COMMON STOCK COMMON STOCK
----------------------- --------------------- --------------------
NUMBER LIQUIDATION NUMBER $.01 NUMBER $.01
OF SHARES VALUE OF SHARES PAR VALUE OF SHARES PAR VALUE
---------- ----------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1994................................ 2,418,610 1,789,771 1,327,293 13,273 -- --
Issuance of Class A Convertible Preferred Stock... 1,184,695 3,046,000 -- -- -- --
Accretion of Class B Redeemable Preferred Stock
dividend........................................ -- -- -- -- -- --
Net loss.......................................... -- -- -- -- -- --
---------- ----------- ---------- --------- --------- ---------
BALANCE, JUNE 30, 1995................................ 3,603,305 4,835,771 1,327,293 13,273 -- --
Accretion of Class B Redeemable Preferred Stock
dividend........................................ -- -- -- -- -- --
Issuance of Class C Redeemable Convertible
Preferred Stock, net of issuance costs of
$25,651......................................... -- -- -- -- -- --
Conversion of Class A Convertible Preferred Stock
to Class B Common Stock......................... (478,254) (1,229,113) -- -- 478,254 4,783
Stock repurchase.................................. -- -- -- -- -- --
Issuance of Class D Redeemable Preferred Stock.... -- -- -- -- -- --
Exercise of stock options......................... -- -- 58,773 588 -- --
Exercise of stock options, issued from treasury... -- -- -- -- -- --
Issuance of treasury stock........................ -- -- -- -- -- --
Related party forgiveness of debt................. -- -- -- -- -- --
Accretion of Class C Redeemable Convertible and
Class D Redeemable Preferred Stock dividend..... -- -- -- -- -- --
Repurchase of Class D Redeemable Preferred
Stock........................................... -- -- -- -- -- --
Noncash compensation charge....................... -- -- -- -- -- --
Conversion of secured promissory notes payable to
a stockholder to Class C Redeemable Convertible
Preferred Stock................................. -- -- -- -- -- --
Conversion of Class C Redeemable Convertible
Preferred Stock to Class B Common Stock......... -- -- -- -- 80,677 806
Net loss.......................................... -- -- -- -- -- --
---------- ----------- ---------- --------- --------- ---------
BALANCE, JUNE 30, 1996................................ 3,125,051 3,606,658 1,386,066 13,861 558,931 5,589
Exercise of stock options......................... -- -- -- -- -- --
Exercise of stock options, issued from treasury... -- -- -- -- -- --
Issuance of Common Stock under Employee Stock
Purchase Plan (ESPP)............................ -- -- -- -- -- --
Tax benefit from exercise of incentive stock
options......................................... -- -- -- -- -- --
Conversion of Preferred Stock to Common Stock..... (3,125,051) (3,606,658) (1,386,066) (13,861) (558,931) (5,589)
Issuance of Common Stock from initial public
offering, net of issuance costs of $926,439..... -- -- -- -- -- --
Net income........................................ -- -- -- -- -- --
BALANCE, JUNE 30, 1997................................ -- $ -- -- $ -- -- $ --
========== =========== ========== ========= ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 25
XIONICS DOCUMENT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
(CONTINUED)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
-------------------------------------------------------------------------------------
COMMON STOCK TREASURY STOCK TOTAL
------------ ADDITIONAL -------------- STOCKHOLDERS'
NUMBER $.01 PAID-IN ACCUMULATED NUMBER EQUITY
OF SHARES PAR VALUE CAPITAL DEFICIT OF SHARES COST (DEFICIT)
---------- --------- ----------- ------------ --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1994.................. -- -- (180,325) (3,799,428) -- -- (2,176,709)
Issuance of Class A Convertible
Preferred Stock................... -- -- -- -- -- -- 3,046,000
Accretion of Class B Redeemable
Preferred Stock dividend.......... -- -- (221,162) -- -- -- (221,162)
Net loss............................ -- -- -- (6,024,925) -- -- (6,024,925)
---------- --------- ----------- ------------ --------- --------- -----------
BALANCE, JUNE 30, 1995.................. -- -- (401,487) (9,824,353) -- -- (5,376,796)
Accretion of Class B Redeemable
Preferred Stock dividend.......... -- -- (34,769) -- -- -- (34,769)
Issuance of Class C Redeemable
Convertible Preferred Stock, net
of issuance costs of $25,651...... -- -- (25,651) -- -- -- (25,651)
Conversion of Class A Convertible
Preferred Stock to Class B Common
Stock............................. -- -- 1,224,330 -- -- -- --
Stock repurchase.................... -- -- -- -- 370,370 (250,000) (250,000)
Issuance of Class D Redeemable
Preferred Stock................... -- -- -- -- -- -- --
Exercise of stock options........... -- -- 11,169 -- -- -- 11,757
Exercise of stock options, issued
from treasury..................... -- -- (54,946) -- (116,429) 78,587 23,641
Issuance of treasury stock.......... -- -- -- -- (29,630) 20,000 20,000
Related party forgiveness of debt... -- -- 565,000 -- -- -- 565,000
Accretion of Class C Redeemable
Convertible and Class D Redeemable
Preferred Stock dividend.......... -- -- (476,947) -- -- -- (476,947)
Repurchase of Class D Redeemable
Preferred Stock................... -- -- 90,000 -- -- -- 90,000
Noncash compensation charge......... -- -- 182,000 -- -- -- 182,000
Conversion of secured promissory
notes payable to a stockholder to
Class C Redeemable Convertible
Preferred Stock................... -- -- -- -- -- -- --
Conversion of Class C Redeemable
Convertible Preferred Stock to
Class B Common Stock.............. -- -- 233,682 -- -- -- 234,488
Net loss............................ -- -- -- (1,532,677) -- -- (1,532,677)
---------- --------- ----------- ------------ --------- --------- -----------
BALANCE, JUNE 30, 1996.................. -- -- 1,312,381 (11,357,030) 224,311 (151,413) $(6,569,954)
Exercise of stock options........... 1,182,227 11,822 397,605 -- -- -- 409,427
Exercise of stock options, issued
from treasury..................... -- -- (117) -- (248) 167 50
Issuance of Common Stock under
Employee Stock Purchase Plan
(ESPP)............................ 5,549 55 69,515 -- -- -- 69,570
Tax benefit from exercise of
incentive stock options........... -- -- 1,600,000 -- -- -- 1,600,000
Conversion of Preferred Stock to
Common Stock...................... 7,768,986 77,690 11,779,828 -- -- -- 8,231,410
Issuance of Common Stock from
initial public offering, net of
issuance costs of $926,439........ 2,875,000 28,750 30,656,250 -- -- -- 30,685,000
Net income.......................... -- -- -- 852,349 -- -- 852,349
BALANCE, JUNE 30, 1997.................. 11,831,762 $118,317 $45,815,462 $(10,504,681) 224,063 $(151,246) $35,277,852
========== ========= =========== ============ ======== ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 26
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
--------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................. $ 852,349 $(1,532,677) $(6,024,925)
Adjustments to reconcile net income (loss) to net cash (used
in) provided by operating activities:
Charge for purchased research and development............... 5,400,000 -- 3,492,000
Depreciation and amortization............................... 1,473,537 782,390 408,030
Noncash compensation charge................................. -- 182,000 --
Deferred taxes.............................................. (930,000) -- --
Tax benefit from exercise of incentive stock options........ 1,600,000 -- --
Loss on disposal of property and equipment.................. 22,712 -- 10,429
Changes in assets and liabilities-
Accounts receivable...................................... (3,047,880) 1,136,371 203,032
Contract receivable...................................... (7,411,288) -- --
Inventories.............................................. (6,945) (111,996) (720,087)
Prepaid expenses and other current assets................ (972,644) (119,542) (176,912)
Accounts payable......................................... (23,415) 201,638 1,017,315
Other accrued expenses................................... 2,233,949 (113,892) 199,949
Accrued payroll.......................................... 312,315 36,612 140,107
Deferred revenue......................................... (63,800) (114,340) 982,961
----------- ----------- -----------
Net cash (used in) provided by operating
activities......................................... (561,110) 346,564 (468,101)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in short-term investments................. 644,613 (644,613) --
Increase in other assets...................................... (2,475,000) (500) (37,500)
Net cash acquired in connection with the Peripherals Division
acquisition................................................. -- -- 197,000
Purchase of GCA, net of cash acquired and acquisition costs
paid........................................................ (5,205,475) -- --
Proceeds from sale of property and equipment.................. -- -- 23,866
Purchases of property and equipment........................... (1,458,190) (984,097) (419,018)
----------- ----------- -----------
Net cash used in investing activities................ (8,494,052) (1,629,210) (235,652)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Class A Convertible Preferred Stock............... -- -- 750,000
Issuance of Class C Redeemable Convertible Preferred Stock,
net of issuance costs....................................... -- 3,274,349 --
Issuance of Class D Redeemable Preferred Stock................ -- 4,500,000 --
Issuance of treasury stock.................................... 50 20,000 --
Repayment of term loans....................................... (886,833) (81,167) --
Repayments of senior subordinated promissory notes payable to
stockholders................................................ -- -- (20,759)
Borrowings (repayments) of secured promissory notes payable to
stockholder................................................. (2,094,000) (300,000) 350,000
Stock repurchase.............................................. -- (250,000) --
Repurchase of Class D Redeemable Preferred.................... -- (4,500,000) --
Stock Proceeds from exercise of stock options................. 409,427 35,398 --
Proceeds from employee stock purchase plan.................... 69,570 -- --
Sale of Common Stock, net of issuance costs................... 30,685,000 -- --
Deferred offering costs....................................... (400,000) (526,439) --
----------- ----------- -----------
Net cash provided by financing activities............ 27,783,214 2,172,141 1,079,241
----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS......................... 18,728,052 889,495 375,488
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.................... 2,115,859 1,226,364 850,876
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.......................... $20,843,911 $ 2,115,859 $ 1,226,364
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 27
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Xionics Document Technologies, Inc. and subsidiaries (the Company) designs,
develops and markets advanced embedded systems technology for use in mainstream
office devices such as printers, copiers, fax machines and scanners. The
Company's products enable the high-speed capture, processing, printing, copying
and display of complex electronic documents, both locally and across networks.
The 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, Xionics Kabushiki Kaisha, and
Xionics Securities Corporation. Xionics International Limited (Xionics UK) is a
wholly owned subsidiary of Limited. Xionics Gescheftsfuhrungs GmbH and Xionics
GmbH & Co. KG are wholly owned subsidiaries of Xionics Document Technologies
GmbH. All material intercompany accounts and transactions of the consolidated
companies have been eliminated in consolidation.
(b) Revenue Recognition
Net revenue includes software license fees, hardware products, services,
software maintenance and royalty revenue. Revenue from software and hardware
product sales is recognized upon shipment of the product to customers, provided
that there are no significant obligations remaining and collectibility of the
revenue is probable. The Company provides for estimated hardware product returns
upon shipment of the hardware products. The Company recognizes revenue from
software license fees, services and maintenance in accordance with the
provisions of the American Institute of Certified Public Accountants, Statement
of Position No. 91-1 (SOP 91-1), Software Revenue Recognition. Revenue from
software maintenance contracts is recognized ratably as it is earned over the
term of the contract, generally one year. Unearned software maintenance revenue
is included in deferred revenue. In addition, deferred revenue includes certain
prepaid royalties and advanced billings under software development contracts for
services not yet performed. Service revenue and royalty revenue are recognized
as the service is performed and the royalty earned. Non-refundable royalty
revenue is recognized over the shorter of the estimated period of customer
shipments or one year. 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, 1997 or 1996.
(c) Warranty Cost
The Company provides a one-year warranty with the sale of its hardware
products. The Company estimates and accrues for the costs of providing these
warranties upon shipment of the products.
(d) Research and Development Costs
Research and development costs are charged to operations as incurred.
Statement of Financial Accounting Standards (SFAS) No. 86, Accounting for the
Costs of Computer Software To Be Sold, Leased or Otherwise Marketed, requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon completion of
a working model. Costs incurred by the Company between completion of the working
model and the point at which the product is ready for general release have not
been material.
F-8
<PAGE> 28
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(e) Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of
three months or less at the time of purchase to be cash equivalents. Cash
equivalents consist primarily of investments in investment grade commercial
paper.
(f) Inventories
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:
<TABLE>
<CAPTION>
JUNE 30,
-----------------
1997 1996
---- ----
<S> <C> <C>
Raw materials..................................... $ 523,295 $ 493,660
Finished goods.................................... 503,685 526,375
---------- ----------
$1,026,980 $1,020,035
========== ==========
</TABLE>
(g) Property and Equipment
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:
<TABLE>
<CAPTION>
ESTIMATED JUNE 30,
USEFUL -------------------------
ASSET CLASSIFICATION LIFE 1997 1996
-------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Computer equipment.............................. 3-5 years $3,284,246 $2,525,394
Furniture and fixtures.......................... 3-7 years 1,057,440 564,865
Machinery and equipment......................... 3-5 years 306,983 75,612
---------- ----------
4,648,669 3,165,871
Less -- Accumulated depreciation and
amortization.................................. 1,812,000 996,780
---------- ----------
$2,836,669 $2,169,091
========== ==========
</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 U.S. dollar, are immaterial for all periods
presented and are included in other income (expense).
(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 and
cash equivalent balances with one financial institution. The Company's accounts
receivable credit risk is not concentrated within any geographic area. As of
June 30, 1997, one customer accounted for approximately 11% of accounts
receivable.
F-9
<PAGE> 29
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes significant customers:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
CUSTOMERS NET REVENUES
---------- -------------
<S> <C> <C>
Fiscal year ended-
June 30, 1995................................ 1 12.3%
June 30, 1996................................ 1 30.0%
June 30, 1997................................ 1 44.2%
</TABLE>
(j) Net (Loss) Income per Common and Common Equivalent Share
For the year ended June 30, 1997, net income per common and common
equivalent share was computed using the weighted average number of common and
common equivalent shares outstanding during the period in accordance with the
treasury stock method. Net loss per common and common equivalent share has not
been presented for the year ended June 30, 1996 and 1995 as the information is
not considered to be relevant or meaningful.
(k) 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.
(l) 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.
(m) Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of
The Company assesses the realizability of intangible assets in accordance
with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed of. SFAS 121 requires, among other things, that
an entity review its long-lived assets and certain related intangibles for
impairment whenever changes in circumstances indicate that the carrying amount
of an asset may not be fully recoverable.
(n) Stock Compensation Plans
The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees (APB No. 25), in accounting for stock option
activity for employees and directors. The Company has adopted the disclosure
provisions of SFAS No. 123, Accounting for Stock-Based Compensation (see Note
8(c)).
(o) New Accounting Standards
In March 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share. SFAS No. 128 establishes standards for computing and
presenting earnings per share and applies to entities with publicly held common
stock or potential common stock. This statement is effective for fiscal years
ending
F-10
<PAGE> 30
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
after December 15, 1997 and early adoption is not permitted. When adopted, the
statement will require restatement of prior years' earnings per share. The
Company will adopt this statement for its fiscal year ended June 30, 1998. In
addition, the Company believes that the adoption of SFAS No. 128 will result in
disclosure of basic earnings per share which will be materially different from
the net income per share presented in fiscal 1997.
(p) Noncash Investing and Financing Activities
The following table summarizes the supplemental disclosure of the noncash
transactions for the years indicated.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
-------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
In connection with the initial public offering of Common
Stock (Note 8(a)), the following were converted to Common
Stock-
Class B Common Stock..................................... $ 5,589 $ -- $ --
=========== ========== ===========
Class A Common Stock..................................... $ 13,861 $ -- $ --
=========== ========== ===========
Class A Convertible Preferred Stock...................... $ 3,606,658 $ -- $ --
=========== ========== ===========
Class C Redeemable Convertible Preferred Stock........... $ 8,231,410 $ -- $ --
=========== ========== ===========
Total noncash conversion............................. $11,857,518 $ -- $ --
=========== ========== ===========
Accretion of Preferred Stock dividends................... $ -- $ 421,716 $ 221,162
=========== ========== ===========
Conversion of Class A Convertible Preferred Stock to
Class B Common Stock................................... $ -- $1,229,113 $ --
=========== ========== ===========
Conversion of Class C Redeemable Convertible Preferred
Stock to Class B Common Stock.......................... $ -- $ 234,488 $ --
=========== ========== ===========
Related party forgiveness of debt........................ $ -- $ 565,000 $ --
=========== ========== ===========
Acquisition of property and equipment under term loans... $ -- $ 968,000 $ --
=========== ========== ===========
Conversion of secured promissory notes payable to a
stockholder to Class C Redeemable Convertible Preferred
Stock.................................................. $ -- $ 340,000 $ --
=========== ========== ===========
In connection with the issuance of Class C Redeemable
Convertible Preferred Stock, the following were converted
to Class C Redeemable Convertible Preferred Stock-
Class B Redeemable Preferred Stock..................... $ -- $2,310,596 $ --
Secured promissory notes payable to a stockholder...... -- 1,900,000 --
Senior subordinated promissory notes payable to
stockholders......................................... -- 228,355 --
----------- ---------- -----------
Total noncash conversion............................. $ -- $4,438,951 $ --
=========== ========== ===========
In connection with the acquisition of Peripherals Division
in fiscal 1995 (Note 2), the following noncash
transactions occurred-
Fair value of assets acquired.......................... $ -- $ -- $(6,948,000)
Issuance of Class A Convertible Preferred Stock........ -- -- 2,296,000
Issuance of secured promissory notes payable to a
stockholder.......................................... -- -- 4,849,000
----------- ---------- -----------
Cash acquired, net of $53,000 paid for direct costs
of acquisition.................................... $ -- $ -- $ 197,000
=========== ========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest................................... $ 135,631 $ 236,297 $ 185,320
=========== ========== ===========
Cash paid for income taxes............................... $ 910,097 $ 14,580 $ 5,955
=========== ========== ===========
</TABLE>
F-11
<PAGE> 31
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(q) Other Assets
Other assets consist principally of purchased technology and prepaid
royalties. The amounts related to purchased technology are for proven software
technologies that have achieved technological feasibility at the date of
acquisition. These technologies are being incorporated in various products under
development by the Company. These amounts are being amortized over the greater
of their estimated lives or the expected revenue stream of the product. Prepaid
royalties represent advance payments made by the Company to incorporate certain
technologies in the Company's products. These amounts are being amortized over
the time of expected revenue from the products.
(2) ACQUISITION OF THE PERIPHERALS DIVISION
In October 1994, the Company acquired the Peripherals Division of Phoenix
Technologies Ltd. (Phoenix). This acquisition was accounted for as a purchase in
accordance with APB Opinion No. 16, Business Combinations. To fund the purchase,
the Company issued a $4,849,000 secured promissory note payable to Phoenix, with
principal payable quarterly, as defined, beginning in January 1997. Interest was
at an annual rate of 8%, payable quarterly, beginning in January 1995. The note
was paid in full during fiscal 1997. 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 at that time. In addition to this acquisition, the Company
simultaneously sold to Phoenix, in a separate sale of stock, 291,709 shares of
Class A Convertible Preferred Stock at $2.57 per share for total proceeds of
$750,000, representing an additional approximate 4.9% of the fully diluted
Common Stock of the Company at that time. 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:
<TABLE>
<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.
(3) ACQUISITION OF GCA
On February 21, 1997, the Company acquired GCA Gesellschaft fur
Computer-Anwendung mbH (GCA). The Company paid $5,000,000 in cash for the
outstanding stock of GCA. The acquisition has been accounted for as a purchase
in accordance with APB Opinion No. 16, and accordingly, GCA's operating results
from February 21, 1997 are included in the accompanying consolidated statement
of operations. In accordance with APB Opinion No. 16, the Company has allocated
the purchase price based on the fair value of assets acquired and liabilities
assumed. A significant portion of the purchase price, as described below, has
been identified as in-process research and development ("In-process R&D") in an
independent appraisal using proven valuation procedures and techniques. The
portion of the purchase price allocated to the In-process R&D projects that had
not yet reached technological feasibility and did not have a future alternative
F-12
<PAGE> 32
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
use, totaling $5,400,000 was charged to expense as of the acquisition date.
Acquired intangibles include the assembled workforce of GCA and goodwill. The
intangible assets are being amortized over their estimated useful lives of 5
years.
The purchase price of $5,750,000, including direct acquisition costs, was
allocated as follows:
<TABLE>
<S> <C>
Current assets............................................... $ 444,313
Property and equipment....................................... 91,762
Acquired intangibles......................................... 150,000
In-process R&D............................................... 5,400,000
Other assets................................................. 9,098
Goodwill..................................................... 200,000
Liabilities assumed.......................................... (545,173)
----------
$5,750,000
----------
</TABLE>
Unaudited pro forma operating results for the Company, assuming the
acquisition of GCA occurred on July 1, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996
------------- -------------
<S> <C> <C>
Net Revenue..................................... $ 38,851,704 $ 25,738,717
Net Income (Loss)............................... 676,134 (1,606,162)
Net Income (Loss) per share..................... $ 0.06 $ (0.20)
</TABLE>
For purposes of these pro forma operating results, the in-process R&D was
assumed to have been written off prior to July 1, 1995, so that the operating
results presented include only recurring costs.
(4) INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under the liability method specified by SFAS No.
109, a deferred tax asset or liability is determined based on the difference
between the financial statement and tax bases of assets and liabilities, as
measured by the enacted tax rates assumed to be in effect when these differences
reverse.
The components of the provision for income taxes for the year ended June
30, 1997 is as follows:
<TABLE>
<S> <C>
Current:
Federal................................................... $ --
State..................................................... 18,000
Foreign................................................... 44,000
Deferred:
Federal................................................... $579,000
State..................................................... 102,190
--------
Total provision for income taxes............................... $743,190
========
</TABLE>
A reconciliation of the federal statutory rate to the Company's effective
tax rate is as follows:
<TABLE>
<S> <C>
Tax at statutory rate....................................... $ 543,000
State taxes, net of federal benefit......................... 100,000
Higher foreign tax rate..................................... 18,000
Utilization of federal and foreign net operating loss
carryforwards............................................. (1,459,000)
Increase in valuation allowance and other, net.............. 1,541,190
-----------
Tax provision............................................... $ 743,190
===========
</TABLE>
F-13
<PAGE> 33
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of the components of deferred income tax assets and the
valuation allowance are as follows:
<TABLE>
<CAPTION>
JUNE 30,
------------------
1997 1996
---- ----
<S> <C> <C>
Deferred Tax Assets--
Domestic net operating loss carryforwards.............. $ 1,896,298 $ 1,203,600
Foreign net operating loss carryforwards............... 490,585 401,200
Temporary differences--
Intangible and acquired incomplete research and
development related to the Phoenix
acquisition..................................... 1,099,218 1,430,382
Intangible and acquired incomplete research and
development related to the GCA acquisition...... 2,016,000 --
Allowance for doubtful accounts................... 22,425 29,241
Inventory valuation allowance..................... 85,466 163,550
Allowance for sales returns....................... 92,000 80,000
Other temporary differences....................... 349,058 170,140
----------- -----------
Total gross deferred tax asset............... 6,051,050 3,478,113
Less--Valuation allowance................................... (5,121,050) (3,478,113)
Net deferred tax asset....................... $ 930,000 $ --
=========== ===========
</TABLE>
The Company has recorded a deferred tax asset for that portion for which it
is "more likely than not" that it will receive benefit in the future. The
Company has placed a significant valuation against the remaining net deferred
assets totaling approximately $5,100,000. If realized, approximately $1,900,000
of this amount will be credited to Paid in Capital since these amounts were
generated from the utilization of disqualifying dispositions related to the
exercise of incentive stock options.
(5) SECURED PROMISSORY NOTES PAYABLE TO A STOCKHOLDER
On August 25, 1995, the Company issued a $3,299,000 secured promissory note
payable to Phoenix. On January 1, 1996, the note 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 was
payable quarterly at an annual rate of 8%. On May 9, 1996, Phoenix converted
$340,000 of principal into 116,979 shares of Class C Redeemable Convertible
Preferred Stock. In addition, on May 28, 1996, the Company paid $300,000 of
principal to Phoenix. This note was paid in full during fiscal 1997.
(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. On August
21, 1996, the Company amended the Line and term loan facility. The Modification
Agreement permits the Company to borrow up to $4,000,000 under the Line and up
to $2,000,000 under the term loan facility. Under the Modification Agreement,
the Line will expire on December 1, 1997 and no borrowings under the term loan
can be made after June 30, 1997. Borrowings under the Line bear interest at the
Bank's prime rate (8.5% at June 30, 1997), and borrowings under the term loan
facility bear interest at the prime rate (8.5% at June 30, 1997) plus .5% for
qualified equipment purchases, as defined. Each term loan is repayable over 36
months. Borrowings under the Line and term loan facility are secured by
substantially all assets of the Company, as defined. The Company is restricted
in the payment of any dividends under the Line and term loan facility. In
addition, the Company is required to comply with certain restrictive covenants,
including debt to net worth, capital base, quick ratio and profitability. The
Company was in compliance, or had received a waiver on non-compliance, with all
covenants as of June 30, 1997. There are no outstanding borrowings under the
Line or term loan facility as of June 30, 1997.
F-14
<PAGE> 34
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) STOCKHOLDERS' EQUITY (DEFICIT)
(a) Initial Public Offering
In October 1996, the Company sold, through an underwritten public offering,
2,500,000 shares of its common stock at $12 per share. Also in October 1996, the
Company sold an additional 375,000 shares, at $12 per share, pursuant to an
underwriters over-allotment provision. The Company received proceeds of
$30,685,000 from its initial public offering which are net of issuance costs of
$926,439.
(b) Stock and Stock Option Plans
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. The Company
has reserved common stock shares for the options granted under the 1993 Plan and
the 1995 Plan.
The Company's 1996 Stock Option Plan (the 1996 Plan) was approved by the
Board of Directors in February 1996 and was adopted by the Company's
stockholders on July 12, 1996. The 1996 Plan provides for the grant or award of
stock options, restricted stock and other performance awards (collectively, the
Awards) which may or may not be denominated in shares of Common Stock or other
securities. Stock options granted under the 1996 Plan may be either incentive
stock options or nonqualified options. The purpose of the 1996 Plan is to
attract and retain outstanding employees through the incentives of stock
ownership. Any employee of the Company, including officers and directors, is
eligible to receive Awards.
The 1996 Plan has been and will be administered by the Board of Directors
(the Board). Subject to the provisions of the 1996 Plan, the Board has the
authority to designate participants, determine the types of Awards to be
granted, the number of shares to be covered by each Award, the time at which
each Award is exercisable or may be settled, the method of payment and any other
terms and conditions of the Awards. All Awards shall be evidenced by an Award
Agreement between the Company and the participant.
While the Board determines the prices at which options and other Awards may
be exercised under the 1996 Plan, the exercise price of an option shall be at
least 100% of the fair market value (as determined under the terms of the 1996
Plan) of a share of Common Stock on the date of grant. The aggregate number of
shares of Common Stock available for awards under the 1996 Plan is 950,000.
F-15
<PAGE> 35
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER EXERCISE PRICE AVERAGE EXERCISE
OF SHARES PER SHARE PRICE PER SHARE
---------- -------------- ----------------
<S> <C> <C> <C>
Outstanding, June 30, 1994.......................... 1,051,084 $ .20 $ .20
---------- -------------- -------
Granted........................................ 1,375,302 .20
Terminated..................................... (506,236) .20
---------- --------------
Outstanding, June 30, 1995.......................... 1,920,150 $ .20 $ .20
---------- -------------- -------
Granted........................................ 902,270 .20- 6.50
Terminated..................................... (139,129) .20- 1.84
Exercised...................................... (175,202) .20- .68
---------- --------------
Outstanding, June 30, 1996.......................... 2,508,089 $ .20- 6.50 $ .55
---------- -------------- -------
Granted........................................ 871,001 10.00- 15.00 12.75
Terminated..................................... (169,494) .20- 14.45 8.83
Exercised...................................... (1,182,475) .20- 10.00 .35
---------- -------------- -------
Outstanding, June 30, 1997.......................... 2,027,121 $ .20- 15.00 $ 5.21
========== ============== =======
Exercisable, June 30, 1997.......................... 874,744 $ .20-$15.00 $ 1.38
========== ============== =======
</TABLE>
The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors and approved by the stockholders in July 1996.
The Purchase Plan authorizes the sale of up to a total of 200,000 shares of
Common Stock to participating employees.
All employees of the Company meeting certain eligibility requirements are
eligible to participate in the Purchase Plan. An employee may elect to have a
whole number percentage from 1% to 10% of his or her base pay withheld during
the payroll deduction period (Offering Period) for purposes of purchasing shares
under the Purchase Plan. The price at which shares may be purchased during each
offering will be 85% of the fair market value per share of the common stock on
either the first day or the last day of the Offering Period, whichever is lower.
The Compensation Committee of the Board of Directors may, at its discretion,
choose an Offering Period of 12 months or less for each of the offerings and
choose a different Offering Period for each offering. Under the Purchase Plan,
the Company had sold 5,549 shares as of June 30, 1997. As of June 30, 1997,
194,451 shares of Common Stock were available for future sale under the Purchase
Plan.
(c) Stock-Based Compensation
The Company accounts for its stock-based compensation plan under Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. In
October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation, effective for fiscal years beginning
after December 15, 1995. SFAS No. 123 establishes a fair-value based method of
accounting for stock-based compensation plans. The Company has adopted the
disclosure-only alternative under SFAS No. 123, which requires disclosure of the
pro forma effects on earnings and earnings per share as if SFAS No. 123 had been
adopted, as well as certain other information.
F-16
<PAGE> 36
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has computed the pro forma disclosure required under SFAS No.
123 for all stock compensation plans during the years ended June 30, 1997 and
1996 using the Black-Scholes option pricing model prescribed by SFAS No. 123.
The assumptions used are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Risk free interest rate........................... 5.90%-6.69% 5.26%-6.21%
Expected dividend yield........................... 0 0
Expected lives.................................... 4 years 4 years
Expected volatility............................... 65% 65%
Weighted average value............................ $12.75 --
</TABLE>
The effect of applying SFAS No. 123 would be as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net income (loss) as reported...................... 852,349 (1,532,677)
Pro forma net income (loss) as adjusted............ 41,890 (1,589,835)
Net income (loss) per share as reported............ $ 0.13 $ (0.18)
Pro forma net income (loss) per share as
adjusted......................................... $ 0.00 $ (0.19)
</TABLE>
(8) OPERATING LEASE COMMITMENTS
The Company leases office facilities and equipment under operating leases
which expire at various dates through July 2002. Rent expense for all operating
leases charged to operations was approximately $990,000, $871,000 and $532,000
for the years ended June 30, 1997, 1996 and 1995, respectively.
Future minimum lease payments under operating leases as of June 30, 1997
are approximately as follows:
<TABLE>
<S> <C>
1998......................................................... $1,958,000
1999......................................................... 1,892,000
2000......................................................... 1,691,000
2001......................................................... 1,699,000
2002......................................................... 1,729,000
Thereafter................................................... 142,000
----------
Total minimum payments.................................. $9,111,000
==========
</TABLE>
(9) RETIREMENT PLAN
Effective January 1992, the Company adopted the Xionics 401(k) Retirement
Plan (the Plan). The Company has elected, at its discretion, to contribute up to
a maximum 50% of the first 6% of pay contributed to the Plan. The Company's
contribution to the Plan was approximately $80,000 for the year ended June 30,
1997. There was no contribution in the year ended June 30, 1996. The Company's
contribution to the Plan was approximately $91,000 for the year ended June 30,
1995.
F-17
<PAGE> 37
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) REVENUES BY GEOGRAPHIC DESTINATION
Revenues by geographic destination and as a percentage of total revenues
are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
--------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
United States....................... $28,796,846 $17,953,949 $ 8,849,901
Europe.............................. 3,462,283 3,231,597 4,328,967
Asia................................ 5,370,692 1,939,619 2,184,291
Other............................... 170,456 684,157 214,090
----------- ----------- -----------
$37,800,277 $23,809,322 $15,577,249
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
United States.................................. 76.2% 75.4% 56.8%
Europe......................................... 9.2 13.6 27.8
Asia........................................... 14.2 8.1 14.0
Other.......................................... 0.4 2.9 1.4
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
(11) SUBSEQUENT EVENT
As of August 13, 1997, the Company acquired all of the shares of Seaport
Imaging for $2,200,000, of which $1,100,000 was paid in cash at closing and the
balance is evidenced by promissory notes. Seaport Imaging develops and
manufactures scanner control board products and bar code recognition software.
Xionics intends to integrate these products into its line of products addressing
the document imaging market.
F-18
<PAGE> 1
Exhibit 10.13
SECOND AMENDMENT TO LEASE
This Second Amendment to Lease is dated as of the 1st day of August, 1997 by
and between E & F Realty Associates Limited Partnership ("Landlord") and Xionics
Document Technologies, Inc. ("Tenant").
WITNESSETH:
----------
WHEREAS, Landlord and Tenant are parties to a certain Lease dated November
29, 1994 (the "Lease") with respect to 30,000 rentable square feet of space on
the first and fifth floors of 70 Blanchard Road, Burlington, Massachusetts (the
"Building");
WHEREAS, the Lease was amended by that certain First Amendment to Lease
dated August 9, 1995, wherein Landlord and Tenant acknowledged that Tenant had
previously added floor area to its Premises by exercise of a certain right of
first refusal and wherein additional space was added to the Premises (all such
floor area within the Premises, whether leased pursuant to the Lease, pursuant
to the exercise of the right of first refusal or pursuant to the First
Amendment of Lease being hereinafter referred to as the "Existing Space");
WHEREAS, Landlord and Tenant wish to add to the Premises certain floor area
upon the fourth floor of the Building as set forth below;
WHEREAS, Tenant is also a subtenant pursuant to a certain Sublease Agreement
dated June 28, 1996 (the "Sublease") by and between Tenant and Rule Industries,
Inc., of the entire third floor of the Building (the "Third Floor Space")
comprising approximately 22,653 leasable square feet of space;
WHEREAS, upon expiration of the Sublease, the Third Floor Space shall be
included within the Premises; and
WHEREAS, Landlord and Tenant wish to also amend the Lease in certain other
respects, as set forth below.
NOW THEREFOR, in consideration of $10.00 and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
1. All capitalized terms used herein and not otherwise defined shall have
the meanings set forth in the Lease and/or the First Amendment to Lease.
2. From and after the date hereof, the Premises shall include both the
Existing Space and a certain additional space on the fourth floor of the
Building, shown
<PAGE> 2
upon the plan attached hereto and consisting of approximately 11,819 rentable
square feet of floor area (the "Fourth Floor Space").
3. The definition of "Termination Date" as used in the Lease shall be
amended to be July 31, 2002.
4. Based upon the addition of the Fourth Floor Space to the Premises, the
definition of "Tenant's Proportionate Share" as used in the Lease shall be
amended to be 48.87% from the date hereof until May 31, 1999, and, based upon
the addition of the Third Floor Space to the Premises, shall be amended to be
70.45% thereafter.
5. The "Yearly' Rent" for the Fourth Floor Space shall be as set forth
below:
<TABLE>
<CAPTION>
Rent: Per R.S.F. Yearly Rent Monthly Payment
---------- ----------- ---------------
<S> <C> <C>
Year 1: $21.00 $248,199.00 $20,683.25
Year 2: $21.50 254,108.50 21,175.71
Year 3: $22.00 260,018.00 21,668.17
Year 4: $22.50 265,927.50 22,160.63
Year 5: $23.00 271,837.00 22,653.08
</TABLE>
Such yearly rent shall be in addition to all other rent due and payable
pursuant to the Lease and the First Amendment to Lease. Each year referred to
above shall be a period of twelve months, provided that the first year shall be
deemed to be a period commencing upon the first day of the month in which this
Second Amendment to Lease is executed and ending upon the day prior to the first
anniversary thereof.
6. The rent for the Existing Space shall continue to be as set forth in the
Lease and First Amendment to Lease, provided, however, that from and after
January 1, 2000 the Yearly Rent for the Existing Space shall be at the same rate
per rentable square foot as is applicable to the Fourth Floor Space.
7. The Fourth Floor Space shall be delivered to Tenant "as is".
8. From and after June 1, 1999, the Premises shall include the entire Third
Floor Space, and the Yearly Rent for the Third Floor Space shall be at the same
rate per rentable square foot as is applicable to the Fourth Floor Space. In the
event the Sublease is terminated prior to the expiration date thereof, the Third
Floor Space will become a part of the Premises upon all of the terms and
conditions of the Lease, as amended hereby, except that the rent for the Third
Floor Space shall be as set forth in the Sublease until May 31, 1999.
9. Upon request of either party, the other party shall execute such
reasonable supplemental documentation as is necessary or desirable to confirm
the total amount Yearly Rent payable from time to time with respect to the
Premises.
2
<PAGE> 3
10. All other terms and provisions of the Lease and the First Amendment of
Lease, except those which have been specifically amended hereby shall remain
unchanged. By way of example, and not limitation, Tenant shall pay all operating
and tax escalations upon the Fourth Floor Space based upon the base years set
forth in the Lease, and from and after the time the Third Floor Space is a part
of the Premises (i.e. from and after June 1, 1999) Tenant shall pay all
operating and tax escalations upon the Third Floor Space based upon the base
year set forth in the Lease.
In witness whereof the parties have executed this Second Amendment to Lease
in multiple counterparts as a sealed instrument on the day and year first above
written.
LANDLORD: TENANT:
E & F REALTY ASSOCIATES XIONICS DOCUMENT
LIMITED PARTNERSHIP TECHNOLOGIES INC.
By: E & F REALTY CORPORATION,
GENERAL PARTNER
BY: /s/ Eleanor Pao, Treasurer BY: /s/ Robert E. Gilkes
------------------------------- -------------------------------
ELEANOR PAO, TREASURER ROBERT E. GILKES, CHIEF
EXECUTIVE OFFICER
HEREUNTO DULY AUTHORIZED
3
<PAGE> 1
Exhibit 10.14
6/20/97
WAVEMARK TECHNOLOGIES, INC.
70 Blanchard Road
Burlington, Massachusetts 01803
SECURITIES PURCHASE AGREEMENT
Dated as of: June 20, 1997
To: Xionics Document Technologies, Inc.
70 Blanchard Road
Burlington, Massachusetts 01803
Ladies and Gentlemen:
The undersigned, WaveMark Technologies, Inc., a Delaware corporation (the
"COMPANY"), proposes to issue and sell to Xionics Document Technologies, Inc.
(the "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 the Investor as follows:
sec. 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) 11,000,000
shares of the Company's Common Stock, par value $.001 per share (the "COMMON
STOCK") (ii) and 900,000 shares of the Company's Preferred Stock, par value
$.001. per share, of which (A) 250,000 shares have been designated Class A
Redeemable Nonconvertible Preferred Stock (the "CLASS A PREFERRED STOCK") and
(B) 650,000 shares have been designated Class B Convertible Preferred Stock
(the "CLASS B PREFERRED STOCK" and, together with the Class A, Preferred Stock,
the "PREFERRED STOCK"). A description of 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
<PAGE> 2
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"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), 2,650,000 shares of Common Stock
will be validly issued and outstanding, and will be fully-paid and
non-assessable, and no shares of Preferred Stock will be issued and outstanding.
sec.1.02. AUTHORIZATION OF COMMON STOCK. The Company will, prior to the
Closing Date, duly and[ properly authorize the issuance of 650,000 shares of
Common Stock issuable by the Company upon conversion of the Class B Preferred
Stock.
sec.1.03. OTHER DEFINITIONS. Certain terms and expressions used in this
Agreement are defined m Article XIII hereof.
ARTICLE II
------- --
PURCHASE AND SALE OF PREFERRED
-------- --- ---- -- ---------
STOCK AT CLOSING
----- -- -------
sec.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 the Investor, and the
Investor agrees to purchase from the Company, at the closing hereunder (the
"CLOSING"), (i) 250,000 shares of Class A Preferred Stock, for a purchase price
per share of $1.00 and for a total consideration of $250,000 and (ii) 250,000
shares of Class B Preferred Stock, for a purchase price per share of $1.00 and
for a total consideration of $250,000.
ARTICLE III
------- ---
THE CLOSING
--- -------
sec.3.01. The Closing under this Agreement will take place at the offices of
the Investor, 70 Blanchard Road, Burlington, Massachusetts 01803, at 11:30 a.m.,
local time, on June 23, 1997 or at such other place and time and on such other
date as may be mutually agreed upon in writing by the Investor 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 the Investor stock certificates
representing the Class A Preferred Stock and Class B Preferred Stock purchased
by the Investor hereunder, and the Investor will deliver to the Company the
total consideration
<PAGE> 3
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payable or deliverable by the Investor for such Class A Preferred Stock and
Class B Preferred Stock. Such consideration shall be payable by wire transfer to
the account of the Company at BankBoston, ABA No. 011-000-390,
Account No. 774 266 06.
ARTICLE IV
ADDITIONAL REPRESENTATIONS OF THE COMPANY
The Company hereby further represents and warrants to the Investor, on and
as of the Closing Date, and, unless otherwise specified herein, immediately
after giving effect to the transactions contemplated hereby to be consummated on
the Closing Date, that:
sec.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 Investor all of the Preferred Stock
being purchased hereunder.
(c) The Company 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 qualification
necessary, except for any such jurisdiction wherein the failure to qualify would
not be reasonably likely to have a Material Adverse Effect.
sec.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 Investor of all of the Preferred
Stock 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,
<PAGE> 4
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(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 from time to time and 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.
sec.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 (2)
of this sec.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;
(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; and
(iii) the indemnity provisions of the Registration Rights Agreement
may be unenforceable as against. public policy.
(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.
<PAGE> 5
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sec.4.04. Validity of Shares.
-------- -- ------
(a) The shares of Preferred Stock issued, sold and delivered to the Investor
by the Company pursuant to this Agreement have been duly and validly issued and
are fully paid and nonassessable. 650,000 shares of Common Stock have been duly
and validly reserved for issuance by the Company upon conversion of the Class B
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 Investor of the Preferred Stock being sold
hereunder, and the delivery by the Company to the Investor of the stock
certificates representing such Preferred Stock, all in accordance with the terms
of this Agreement, lawful, valid and marketable title to each share of such
Preferred Stock shall be conveyed to and vested in the Investor, 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 B Preferred Stock into shares of Common
Stock in accordance with the Certificate of Incorporation, and the delivery by
the Company of stock certificates representing such shares of Common Stock,
lawful, valid, and marketable title to such shares of Common Stock will be
conveyed to and vested in the Investor.
sec.4.05. SUBSIDIARIES. The Company does not have any Subsidiaries and does
not own or hold of record and/or beneficially any shares in the capital of any
corporation, or any other' rights or interests in any other person.
sec.4.06. Commitments to Issue Securities.
----------- -- ----- ----------
(a) Except as set forth in sec.4.06 of the DISCLOSURE SCHEDULE and except
for the Class B Preferred Stock, 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 stock of the Company or
any of its Subsidiaries.
(b) Except as set forth in this Agreement, no shareholder of the Company or
any other person has stay 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.
<PAGE> 6
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(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, the Shareholder Agreement, the
Development Agreement, and the DISCLOSURE SCHEDULE.
sec.4.07. AGREEMENTS AFFECTING CAPITAL STOCK. Except for the Shareholder
Agreement, the Restricted Stock Agreements, and any agreements reflected in the
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.
sec.4.08. SHAREHOLDERS. Set forth in sec.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 after giving effect to the transactions to occur on the Closing
Date, 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 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 after giving
effect to the transactions to occur on the Closing Date, (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.
sec.4.09 Financial Statements.
--------- ----------
(a) The Company has heretofore furnished to the Investor (i) the pro forma
balance sheet of the Company and its Subsidiaries as at the Closing Date (the
"PRO FORMA BALANCE SHEET") and (ii) the projections of the annual operating
budgets of the Company and its Subsidiaries for the fiscal years ending December
31, 1997 and December 31, 1998 (collectively, the "PROJECTIONS").
(b) The Pro Forma Balance Sheet fairly represents the consolidated financial
condition of the Company and its Subsidiaries as of the Closing Date. The
Projections have been prepared in good faith by the Company and reflect the
reasonable estimates of the Company for the periods covered thereby, subject to
the qualifications set forth therein.
<PAGE> 7
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sec.4.10. NO UNDISCLOSED LIABILITIES. Except as set forth in sec.4.10 of the
DISCLOSURE SCHEDULE, the Company has no material liabilities or obligations
of any nature (absolute, accrued, contingent or otherwise) which would be
required to be reflected on or reserved. against in the Pro Forma Balance Sheet
in order to cause the Pro Forma Balance Sheet to fairly represent the
consolidated financial condition of the Company and its Subsidiaries as of the
Closing Date, and which were not fully reflected on or reserved against in such
balance sheet.
sec.4.11. INDEBTEDNESS FOR BORROWED MONEY. Except as otherwise identified
and described in sec.4.11 of the DISCLOSURE SCHEDULE the Company and its
Subsidiaries do not have any Indebtedness for Borrowed Money which is not
reflected in the Pro Forma Balance Sheet.
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.
sec.4.12. TITLE TO PROPERTIES. 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 Pro Forma Balance Sheet. Except as otherwise described in
sec.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.
sec.4.13. 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
Sudsidiaries.
sec.4.14. 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
<PAGE> 8
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.
sec.4.15. LITIGATION, ETC.
(a) Except as otherwise described in sec.4.15 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, officers or
directors or in which the Company or any of its Subsidiaries, officers or
directors is a participant, the outcome of which could reasonably be expected to
result in a Material Adverse Effect.
(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.
sec.4.16. TRANSACTIONS WITH ASSOCIATED PERSONS, ETC.
(a) Except as otherwise described in sec.4.16 of the DISCLOSURE SCHEDULE or
set forth, with respect to the Investor or the Founders, in any Fundamental
Document or the Restricted Stock Agreements, (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
<PAGE> 9
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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.
As used herein, the term "ASSOCIATED PERSON" shall not include the Investor.
sec.4.17. USE OF PROCEEDS. The proceeds from the sale of the Preferred Stock
will be used for working capital and general corporate purposes.
sec.4.18. 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.
sec.4.19. 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;
<PAGE> 10
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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.
sec.4.20. Private Offering.
------- --------
(a) Except as otherwise described in the Restricted Stock Agreements or in
sec.4.20 of the DISCLOSURE SCHEDULE, neither the Company nor anyone acting on
its behalf has offered any shares of 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 Investor. 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 Preferred Stock (or the
shares of Common Stock issuable upon conversion of the Preferred Stock) subject
to the registration requirements of sec.5 of the Securities Act.
(b) Based on and assuming the accuracy of the Investor's representation in
sec.5.03 below, the offer, issuance and sale of Preferred Stock to the Investor
contemplated by this Agreement are (and, in the absence of an intervening
transfer of the Preferred Stock by the Investor, the issuance of shares of
Common Stock upon conversion of the Preferred Stock will be) exempt from the
registration and prospectus delivery requirements of the Securities Act. Based
on and assuming the accuracy of the Investor's representation in sec.5.03 below,
the issuance and sale by the Company of the Preferred Stock contemplated by this
Agreement are (and, in the absence of an intervening transfer of the Preferred
Stock by the Investor or change of the Investor's domicile to a state other than
Massachusetts, the issuance of shares of Common Stock upon conversion of the
Class B Preferred Stock will be) exempt from registration or qualification under
the registration or qualification requirements of all applicable state Blue Sky
laws.
sec.4.21. DISCLOSURE. Neither this Agreement (including the EXHIBITS and
DISCLOSURE SCHEDULE hereto), nor any of the other documents delivered at the
Closing to the Investor by or on behalf of the Company pursuant to this
Agreement (including the EXHIBITS and DISCLOSURE SCHEDULE hereto), taken as a
whole, contains any untrue statement of any material fact or omits to state any
material fact
<PAGE> 11
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necessary in order to make the statements contained herein or therein not
misleading.
ARTICLE V
------- -
REPRESENTATIONS OF THE INVESTOR
--------------- -- --- --------
The Investor represents and warrants to the Company that:
sec.5.01. DUE ORGANIZATION, ETC. The Investor is a corporation duly
organized, legally existing and in good standing under the laws of the
jurisdiction of its organization. The 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.
sec.5.02. BINDING EFFECT OF DOCUMENTS. Each of this Agreement and the other
Fundamental Documents to which the Investor is a party has been duly executed
and delivered by the Investor, and each Fundamental Document constitutes the
valid and legally binding agreement of the Investor, enforceable in accordance
with its terms, except as such validity, binding effect or enforceability may be
affected by (a) applicable bankruptcy, reorganization, moratorium or other
similar laws affecting generally the enforcement of rights, or (b) the
availability of equitable remedies.
sec.5.03. Investment Representations.
---------- ---------------
(a) The Investor is purchasing the Preferred Stock hereunder from the
Company in accordance with the terms hereof for the 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 the Investor's property shall at all
times be within the Investor's control. The Investor has been informed and
understands that the Preferred Stock to be purchased by the Investor hereunder
has not been registered pursuant to the provisions of sec.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) The 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 the Investor has deemed necessary
or appropriate in order to enable the Investor to make an informed investment
decision with respect to the acquisition of the Preferred Stock to be purchased
by
<PAGE> 12
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the Investor hereunder.. The Investor has such knowledge and experience in
financial matters that the Investor is capable of evaluating the merits and
risks of the Investor's investment contemplated hereby. The Investor's financial
condition is such that the Investor is able to bear all economic risks of
investment contemplated hereby, including a complete loss of the Investor's
investments therein and the risks of holding such investment for an indefinite
period of time. The Investor also acknowledges that there exists no market for
the Preferred Stock at this time. The Investor represents that the Investor is
an "accredited investor" within the meaning of Rule 501(a) promulgated under the
Securities Act.
(c) The 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.
(d) Each stock certificate representing shares of Preferred Stock being
purchased hereunder and the shares of Common Stock issuable upon conversion of
the Class B Preferred Stock 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."
ARTICLE VI
CONDITIONS OF CLOSING
The obligations of the Investor to purchase and pay for the Preferred Stock
being purchased by the 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:
<PAGE> 13
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sec.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
Investor.
sec.6.02. CERTIFIED COPIES OF CHARTER DOCUMENTS. The Investor 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 Investor.
sec.6.03. PROOF OF CORPORATE ACTION. The Investor 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
Investor of the Preferred Stock to be sold hereunder.
sec.6.04. REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties made by the Company to the 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
the 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.
sec.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
Investor, and the Investor shall have received all such originals or certified
or other copies of all such documents, including records of corporate or other
proceedings, as the Investor shall have reasonably requested.
<PAGE> 14
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sec.6.06. INVESTMENT OF FOUNDERS. The Investor shall have received evidence
satisfactory to it that the Company shall have received on the Closing Date cash
proceeds of not less than $300,000 from the sale by the Company of 300,000
shares of Class B Preferred Stock to certain of the Founders. The Investor shall
have received copies, certified by an officer of the Company to be true, correct
and complete, of the stock purchase agreement(s) relating to the sale of such
Class B Preferred stock to certain of the Founders, and such agreement(s) shall
be in form and substance reasonably satisfactory to the Investor.
sec.6.07. DELIVERY OF STOCK CERTIFICATES. The Company shall have delivered
on the Closing Date to the Investor duly issued stock certificates representing
all of the Preferred Stock being purchased by the Investor hereunder on the
Closing Date.
sec.6.08. QUALIFICATIONS. All authorizations, approvals or permits (if any)
of any governmental or regulatory authority or agency of the United States, the
State of Delaware, or any other State of the United States which are required in
connection with the lawful issuance and sale by the Company of Preferred Stock
pursuant to this Agreement shall have been duly obtained and shall be effective
on and as of the Closing Date.
sec.6.09. MEMBERSHIP ON BOARD OF DIRECTORS. The initial number of directors
on the Board of Directors of the Company shall have been duly and properly fixed
at not more than seven (7) directors by all necessary corporate and shareholder
action. The person(s) nominated or designated by the Investor to be director(s)
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.
sec.6.10. GRANT OF REGISTRATION RIGHTS. The Investor shall have been granted
certain registration rights pursuant to the Registration Rights Agreement.
sec.6.11. OTHER AGREEMENTS. There shall have been executed and delivered by
the Company and its employees such agreements, including, without limitation,
stock purchase and vesting agreements, employment agreements, non-compete
agreements and confidentiality agreements as the Investor shall require and all
of such agreements shall be in form and substance reasonably satisfactory to the
Investor.
ARTICLE VII
CONDITIONS OF COMPANY'S OBLIGATIONS TO SELL
PREFERRED STOCK
The obligations of the Company to issue and sell Preferred Stock to the
Investor on the Closing Date in accordance with the terms hereof shall be
subject to
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the satisfaction, prior thereto or concurrently therewith, of each of the
following conditions precedent:
sec.7.01. FUNDAMENTAL DOCUMENTS. Each of this Agreement, the Shareholder
Agreement, the Registration Rights Agreement and the Development Agreement
shall have been duly executed and delivered to the Company by the Investor.
sec.7.02. REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties made by the Investor to the Company in Article V hereof shall be true
and correct when made by the Investor and shall be true and correct on the
Closing Date.
sec.7.03. PAYMENT FOR PREFERRED STOCK. The Investor shall have delivered to
the Company, in full and complete payment for the Preferred Stock to be
purchased by the Investor from the Company hereunder, the total consideration
payable by the Investor for such securities in accordance with the terms hereof.
Such amount shall be paid by the Investor to the Company in immediately
available funds.
ARTICLE VIII
------- ----
COVENANTS OF THE COMPANY
--------- -- --- -------
The Company hereby covenants with the Investor that, from the Closing Date
and until the Covenant Termination Date or such other date as may be specified
herein, except as otherwise expressly permitted or approved, in any particular
instance, by a written consent of the Investor Director(s):
sec.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 such as will enable the Company
to o prepare its financial statements in accordance with generally accepted
accounting principles and practices applied on a consistent basis ("GAAP"),
insofar as GAAP is applicable. The Company will furnish or cause to be furnished
to the 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
consolidated balance sheet of the Company and its Subsidiaries as at the end of
such fiscal year, (b) the related consolidated statements of operations of the
Company and its Subsidiaries for such fiscal year, and (c) the related
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 GAAP, insofar as GAAP is applicable, and reviewed by independent
public accountants acceptable to the Investor, and all audited for fiscal years
1999 and beyond.
<PAGE> 16
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sec.8.02. QUARTERLY FINANCIAL REPORTS; OTHER FINANCIAL INFORMATION. The
Company will also furnish or cause to be furnished to the 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; and
(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) 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
(c) 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 the Investor
Director may from time to time reasonably request.
sec.8.03. 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 a Material Adverse Effect, or
(b) any material development, not previously disclosed by the Company to the
Investor Director in writing, shall occur in any such action, suit, 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 the Investor Director a written notice setting forth brief
particulars of such action,. suit, proceeding, investigation or development.
<PAGE> 17
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sec.8.04. INSPECTION. The Company will permit any of the duly authorized
representatives of the Investor (not including any transferees of the Investor's
Preferred Stock) 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 the 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. Any information concerning the Company or any
of its Subsidiaries obtained by the Investor in connection with any such visit,
inspection or examination will be kept confidential by the Investor; provided,
that such inspections shall be limited to two per year and shall be made during
the Company's normal working hours, on reasonable advance notice. This section
is not intended to restrict the Investor Director(s)' right to information in
any way.
sec.8.05. 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.
sec.8.06. 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; EXCLUDING, HOWEVER, from the operation of the foregoing provisions of
this sec.8.06 liens securing Indebtedness for Borrowed Money permitted by
sec.8.07.
sec.8.07. 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 sec.8.07:
(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 $500,000;
(b) Indebtedness for Borrowed Money of the Company and its Subsidiaries
recurred under one or more working capital lines of credit, the aggregate
outstanding principal amount of which shall not at any time exceed $500,000; and
<PAGE> 18
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(c) additional Indebtedness for Borrowed Money of the Company and its
Subsidiaries, the aggregate outstanding principal amount of which shall not at
any time exceed $100,000.
sec.8.08. 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 or intends to engage, as expressed in its business plan most recently
prepared and delivered to the Investor prior to the Closing Date, including
natural extensions thereof into the printer and peripheral marketplace, or (b)
undertake, conduct or transact any business in a manner prohibited by applicable
law.
sec.8.09. ACQUISITIONS. The Company will not, and will not permit any of its
Subsidiaries to, (a) acquire any business or all or substantially all of the
property of any Person or any division or business unit thereof, whether through
purchase of assets, merger or otherwise, (b) directly or indirectly acquire
control of a majority (in number of votes) of the securities of any corporation,
partnership or other Person having ordinary voting power for the election of
directors or managers of such corporation, partnership or other Person, or (c)
directly or indirectly acquire control of a majority of the equity interests in
any Person (each such acquisition referred to herein as an "ACQUISITION");
EXCLUDING, HOWEVER, from the operation of the foregoing provisions of this
sec.8.10 Acquisitions by the Company and its Subsidiaries so long as (i) the
fair market value, determined in good faith by the Board of Directors of the
Company, of the aggregate consideration paid or payable by the Company and its
Subsidiaries in connection with all Acquisitions after the Closing Date does
not exceed $500,000 and (ii) immediately after such Acquisition, and after
giving effect thereto, no Event of Default shall have occurred and be
continuing.
sec.8.10. 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 as otherwise described
in sec.8.10 of the DISCLOSURE SCHEDULE, 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 (in each case, without a
prior affirmative vote of the Class A and Class B Preferred Stock, voting
separately by class as provided in the Certificate of Amendment), any shares of
capital stock of the Company which shall have any rights or preferences
(including, without limitation., preferences with respect. to dividends and upon
liquidation) superior to the Class B Preferred Stock. In addition to and without
limitation of the foregoing, except as otherwise expressly contemplated and
required or permitted by Article II and Article III of this Agreement, the
Company will not at any time after the effective date hereof issue
<PAGE> 19
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(whether by way of a dividend payment or otherwise), sell or grant to any person
or persons, (x) any Common Stock or (y) any securities convertible into or
exchangeable for or carrying any rights to acquire any shares of Common Stock,
or any options, warrants or other rights to acquire any shares of Common Stock,
in each case, if, after giving effect to such sale or grant, any Event of
Default shall have occurred and be continuing; PROVIDED that the provisions of
this sentence shall not prohibit (A) the issuance of options to acquire up to
1,250,000 shares of Common Stock to officers and employees of the Company or any
of its Subsidiaries, as contemplated in subsection (b) below, provided such
options have been specifically approved by the Board of Directors of the
Company, (B) the issuance of Common Stock upon the exercise of the options
referred to in the foregoing clause (A), (C) the issuance of shares of Common
Stock upon conversion of the Class B Preferred Stock, and (D) the issuance of
shares of Common Stock, and underwriters' warrants exercisable for Common Stock,
in connection with a Qualified Public Offering.
(b) The Company may grant options to purchase no more than 1,250,000 shares
of Common Stock, in the aggregate, to its employees and officers.
(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 B Preferred Stock, the number of shares of Common
Stock issuable from time to time upon conversion of such Preferred Stock.
sec.8.11. 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 of its capital stock 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 of its capital stock of any class or in respect
of any such warrants or options; EXCLUDING, HOWEVER, from the operation of the
foregoing provisions of this sec.8.11: (i) the declaration and payment of
dividends on the Preferred Stock as set forth in and required by the Company's
Certificate of Incorporation; (ii) the redemption of shares of Class A
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 B Preferred Stock as set forth in the Company's Certificate of
Incorporation; (iv) the repurchase of the Class B Preferred Stock owned by the
Investor pursuant to Article XI hereof; (v) 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 (vi) the repurchase of shares of the Company's Common Stock
as permitted or required in the Shareholder Agreement or the Restricted Stock
Agreements.
sec.8.12. NONCOMPETITION AGREEMENTS. The Company will cause each officer or
employee of the Company and its Subsidiaries who is from time to time identified
<PAGE> 20
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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.
sec.8.13. 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.
sec.8.14. 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.
sec.8.15. NOTICE OF DEFAULTS. The Company shall 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 Event of Default, furnish to the
Investor 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
Event of Default and what action the Company is taking or proposes to take with
respect thereto.
sec.8.16. 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 or disclosed
in sec.4.16 of the DISCLOSURE SCHEDULE, and those entered into at any time after
the Closing Date, PROVIDED that (i) such agreements are on terms no less
favorable to the Company and its Subsidiaries than the terms that could be
obtained in a similar agreement or transaction with a person other than an
Associated Person and (ii) the aggregate consideration paid or payable by the
Company and its Subsidiaries in connection with all such agreements and
transactions shall not exceed $100,000.
(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 Investor, as such.
sec.8.17. 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.
<PAGE> 21
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ARTICLE IX
GRANT OF PREEMPTIVE RIGHTS
The Company hereby grants to the Investor preemptive rights to purchase a
portion of New Securities (as defined in sec.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 the Investor pursuant to
this Article IX shall be governed by and subject to all of the terms and
provisions contained in this Article IX:
sec.9.01. DEFINITIONS.
(a) As used in this Article IX, 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 Preferred
Stock issued by the Company pursuant to this Agreement or any shares of Common
Stock issuable upon conversion of the Class B 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; (iii) shares of Common Stock to be offered and sold
pursuant to any Qualified Public Offering; or (iv) underwriters' warrants issued
in connection with a Qualified Public Offering, and shares of Common Stock
issued upon exercise of such underwriters' warrants.
(b) As used in this Article IX, the term "Pro Rata Share" shall mean that
portion of any contemplated issuance of New Securities which bears the same
proportional relationship to the total quantity of such New Securities to be
issued that the total number of shares of the Company's preferred stock of all
classes (excluding the Class A Preferred Stock) then owned by the Investor bears
to the total number of shares of the Company's preferred stock of all classes
(excluding the Class A Preferred Stock) that are issued and outstanding
immediately prior to the issuance of such New Securities.
sec.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 the Investor
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
<PAGE> 22
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decided to issue the New Securities. The Investor shall have fourteen (14) days
from the date on which the Company shall give the written Offer Notice to the
Investor (in this Article IX called the "OFFER DATE") to agree to purchase its
Pro Rata Share of such New Securities for the price and upon the general terms
specified in the Offer Notice and in compliance with this sec.9.02, by giving
written notice to the Company and stating therein the portion of its Pro Rata
Share of New Securities to be purchased by the Investor. If, in connection with
such a proposed issuance of New Securities, the Investor shall for any reason
fail or refuse to give such written notice to the Company within such period of
fourteen (14) days, the 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 the Investor under this Article IX to purchase any of such New
Securities.
(b) In the event that the Investor shall fail or refuse to exercise in full
its rights of first refusal within said fourteen (14) day period, the Company
shall have ninety (90) days thereafter to sell the quantity of New Securities
which the Investor did not agree to purchase, at a price and upon general terms
no more favorable to the purchasers thereof than specified in the Company's
Offer Notice to the Investor. In the event the Company has not sold such New
Securities within said period of ninety (90) days, the Company will not
thereafter issue or sell any New Securities without first offering to the
Investor its Pro Rata Share of such New Securities in the manner provided by the
foregoing provisions of this Article IX.
(c) The Investor may designate any Permitted Transferee of the Investor to
exercise any preemptive rights of the Investor under this Article IX.
sec.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 Investor pursuant to this
Article IX.
sec.9.04. TERMINATION OF PREEMPTIVE RIGHTS. All rights of the Investor 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 earlier to occur of (i) the conversion of all of the Investor's Class
B Preferred Stock into Common Stock, and (ii) the consummation of a Qualified
Public Offering.
<PAGE> 23
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ARTICLE X
DEFAULTS
sec.10.01. EVENTS OF DEFAULT. The Investor will be entitled to exercise the
remedies provided by sec.10.02 hereof in accordance with the terms thereof if
any one or more of the following events (each an "EVENT OF DEFAULT") shall
occur:
(a) the Company or any of its Subsidiaries shall fail to perform or
observe any covenant, agreement or provision set forth in this
Agreement or any covenant, agreement, or provision to be performed or
observed by it under any Fundamental Document (except the Development
Agreement, which is dealt with separately in subsection (d) below), and
such failure shall not be rectified or cured to the satisfaction of the
Investor within thirty (30) days after written notice from the
Investor; or
(b) any representation or warranty made by the Company or any of
its Subsidiaries in connection with this Agreement or any other
Fundamental Document or any amendment to either shall prove to have
been false on the date as of which it was made; or
(c) the Company or any of its Subsidiaries shall:
(i) commence a voluntary case under Title 11 of the United
States Code as from time to time in effect, or authorize, by
appropriate proceedings of its board of directors or other
governing body, the commencement of such a voluntary case;
(ii) have filed against it a petition commencing an
involuntary case under said Title 11 and such petition shall not
have been dismissed or stayed within sixty (60) days;
(iii) seek relief as a debtor under any applicable law, other
than said Title 11, of any jurisdiction relating to the liquidation
or reorganization of debtors or to the modification or alteration
of the rights of creditors, or consent to or acquiesce in such
relief;
(iv) have entered against it an order by a court of competent
jurisdiction (x) finding it to be bankrupt or insolvent, (y)
ordering or approving its liquidation, reorganization or any
modification or alteration of the rights of its creditors, or (z)
assuming custody of, or appointing a receiver or other custodian
for, all or a substantial part of its property, which order shall
not have been dismissed or stayed within sixty (60) days; or
<PAGE> 24
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(v) make an assignment for the benefit of, or enter into a
composition with, its creditors, or appoint or consent to the
appointment of a receiver or other custodian for all or a
substantial part of its property; or
(d) the Company shall default in the performance or observance of
any of its obligations contained in secs.7, 8, 13.01, or 13.02 of the
Development Agreement; or
(e) a Change of Control shall have occurred prior to July 1, 1999.
sec.10.02. REMEDIES. Upon the occurrence and continuance of any of the
Events of Default under sec.10.01 hereof, in each and every such case,
(a) the Investor may proceed to protect and enforce its rights by
suit in equity, action at law and/or other appropriate proceeding for
specific performance of any covenant, provision or condition contained
or incorporated by reference in this Agreement or in any Fundamental
Document, or in aid of the exercise of any power granted in this
Agreement or any Fundamental Document; and, at any time after the
giving of a Repurchase Notice to the Company pursuant to Article XI
hereof, the theretofore unexercised "repurchase" rights set forth in
Article XI hereof shall, to the extent not already exercisable, be
deemed to have become immediately exercisable and the Investor may in
such Repurchase Notice to the Company declare all or part of such
theretofore unexercised "repurchase" rights to be forthwith exercised
and due and payable (unless there shall have occurred an Event of
Default under sec.10.01(c) hereof, in which case such "repurchase"
rights shall be automatically exercised and due and payable, whereupon
the Repurchase Price for the Class B Preferred Stock shall become so
due and payable without presentation, presentment, protest or further
demand or notice of any kind, all of which are expressly waived), and
any such holder or holders may proceed to enforce payment of such
amount or part thereof in such manner as it or they may elect.
sec.10.03. WAIVERS. Each of the Company and its Subsidiaries hereby waives,
to the extent not prohibited by applicable law, (a) all presentments, demands
for performance and notices of nonperformance (except to the extent specifically
required by the provisions hereof), (b) any requirement of diligence or
promptness on the part of the Investor in the enforcement of its rights under
the provisions of this Agreement, the Certificate of Incorporation, or any
Fundamental Document, and (c) any and all notices of every kind and description
which may be required to be given by any statute or rule of law.
<PAGE> 25
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ARTICLE XI
REPURCHASE OF CLASS B PREFERRED STOCK.
sec.11.01. RIGHT TO REQUIRE REPURCHASE OF CLASS B PREFERRED STOCK. Upon the
occurrence of any Event of Default, the Investor may, by notice to the Company
(a "REPURCHASE NOTICE."), elect to sell to the Company (and the Company hereby
agrees to repurchase from the Investor), at the Repurchase Price specified in
sec.11.04 hereof, such number of shares of the Class B Preferred Stock as are
specified in the Repurchase Notice. For all purposes of this Article XI, each
share of Class B Preferred Stock shall be treated as the number of shares of
Underlying Stock for which it is then convertible. If and to the extent that the
Class B Preferred Stock has previously been converted into Underlying Stock, it
shall cease to be subject to the Investor's right to require repurchase under
this sec.11.01.
sec.11.02. REPURCHASE CLOSING. The repurchase closing shall take place at
the offices of the Company at 10:00 a.m. local time on a date (a) not more
than ninety (90) days after the date a Repurchase Notice is received by the
Company as the Company shall specify by notice to the Investor, or at such
later time as Fair Market Value shall have been determined under sec.11.04(b)
hereof, or (b) at such other time and place as the Investor and the Company may
agree upon (a "REPURCHASE CLOSING DATE"). At the repurchase closing the
Investor will deliver to the Company a certificate or certificates evidencing
the Class B Preferred Stock then to be purchased by the Company (properly
endorsed or accompanied by stock powers) against payment of the Repurchase
Price to the Investor in the manner specified in sec.11.03 hereof. Except to
the extent prohibited by applicable law, prior to the Repurchase Closing Date,
the Company will provide the Investor with all available information that may
be material to the exercise of its rights under this Article XI, including any
plans or proposals for any mergers, sales of assets, acquisitions and
substantial sales of stock by its stockholders.
sec.11.03. PAYMENT. The Company shall pay the Repurchase Price at any
closing under sec.11.02 hereof out of funds legally available therefor in cash
or immediately available funds. In the event that any portion of the Repurchase
Price is not paid as a result of any insufficiency of legally available funds or
otherwise, the Investor shall retain all of its rights hereunder and under and
in connection with the Class B Preferred Stock and the Underlying Stock, as to
that number of shares of the Class B Preferred Stock as such unpaid portion
represents (the "UNREPURCHASED SECURITIES"), until such time as the unpaid
portion of the Repurchase Price and interest thereon, determined as set forth
below, shall be paid to the Investor in full; and the Investor shall, at any
time prior to payment of the Repurchase Price for any Unrepurchased Securities,
be entitled, by notice to the
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Company (the "RESCISSION NOTICE"), to rescind its repurchase request of such
Unrepurchased Securities pursuant to sec.11.01. Unless and until the Company
receives a Rescission Notice, the unpaid portion of the Repurchase Price
allocable to the Unrepurchased Securities shall remain an obligation of the
Company and shall become due and payable, in cash or immediately available
funds, as soon as there are funds legally available therefor. Interest shall
accrue from the date ninety (90) days after the date on which the Company
receives the applicable Repurchase Notice on any unpaid portion of the
Repurchase Price at the rate of fifteen percent (15%) per annum, compounded on a
monthly basis to the extent permitted by law and payable on demand.
sec.11.04. REPURCHASE PRICE FOR CLASS B PREFERRED STOCK.
(a) Repurchase Price. The repurchase price (the "REPURCHASE PRICE") shall be
an amount equal to the greater of (i) the original purchase price of the Class B
Preferred Stock and (ii) the quotient obtained by dividing (A) the Fair Market
Value of the Company's stockholders equity (as determined pursuant to
sec.11.04(b) hereof), calculated as of the date of the related Repurchase Notice
under sec.11.01 hereof by (B) the sum of (1) the number of shares of Common
Stock then outstanding PLUS (2) the number of shares of Common Stock then
issuable upon exercise of then outstanding warrants (if any), options or
convertible securities (including, without limitation, the Class B Preferred
Stock), in each case to the extent then exercisable.
(b) FAIR MARKET VALUE. For a period of ten (10) days after the date of any
Repurchase Notice (the "NEGOTIATION PERIOD"), each party hereto agrees to
negotiate in good faith to reach agreement upon the fair market value of the
Company's stockholders equity (the "FAIR MARKET VALUE"). In the event that the
parties are unable to agree upon the Fair Market Value by the end of the
Negotiation Period, the Fair Market Value of the Company's stockholders equity
shall be determined for purposes of this sec.11.04(b) initially by an appraiser
selected by the Company (the "COMPANY APPRAISER") and whose appraisal (the
"COMPANY APPRAISAL") shall be furnished to the Investor within thirty (30) days
after the end of the Negotiation Period. If the Investor does not object to
such determination within fifteen (15) days after receipt of such notice, the
fair market value determined by the Company Appraiser shall be the Fair Market
Value. If the Investor objects to the Fair Market Value determined by the
Company Appraiser, the Investor may select an Appraiser (the "INVESTOR
APPRAISER") who shall review the determination of the Company Appraiser and
issue a report thereon (the "INVESTOR APPRAISAL"), within thirty (30) days after
delivery to the Investor of the Company Appraisal. Within ten (10) days after
delivery to the Company of the Investor Appraisal, the Company Appraiser and the
Investor Appraiser shall meet in order to resolve any questions or differences
with respect to the Fair Market Value. If such Appraisers agree on a Fair Market
Value of the Company's stockholders equity, such Fair Market Value shall be the
Fair Market Value. If no agreement is reached, such Appraisers shall select an
appraiser (the "THIRD APPRAISER") within five (5) days after such meeting.
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Fair Market Value shall then be determined by the Third Appraiser within thirty
(30) days after delivery to the Company of the Investor Appraisal, and the
determination of the Third Appraiser shall be conclusive and binding upon the
Company and the Investor. Fair Market Value shall in all cases be calculated by
determining the Fair Market Value of the entire stockholders' equity interest of
the Company taken as a whole, without premium for control or discounts for
minority interests or restrictions on transfer. All expenses of the Company
Appraisal shall be borne by the Company; all expenses of the Investor Appraisal
shall be borne by the Investor; and all expenses of the Third Appraiser shall be
borne equally by the Company and the Investor.
sec.11.05 COMPANY'S RIGHT TO REPURCHASE CLASS B PREFERRED STOCK. At or any
any time after the tenth (10th) anniversary of the Closing Date, the Company
shall have the right to repurchase the Class B Preferred Stock, or any portion
of it which shall not have previously been converted to Common Stock, at a
repurchase price of $1.00 per share; provided, that prior to the exercise of
such right of repurchase, the Investor or its permitted transferee(s) shall have
been given sufficient notice and opportunity to convert said Class B Preferred
Stock to Common Stock.
ARTICLE XII
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION.
sec.12.01. SURVIVAL OF REPRESENTATIONS. The representations and warranties
of the Company and the Investor 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 the
Investor, and the Closing hereunder.
sec.12.02. INDEMNIFICATION FOR MISREPRESENTATIONS. The Company agrees to
indemnify and hold the Investor harmless from and against, and to pay to the
Investor, on demand by the Investor from time to time, the full amount of any
loss, claim, damage, liability, cost or expense (including reasonable attorneys'
fees) resulting to the 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 the Investor
pursuant to any of the provisions of this Agreement (provided, however, that the
limitation of liability set forth in sec.15. of the Development Agreement shall
apply to claims for indemnification arising out of the Development Agreement, as
provided therein).
sec.12.03. EXPENSES. The Company agrees to pay to the Investor, on demand
by the Investor 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 the Investor at any time in connection with any litigation,
proceeding or dispute
<PAGE> 28
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arising out of or relating to any Fundamental Documents (excluding the
Development Agreement;) or relationships created thereby, or in connection with
any action or proceeding taken by the Investor to protect or preserve all or
any of the rights, remedies, powers or privileges of the 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 the Investor);
PROVIDED, HOWEVER, that in the case of any such litigation, proceeding or
dispute, or any such action or proceeding, the Investor is the prevailing party.
ARTICLE XIII
CERTAIN DEFINED TERMS
As used herein the following terms shall have the meaning assigned to them in
this Article XIII:
"ASSOCIATED PERSON" shall have the meaning specified in sec.4.16(b) hereof.
"CHANGE OF CONTROL" shall mean the occurrence of either of the following
events: (a) the Founders or their Permitted Transferees shall cease to own at
least fifty-one percent (51%) of the outstanding Common Stock of the Company,
determined on a fully-diluted basis, or (b) either Robert C. Downs or Russell M.
Blair III shall cease to be employed by the Company for any reason.
"COVENANT TERMINATION DATE" shall mean the earliest of (i) the date on
which the Company shall complete and close a Qualified Public Offering; (ii)
the date on which all outstanding shares of Class B Preferred Stock shall have
been converted to Common Stock; and (iii) July 1, 1999.
"DEVELOPMENT AGREEMENT" shall mean the Cooperative Development and License
Agreement, dated as of the date hereof, by and between the Company and the
Investor, as such agreement may be amended, modified or restated from time to
time.
"EVENT OF DEFAULT" shall have the meaning specified in sec.10.01.
"FOUNDERS" shall mean each of Robert C. Downs, Russell M. Blair III and
Donald Levinstone.
"FUNDAMENTAL DOCUMENTS" shall mean, collectively: (i) this Agreement; (ii)
the Certificate of Amendment (as defined in sec.1.01 hereof), (iii) the
Registration
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Rights Agreement; (iv) the Shareholder Agreement; and (v) the Development
Agreement.
"INDEBTEDNESS FOR BORROWED MONEY" shall have the meaning specified in
sec.4.11 hereof.
"INVESTOR" shall have the meaning specified in the introductory paragraph
hereto.
"INVESTOR DIRECTOR(S)" shall mean the member(s) of the Board of Directors of
the Company who shall be nominated by the Investor pursuant to the Shareholder
Agreement.
"INVESTOR SHARES" shall mean, in relation to the Investor at any particular
date, (i) all shares of Common Stock held of record by the Investor on such
date, and (ii) all shares of Common Stock issuable by the Company to the
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 the Investor on such date; and, in this
Agreement, the Investor shall be deemed to hold of record on any particular
date the total number of shares of 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 the Investor on such date; disregarding, for this purpose,
any legal or other restrictions on the exercise of such rights.
"MATERIAL ADVERSE EFFECT" shall mean 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 person, each person to
whom such person 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.
"PRO FORMA BALANCE SHEET" shall have the meaning specified in sec.4.09.
"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 $10,000,000 of net cash proceeds from
such public offering shall be
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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
$8.00; and (iii) each of the underwriters participating in such public offering
shall be obligated to buy on either a "firm commitment" or a "best efforts"
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 Investor and certain other
shareholders of the Company, as such agreement may be amended, modified or
restated from time to time.
"REPURCHASE NOTICE" shall have the meaning specified in sec.11.01.
"RESTRICTED STOCK AGREEMENTS" shall mean the Restricted Stock Agreements,
dated as of the date hereof, between the Company and each Founder, acceptable to
the Investor in form and content.
"SHAREHOLDER AGREEMENT" shall mean the 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 Investor, and certain other shareholders
of the Company, as such agreement may be amended, modified or restated from time
to time.
"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.
"UNDERLYING STOCK" shall mean the shares of Common Stock issued or issuable
upon the conversion of the Class B Preferred Stock.
ARTICLE XIV
MISCELLANEOUS
sec.14.01. 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:
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(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 the Investor in writing by the Company, and marked "Attention: Chief
Executive Officer"; or
(ii) if to the Investor, at the address of the Investor set forth
below the name of the Investor on the first page hereof, or at such other
address as shall have been furnished to the Company by the Investor in
writing.
(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 sec.14.01, when transmitted, or (iii) if
sent by first-class mail, postage prepaid, and properly addressed in accordance
with the foregoing provisions of this sec.14.01, (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.
sec.14.02. 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.
sec.14.03. AMENDMENTS AND WAIVERS. 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 consent therefor of a majority of the Investors' shares purchased
hereunder.
sec.14.04. INTEGRATION. Annexed to this Agreement are EXHIBITS A, B and C.
and a DISCLOSURE SCHEDULE consisting of nine (9) parts. Such EXHIBITS AND
DISCLOSURE SCHEDULE are an integral part of this Agreement and are hereby
incorporated by reference.
sec.14.06. NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the part
of the 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.
<PAGE> 32
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sec.14.07. ENTIRE AGREEMENT. This Agreement, including the EXHIBITS and
DISCLOSURE SCHEDULE 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.
sec.14.08. SEVERABILITY. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any other
provision.
sec.14.09. BINDING EFFECT. 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 the Investor and each Permitted
Transferee of the Investor to whom Investor Shares shall have been transferred.
None of such covenants, agreements or rights shall be assignable or transferable
by the Investor to any person except to a person who is a Permitted Transferee
of the Investor.
sec.14.10. 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.
<PAGE> 33
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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, WaveMark Technologies, Inc.
Very truly yours,
WAVEMARK TECHNOLOGIES, INC.
By: /s/ Robert C. Downs
--------------------------------
Title: President
-----------------------------
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The foregoing Securities Purchase Agreement with WaveMark Technologies,
Inc. is hereby accepted by the undersigned on and as of the date first set forth
above.
INVESTOR
- --------
XIONICS DOCUMENT TECHNOLOGIES, INC.
By: /s/ Carolyn E. Ramm
------------------------------
Title: VP & General Counsel
---------------------------
<PAGE> 35
EXHIBITS AND DISCLOSURE SCHEDULE REFERENCES
EXHIBITS
Exhibit A Form of Certificate of Amendment
Exhibit B Form of Registration Rights Agreement
Exhibit C Form of Shareholder Agreement
Exhibit D Form of Cooperative Development and License Agreement
DISCLOSURE SCHEDULE REFERENCES
sec.4.06 Commitments to Issue Securities
sec.4.08 Shareholders
sec.4.10 Liabilities
sec.4.11 Indebtedness for Borrowed Money
sec.4.12 Title to Properties
sec.4.15 Litigation
sec.4.16 Transactions with Associated Persons
sec.4.20 Private Offering
sec.8.10 Issuance of Other Capital Stock, Etc.
<PAGE> 36
Exhibit A
CERTIFICATE OF AMENDMENT
to
CERTIFICATE OF INCORPORATION
of
WAVEMARK TECHNOLOGIES, INC.
The Certificate of Incorporation of WaveMark Technologies, Inc., a
Delaware corporation, is hereby amended by deleting ARTICLE FOURTH thereof in
its entirety and substituting in lieu thereof the following new ARTICLE FOURTH:
FOURTH: The total number of shares of all classes of capital stock
which the Corporation shall have authority to issue shall be 11,900,000 shares,
consisting of: (i) 11,000,000 shares of Common Stock, par value $.001 per share
("Common Stock") and (ii) 900,000 shares of the Company's Preferred Stock, par
value $.001 per share, of which (A) 250,000 shares have been designated Class A
Redeemable Nonconvertible Preferred Stock (the "Class A Preferred Stock") and
(B) 650,000 shares have been designated Class B Convertible Preferred Stock
(the "Class B Preferred Stock" and, together with the Class A Preferred Stock,
the "Preferred Stock").
As used in this ARTICLE FOURTH:
(A) the term "Capital Stock" shall mean and include Preferred Stock
and Common Stock.
(B) the term "Change of Control" shall mean the occurrence of either
of the following events: (a) the Founders or their permitted transferees shall
cease to own at least fifty-one percent (51%) of the outstanding Common Stock of
the Corporation, determined on a fully-diluted basis, or (b) either Robert C.
Downs or Russell M. Blair III shall cease to be employed by the Company for any
reason.
<PAGE> 37
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(C) the term "Development Agreement" shall mean that certain
Cooperative Development and License Agreement between Xionics Document
Technologies, Inc. and the Corporation, dated as of June 20, 1997, as amended
from time to time.
(D) the term "Event of Default" shall mean any of the following
events:
(1) the Corporation or any of its subsidiaries shall fail to
perform or observe any covenant, agreement or provision set forth in the
Securities Purchase Agreement or any covenant, agreement, or provision to
be performed or observed by it under the Securities Purchase Agreement,
this Certificate of Amendment of the Corporation's Certificate of
Incorporation, the Registration Rights Agreement or the Shareholder
Agreement, and such failure shall not be rectified or cured to the
satisfaction of the Investor within thirty (30) days after written notice
from the Investor; or
(2) any representation or warranty made by the Corporation or
any of its subsidiaries in connection with the Securities Purchase
Agreement, this Certificate of Amendment of the Corporation's Certificate
of Amendment, the Registration Rights Agreement or the Shareholder
Agreement or any amendment to any of them shall prove to have been false
on the date as of which it was made; or
(3) the Corporation or any of its subsidiaries shall:
(a) commence a voluntary case under Title 11 of the
United States Code as from time to time in effect, or authorize,
by appropriate proceedings of its board of directors or other
governing body, the commencement of such a voluntary case;
(b) have filed against it a petition commencing an
involuntary case under said Title 11 and such petition shall not
have been dismissed or stayed within sixty (60) days;
(c) seek relief as a debtor under any applicable law,
other than said Title 11, of any jurisdiction relating to the
liquidation or reorganization of debtors or to the modification or
alteration of the rights of creditors, or consent to or acquiesce
in such relief;
<PAGE> 38
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(d) have entered against it an order by a court of
competent jurisdiction (x) finding it to be bankrupt or insolvent,
(y) ordering or approving its liquidation, reorganization or any
modification or alteration of the rights of its creditors, or (z)
assuming custody of, or appointing a receiver or other custodian
for, all or a substantial part of its property, which order shall
not have been dismissed or stayed within sixty (60) days;
(e) make an assignment for the benefit of, or enter into
a composition with, its creditors, or appoint or consent to the
appointment of a receiver or other custodian for all or a
substantial part of its property; or
(4) the Corporation shall default in the performance or
observance of any of its obligations contained in Sections 7, 8, 13.01,
or 13.02 of the Development Agreement; or
(5) a Change of Control shall have occurred prior to July 1,
1999.
(E) the term "Founders" shall mean Robert C. Downs, Russell M. Blair
III, and Donald Levinstone.
(F) the term "Investor" shall mean Xionics Document Technologies, Inc.
(G) the term. "Junior Stock" shall mean and include Class B Preferred
Stock, Common Stock and any other capital stock of the Corporation of any series
which is junior to the Class A Preferred Stock as to the payment of dividends or
as to distributions upon dissolution, liquidation, winding up or redemption.
(H) the term "Liquidation Value", in relation to each share of (i)
Class A Preferred Stock, shall be $1.00 per share of Class A Preferred Stock as
adjusted from time to time pursuant to sec.1.01 and sec.1.02(b) hereof and (ii)
Class B Preferred Stock, shall be $1.00 per share of Class B Preferred Stock.
(I) the term "Original Issue Date" shall mean the date as of which
each share of Preferred Stock was originally issued by the Corporation to the
original holder thereof.
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(J) the term "Qualified Public Offering" shall mean, in relation to
the Corporation, 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 $10,000,000 of net cash
proceeds from such public offering shall be received by the Corporation for the
account of the Corporation; (iii the public offering price per share of Common
Stock in such public offering shall equal or exceed $8.00; and (iii) each of the
underwriters participating in such public offering shall be obligated to buy on
either a "firm commitment" or a "best efforts" basis all shares of Common Stock
which such underwriters shall have agreed to distribute.
(K) the term "Redemption Date" shall mean (i) with respect to an
optional redemption pursuant to sec.4.01 hereof, November I of the calendar
year in which a Redemption Notice is given to the Corporation, (ii) with
respect to an automatic redemption pursuant to sec.4.02 hereof, the date of the
consummation of a Qualified Public Offering, (iii) with respect to an
accelerated redemption pursuant to. sec.4.03 hereof, the date that is ten (10)
days after the date on which any holder of Class A Preferred Stock shall have
given a written notice to the Corporation of such holder's election to have
such Class A Preferred Stock redeemed in accordance with such sec.4.03, and
(iv) with respect to a redemption by the Corporation pursuant to sec.4.04
hereof, the date that is ten (10) days after the date on which the Corporation
shall have given written notice to the Investor (or the Investor's permitted
transferee) of the Corporation's election to redeem such Class A Preferred
Stock in accordance with such sec.4.04.
(L) the term "Registration Rights Agreement" shall mean that certain
Registration Rights Agreement among the Corporation, the Investor, and certain
of its shareholders, dated June 20, 1997, as amended from time to time.
(M) the term "Restricted Stock Agreements" shall mean the Restricted
Stock Agreements, dated as of June 20, 1997, between the Corporation and each
Founder.
(N) the term "Securities Purchase Agreement" shall mean that certain
Securities Purchase Agreement, dated as of June 20, 1997, between the
Corporation and the Investor, as amended from time to time.
(O) the term "Shareholder Agreement" shall mean that certain
Shareholder Agreement among the Corporation, the Investor and certain of the
Corporation's shareholders, dated as of June 20, 1997, as amended from time to
time.
<PAGE> 40
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PREFERRED STOCK
SUBPART I. The following is a statement of the powers, designations,
preferences and relative, participating, optional and other special rights of
Preferred Stock and the qualifications, limitations and restrictions of
Preferred Stock.
sec.1. DIVIDENDS.
sec.1.01. DIVIDENDS ON CLASS A PREFERRED STOCK.
(a) Holders of Class A Preferred Stock shall be entitled to
receive, on March 31 in each calendar year, beginning, with respect to each
share of Class A Preferred Stock, on the first such day falling after the
Original Issue Date of such share, but only when, as and if declared by the
Board of Directors of the Corporation out of any funds legally available
therefor, cumulative, noncom pounding cash dividends with respect to the
preceding calendar year dividend period, at the rate of eight percent (8%) per
annum of the Dividend Value thereof (as hereinafter defined in sec.1.01(c)
hereof), from and including the date of issuance of such share to and including
the date, if any, on which such share is redeemed.
(b) Dividends, including all accrued but unpaid dividends,
shall be paid on Class A Preferred Stock before any dividends shall be paid on
or declared or set apart for, or any other distributions shall be made or
ordered in respect of, any Junior Stock and before any moneys shall be set aside
for or applied to the purchase, redemption, retirement or other acquisition of
any Junior Stock, except for the declaration and payment of stock dividends, in
the form of shares of Common Stock, on Common Stock and Class B Preferred Stock,
and except for the repurchase of Common Stock, pursuant to employee stock
repurchase agreements including the Restricted Stock Agreements, when authorized
by the Board of Directors of the Corporation.
(c) Such dividends on each share of Class A Preferred Stock
shall accumulate and accrue from day to day from the Original Issue Date of such
share, whether or not earned or declared, and whether or not there are funds
legally available therefor, and shall be cumulative. As used in this ARTICLE
FOURTH, the "Dividend Value" of Class A Preferred Stock shall mean, for any
share thereof, $1.00 per share.
<PAGE> 41
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sec.1.02. MISCELLANEOUS PROVISIONS APPLICABLE TO DIVIDENDS ON CLASS A
PREFERRED STOCK.
(a) So long as any shares of Class A Preferred Stock are
outstanding, the Corporation will not at any time or for any reason whatsoever:
(i) declare or pay any dividends of any kind on any Junior Stock, except for the
declaration and payment of stock dividends, in the form of shares of Common
Stock, on Common Stock and Class B Preferred Stock; or (ii) make any payments on
account of the purchase, redemption, retirement or other acquisition of any
Junior Stock or any warrants, options or other rights to purchase any Junior
Stock, except for the repurchase of Common Stock, pursuant to employee stock
repurchase agreements including the Restricted Stock Agreements, when authorized
by the Board of Directors of the Corporation; or (iii) make any other
distributions of any kind in respect of any Junior Stock or in respect of any
such warrants, options or other rights; or (iv) pay into or set, aside, or
otherwise make available for a sinking fund, any moneys for the purchase,
redemption, retirement or other acquisition of any Junior Stock; UNLESS, at the
time of each such declaration, payment, purchase, redemption, retirement,
acquisition or distribution, (A) all dividends on Class A Preferred Stock for
all dividend periods for which dividends shall have accrued shall have actually
been paid, and (B) the Corporation shall not be in default, in whole or in part,
with respect to any payments required to be made for redemption of any Class A
Preferred Stock pursuant to any provisions of sec.4 of this ARTICLE FOURTH.
(b) If declared by the Board of Directors, dividends on each
share of Class A Preferred Stock shall be paid on the March 31 of each calendar
year, with respect to the preceding calendar year during all or any part of
which each such share is outstanding ("Dividend Reference Dates"). In the event
that any dividends accrued on any share of Class A Preferred Stock during the
preceding yearly period (or lesser period, in the case of the first Dividend
Reference Date) are not declared or paid on such Dividend Reference Date, they
shall automatically be added on such Dividend Reference Date to the Liquidation
Value of such share of Class A Preferred Stock, unless they shall have been
subsequently paid.
ss.1.03. DIVIDENDS ON JUNIOR STOCK. Subject to the preferences and other
rights of the Class A Preferred Stock set forth in secs.1.01 and 1.02, the
holders of Class B Preferred Stock shall be entitled to receive dividends when,
as and if declared by the Board of Directors of the Corporation out of funds
legally available therefor, on a PRO RATA basis in accordance with the number of
shares of Common Stock held or (deemed to be held (as provided in the next
sentence) by each such holder. For the
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purposes of calculating the PRO RATA share of the dividends to which each holder
of shares of Class B Preferred Stock shall be entitled pursuant to the
provisions of the preceding sentence of this sec.1.03, each holder of shares of
Class B Preferred Stock shall be deemed to hold the number of shares of Common
Stock into which such shares of Class B Preferred Stock can then be converted
pursuant to the provisions of sec.5 hereof.
sec.2. VOTING RIGHTS AND SPECIAL RIGHTS.
sec.2.01. VOTING RIGHTS OF HOLDERS OF PREFERRED STOCK.
(a) CLASS A PREFERRED STOCK. Except as provided in sec.2.01(c)
or as otherwise required by law, the holders of Class A Preferred Stock shall
not be entitled to vote on matters voted on by holders of Common Stock and the
other shareholders of the Corporation.
(b) CLASS B PREFERRED STOCK - IN GENERAL. Except as provided by
the terms of this ARTICLE FOURTH (including, without limitation, sec.2.01(c) and
(d) hereof) or as otherwise required by law, each holder of Class B Preferred
Stock shall be entitled to vote on all matters voted on by holders of Common
Stock and other shareholders of the Corporation and shall, in all cases, be
entitled to the number of votes for each share of Class B Preferred Stock as
shall be equal to the maximum number of full shares of Common Stock into which
such share of Class B Preferred Stock can be converted (pursuant to the
provisions of sec.5 hereof) at the record date for determination of shareholders
entitled to vote on such matters, or, if no such record date is established, at
the date such vote is taken or any written consent of shareholders is solicited.
Except as otherwise required by law or by the terms of this ARTICLE FOURTH,
holders of all Class B Preferred Stock and holders of all Common Stock shall
vote together as a single class and not as separate classes. Whenever the
holders of Class B Preferred Stock are required by law or by the terms of this
ARTICLE FOURTH to vote as a single class separate from the holders of Common
Stock, then (except as otherwise expressly required by law or by the terms of
this ARTICLE FOURTH), the holders of Class B Preferred Stock shall vote together
as a single class and not as separate classes. Whenever the holders of Class B
Preferred Stock are entitled or required to vote as such a separate, single
class, each share of Class B Preferred Stock shall be entitled to the number of
votes as shall be equal to the number of full shares of Common Stock into which
such share of Class B Preferred Stock can then be converted (all as provide in
the first sentence of this sec.2.01(b)).
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(c) PROTECTIVE PROVISIONS. Notwithstanding anything else to the
contrary contained herein, no amendment, repeal or modification of any provision
of the Certificate of Incorporation or By-laws of the Corporation which would
adversely affect the rights or preferences of the holders of the Class A
Preferred Stock or the Class B Preferred Stock shall be effective without the
affirmative consent of not less than 66-2/3% of the holders of the Class A
Preferred Stock or 66-2/3% of the holders of the Class B Preferred Stock, as
applicable, voting as separate classes.
(d) OTHER VOTING PROVISIONS. For a period of three (3) years
from the Original Issue Date of the Corporation's initial issuance of Class B
Preferred Stock, the affirmative vote or written consent of not less than
66-2/3% of all votes cast by holders of Class B Preferred Stock, voting in each
case as a single, separate class, will be required for each of the following:
(i) the acquisition of the Company (whether by merger, consolidation
or otherwise), or the sale or other disposition of all or any substantial part
of the assets, or other reorganization, or the sale or other disposition of all
or any material part of the technology or intellectual property rights, or the
license of any material part of the technology or other intellectual property
rights (which license is exclusive, substantially exclusive, or otherwise
restricts or limits the right of the Corporation or its subsidiaries to use,
sell, distribute or modify such technology or other intellectual property
rights) of the Corporation or any of its subsidiaries;
(ii) the liquidation, dissolution or winding up of the Corporation or
any of its subsidiaries;
(iii) the redemption or repurchase of any outstanding equity securities
of the Corporation other than (A) the redemption of Class A Preferred Stock in
accordance with sec.4 hereof, or (B) the repurchase by the Corporation, upon the
terms contained in employee stock repurchase agreements including the Restricted
Stock Agreements, and with the prior approval of the Board of Directors, of
Common Stock held by employees of the Corporation; and
(iv) the declaration or payment of any dividends or other distributions
of any kind on any equity securities of the Corporation other than the
declaration and payment of dividends on Class A Preferred Stock in accordance
with the provisions of sec. 1 hereof.
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sec.3. LIQUIDATION RIGHTS OF PREFERRED STOCK.
sec.3.01. LIQUIDATION PREFERENCE OF HOLDERS OF CLASS A PREFERRED STOCK.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, each holder of Class A Preferred Stock shall be
entitled to be paid on such Class A Preferred Stock out of the Distributable
Assets (as defined in sec.3.06 of this ARTICLE FOURTH) of the Corporation,
whether from capital, surplus or earnings, before any payment or distribution
of any kind shall be made to any holder of Junior Stock on such Junior Stock,
the aggregate amount of all Liquidation Values of all shares of Class A
Preferred Stock then held of record by such holder of Class A Preferred Stock.
sec.3.02. ALLOCATION OF DISTRIBUTABLE ASSETS AMONG HOLDERS OF CLASS A
PREFERRED STOCK. If, upon any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the Distributable Assets of the Corporation
shall be insufficient to pay to each holder of Class A Preferred Stock then
outstanding, the full amount to which such holder shall then be entitled
hereunder (as provided by sec.3.01 of this ARTICLE FOURTH), the Distributable
Assets of the Corporation shall be allocated in their entirety among holders of
Class A Preferred Stock then outstanding on a PRO RATA basis in proportion to
the total claims in such liquidation, dissolution or winding up of all
outstanding shares of Class A Preferred Stock.
sec.3.03. LIQUIDATION PREFERENCE OF HOLDERS OF CLASS B PREFERRED STOCK.
In the event of any voluntary or involuntary liquidation, dissolution or winding
up of the Corporation, and after the payment of the Liquidation Value on each
share of Class A Preferred Stock as provided in sec.3.01 above, each holder of
Class B Preferred Stock shall be entitled to be paid on such Class B Preferred
Stock out of the Distributable Assets (as defined in sec.3.06 of this ARTICLE
FOURTH) of the Corporation, whether from capital, surplus or earnings, before
any payment or distribution of any kind shall be made to any holder of Common
Stock on such Common Stock, the aggregate amount of all Liquidation Values of
all shares of Class B Preferred Stock then held of record by such holder of
Class B Preferred Stock.
sec.3.04. ALLOCATION OF DISTRIBUTABLE ASSETS AMONG HOLDERS OF CLASS B
PREFERRED STOCK. If, upon any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the Distributable Assets of the Corporation
shall be insufficient to pay to each holder of Class B Preferred Stock then
outstanding, the full amount to which such holder shall then be entitled
hereunder (as provided by sec.3.03 of this ARTICLE
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FOURTH), the Distributable Assets of the Corporation remaining after redemption
of the Class A Preferred Stock shall be allocated in their entirety among
holders of Class B Preferred Stock then outstanding on a PRO RATA basis in
proportion to the total claims in such liquidation, dissolution or winding up of
all outstanding shares of Class B Preferred Stock.
sec.3.05. RIGHTS OF HOLDERS OF JUNIOR STOCK IN REMAINING DISTRIBUTABLE
ASSETS. In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, after payment shall have been made to all holders
of Class A Preferred Stock and Class B Preferred Stock of the full amounts to
which such holders shall then be entitled pursuant to sec.3.01 and sec.3.03
hereof, the holders of Junior Stock (other than the Class B Preferred Stock)
shall be entitled to share, ratably, according to the total number of shares of
Junior Stock (other than the Class B Preferred Stock) then held or then deemed
(as provided in the next sentence) to be held by them, in all remaining
Distributable Assets of the Corporation. For the purposes of calculating the PRO
RATA share of the Corporation's Distributable Assets to which each holder of
shares of Junior Stock shall be entitled pursuant to the provisions of the
preceding sentence of this sec.3.05, each holder of shares of Junior Stock
(other than the Class B Preferred Stock) shall be deemed to hold the maximum
number of full shares of Common Stock into which such shares of the Junior
Stock convertible into Common Stock (other than the Class B Preferred Stock)
can then be converted pursuant to the provisions of this ARTICLE FOURTH.
sec.3.06. DISTRIBUTABLE ASSETS. As used in this ARTICLE FOURTH, the term
"Distributable Assets" shall mean, in relation to any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation at any particular
time, all of the property and assets of the Corporation (whether from capital,
surplus or earnings) available for distribution to the Corporation's
stockholders upon such liquidation, dissolution or winding up of the
Corporation.
sec.3.07. MERGER AND SALE TREATED AS LIQUIDATION. For all purposes of
sec.3 hereof, (i) the merger or consolidation of the Corporation with or into
any other corporation or corporations or the merger or consolidation of any
other corporation or corporations with or into the Corporation, and (ii) the
sale, transfer or lease of all or substantially all of the property and assets
of the Corporation, shall be deemed, at the option of each holder of Class A
Preferred Stock and Class B Preferred Stock, to be a liquidation, dissolution
or winding up of the Corporation within the meaning of sec.3 of this ARTICLE
FOURTH.
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sec.4. REDEMPTION OF CLASS A PREFERRED STOCK.
sec.4.01. OPTIONAL REDEMPTION.
(a) During the period beginning July I and ending October 30
("Election Period") of each calendar year, beginning in 1999, subject to the
provisions of this sec.4.01, each holder of Class A Preferred Stock may, by
giving a written notice of redemption to the Corporation ("Redemption Notice"),
elect to cause the Corporation to redeem shares of Class A Preferred Stock, in
cash at a price equal to the Liquidation Value per share thereof at the time,
subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting such shares (the
"Redemption Price"). If a Redemption Notice is given in the Election Period of
any such calendar year, then the Corporation will redeem, on the Redemption
Date, (i) if such Redemption Date occurs in 1999, up to 50% of all shares of
Class A Preferred Stock outstanding on such Redemption Date, and (ii) if such
Redemption Date occurs in 2000 or any year thereafter, up to 100% of all shares
of Class A Preferred Stock outstanding on such Redemption Date. All shares of
Class A Preferred Stock redeemed hereunder shall be redeemed from all holders
thereof ratably in accordance with the number of shares held by such holders.
Except as set forth in paragraph (b) of this sec.4.01 and in sec.4.05 hereof,
each Redemption Notice given to the Corporation during an Election Period will
be irrevocable, and will obligate the holders and the Corporation to redeem the
Class A Preferred Stock identified in such notice in accordance with the
provisions of this sec.4.
(b) If, on any Redemption Date, the Corporation shall fail to
pay, or shall be legally prohibited from paying, the Redemption Price in cash
for the shares of Class A Preferred Stock which the Corporation shall have
become obligated to redeem on such Redemption Date, then each holder of Class A
Preferred Stock shall have the right to revoke the election to redeem shares
of Class A Preferred Stock, and all of such Class A Preferred Stock will again
be owned by the holder with all the powers, preferences and rights provided
herein.
sec.4.02. AUTOMATIC REDEMPTION. Notwithstanding anything else to the
contrary contained herein, each share of Class A Preferred Stock shall be
automatically redeemed by the Corporation, at the then effective Redemption
Price for such share of Class A Preferred Stock, immediately upon the occurrence
of the Corporation's initial Qualified Public Offering of Common Stock, without
any action by the holders of such shares of Class A Preferred Stock. Upon
receipt of the Redemption Price for each
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share of Class A Preferred Stock, each holder of Class A Preferred Stock shall
surrender the certificates representing such shares as provided in sec.4.06(b)
hereof.
sec.4.03. ACCELERATION OF REDEMPTION. Notwithstanding anything else to
the contrary contained herein, if at any time an Event of Default shall have
occurred and be continuing, each holder of Class A Preferred Stock may, by
written notice to the Corporation, require the Corporation to redeem, at the
then effective Redemption Price therefor, all or a portion of the shares of
Class A Preferred Stock then held by such holder. Upon receipt of such notice,
the Corporation will redeem the number of shares specified in such notice by
paying such holder the Redemption Price for each such share, in cash, on the
Redemption Date applicable thereto. Upon receipt of the Redemption Price for
each such share of Class A Preferred Stock, each holder of Class A Preferred
Stock shall surrender the certificates representing such shares as provided in
sec.4.06(b) hereof.
sec.4.04. REDEMPTION BY THE CORPORATION. Notwithstanding anything else to
the contrary contained herein, the Corporation may at any time after July 1,
2001 redeem all of the share of Class A Preferred Stock then outstanding from
the holder(s) thereof by giving written notice of redemption to such holder(s)
and paying such holder(s) the Redemption Price for each such share, in cash on
the Redemption Date applicable thereto. Upon receipt of the Redemption Price for
each such share of Class A Preferred Stock, each holder of Class A Preferred
Stock shall surrender the certificates representing such shares as provided in
sec.4.06(b) hereof.
sec.4.05 ALLOCATION OF REDEMPTION PAYMENTS AMONG HOLDERS OF CLASS A
PREFERRED STOCK. If, on any Redemption Date, the Corporation shall be legally
prohibited from paying the Redemption Price in cash for each of the shares of
Class A Preferred Stock which the Corporation shall have become obligated to
redeem on such Redemption Date, then each holder of shares of Class A Preferred
Stock to be redeemed on such Redemption Date, shall have the right to have
redeemed by the Corporation such Redemption Date, the largest whole number of
shares of Class A Preferred Stock which may be redeemed at the Redemption Price
thereof by payment by the Corporation to such holder in cash an amount equal to
the product of (a) the Available Redemption Amount (as defined in sec.4.07
hereof), multiplied by (b) the Allocation Fraction (as also defined in sec.4.07
hereof) determined as at the date sixty (60) days prior to any Redemption Date
for all shares of such Class A Preferred Stock hold of record by such holder
which the Corporation was (but for the provisions of this sec.4.05) obligated to
redeem on such Redemption Date.
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sec.4.06. MISCELLANEOUS PROVISIONS APPLICABLE TO REDEMPTION OF CLASS A
PREFERRED STOCK.
(a) REDUCTION OF CAPITAL. The Corporation may and shall, to the
extent necessary to effect each and every redemption of shares of Class A
Preferred Stock required pursuant to sec.4.01, sec.4.02, sec.4.03 or sec.4.04
hereof, apply to each such redemption or redemptions such amount or amounts out
of its capital as may then be permitted by the laws of the State of Delaware,
and shall take all action, with respect to reduction of its capital or
otherwise, required by the laws of the State of Delaware.
(b) SURRENDER OF SHARES OF CLASS A PREFERRED STOCK. On each
Redemption Date, each holder of shares of Class A Preferred Stock to be redeemed
on such Redemption Date shall surrender such holder's certificates for such
shares to the Corporation in the manner and at the place designated by the
Corporation (or if the Corporation shall not have made any such designation, at
the chief executive offices of the Corporation) and shall thereupon be entitled
to receive the Redemption Price for such shares. In case less than all of the
shares represented by any such surrendered certificates are to be redeemed, a
new certificate shall be issued by the Corporation representing the unredeemed
shares of Class A Preferred Stock.
sec.4.07. ADDITIONAL DEFINITIONS. As used in this sec.4, the following
terms shall have the meanings assigned to them below:
(a) "Allocation Fraction" shall mean, in relation to any
particular number of shares of Class A Preferred Stock to be redeemed on any
Redemption Date, a fraction (i) the numerator of which shall be equal to the
aggregate of all of the Redemption Prices for such particular number of shares
of Class A Preferred Stock on the relevant Redemption Date, and (ii) the
denominator of which shall be equal to the aggregate of all of the Redemption
Prices for all shares of Class A Preferred Stock to be redeemed on such
Redemption Date.
(b) "Available Redemption Amount" shall mean, in relation to
any Redemption Date, all property and assets of the Corporation legally
available for the redemption of shares of Class A Preferred Stock by the .
Corporation on such Redemption Date.
sec.5. CONVERSION. The holders of Class B Preferred Stock shall have the
conversion rights set forth in the following provisions of this sec.5.
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sec.5.01. RIGHT TO CONVERT. Each share of Class B Preferred Stock shall
be convertible, at the option of the holder thereof, at any time after the date
of issuance of such share, at the office of the Corporation or any transfer
agent for Preferred Stock or Common Stock, into fully paid and non assessable
shares of Common Stock, at the Conversion Ratio for such share of Class B
Preferred Stock in effect at the time of conversion determined as provided in
this sec.5. Each share of Class B Preferred Stock shall be convertible into the
number of shares of Common Stock equal to the quotient (herein called the
"Conversion Ratio") determined by dividing (a) the Conversion Value (as defined
in sec.5.02 hereof) for such share of Class B Preferred Stock, by (b) the
Conversion Price (as defined in sec.5.02 hereof) for such share of Class B
Preferred Stock in effect at the time of conversion.
sec.5.02. CONVERSION PRICE AND CONVERSION VALUE. As used in this sec.5:
(a) the term "Conversion Price" shall mean, in relation to any share of Class B
Preferred Stock at any time, $1.00, subject to adjustment from time to time
pursuant to the provisions of secs.5.04 - 5.07 below; and (b) the term
"Conversion Value" shall mean, in relation to any share of Class B Preferred
Stock, $1.00.
sec.5.03. MECHANICS OF CONVERSION.
(a) EXCHANGE OF SHARE CERTIFICATES. Before any holder of Class
B Preferred Stock shall be entitled to convert such Class B Preferred Stock into
Common Stock, such holder shall surrender the stock certificate or certificates
therefor, duly endorsed or accompanied by a valid separate stock power, at the
office of the Corporation or of any transfer agent for Preferred Stock or Common
Stock, accompanied by a written notice of his election to convert the same and
of the number of shares of Class B Preferred Stock to be so converted. Upon
receipt of such stock certificates and notice, the Corporation shall forthwith
issue and deliver at such office to such holder of Class B Preferred Stock: a
stock certificate or certificates for the number of shares of Common Stock to
which such holder shall be entitled pursuant to sec.5.01 hereof.
(b) EFFECTIVE DATE OF CONVERSION. Except as otherwise provided
in Section 5.11, each conversion shall be deemed to have been made immediately
prior to the close of business of the Corporation on the date of the surrender
to the Corporation of the shares of Class B Preferred Stock to be converted, and
the person or persons entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date.
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sec.5.04. ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS.
(a) If the Corporation shall, at any time or from time to time
after the Original Issue Date for any share of Class B Preferred Stock, effect a
subdivision of the outstanding shares of Common Stock, the Conversion Price for
such share of Class B Preferred Stock in effect immediately prior to such
subdivision shall be proportionately increased by multiplying (i) such
Conversion Price, by (ii) a fraction:
(A) the numerator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to such subdivision; and
(B) the denominator of which shall be the total number of shares of
Common Stock issued and outstanding immediately after such subdivision.
(b) If the Corporation shall, at any time or from time to time
after the Original Issue Date for any share of Class B Preferred Stock, effect
any combination of the outstanding shares of Common Stock, the Conversion Price
for such share of Class B Preferred Stock in effect immediately prior to such
combination shall be proportionately increased by multiplying (i) such
Conversion Price, by (ii) a fraction:
(A) the numerator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to such combination; and
(B) the denominator of which shall be the total number of shares of
Common Stock issued and outstanding immediately after such combination.
(c) Any adjustment under this sec.5.04 shall become effective
at the close of business on the date on which such subdivision or combination
becomes effective.
sec.5.05. ADJUSTMENT FOUR CERTAIN DIVIDENDS AND DISTRIBUTION. In the
event the Corporation shall, at any time or from time to time, after the
Original Issue Date for any share of Class B Preferred Stock, make or issue, or
fix a record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of Common
Stock, then, and in each such event, the Conversion Price for such share of
Class B Preferred Stock then in effect
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shall be decreased as of the time of such issuance or, in the event such a
record date shall have been fixed, as of the close of business on such record
date, by multiplying (i) the Conversion Price for such share of Class B
Preferred Stock then in effect, by (ii) a fraction:
(A) the numerator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date; and
(B) the denominator of which shall be the sum of (1) the total number
of shares of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date, plus (2) the
total number of shares of Common Stock issued in payment of such dividend or
distribution.
In the event that any holder of shares of Class B Preferred Stock elects to
convert any of such shares into Common Stock pursuant to the provisions of this
sec.5 after any record date for determining holders of Common Stock entitled to
receive any dividend or other distribution payable in shares of Common Stock but
prior to the date on which such dividend is paid, the Corporation may defer,
until such dividend is paid, the issue to such holder of all of the additional
shares of Common Stock issuable to such holder upon such conversion solely by
reason of the adjustment made to the Conversion Price of each such share of
Class B Preferred Stock pursuant to this sec.5.05 on the record date for such
dividend: PROVIDED, HOWEVER, that the Corporation shall, promptly upon the
request of such holder, issue to such holder a written certificate or other
instrument evidencing such holder's right to receive such additional shares of
Common Stock.
sec.5.06. ADJUSTMENT FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event
the Corporation shall, at any time or from time to time after the Original Issue
Date for any share of Class B Preferred Stock, make or issue, or fix a record
date for the determination of holders of shares of Common Stock entitled to
receive, a dividend or other distribution payable in securities of the
Corporation other than shares of Common Stock, then, and in each such event,
provision shall be made by the Corporation so that the holders of shares of
Class B Preferred Stock shall receive upon conversion thereof, in addition to
the number of shares of Common Stock receivable thereupon, the amount of
securities of the Corporation which such holders would have received had their
shares of Class B Preferred Stock been converted into Common Stock on the date
of such event and had they thereafter, during the period from the date of such
event to and including the conversion date, retained such securities receivable,
by them
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as aforesaid during such period, giving application to all adjustments called
for during such period under secs.5.04 - 5.07 below with respect to the rights
of the holders of shares of Class B Preferred Stock.
sec.5.07. ADJUSTMENT FOR RECLASSIFICATION; EXCHANGE AND SUBSTITUTION. If
the shares of Common Stock issuable upon the conversion of shares of Class B
Preferred Stock shall be changed into the same or any different number of shares
of any class or any series of any class of capital stock, whether by capital
reorganization, reclassification or otherwise (other than a subdivision or
combination of shares or a stock dividend provided for above, or a
reorganization, merger, consolidation or sale of assets provided for in sec.5.08
hereof), then, and in each such event, the holder of shares of Class B Preferred
Stock shall have the right thereafter to convert such shares of Class B
Preferred Stock into the kind and amount of shares of stock and other securities
and property receivable upon such reorganization, reclassification or other
change by holders of the number of shares of Common Stock into which such shares
of Class B Preferred Stock might have been converted immediately prior to such
reorganization, reclassification or change, all subject to further adjustment as
provided for in sec.5 hereof.
sec.5.08. REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF ASSETS.
If, at any time or from time to time, there shall be a capital reorganization of
Common Stock (other than a subdivision, combination, reclassification or
exchange of shares provided for elsewhere in sec.5 hereof), or a merger or
consolidation of the Corporation with or into another corporation, or the sale
of all or substantially all of the Corporation's properties and assets to any
other person, then, as a part of such reorganization merger, consolidation or
sale, provision shall be made by the Corporation so that the holders of shares
of Class B Preferred Stock shall thereafter be entitled to receive, upon
conversion of such shares of Preferred Stock, the number of shares of stock or
other securities or property of the Corporation, or of the successor corporation
resulting from such merger or consolidation or sale, to which a holder of shares
of Common Stock deliverable upon conversion of such shares of Class B Preferred
Stock would have been entitled on such capital reorganization, merger,
consolidation or sale. In any such case, appropriate adjustment shall be made in
the application of the provisions of this sec.5.08 with respect to the rights of
the holders of shares of Class B Preferred Stock after the reorganization,
merger, consolidation or sale to the end that the provisions of sec.5 hereof
(including adjustment of the Conversion Price then in effect for each share of
Class B Preferred Stock, and the number of shares issuable upon conversion of
shares of Class B, Preferred Stock)
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shall be applicable after that event in a manner as nearly equivalent as may be
practicable.
sec.5.09. SALE OF SHARES BELOW CONVERSION PRICE.
(a) ADJUSTMENT OF CONVERSION PRICE OF CLASS B PREFERRED STOCK.
In the event the Corporation shall issue Additional Shares of Common Stock (as
defined in paragraph (c) of this sec.5.09), other than:
(x) as a dividend or other distribution on any shares of Common
Stock,
(y) upon a subdivision or combination of shares of Common
Stock, or
(z) the issue, from time to time after the Original Issue Date,
of shares of Common Stock pursuant to options outstanding as of the
Original Issue Date and of up to an aggregate of 2,000,000 additional
shares of Common Stock (or options exercisable therefor), issued or
issuable to officers, directors, employees or consultants of the
Corporation pursuant to stock option plans or stock purchase arrangements
approved by the Board of Directors of the Corporation,
for a consideration per share less than the Conversion Price of the Class B
Preferred Stock in effect on the date of and immediately prior to such issue or
(as the case may be) for no consideration, then and in such event, the then
existing Conversion Price for each share of Class B Preferred Stock shall be
reduced, as of the opening of business on the date of such issue, to a new
Conversion Price which shall be determined by multiplying (i) such Conversion
Price, by (ii) a fraction:
(A) the numerator of which shall be equal to the sum of (I) the total
number of shares of Common Stock outstanding immediately prior to such issue,
PLUS (II) the total number of shares of Common Stock which could be purchased at
the then-existing Conversion Price with the consideration, if any, deemed
received by the Corporation upon such issue; and
(B) the denominator of which shall be equal to the total number of
shares of Common Stock deemed to be outstanding immediately after such issue.
<PAGE> 54
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(b) DETERMINATION OF CONSIDERATION. For purposes of this
sec.5.09, the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall:
(i) to the extent it consists of cash, be computed as the aggregate
amount of cash received by the Corporation excluding amounts paid or payable for
accrued interest or accrued dividends;
(ii) to the extent it consists of property other than cash, be computed
as the fair value thereof at the time of such issue, as determined in good faith
by the Board of Directors of the Corporation; and
(iii) if Additional Shares of Common Stock are issued together with
other shares or securities or other assets of the Corporation for consideration
which covers both, be computed as the proportion of such consideration so
received, as determined in good faith by the Board of Directors of the
Corporation.
(c) ADDITIONAL SHARES OF COMMON STOCK. As used in this sec.5,
the term "Additional Shares of Common Stock" shall mean all shares of Common
Stock issued or deemed (as provided by the terms and provisions of this sec.5)
to be issued by the Corporation after the Original Issue Date, other than shares
of Common Stock issued or issuable at any time: (i) upon conversion of the Class
B Preferred Stock authorized herein; or (ii) out of those 2,000,000 shares of
Common Stock reserved for issuance to employees pursuant to stock option plans
an(1 restricted stock award plans approved by the Board of Directors of the
sec.5.10. NOTICES OF RECORD DATE. In the event of any taking by the
Corporation of a record of the holders of any class or series of securities for
the purpose of determining the holders thereof entitled to receive any dividend
or other distribution, the Corporation shall give to each holder of shares of
Class B Preferred Stock, at least forty-five (45) days prior to the date of the
taking of such record a written notice specifying the date on which such record
is to be taken and a description of such dividend or distribution.
sec.5.11. AUTOMATIC CONVERSION. Each share of Class B Preferred Stock
shall automatically be converted into shares of Common Stock at the then
effective Conversion Price for such share of Class B, Preferred Stock,
immediately upon the occurrence of a Qualified Public Offering. Upon the
occurrence of a Qualified Public Offering, all of the shares of Class B
Preferred Stock then issued and outstanding shall be converted, without any
further action by the holders thereof, into shares of Common
<PAGE> 55
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Stock. The holders of shares of Class B Preferred Stock so converted shall
surrender the stock certificates therefor at the principal office of the
Corporation or of any transfer agent for shares of Common Stock in exchange for
shares of Common Stock. The Corporation shall, forthwith upon such surrender,
issue to such holders a certificate or certificates representing the number of
shares of Common Stock into which the shares of Class B Preferred Stock
surrendered were convertible on the date on which such automatic conversion
occurred.
sec.5.12. FRACTIONAL SHARES. No fractional shares of Common Stock shall
be issued upon conversion of shares of Class B Preferred Stock. In lieu of any
fractional shares to which any holder of shares of Class B Preferred Stock would
otherwise be entitled, the Corporation shall pay cash equal to the product of
such fraction multiplied by the fair market value of one share of the
Corporation's Common Stock on the date of conversion, as determined in good
faith and on a reasonable basis by the Board of Directors of the Corporation.
sec.5.13. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
shares of Class B Preferred Stock such number of shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of Class B Preferred Stock, and, if at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of Class B Preferred Stock, the
Corporation will forthwith take such corporate action as may be necessary or
appropriate to increase its authorized but unissued shares of Common Stock to
such number of shares of Class B Preferred Stock as shall be sufficient for such
purpose.
sec.5.14. PAYMENT OF TAXES. The Corporation will pay all taxes and other
governmental charges that may be imposed in respect of the issue or delivery of
shares of Common Stock upon conversion of shares of Class B Preferred Stock,
including, without limitation, any tax or other charge imposed in connection
with any transfer involved in the issue and delivery of shares of Common Stock
in a name other than that in which the shares of Class B Preferred Stock so
converted were registered.
sec.5.15. NO IMPAIRMENT. The Corporation shall not amend its Certificate
of Incorporation or participate in any reorganization transfer of assets,
consolidation, merger, dissolution, issue or sale or securities, or any other
voluntary action, for the purpose of avoiding or seeking to avoid
<PAGE> 56
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the observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all time in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of holders of shares of Class B Preferred
Stock against impairment.
sec.6. NOTICES. Any notice or request required or permitted by the
provisions of this ARTICLE FOURTH shall be deemed given to and received by the
Corporation (i) when delivered in hand, (ii) upon receipt by the Corporation
after the same has been deposited in the United States mail, certified or
registered mail, return receipt requested, postage prepaid, and addressed to the
Secretary of the Corporation at the chief executive office of the Corporation
at: 70 Blanchard Road, Burlington, MA 01803, or to such other address of which
the Corporation shall have given notice to each holder of record, and shall be
deemed given to and received by any holder of record of shares of Capital Stock,
(iii) when delivered in hand, or (iv) after the same has been deposited in the
United States mail, certified or registered mail, return receipt requested.
postage prepaid, and addressed to such holder of record at the address of such
holder as it appears in the records of the Corporation at the time of mailing.
sec.7. STOCKHOLDER LISTS. Upon written request of any holder or holders
of shares of Preferred Stock of any class or series holding in the aggregate
more than ten percent (10%) of the shares of Preferred Stock of such class or
series then outstanding, the Corporation will promptly furnish to such holder or
holders a list of the names, addresses and number of shares held by each holder
of record of shares of Capital Stock as shown by the records of the Corporation;
such list to be used by each holder for the purposes permitted by Section 220 of
the General Corporation Law of the State of Delaware.
COMMON STOCK
- ------------
SUBPART II. The following is a statement of the powers, designations,
preferences and relative, participating, optional and other special rights of
Common Stock and the qualifications, limitations and restrictions of Common
Stock.
<PAGE> 57
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sec.8. IDENTICAL RIGHTS.
Except as herein otherwise expressly provided, all shares of Common Stock
shall be identical and shall entitle the holders thereof to the same rights and
privileges.
sec.9. DIVIDENDS ON COMMON STOCK.
Dividends may be declared and paid on the Common Stock from funds
lawfully available therefor as and when determined by the Board of Directors and
subject to any preferential dividend rights of any then outstanding Class A
Preferred Stock, as set forth in sec.1 hereof. When and as dividends are
declared, whether payable in cash, in property or in securities, the holders of
Common Stock of whatever class or series shall be entitled to share equally,
share for share, in such dividends.
sec.10. STOCK SPLITS.
If the Corporation shall in any manner subdivide or combine the
outstanding shares of any one class of Common Stock, the outstanding shares of
any other class of Common Stock shall be proportionately subdivided or combined.
sec.11. VOTING RIGHTS OF COMMON STOCK.
Except as otherwise required by law, the holders of shares of Common
Stock are entitled to one vote for each share hold at all meetings of
stockholders (and in written actions of stockholders in lieu of meetings).
sec.12. LIQUIDATION RIGHTS OF COMMON STOCK.
Upon the dissolution, liquidation or winding up of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all distributable assets of the Corporation available for distribution
after payment of creditors and of any preferential liquidation rights of any
then outstanding Preferred Stock, as set forth in sec.3 hereof.
I, the undersigned, being the President of WaveMark Technologies, Inc. do
hereby declare and certify that this Amendment was duly adopted and accordingly
have hereunto set my hand this 23rd day of June, 1997.
-----------------------------
Robert C. Downs
<PAGE> 58
6/20/97
EXHIBIT B
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REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (as amended and in effect from time to
time, this AGREEMENT), dated as of June 20, 1997, by and among (i) WaveMark
Technologies, Inc., a Delaware corporation (together with its successors, the
COMPANY), (ii) the person or entity designated as the Investor on the signature
pages hereto (the INVESTOR) and (iii) those persons designated as Shareholders
on the signature pages hereto (the SHAREHOLDERS).
WHEREAS, the Company and the Investor have entered into a Securities
Purchase Agreement, dated as of the date hereof (the SECURITIES PURCHASE
AGREEMENT), pursuant to which the Company has agreed to sell to the Investor,
and the Investor has agreed to purchase from the Company, shares of the
Company's Class A Preferred Stock and Class B Preferred Stock;
WHEREAS, the Shareholders have entered into certain Restricted Stock
Agreements, dated as of the date hereof (the RESTRICTED STOCK AGREEMENTS),
pursuant to which the Company has agreed to sell to the Shareholders, and the
Shareholders have agreed to purchase from the Company, shares of the Company's
Class B Preferred Stock; and
WHEREAS, in order to induce the Investor to enter into the Securities
Purchase Agreement, and the Shareholders to enter into the Restricted Stock
Agreements, the Company has agreed to provide the registration rights set forth
in 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:
sec.1. DEFINITIONS. As used in this Agreement the following terms
shall have the following respective meanings:
COMMISSION shall mean the Securities and Exchange Commission.
COMMON STOCK shall mean the Company's Common Stock, $.001 par value.
<PAGE> 59
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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, as 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, options and warrants) of the Company held of record at such
time by the Investor or its transferees to whom the rights to the registration
of such shares pursuant to this Agreement shall have been assigned, (ii) all
shares of Common Stock held of record at such time by the Investor or its
transferees to whom the rights to the registration of such shares pursuant to
this Agreement shall have been assigned, (iii) 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, options
and warrants) of the Company held of record at such time by the Shareholders or
their transferees to whom the rights to the registration of such shares pursuant
to this Agreement shall have been assigned and (iv) all shares of Common Stock
held of record at such time by the Shareholders 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.
<PAGE> 60
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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" or "best efforts" underwriting.
sec.2. DEMAND REGISTRATION.
(a) REQUESTS FOR DEMAND REGISTRATION.
(i) Subject to the limitations contained in the following paragraphs
of this sec.2, the holders of not less than thirty percent (30%) of the
Registrable Securities at any time outstanding may, at any time, 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
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 sec.2, after the receipt of each such written request for a Demand
Registration, (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
sec.2(a)(i) hereof, the written requests of such holders for inclusion in
such Demand Registration, and (B) the Company will use its best efforts in
good faith to effect promptly the registration of all such Registrable
Securities. All written requests made by holders of Registrable Securities
pursuant to this clause (ii) 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) LIMITATION ON DEMAND REGISTRATIONS.
(i) The Company will not be obligated to effect any Demand
Registrations until the first anniversary of the consummation of a Qualified
Public Offering, as defined in the Securities Purchase Agreement. The
Company will not be required to effect more than one
<PAGE> 61
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Demand Registration hereunder. The Company will be obligated to pay all
Registration Expenses (as that term is defined in sec.8 hereof) of each such
registration which constitutes a Demand Registration for purposes of this
sec.2.
(ii) The Company shall not be obligated or required to effect any
Demand Registration of any Registrable Securities pursuant to sec.2(a)
hereof unless and until the holders of Registrable Securities shall have
requested, pursuant to sec.2(a)(ii) hereof, the inclusion in such Demand
Registration of not less than thirty percent (30%) of the Registrable
Securities outstanding at the time of such request.
(iii) Any registration initiated by holders of Registrable Securities
as a Demand Registration pursuant to sec.2(a) hereof shah not, for purposes
of this sec.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 holder thereof, shall have been actually sold.
(iv) The Company shall not be obligated or required to effect any
Demand Registration of any Registrable Securities pursuant to sec.2(a)
hereof during the period commencing on the date falling one hundred eighty
(180) 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
sec.2(a)(i) hereof shall have 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.
(v) The Company shall not be obligated or required to effect any
Demand Registration of any Registrable Securities pursuant to sec.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 is or expects to be a
party.
<PAGE> 62
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(c) EFFECTIVE REGISTRATION - EXPENSES. In any registration initiated by the
holders of Registrable Securities as a Demand Registration pursuant to
sec.2(a) hereof, the Company will pay all Registration Expenses (as defined in
sec.8 hereof) of each such registration regardless of whether such registration
constitutes a Demand Registration for purposes of this sec.2.
(d) RIGHTS TO PIGGYBACK ON DEMAND REGISTRATIONS.
(i) Subject to the provisions of sec.2(e) hereof, the Company or any
of its other securityholders (including holders of Registrable Securities
requesting registration pursuant to sec.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 sec.2.01(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 persons any
registration rights which will conflict or be inconsistent in any respect
with any of the provisions of clause (i) of this sec.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.
(e) PRIORITY ON DEMAND REGISTRATIONS. If any Demand Registration or any
registration effected pursuant to sec.2 hereof 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 PRO RATA among such holders
requesting such Demand Registration on the basis of the number of Registrable
Securities requested to
<PAGE> 63
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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 sec.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 sec.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 sec.2 hereof is an underwritten offering, the
investment bankers and managing underwriters in such registration will be
selected by the holders of a Majority of Registrable Securities requesting such
Demand Registration, subject to the approval of the Company (which approval will
not be unreasonably withheld or delayed).
sec.3. PIGGYBACK REGISTRATIONS.
(a) RIGHTS TO PIGGYBACK.
(i) Until the third anniversary of a Qualified Pubilc Offering, 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 (including at the request of
holders of Registrable Securities pursuant to sec.2 hereof), 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 persons, and (B) thirty (30) days prior
to the anticipated filing date of such Piggyback Registration.
<PAGE> 64
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(ii) Subject to the provisions contained in paragraph (c) of this
sec.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 sec.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 sec.3 shall not be counted as a
Demand Registration pursuant to sec.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 theft securities on the same terms
and conditions as shall apply to the securities being sold by the holders
who initiated the underwritten secondary registration.
(b) PIGGYBACK REGISTRATION EXPENSES. The Company will pay all Registration
Expenses (as defined in sec.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
<PAGE> 65
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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 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 the Underwriters' Maximum Number exceeds the number of securities
to be included in such registration by the Company and 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
Registrable Securities which shall have been requested by 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 PRO RATA
among such holders on the basis of the number of Registrable Securities
requested to be included therein by each such holder; and (iii) if the
Underwriters' Maximum Number exceeds the sum of 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 the
number of Registrable Securities which the holders thereof shall have requested
to include in such registration, then the Company may include in 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.
sec.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. As long as the Company is 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
<PAGE> 66
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disposition), PROVIDED, HOWEVER that the Company will not be required to effect
a registration pursuant to this sec.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 sec.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 sec.8 hereof) of each
registration of Registrable Securities pursuant to this sec.4.
sec.5. LOCKUP AGREEMENTS.
(a) RESTRICTIONS ON PUBLIC SALE BY INVESTOR AND SHAREHOLDERS. The Investor
and each Shareholder, if the Company or the managing underwriters so request in
connection with an underwritten registration, 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 that each executive officer and director of the Company
and each holder of more than one percent (1%) of the issued and outstanding
shares of Common Stock shall enter into similar agreements. Each Investor and
each Shareholder shall, at the Company's request, enter into an agreement with
the underwriters containing the substance of this subsection (a), provided that
each executive officer and director of the Company and each holder of more than
one percent (1%) of the issued and outstanding shares of Common Stock shall
enter into a similar agreement with the underwriters.
(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 seventh 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.
sec.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
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Piggyback Registration or a registration pursuant to sec.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 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
<PAGE> 68
-11-
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 audited 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.
sec.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 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 sec.6 hereof
(and any extensions thereof required by the preceding paragraph (c) of
<PAGE> 69
-12-
this sec.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.
sec.8. REGISTRATION EXPENSES.
(a) All costs and expenses incurred or sustained in connection with or
arising out of each registration pursuant to sec.2, sec.3 or (as the case may
be) sec.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 (subject to the limitations contained in paragraph (b)
of this sec.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) 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.
<PAGE> 70
-13-
(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 clearly solely 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.
sec.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 the Securities Act) and their respective successors in title and
assigns against any and all claims, losses, damages and liabilities
<PAGE> 71
-14-
(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 sec.9 (the INDEMNIFIED PARTY) shall give notice to the party
required to provide indemnification pursuant to this sec.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 sec.9, the
indemnifying party shall not have the right to assume the defense of such action
on behalf of 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 sec.9; and PROVIDED, FURTHER, that the failure by any
indemnified party to give notice as provided in this paragraph (c) shall not
relieve the
<PAGE> 72
-15-
indemnifying party of its obligations under this sec.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
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 sec.9 shall be made by periodic
payments during the course of the investigation or defense, as and when bills
are received or expenses incurred.
sec.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 fried 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 two (2) consecutive years within the meaning of Rule
144(d) or any successor rule, and (iii) that such holder has not been an
affiliate (as defined in Rule 144) of the Company at any time during 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.
sec.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
<PAGE> 73
-16-
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
sec.9(b) hereof. Any holder of Registrable 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.
sec. 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.
sec.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
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, unless the Company
will at the same time extend to the holders of Registrable Securities
registration rights similar to those granted to another person.
sec.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.
sec.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 person giving such notice:
<PAGE> 74
-17-
if to the Company: WaveMark Technologies, Inc.
- ----------------- 70 Blanchard Road
Burlington, MA 01803
Attn: Chief Financial Officer
if to the Investor: Xionics Document Technologies, Inc.
- ------------------ 70 Blanchard Road
Burlington, MA 01803
Attn: General Counsel
if to the Shareholders: at their respective addresses
- ---------------------- set forth on the signature page 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.
sec.16. GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the internal substantive laws of the Commonwealth of
Massachusetts.
sec.17. Amendments and Waivers.
---------- --- -------
(a) Except as otherwise provided by paragraph (b) of this sec.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
sixty percent (60%) in interest of all Registrable Securities and the consent of
the Investor.
(b) Any action taken pursuant to and in compliance with paragraph (a) of
this sec.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.
sec.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.
<PAGE> 75
-18-
sec.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.
sec.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.
<PAGE> 76
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and in the month and year first above written.
THE COMPANY:
--- --------
WAVEMARK TECHNOLOGIES, INC.
By: /s/ Robert C. Downs
------------------------------------------------
Title: President
---------------------------------------------
SHAREHOLDERS:
-------------
/s/ Robert C. Downs
---------------------------------------
Robert C. Downs
36 Gould Rd., Bedford MA 01730
/s/ Russell M. Blair III
---------------------------------------
Russell M. Blair III
69 King St., Norfolk, MA 02056
---------------------------------------
Donald Levinstone
15 Taft Ave., Lexington, MA 02173
Russell M. Blair, JR.
58 Woodside Ave., Westport, CT 06880
---------------------------------------
Thomas Todd
345 Waltham St., Lexington, MA 02173
INVESTOR:
---------
XIONICS DOCUMENT TECHNOLOGIES, INC.
By: /s/ Carolyn E. Ramm
------------------------------------------------
Name: Carolyn E. Ramm
Title: VP & General Counsel
<PAGE> 77
SCHEDULES I AND II
TO
SHAREHOLDER AGREEMENT
DATED AS OF JUNE 20, 1997
SCHEDULE I
- ----------
<TABLE>
<CAPTION>
Common Class A Preferred Class B Preferred
Securityholders Stock Stock Stock
- --------------- ----- ----------------- -----------------
<S> <C> <C> <C>
First Closing
- -------------
Robert C. Downs 1,375,000 shares 0 shares 150,000 shares
36 Gould Rd.
Bedford, MA 01730
Russell M. Blair III 1,125,000 shares 0 shares 150,000 shares
69 King St.
Norfolk, MA 02056
Donald Levinstone 150,000 shares 0 shares 0 shares
15 Taft Ave.
Lexington, MA 02173
Second Closing
- --------------
Russell M. Blair, Jr. 0 shares 0 shares 50,000 shares
58 Woodside Ave.
Westport, CT 06880
Thomas Todd 0 shares 0 shares 50,000 shares
345 Waltham St.
Lexington, MA 02173
SCHEDULE II
- -----------
Investor
- --------
Xionics Document 0 shares 250,000 shares 250,000 shares
Technologies, Inc.
70 Blanchard Road
Burlington, MA 01803
</TABLE>
<PAGE> 78
6/19/97
EXHIBIT C
SHAREHOLDER AGREEMENT
---------------------
SHAREHOLDER AGREEMENT, dated as of June 20, 1997, among WaveMark
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 person named in
SCHEDULE II to this Agreement (hereinafter referred to as the INVESTOR).
The Company is a corporation duly organized and existing under the laws of
the State of Delaware with an authorized capitalization (upon the filing of the
contemplated Certificate of Amendment to Certificate of Incorporation) of (i)
11,000,000 shares of the Company's Common Stock, par value $.001 per share (the
COMMON STOCK) and (ii) 900,000 shares of the Company's Preferred Stock, par
value $.001 per share, of which (A) 250,000 shares have been designated Class A
Redeemable Nonconvertible Preferred Stock (the CLASS A PREFERRED STOCK) and (B)
650,000 shares have been designated Class B Convertible Preferred Stock (the
CLASS B PREFERRED STOCK and, together with the Class A Preferred Stock, the
PREFERRED STOCK). After giving effect to the closing contemplated by the
Securities Purchase Agreement and the Restricted Stock Agreements described
below, each Securityholder will own the number of shares of Common Stock and
Class B Preferred Stock set forth opposite his name on SCHEDULE I attached
hereto, and the Investor will own the number of shares of Class A Preferred
Stock and Class B Preferred Stock, set forth opposite its name on SCHEDULE II
attached hereto.
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the Company and the Investor have entered into that certain
Securities Purchase Agreement, dated as of the date hereof (the SECURITIES
PURCHASE AGREEMENT), pursuant to which the Investor has agreed to purchase from
the Company shares of Class A Preferred Stock and Class B Preferred Stock;
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the Company and the Securityholders have entered into those certain
Restricted Stock Agreements, dated as of the date hereof (the RESTRICTED STOCK
AGREEMENTS), pursuant to which the Securityholders have
<PAGE> 79
-2-
agreed to purchase from the Company shares of Common Stock and/or Class B
Preferred Stock;
WHEREAS, it is a condition precedent to the performance of the agreements
and obligations of the Investor under the Securities Purchase Agreement that the
Company and each of the Stockholders enter into and become bound by this
Agreement;
WHEREAS, the Securityholders and the Investor wish to enter into an
agreement under the terms of which (among other things) the Securityholders will
grant to the Investor certain rights of first refusal to purchase capital stock
of the Company proposed to be sold by Securityholders and also certain rights to
participate in any sale by Securityholders of capital stock of the Company; and
WHEREAS, the Securityholders and the Investor wish to enter into an
agreement providing (among other things) for representation of the Investor upon
the Board of Directors of the Company.
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. Any terms that are defined in the Securities
Purchase Agreement and which are not otherwise defined herein shall have the
same meaning herein as in the Securities Purchase Agreement. As used herein, the
following terms shall have the following respective meanings:
(a) 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.
(b) 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 a
property of one or more such persons.
(c) 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
<PAGE> 80
-3-
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 OR DIVISION
THEREOF, (A) such corporation (including any division thereof), 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, and
(C) any Affiliate of such corporation or division; 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.
(d) 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.
(e) INVESTOR shall mean the person named in SCHEDULE II to this Agreement
so long as such person remains bound by this Agreement in accordance with the
terms hereof.
(f) NOTICE OF INTENT TO SELL shall mean the written notice delivered
pursuant to Section 3(a) or 3(b) by an Offeree to the Company or its
stockholders, 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.
(g) OFFER shall have the meaning attributed to it in the recitals to
Section 3 of this Agreement.
(h) OFFEROR shall have the meaning attributed to it in the recitals to
Section 3 of this Agreement.
<PAGE> 81
-4-
(i) 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 SECURITYHOLDER shall mean any one of such
persons.
(j) 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.
(k) SELLING GROUP shall mean any Group to which a Securityholder proposing
to Sell his Stock, who has delivered a Notice of Intention to Sell pursuant to
Section 3 of this Agreement, belongs.
(l) 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 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.
(m) STOCKHOLDERS shall mean, collectively, the Securityholders and the
Investor; and STOCKHOLDER shall mean any one of such persons.
SECTION 2. LIMITATIONS ON SALES OF SHARES--GENERAL. Each Securityholder
hereby agrees that such Securityholder 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 Securityholder
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
<PAGE> 82
-5-
applicable provisions of this Agreement as a Securityholder hereunder and to be
deemed to be a member of such Group;
(c) by sale to any Securityholder that is a party to this Agreement as of
the date hereof or that becomes a party to this Agreement pursuant to a sale
permitted by this Section 2;
(d) by sale pursuant to the provisions of the Restricted Stock Agreement
with the Company to which the Securityholder in question is a party;
(e) by sale to the Company or to any of its designees pursuant to any
agreement under which the Company shall have the right to repurchase such Stock
of such Securityholder, including the Restricted Stock Agreements; or
(f) 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
7(b) hereof.
SECTION 3. PROCEDURES ON SALE OF SHARES TO THIRD PARTY OFFERORS. In the
event any Securityholder or Selling Group receives a BONA FIDE written offer
from a third party which is not an Affiliate or a Family Member (the OFFEROR) to
purchase any or all of such Securityholder's or Selling Group's shares of Stock
which such Securityholder or Selling Group wishes to accept (the OFFER), then
such Securityholder or Selling Group, as the case may be (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 PARTICIPATION. No Offeree may Sell any shares of the Stock now
held or hereafter acquired by him until he shall first have caused the Offeror
to offer to purchase the Stock of all of the stockholders of the Company
(whether or not such stockholders are Stockholders who are parties to this
Agreement) upon the same terms and conditions as the proposed transfer involving
the Offeree, including but not limited to the purchase price per share and the
proportion of total Stock held by each of them solicited for purchase. The other
stockholders shall have not less than forty-five (45) days after receiving a
Notice of Intent to Sell with respect to such Offer during which to accept such
Offer in part or in full. Each such stockholder who accepts such Offer shall
become an Offeree for purposes of this Section 3(a) and of Sections 3(b) and
3(c) below. The Offeree shall be free (subject to the rights of the Company in
Section 3(b) below and of the Investor in Section 3(c) below) for a period of
four (4) months after the expiration of thirty (30) days after the Company's
receipt of the Notice of Intent to Sell required by
<PAGE> 83
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Section 3(b) to sell the Stock proposed to be sold on the terms and conditions
specified in the Offeree's offer. However, if such Sale is not consummated
within said four (4) month period, the Offeree shall not be free to sell any of
the Stock without again causing the proposed Offeror to offer to purchase the
Stock of the other stockholders as herein provided and otherwise complying with
the terms hereof. Each Stockholder's obligations Under this Section 3(a) shall
terminate upon the Company's sale of Common Stock in a Qualified Public Offering
(as defined in the Company's Certificate of Incorporation, as amended)
registered under Section 5. of the Securities Act of 1933.
(b) RIGHT OF PURCHASE BY COMPANY. A copy of any Notice of Intent to Sell
given to the stockholders under subsection (a) above shall also be
simultaneously delivered to the Company, offering any shares the Offeree is
willing to sell to the Offeror to the Company for purchase by the Company as
hereinafter provided. Within thirty (30) days after receipt of the Notice of
Intent to Sell, the Company may elect to purchase all of the offered shares and
if it does not offer to purchase all of the offered shares or, having offered to
purchase the shares, does not purchase all of the offered shares within sixty
(60) days after the expiration of the thirty (30)-day period, the unpurchased
shares may for a period of four (4) months, be transferred to the Offeror named
in the Notice of Intent to Sell on the same terms as set forth in such Notice,
provided that the Offeror shall first become a party to this Agreement and shah
be considered a Stockholder to the same extent as his transferor at or prior to
such transfer.
(c) RIGHT OF PURCHASE BY INVESTOR. If the Company (i) fails to accept the
shares of Stock specified in the Notice of Intent 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 expiration of the thirty (30)-day acceptance period, (y) such partial
acceptance, or (z) the written rejection of such offer, the Offeree shall
deliver to the Investor a written Notice of Intent to Sell, which shah be
irrevocable for a period of five (5) 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. The Investor, and any Permitted Transferee
designated by the Investor to exercise the rights of the Investor under this
Section 3(b), shall have the right and option, for a period of five (5) days
after delivery of the Notice of Intent to Sell, to accept and purchase any or
all of the shares of Stock so offered. Such acceptance shall be made in writing
to the Company or the Offeree within said 5-day period.
(d) DELIVERY OF SHARE CERTIFICATES. Sales of shares of Stock under the
terms of Sections 3(a), 3(b) and 3(c) of this Agreement shall be made at
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the offices of the Company (or, in the event of a purchase under Section 3(c),
at the offices of the purchaser if the purchaser so requests) 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 or accompanied by valid separate stock powers shall be made on such
dates against payment of the purchase price therefor.
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 shares represented by this certificate are subject to restrictions on
transfer contained in a Shareholder Agreement dated June 20, 1997, a copy
of which will be furnished by the Company to the holder of this certificate
upon written request and without charge."
SECTION 5. THE BOARD OF DIRECTORS.
(a) Each Stockholder absolutely and unconditionally agrees with the Company
and with each of the other Stockholders to vote all shares of the capital stock
of the Company of any series now or hereafter owned or controlled by such
Stockholder, and otherwise to use his or its best efforts as a shareholder or as
a director (if such Stockholder serves as such) of the Company, as follows:
(i) to fix the initial number of directors on the Board of Directors
of the Company at not more than seven (7); and
(ii) to elect a Board of Directors of the Company which shall include
at all times, at least one (1) person designated as director(s) of the
Company by the Investor (the "Investor Director(s)"), and of which the
Investor Director(s) shall, at all times, constitute a minimum of
one-seventh of the number of directors at which the size of the Board of
Directors is then fixed.
(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 Stockholders 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
<PAGE> 85
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previously designated by such person shall be re-elected by the Stockholders if
such director is still eligible to serve as provided in this Agreement.
(c) No Stockholder 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 Stockholder shall vote all
shares of capital stock of the Company of any class or series owned or
controlled by such Stockholder 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.
(e) Directors shall be entitled to reimbursement by the Company for
reasonable out-of-pocket expenses incurred in connection with their performance
of duties of directors.
SECTION 6. CLASS B PREFERRED STOCK -- VOTING ON CERTAIN MATTERS. The
Investor hereby covenants and agrees that, beginning on the second anniversary
of the Original Issue Date of the initial issuance of Class B Preferred Stock
(as defined in the Certificate of Amendment of the Company's Certificate of
Incorporation), and to the extent that the Company's amended Certificate of
Incorporation then requires the approval of 66 2/3% of all votes cast by holders
of Class B Preferred Stock for mergers and acquisitions of the Company or sales
or dispositions of all or any substantial or material part of the Company's
assets, technology or intellectual property rights, the Investor will not
unreasonably refuse, withhold or delay its consent to such mergers,
acquisitions, sales, dispositions or licenses.
<PAGE> 86
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SECTION 7. 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.
(c) The termination of any rights and obligations hereunder of any party to
this Agreement pursuant to paragraphs (a) or (b) of this Section 7 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 8. 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 9. BENEFITS of AGREEMENT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and theft respective successors and
assigns, legal representatives and heirs.
SECTION 10. 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 person giving such notice:
if to the Company: WaveMark Technologies, Inc.
70 Blanchard Road
Burlington, MA 01803
Attention: Chief Financial Officer
<PAGE> 87
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if to the at their respective addresses set
Securityholders: forth in SCHEDULE I hereto;
if to the Xionics Document Technologies, Inc.
Investor: 70 Blanchard Road
Burlington, MA 01803
Attention: General Counsel
SECTION 11. 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 (i) Securityholders
holding or deemed to be holding more than sixty-six and two-thirds percent
(66-2/3%) of the total number of all shares of Stock then held or deemed to be
held by all Securityholders and (ii) the Investor.
SECTION 12. CAPTIONS. The captions herein are inserted for convenience only
and shall not define, limit, extend or describe the scope of this Agreement nor
affect the construction hereof.
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 shah be in
conflict with any provisions of any stock purchase agreement between the Company
and any of the Securityholders, including without limitation the Restricted
Stock Agreements dated as of June 20, 1997 between the Company and certain of
the Securityholders, the provisions of this Agreement shall prevail; provided,
that those terms and provisions of such Restricted Stock Agreements which are in
addition to and not in conflict with the terms and provisions of this Agreement
shall not be affected thereby and shall be of full force and effect.
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> 88
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and in the month and year first above written.
THE COMPANY:
------------
WAVEMARK TECHNOLOGIES, INC.
By: /s/ Robert C. Downs
--------------------------------
Title: President
-----------------------------
SECURITYHOLDERS:
----------------
/s/ Robert C. Downs
---------------------------
Robert C. Downs
/s/ Russell M. Blair, Jr.
---------------------------
Russell M. Blair, Jr.
---------------------------
Donald Levinstone
---------------------------
Russell M. Blair, Jr.
---------------------------
Thomas Todd
INVESTOR:
---------
XIONICS DOCUMENT TECHNOLOGIES, INC.
By: /s/ Carolyn E. Ramm
--------------------------------
Name: Carolyn E. Ramm
Title: VP & General Counsel
<PAGE> 89
EXHIBIT D
6/11/97
COOPERATIVE DEVELOPMENT AND LICENSE AGREEMENT
This Agreement is made and entered into this 20th day of June, 1997, by and
between Xionics Document Technologies, Inc., of 70 Blanchard Road, Burlington,
MA 01803 ("Xionics") and WaveMark Technologies, Inc., of 70 Blanchard Road,
Burlington, MA 01803 ("WaveMark").
WHEREAS, Xionics owns a modular page printer and operating architecture known as
IPS-PRINT(TM) which provides compatibility with popular page description
language interpreters such as PostScript(TM) and PCL(TM) and markets software
products based on such architecture to Original Equipment Manufacturers of
printers' and other peripheral devices;
WHEREAS, WaveMark intends to develop or is in the process of developing certain
computer hardware and software which is useful in controlling high-performance
color laser and/or inkjet printers;
WHEREAS, Xionics and WaveMark wish to form a relationship whereby WaveMark will,
with Xionics' cooperation and assistance, integrate Xionics' IPS-PRINT software
described above with WaveMark's hardware and software in order to create
controllers for high-performance color printers that have the capacity to
accept, interpret and output files in the IPS-PRINT PostScript- and
PCL-compatible page description languages; and
WHEREAS, Xionics and WaveMark further wish to engage in joint and cooperative
marketing of their respective products addressing the high-performance color
printer market to Original Equipment Manufacturers of such printers, all on the
terms and conditions set forth below.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and
promises contained herein, the parties agree as follows:
1. DEFINITIONS
1.01 As used in this Agreement:
(a) "Agreement" means this Cooperative Development and License
Agreement and all of its exhibits and other attachments.
(b) "ASIC" means an application-specific integrated circuit containing
proprietary logic of Xionics or WaveMark.
(c) "Confidential Information" means any and all information, data,
know-how, and documentation belonging to either party which is, and
is prominently marked as, confidential or proprietary (or, if
disclosed verbally or visually, identified as confidential at the
time of disclosure and summarized in writing within thirty (30)
days after disclosure), including without limitation the Xionics
Programs; the Related Materials; the WaveMark Core Technology; the
Xionics Technology; the terms and conditions of this Agreement
(provided, however, that should WaveMark be required, in the
reasonable opinion of its counsel, to disclose or file this
Agreement in a Registration Statement filed with the
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Securities and Exchange Commission in connection with a public
offering or its securities, WaveMark may do so as long as WaveMark
makes reasonable efforts to obtain confidential treatment for the
financial terms hereof and other sensitive provisions identified by
Xionics at the time); and any and all other information regarding
product development, software, algorithms, business plans,
marketing plans, distribution plans, customer lists, financial
statements and financial projections, which either party learns or
receives from the other, excluding any information which the
receiving party can document is generally known in the computer
industry, or which becomes known to the receiving party other than
through a breach of an obligation of confidence, or which is
provided to the receiving party by a third party under no
obligation of confidence with respect to such Confidential
Information, or which is independently developed or discovered by
the receiving party without use of or reference to the Confidential
Information of the other.
(d) "Controller Products" means those designs and implementations of
printer controllers, including in particular high-performance color
printer controllers, incorporating Xionics Programs, which are to
be prepared by WaveMark hereunder, including any and all
Semiconductor Devices and other hardware and/or firmware components
thereof, any related custom or customized software, and any needed
portation to OEM Devices.
(e) "Derivative Works" means revisions, improvements, alterations,
adaptations, modifications, translations, abridgments, expansions
or other form of Xionics Programs, regardless of by whom prepared.
(f) "Effective Date" means the date on which this Agreement and the
Securities Agreement become fully executed by both parties; if such
agreements are not executed on the same date, the later of the
dates on which they are executed will be the Effective Date.
(g) "Hardware Accelerator" means an ASIC, Programmable Logic Device or
DSP containing proprietary logic of Xionics or WaveMark, used in
the context of an embedded controller.
(h) "Included Jurisdictions" means the United States, Canada, Japan,
and the member states of the European Union.
(i) "Licensed Original Equipment Manufacturer" or "Licensed OEM" means
an OEM which receives from Xionics the right to use and modify the
source code of Xionics Programs in order to integrate them with its
OEM Devices.
(j) "Original Equipment Manufacturer" or "OEM" means any legal entity,
person or organization which is in the business of manufacturing
and selling OEM Devices under its own label or that of a
second-tier OEM customer of that OEM.
(k) "OEM Device" means a laser or inkjet printer, and especially a
high-performance color printer as further defined in Exhibit B
hereto, which is manufactured by or for an OEM, or for a
second-tier OEM customer of that OEM. Peripheral devices other than
single-function printers may be considered OEM Devices for purposes
of this Agreement if Xionics so agrees in advance on a case-by-case
basis.
(l) "OEM Project" means the development, customization, or modification
of any specific Controller Products for individual OEMs, or the
performance of specific engineering
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services related to the implementation of Controller Products in
OEM Devices for individual OEMs.
(m) "Related Materials" means any and all documentation or information,
whether in writing or otherwise, disclosed to either party by the
other which explains or otherwise facilitates use of the Xionics
Technology or the WaveMark Core Technology.
(n) "Securities Agreement" means that Securities Purchase Agreement
which the parties have entered into simultaneously with the
execution of this Agreement.
(o) "Specification" means the marketing specification for any
particular Controller Product prepared by WaveMark on its own or in
consultation with Xionics or an OEM, as well as technical and/or
engineering specifications for Controller Products on an as-needed
basis as determined by WaveMark.
(p) "Third-Party Vendors" means the owners and/or suppliers of software
or technology which may be incorporated in the Xionics Programs but
which is not the property of Xionics, as noted in Exhibit A hereto.
(q) "Turnkey Controllers" means Controller Products that consist of
finished printed circuit boards, incorporating a WaveMark
controller design and Xionics Programs, to be sold to OEMs in
production quantities for inclusion in OEM Devices.
(r) "WaveMark Core Technology" means technology, know-how, methods,
processes and other information which is developed by
WaveMark which is not a Derivative Work of, and which does not
otherwise infringe, Xionics copyright in the Xionics Programs or
Xionics Technology, and which also does not infringe Xionics
patents or misappropriate Xionics trade secrets.
(s) "Xionics Programs" means, individually or collectively, software
programs (including the Xionics Source Programs) owned by Xionics
or which Xionics has the ability to license emulating popular page
description language interpreters such as the PostScript and PCL
page description languages which may be useful to WaveMark in order
to facilitate development of Controller Products hereunder,
including those currently available deliverables described in
Exhibit A hereto, together with any and all updates, emulations of
additional page description languages, enhancements, maintenance
releases, patches, and bug fixes thereto which Xionics makes
generally available to its customers from time to time and also
including all successor versions thereof which Xionics makes
generally available to its customers (such as PostScript Level 3
and Color PCL 6); excluding, however, software programs developed
or sold by Xionics which are not emulations of popular page
description language interpreters.
(t) "Xionics Proprietary Rights" means all patents, copyrights, trade
secrets and all other rights in Xionics Programs and Derivative
Works thereof owned by or licensed to Xionics whether or not such
rights are protected under patent or copyright laws; and "WaveMark
Proprietary Rights" means the same with respect to the WaveMark
Core Technology.
(u) "Xionics Source Programs" means the Xionics Programs in human
readable form such as the C language source code form, or successor
versions thereof.
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<PAGE> 92
(v) "Xionics Technology" means any technology, know-how, software,
development tools, Xionics test tooling (excluding third-party test
programs such as the Genoa test suites), methods, processes or
other information developed by and/or belonging to Xionics,
including without limitation the Xionics "Maplewood" controller
design and Xionics device drivers for use with Xionics Programs
incorporated in Controller Products, which may be useful to
WaveMark in order to facilitate development of Controller Products
hereunder.
2. COOPERATIVE DEVELOPMENT
2.01 WaveMark agrees to develop Controller Products incorporating the Xionics
Programs, as follows:
(a) After execution of this Agreement, if an OEM requests development
of a reference controller for high-performance color printers for
which the Xionics "Maplewood" controller design would be a useful
basis, WaveMark shall commence development of a reference
controller for high-performance color printers, based on the
Xionics "Maplewood" controller design and incorporating a PowerPC
403 processor core. The parties shall mutually develop the
Specification (including the development schedule) for such
controller in consultation with the initial prospective OEM
purchaser thereof.
(b) WaveMark shall develop additional reference controllers for
high-performance color printers when and as its resources allow. It
shall develop the Specifications for such designs in cooperation
with Xionics, taking into account customer and market requirements
identified by Xionics. WaveMark shall adopt a processor core of
Xionics' choice for its first reference controller design following
the "Maplewood"-based design described in subparagraph (a) above;
provided, that if Xionics alters its choice of processor during or
after completion of such reference design, such that the design
based on Xionics' initial choice is unmarketable in the reasonable
judgment of either Xionics or WaveMark, Xionics shall compensate
WaveMark at WaveMark's time-and-materials rate of $800 per day per
engineer for its work that would not otherwise have had to be done
(e.g., work necessary to update the controller design to
accommodate the revised choice of processor).
(c) WaveMark may develop implementations of Controller Products
consisting of software developers' kits and/or Hardware Accelerator
solutions, provided that it notifies Xionics of its intent to do
so, seeks Xionics' input as to the Specifications for such
implementations, and performs such development within the scope of
the licenses granted in Section 4. below.
(d) WaveMark agrees to perform OEM Projects, including but not limited
to the design and development of customer-specific Controller
Products to Specifications provided by OEMs, from time to time.
Xionics shall have the right to designate the first three (3) OEM
Projects which WaveMark will perform (the project described in
Section 2.01 (a) above being the first of such three (3) OEM
Projects); provided that such OEMs must appear on the list of
strategic customers and prospects attached hereto as Exhibit C and
further provided that WaveMark shall not be required to accept an
OEM Project that, as proposed, and without taking into account
potential royalty revenue from such Project, would cause WaveMark
to incur a financial loss on the project or which fails to include
a reasonable progress or milestone payment. It is anticipated that
the three OEM Projects to be designated by Xionics will be the
first three qualified opportunities in the high-performance color
printer market of which Xionics becomes aware after (or of which
Xionics is already aware at the
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<PAGE> 93
time of) execution of this Agreement, other than projects where the
OEM has a requirement for another controller designer.
Subsequently, each party MAY PROPOSE additional OEM Projects to the
other and they will determine ON A case-by-case basis which of such
proposed opportunities they will jointly pursue.
(e) If, during the term of this Agreement, Xionics releases an
integrated circuit incorporating a processor core and/or Hardware
Accelerator which is useful for processing needs of high-
performance color printers, WaveMark agrees to use reasonable
efforts to incorporate the same into Controller Products where the
applicable OEM Device's price/performance will be enhanced by such
use.
2.02 Xionics agrees to cooperate with WaveMark in the development of the
Controller Products. Such cooperation shall include, but is not limited to,
providing customer and market requirements, writing and/or reviewing
Specifications, facilitating WaveMark's licensing of needed software and
technology from Third-Party Vendors, supplying engineering assistance and
technical support as provided in more detail in Section 9. below, and testing
and certifying WaveMark's implementations of Xionics Programs for OEMs as
provided in Section 2.03 below. Each party shall appoint technical and marketing
liaisons, who shall meet periodically, but no less often than once per quarter,
to review the progress of WaveMark's development efforts and identify potential
joint business opportunities.
2.03 WaveMark agrees that it shall use its best efforts not to permit any OEM
to ship Controller Products containing Xionics Programs with any OEM Devices
unless such OEM Device has first obtained certification from Xionics or from
WaveMark in accordance with Xionics certification requirements, of the quality
of the output from each such OEM Device at each resolution, as detailed in
Exhibit A. Xionics will cooperate with WaveMark to perform certification
testing. If Xionics shall perform the testing, Xionics will charge the OEM at
its then-current time-and-materials day rate for certification testing of each
OEM Device. If any OEM Device does not successfully pass the range of Xionics
compatibility tests and probes, then WaveMark shall use its best efforts not to
permit such OEM to ship such OEM Devices until corrections have been made and
the corrected OEM Device has been resubmitted for certification testing prior to
the OEM's first customer shipment of such OEM Device.
3. COOPERATIVE MARKETING
3.01 Each party shall have freedom of action to pursue business opportunities
independently of the other. However, it is the parties' intention to work
together to promote one another's products and services for their mutual benefit
and, to that end, Xionics will use all reasonable efforts to supply WaveMark
with enough high-quality business opportunities to keep it fully occupied during
the first year of this Agreement.
3.02 Subject to Section 3.01 above, the parties will jointly. market and sell
Controller Products for high-performance color printers and the Xionics
Programs to OEMs during the term of this Agreement. Xionics and WaveMark will
mutually inform one another, through their respective marketing liaisons, of
appropriate leads for sales of such Controller Products, OEM Projects, and
Xionics Programs discovered through their respective sales and marketing
efforts. The parties may also mutually agree to jointly market and sell
Controller Products which are not directed at high-performance color printers
on a case-by-case basis. The parties will mutually develop and abide by a set
of "rules of engagement" for their sales activity, which will include notice to
one another of sales calls to pursue identified leads and, to the extent
practicable, arranging such sales calls and visits to include representatives
of both parties.
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<PAGE> 94
3.03 Except in the ease of Turnkey Controllers manufactured by Xionics
pursuant to Section 10. below, all orders for Controller Products will be taken
and fulfilled by WaveMark and all licenses of WaveMark controller designs will
be granted to OEMs directly by WaveMark, unless otherwise agreed upon by the
parties on a case-by-case basis.
4. LICENSE GRANTS
4.01 Subject to all of the terms and conditions of this Agreement, Xionics
hereby grants to WaveMark a non-transferable, nonexclusive, fully-paid,
worldwide license to (a) use, modify and create Derivative Works of the Xionics
Source Programs, only in connection with the design and development of the
Controller Products, and for no other purpose whatsoever, and Co) use the
Xionics Technology (other than the "Maplewood" controller design and Xionics
device drivers, which are separately licensed under Section 4.02 below) solely
in connection with its exercise of the license rights granted in this Section 4.
4.02 Subject to all of the terms and conditions of this Agreement, Xionics
hereby grants to WaveMark a non-transferable, nonexclusive, worldwide license to
(a) use, reproduce, market, distribute and sublicense copies of the Xionics
Programs and Derivative Works thereof, IN OBJECT CODE FORM ONLY, to OEMs, only
as incorporated into Controller Products intended for inclusion in OEM Devices,
and for no other purpose whatsoever; (b) use, modify and create Derivative Works
of the Xionics "Maplewood" controller design described in Exhibit A hereto, as
it exists as of the Effective Date or as subsequently modified by Xionics, only
in connection with the design and development of the Controller Products, and
for no other purpose whatsoever; (c) make, have made, market, sell and
distribute Controller Products based on or which include the Xionics "Maplewood"
controller design to OEMs for incorporation in OEM Devices, and for no other
purpose whatsoever; and (d) use, modify and create Derivative Works of Xionics
device drivers to the extent necessary to make such device drivers work with
Controller Products incorporating Xionics Programs as required by an OEM.
4.03 The licenses granted in Sections 4.01 and 4.02 above are expressly
conditioned as follows:
(a) WaveMark has no right to, and agrees not to, modify any
deliverables supplied by Xionics hereunder other than the Xionics
Source Programs; the "Maplewood" controller design; and Xionics
development tools and device drivers on an as-needed basis.
(b) Except as provided in Section 4.04 below, WaveMark has no right to,
and agrees not to, modify the Xionics Source Programs to create
major enhancements, new generations or versions thereof. To the
extent that Xionics licenses another controller designer to do any
of the things proscribed above, it shall also license WaveMark to
do so at the same time.
(c) WaveMark has no right to, and agrees not to, permit or assist OEMs,
or any customers of OEMs, to reproduce or distribute the Xionics
Programs, or any of them, except in connection with the Controller
Products as incorporated in OEM Devices. In addition, WaveMark has
no right to, and agrees not to, permit or assist any OEM which is
not a Licensed OEM to modify the Xionics Programs, nor to
sublicense, disclose or deliver any Xionics Source Programs to any
OEM which is not a Licensed OEM. The preceding sentence is not
intended to preclude WaveMark from modifying Xionics Programs on
behalf of, or to specifications provided by, OEMs which are not
Licensed OEMs. Xionics agrees to promptly verify whether an OEM is
a Licensed OEM on request from WaveMark.
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(d) WaveMark has no right to, and agrees not to, combine any module or
portion of any Xionics Program with any non-Xionics page
description language program; modify any module or portion of any
Xionics Program to enable the same to work with a non-Xionics page
description language program, or any module or portion thereof; or
sublicense or distribute any module or portion of a Xionics Program
in combination with, as an enhancement to, or for use with, a
non-Xionics page description language program, or any module or
portion thereof. To the extent that Xionics licenses another
controller designer to do any of the things proscribed above, it
shall also license WaveMark to do so at the same time.
(e) WaveMark may sublicense object code of Xionics Programs, other than
as embedded in Turnkey Controllers, only pursuant to a written
agreement with its OEM containing, at a minimum, terms and
conditions no less restrictive than those set forth in Exhibit D.
(f) WaveMark acknowledges that the Xionics Source Programs are trade
secrets of Xionics and/or the Third-Party Vendor thereof, as the
ease may be. WaveMark shall not, under any circumstances,
disassemble or reverse engineer any executable versions of the
Xionics Programs, or disclose the Xionics Programs to any third
party except as expressly permitted in Section 8. below.
4.04 Xionics will use reasonable efforts to maintain compatibility between the
Xionics Programs and the applicable DE FACTO industry standards for page
description languages (currently PostScript from Adobe Systems
Incorporated and PCL from Hewlett-Packard Company), but will be able to
determine, in its reasonable judgment, whether to emulate specific
releases of PostScript and PCL, or specific features or functions of
those releases. In the event that WaveMark wishes to implement
emulations of features, functions or releases of PostScript or PCL not
previously implemented by Xionics, the following provisions shall apply.
(a) In the event WaveMark wishes to implement a major technological
improvement to the Xionics Programs (e.g., contone PCL5C), it shall
notify Xionics and Xionics shall promptly make a reasonable
determination:
(i) to implement the improvement itself within a
reasonable time frame, in which case WaveMark shall refrain
from implementing the improvement but shall receive it
pursuant to the licenses granted in Sections 4.01 and 4.02
above when Xionics has completed it;
(ii) to permit WaveMark to make the improvement at Xionics'
expense (for an amount to be negotiated in good faith), in
which ease WaveMark shall have licenses to the improvement
under Sections 4.01 and 4.02 above; and Xionics shall own the
improvement as a Derivative Work of the Xionics Programs and
shall be free to use the improvement except that it shall
refrain from licensing the improvement to companies competing
directly with WaveMark in the design of printer controllers
unless and until a reasonable royalty for such licensing has
been negotiated with WaveMark;
(iii) to permit WaveMark to make the improvement at
WaveMark's expense, in which case WaveMark shall have
licenses to the improvement under Sections 4.01 and 4.02
above; and Xionics shall own the improvement as a Derivative
Work of
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the Xionics Programs but shall refrain from using or
licensing it unless and until a reasonable royalty for the
same has been negotiated with WaveMark; or
(iv) not to permit WaveMark to make the improvement at that
time, in which case WaveMark shall refrain from making the
improvement.
(b) In the event WaveMark wishes to implement a feature or function
other than a major technological improvement it shall be free to do
so, provided that the resulting implementation becomes the property
of Xionics and is delivered to Xionics under Section 6.01 below. If
WaveMark desires another outcome it shall notify Xionics of its
intention to implement the feature or function and the process
described in Section 4.04(a) above shall be followed as though the
desired feature or function were a major technological improvement.
(c) In the event Xionics and WaveMark disagree as to what constitutes a
"major technological improvement," their senior management shall
negotiate in good faith to attempt to resolve the difference and,
if unsuccessful after a reasonable period of time, shall submit the
matter to mediation at their shared expense.
4.05 Products and technology of Third-Party Vendors (including without
limitation patent rights) which are incorporated in or used in connection with
the Controller Products and which are identified in Exhibit A must be licensed
separately from the Third-Party Vendors thereof by WaveMark, except to the
extent that the parties agree to the contrary on a case-by-case basis; provided,
that any intellectual property of Third-Party Vendors which resides within the
Xionics Programs themselves shall be deemed to be sublicensed to WaveMark
hereunder subject to the parties' royalty payment obligations set forth in
Section 5. below.
4.06 Subject to all of the terms and conditions of this Agreement, WaveMark
hereby grants to Xionics a non-transferable, nonexclusive, worldwide license to
use, reproduce, and distribute to OEMs, solely for inclusion in Xionics- or
OEM-developed controllers for printers or other peripheral devices which contain
Xionics Programs, any WaveMark Core Technology which interacts with Xionics
Programs to improve their performance (for example, WaveMark Hardware
Accelerators). Such license is expressly conditioned as follows: (a) Xionics
shall pay the royalties set forth in Section 5.02(e) below. (b) Xionics shall
not, under any circumstances, disassemble or reverse engineer any executable
versions of the WaveMark Core Technology, or disclose the WaveMark Core
Technology to any third party except as expressly permitted in Section 8. below.
(c) Xionics shall not sell or license WaveMark Core Technology or products based
thereon to companies that compete directly with WaveMark in the design of
printer controllers without WaveMark's prior consent.
4.07 If in the future Xionics releases new software products, other than
emulations of then-current DE FACTO industry-standard page description
languages, Xionics shall promptly notify WaveMark of the same and the parties
shall negotiate in good faith to establish terms and conditions for the
licensing of such new software products to WaveMark, which terms and conditions
may differ from those applicable to the Xionics Programs as set forth herein.
5. PRICE AND PAYMENT
5.01 Each OEM which licenses Xionics Programs as incorporated in Controller
Products, whether directly from Xionics or through an object code sublicense
granted by WaveMark, shall be required to pay a royalty on each unit of each OEM
Device shipped (including devices of OEM customers of the OEM).
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Such royalty shall be based on Xionics' standard pricing (giving effect to its
discount policies) in effect from time to time. If WaveMark has quoted an OEM a
price for Xionics Programs based on Xionics' standard pricing (giving effect to
its discount policies) then in effect, Xionics shall not offer to license such
Xionics Programs to such OEM at a lower price.
5.02 In consideration of the licenses and other rights and benefits granted
herein, for each Controller Product incorporating a Xionics Program or Programs
that is sold during the term of this Agreement (and for as long thereafter as
WaveMark continues to have the right to sell such Controller Products), the
parties shall pay royalties to one another as follows:
(a) Xionics shall pay WaveMark twenty-five percent (25%) of: (i) all
royalties (including prepaid royalties) it collects from OEMs for
Xionics Programs incorporated in Controller Products, for Xionics
device drivers sold in conjunction with Controller Products
incorporating Xionics Programs, and for software and technology of
Third-Party Vendors licensed by Xionics to OEMs, (ii) less whatever
royalties Xionics may be obligated to pay to Third-Party Vendors on
such Xionics Programs, device drivers and software and technology;
provided, that Xionics shall not be required to charge royalties
for its device drivers. Xionics shall also pay WaveMark twenty-five
percent (25%), as calculated above, of all royalties it collects
from OEMs for Xionics Programs sold in conjunction with WaveMark
Core Technology as permitted in Section 4.06 above.
(b) WaveMark shall pay Xionics seventy-five percent (75%) of all
royalties (including prepaid royalties) it collects from OEMs for
Xionics Programs incorporated in Controller Products.
(c) In the event that Xionics directly or indirectly manufactures
Controller Products for OEMs pursuant to its right to do so under
Section 10. below, Xionics will include a design royalty for
WaveMark in the bill-of-materials cost of each Controller Product
to be manufactured, in an amount determined by reference to
WaveMark's then current standard price list, and will remit
seventy-five percent (75%) of the aggregate design royalty due to
WaveMark on account of each shipment of Controller Products within
thirty (30) days after the end of the calendar quarter in which it
receives payment for that shipment of Controller Products,
retaining twenty-five percent (25%) of such amount as a commission
on the sale of those Controller Products; provided, that in the
case of Controller Products based on the Xionics "Maplewood"
controller design, Xionics shall remit sixty-six and two-thirds
percent (66 2/3%) of the design royalty to WaveMark and retain
thirty-three and one-third percent (33 1/3%) of that amount as its
commission.
(d) WaveMark shall pay Xionics thirty-three and one-third percent
(33 1/3%) of all design royalties (including prepaid royalties) it
collects from OEMs and/or controller manufacturers for WaveMark
controller designs based on the Xionics "Maplewood" controller
design.
(e) Xionics shall pay WaveMark a royalty, at a rate to be determined on
a case-by-case basis, for each OEM Device incorporating WaveMark
Core Technology in conjunction with Xionics Programs, as permitted
in Section 4.06 above; and Xionics agrees to use its best efforts
not to permit any OEM to ship an OEM Device incorporating WaveMark
Core Technology unless and until a royalty rate has been
established for that OEM Device under this subparagraph (e).
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5.03 Each party shall be entitled to withhold all royalties owing to
Third-Party Vendors by that party on account of the inclusion of Third-Party
Vendors' products in the Xionics Programs, and all taxes, duties and like
charges for which it is responsible (other than taxes on the net income of the
reporting party) that are applicable to the Xionics Programs and/or the
Controller Products in question, from royalties payable to the other party under
Section 5.02 above.
5.04 WaveMark agrees to use its best efforts to secure licenses of software of
Third-Party Vendors which may be incorporated in the Controller Products but are
not part of the Xionics Programs (for example, fonts or the pSOS operating
system) directly from the Third-Party Vendors thereof. If WaveMark determines
that it is unable to do so on reasonable terms, Xionics will sublicense the
applicable software of Third-Party Vendors to WaveMark, if and to the extent
that it has the right to do so, but WaveMark will remain responsible for payment
of any applicable royalties to Xionics for the account of the Third-Party
Vendor.
5.05 Each party shall submit to the other quarterly reports of royalties
received from their respective OEMs on account of sales of OEM Devices
containing Controller Products during each calendar quarter, substantially in
the form attached hereto as Exhibit E. A report shall be due within thirty (30)
days after the end of each calendar quarter during the term of this Agreement.
Each report shall set forth the number of copies of each of the Xionics Programs
distributed, shipped, sublicensed, transferred, or otherwise disposed of by OEMs
in conjunction with OEM Devices containing Controller Products reported by OEMs
during that quarter, and shall be certified accurate and complete by an
authorized representative of the reporting party. Each such report shall be
accompanied by payment of any amounts shown to be due to the other
party thereby which have not been paid in advance. Similar reports of royalties
received for other royalty-bearing products hereunder shall also be submitted on
a quarterly basis based on underlying reports received from OEMs in that quarter
(or, in the case of Turnkey Controllers, shipping documents evidencing the
number of units shipped to OEMs during that quarter).
5.06 Notwithstanding Section 5.05 above, each party shall remit to the other
party its share of royalty prepayments collected from OEMs within five (5)
business days after receipt of such royalty prepayments.
5.07 Either party may, at its own expense, either conduct its own audit or
have a third party, under suitable nondisclosure obligations, audit the records
and supporting documentation of the other relating to sales and distribution of
the Controller Products and Xionics Programs to determine whether the reporting
party has correctly calculated, reported and paid all of the royalties due to
the auditing party hereunder. Audits will be conducted not more than once
annually, unless the auditing party has reason to believe incorrect reporting
has taken place, during normal business hours and at the place where such
information is normally kept. If any such audit discloses an underpayment of
royalties, the reporting party shall immediately pay the auditing party the
additional royalties due, together with a finance charge of one and one half
percent (1 1/2%) per month or the highest rate allowed by law, whichever is
less. If an audit discloses an underpayment of royalties of five percent (5%) or
more of the total due, then the reporting party shall also reimburse the
auditing party for all reasonable expenses incurred by the auditing party in the
audit.
5.08 Each party agrees to reasonably cooperate with the other party to enforce
the payment, reporting requirements and audit rights it may have with regard to
OEMs to reasonably cause OEMs to make timely payment of their royalties, subject
to a party's right to exercise reasonable discretion to maintain customer
relations.
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6. OWNERSHIP
6.01 All right, title and interest in and to the Xionics Programs, the
Xionics Technology, and any and all Derivative Works thereof and Related
Materials relating thereto, whether prepared by Xionics or WaveMark, shall
belong exclusively to Xionics, subject to the licenses granted to WaveMark in
Sections 4.01, 4.02 and 4.03 above; provided, however, that if, prior to
WaveMark creating a Derivative Work, WaveMark and Xionics shall so agree,
Xionics will pay WaveMark a development fee for preparation of the Derivative
Work. Such development fee shall be addition to any amounts that may become due
to WaveMark under Section 4.04(b). It shall be negotiated on a case-by-case
basis, and will reflect factors including the amount of effort required to
prepare the Derivative Work, the return WaveMark expects to realize from the
Derivative Work, and the usefulness of the Derivative Work to Xionics.
6.02 All right, title and interest in and to the WaveMark Core Technology
shall belong exclusively to WaveMark, subject to the license granted in
Section 4.06 above.
6.03 WaveMark agrees and acknowledges that the right to apply for patents,
copyrights and other protections on the Xionics Programs, the Xionics
Technology, and any and all Derivative Works thereof, whether prepared by
Xionics or WaveMark, shall belong exclusively to Xionics. WaveMark agrees to
assist and cooperate with Xionics, at Xionics' expense, to obtain and enforce
patents, copyrights, and any other available legal protections for the Xionics
Programs, the Xionics Technology, and any and all Derivative Works thereof, in
any country.
7. NONCOMPETITION; NONSOLICITATION
7.01 Xionics agrees that, for a period of two (2) years from the Effective
Date, WaveMark it shall not directly compete with WaveMark in the business of
designing or developing high-performance color printer controllers.
7.02 WaveMark agrees that, for a period of two (2) years from the Effective
Date, it shall not directly compete with Xionics in any of Xionics' businesses
existing as of the Effective Date, including without limitation the businesses
of developing and marketing page description language software and technology,
and of developing and marketing systems architecture and special-purpose
Hardware Accelerators for the control of multiple-function peripheral devices;.
provided, that nothing contained herein shall be deemed to restrict WaveMark
from selling high performance color printer controllers with only the
functionality of a controller used in a device which is only a printer to a
manufacturer of a multiple function peripheral device.
7.03 For so long as this Agreement remains in effect, and for twelve (12)
months after any expiration or termination hereof, each party agrees that it
will not hire, nor directly or indirectly solicit for hire, any person who is
then or has within the preceding twelve (12) months been employed by the other
party (except for persons who have been involuntarily dismissed from their
employment with the other party).
8. CONFIDENTIALITY
8.01 Each party agrees to maintain all Confidential Information of the other
disclosed hereunder in strict confidence using at least as great a degree of
care as that used to maintain the confidentiality of its own most valuable
confidential information, but in no event less than a reasonable degree of care.
WaveMark shall use Xionics' Confidential Information only for the purposes of
designing, marketing and distributing high performance color printer controllers
or as permitted under this Agreement. Xionics shall use WaveMark's Confidential
Information only for the purposes of marketing and distributing WaveMark's high
performance color printer controllers or as permitted under this Agreement. Each
party agrees that it shall disclose such Confidential Information of the other
only to its employees, consultants and contract manufacturers who
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have a bona fide need to know such information in order to carry out the terms
and purposes of this Agreement and who are under a written obligation of
confidence to that party sufficient to enable it to protect the Confidential
Information as required herein.
9. MAINTENANCE AND SUPPORT
9.01 Xionics shall provide maintenance and engineering support services to
WaveMark on the terms and conditions attached hereto as Exhibit F and G,
respectively; provided, that such maintenance and engineering support services
shall be provided to WaveMark free of charge for one (1) year following the
Effective Date. Thereafter WaveMark may continue to receive maintenance services
at no charge if, in the foregoing contract year, Xionics has obtained revenues
through the WaveMark relationship of at least three times its then-current
standard maintenance pricing. Otherwise WaveMark may continue to receive
maintenance services, and in any event may continue to receive engineering
support services, on terms and conditions to be mutually agreed upon by the
parties.
10. MANUFACTURING OF TURNKEY CONTROLLERS
10.01 Xionics shall have the right of first refusal to manufacture Turnkey
Controllers for or on behalf of OEMs who desire to purchase such Turnkey
Controllers through WaveMark. Upon agreeing with an OEM to supply Turnkey
Controllers to that OEM, WaveMark shall promptly notify Xionics of such
agreement and the OEM's requirements as to controller cost and delivery
schedules. At its option, to be exercised within ten (10) days after such
notice, Xionics shall then work with its contract manufacturer(s) to prepare a
responsive quotation with reasonable promptness. If that quotation meets or
exceeds the OEM's requirements (or, if WaveMark has obtained a separate
manufacturing quotation of its own, if Xionics' quotation meets or exceeds that
quotation), WaveMark shall contract with Xionics for the manufacture of those
Turnkey Controllers on Xionics' then-current standard manufacturing terms and
conditions; provided that such terms and conditions, taken as a whole, are not
worse for WaveMark or WaveMark's customer than WaveMark could obtain in such
separate manufacturing quotation.
11. TRADEMARK AND COPYRIGHT USAGE; PUBLICITY
11.01 Each party agrees to affix the copyright notice of the other, in a form
prescribed by the copyright holder, to all tangible materials containing the
programs or other copyrighted materials of the other party, and all copies
thereof, including without limitation the Xionics Programs and the Controller
Products.
11.02 Xionics hereby grants to WaveMark a non-transferable, nonexclusive,
worldwide right, license and privilege to use Xionics' trade names and
trademarks in association with the Xionics Programs as incorporated in the
Controller Products, provided that such usage is in accordance with Xionics'
trademark usage guidelines as published by Xionics from time to time.
11.03 Both parties shall have the right to announce the existence of this
Agreement at any time. Upon WaveMark's OEM's initial announcements of each OEM
Device incorporating Controller Products, Xionics shall have the right to state
publicly that WaveMark has incorporated Xionics Programs in the Controller
Products included in that Device, to the extent that an OEM has consented
thereto. WaveMark will use all reasonable efforts to obtain for Xionics the
right to refer to each such OEM Device by the OEM's name for it; and to use or
reference trademarks and trade names of the OEM in press releases and
promotional materials.
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12. TERM AND TERMINATION
12.01 This Agreement shall remain in effect for an initial term of four (4)
years, and thereafter until either party terminates the Agreement by giving not
less than ninety (90) days' written notice to. the other.
12.02 If either party fails to comply with a material term or condition of this
Agreement, the complying party shall give the defaulting party written notice of
such failure. The defaulting party shall have thirty (30) days after the receipt
of notice to cure any indicated failure. If the failure is not cured within that
time, this Agreement may be terminated, without further delay, by the party not
in default sending written notice to the defaulting party.
12.03 Xionics may terminate this Agreement immediately by sending written
notice to WaveMark if: (a) a receiver is appointed to take possession of all or
substantially all of the assets of WaveMark; (b) WaveMark makes a general
assignment for the benefit of creditors; (c) WaveMark takes or suffers any
action under any insolvency or bankruptcy act; (d) WaveMark breaches any
provision regarding confidentiality or attempts to convey any interest in any
property licensed or supplied hereunder in contravention of the terms of this
Agreement; or (e) WaveMark fails to comply with a material term or condition of
the Securities Agreement, and has not cured such event within thirty (30) days
after receipt of notice of such event from Xionics.
12.04 WaveMark may terminate this Agreement immediately by sending written
notice to Xionics if: (a) a receiver is appointed to take possession of all or
substantially all of the assets of Xionics; (b) Xionics makes a general
assignment for the benefit of creditors; (c) Xionics takes or suffers any action
under any insolvency or bankruptcy act; (d) Xionics breaches any provision
regarding confidentiality or attempts to convey any interest in any property
licensed or supplied hereunder in contravention of the terms of this Agreement;
or (e) Xionics fails to comply with a material term or condition of the
Securities Agreement, and has not cured such event within thirty (30) days after
receipt of notice of such event from WaveMark.
12.05 Upon any expiration or termination of this Agreement under this Section
12., each party shall promptly either return to the other or provide written
certification that it has destroyed all copies of all Confidential Information
received from the other, in part or in whole, and in all forms of media;
provided, that WaveMark shall be permitted to retain one (1) copy of the Xionics
Programs and Related Materials for support purposes only. Expiration or
termination of this Agreement for any reason shall not affect the rights of OEMs
under sublicenses granted prior to such expiration or termination, or the rights
of Xionics, WaveMark or OEMs to continue manufacturing Controller Products
incorporating the Xionics Programs that were designed prior to such expiration
or termination, so long as the applicable royalties continue to be collected
from the OEMs and paid by each party to the other as required in Section 5.
above.
12.06 Sections 1, 5, 6, 8, 12, 13, 14, 15 and 18 shall survive termination of
this Agreement.
13. REPRESENTATIONS AND WARRANTIES
13.01 Each party represents and warrants that it has the right to enter into
this Agreement; and that its entry into this Agreement and the performance of
its obligations hereunder is in no way inconsistent with or in violation of any
obligation it may have to any third party.
13.02 WaveMark further represents and warrants (i) that it is the sole and
exclusive owner of the WaveMark Core Technology; (ii) that it has sufficient
rights in and to the software and technology of Third-Party Vendors which may be
incorporated in or used in conjunction with the hardware and software designs,
products and technology, including Derivative Works of the Xionics Programs,
created or developed by
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WaveMark or any of its employees or consultants in connection with the
development of Controller Products incorporating the Xionics Programs (excluding
any representation or warranty regarding rights in-software and technology of
Third-Party Vendors in the Xionics Programs); and (iii) that the Controller
Products, the WaveMark Core Technology, and any Derivative Works of any of them
created by WaveMark do not infringe any patents, copyrights, trademarks, trade
secrets, mask works, or any other intellectual property rights of any kind
existing under the laws of any Included Jurisdiction at any time; provided that
WaveMark makes no representations or warranties, whatsoever, relating to the
Xionics Programs or Xionics Technology.
13.03 Xionics further represents and warrants (i) that it is the sole and
exclusive owner of the Xionics Programs; (ii) that the Xionics Programs, as
delivered to WaveMark, will substantially conform to their applicable
specifications and will be substantially free of errors for a period of ninety
(90) days after delivery to WaveMark; (iii) that Xionics has sufficient rights
in and to the software and technology of Third-Party Vendors which may be
incorporated in or used in conjunction with the Xionics Programs, the Xionics
Technology and the Related Materials to grant the licenses set forth herein; and
(iv) that the Xionics Programs, the Xionics Technology, and the Related
Materials, as delivered to WaveMark, do not infringe any patents, copyrights,
trademarks, trade secrets, mask works, or any other intellectual property rights
of any kind existing under the laws of any Included Jurisdiction at any time.
13.04 WaveMark further represents and warrants (i) that the Controller Products
will be developed in a good and workmanlike manner, by qualified employees or
consultants of WaveMark; (ii) that WaveMark has or will secure valid licenses to
any patents or copyrights of third parties to be used in the Controller
Products, except to the extent valid sublicenses under such patents or
copyrights are available to it through Xionics; and (iii) that the Controller
Products, when complete, will conform to the applicable specifications therefor
and will be substantially free of errors in design or workmanship as
contemplated by the warranty to be provided under Section 13.06 below.
13.05 WaveMark further represents and warrants that it will comply with any and
all applicable government regulations, and will maintain adequate insurance for
its operations. WaveMark further represents and warrants that it will use best
efforts to comply with the terms and conditions of all agreements it enters into
with OEMs for the performance of OEM Projects and the sublicensing of Xionics
Programs.
13.06 WaveMark and Xionics agree that each of them shall extend a warranty in
the form of Exhibit H attached hereto to their respective OEMs. Xionics'
warranty shall cover the design and function of the Xionics Programs, and
WaveMark's warranty shall cover the design and function of the Controller
Products. The parties' warranties on hardware or firmware components shall be
coextensive and shall remain in effect for a period of one (1) year from the
date of delivery of final deliverables to an OEM, unless a different term is
agreed to on a case-by-case basis. WaveMark acknowledges that Xionics' standard
source code warranty has a duration of ninety (90) days. Xionics acknowledges
that WaveMark's standard controller design warranty, and any software warranties
it might give, have a duration of ninety (90) days. In addition, each party
shall provide, or cause its contract manufacturer to provide, a hardware
warranty of not less than one (1) year from the date of shipment for any Turnkey
Controllers which it is responsible for manufacturing.
13.07 Except as expressly set forth in this Section 13., neither party makes
any warranty to the other. ANY AND ALL OTHER WARRANTIES, INCLUDING BUT NOT
LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE, ARE EXPRESSLY DISCLAIMED BY AGREEMENT OF THE PARTIES.
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14. INDEMNIFICATION
14.01 WaveMark will indemnify and defend Xionics and hold it harmless from all
damages, liabilities, costs, expenses (other than internal staff expenses), and
reasonable attorneys' fees incurred by Xionics as a result of any breach of the
representations and warranties set forth in Section 13. above, including without
limitation any claim, suit, or judgment against Xionics in which it is claimed
or determined that a Controller Product or the WaveMark Core Technology
infringes any patent, copyright or trade secret of a third party; provided that
Xionics promptly notifies WaveMark in writing of any such matter, gives WaveMark
the exclusive right to defend or settle the matter at Wavemark's expense and
cooperates with WaveMark in its defense. Xionics may at any time assume control
of or participate in the defense of such matter, at its own expense, with
counsel of its own choosing. WaveMark will have no liability TO DEFEND or
satisfy any claim or suit based on Xionics' combination of the WaveMark Core
Technology with any other program or data, or based on Xionics Programs, Xionics
Technology, or Xionics' modification of the same, to the extent that the claimed
infringement would not have arisen but for such combination or modification.
14.02 Xionics will indemnify and defend WaveMark and hold it harmless from all
damages, liabilities, costs, expenses (other than internal staff expenses), and
reasonable attorneys' fees incurred by WaveMark as a result of any breach of the
representations and warranties set forth in Section 13. above, including without
limitation any claim, suit, or judgment against WaveMark in which it is claimed
or determined that a Xionics Program or the Xionics Technology infringes any
patent, copyright or trade secret of a third party; provided that WaveMark
promptly notifies Xionics in writing of any such matter, gives Xionics the
exclusive right to defend or settle the matter at Xionics' expense and
cooperates with Xionics in its defense. WaveMark may at any time assume control
of or participate in the defense of such matter, at its own expense, with
counsel of its own choosing. Xionics will have no liability to defend or satisfy
any claim or suit based on WaveMark's combination of the Xionics Programs or
Xionics Technology with any other program or data, or based on WaveMark's
modification of the same, to the extent that the claimed infringement would not
have arisen but for such combination or modification.
15. LIMITATION OF LIABILITY
15.01 Neither party shall be liable to the other for any incidental,
consequential, indirect or special damages, or for any damages whatever
including but not limited to lost profits, loss of use, etc., arising out of or
in any way connected with this Agreement, regardless of whether it has been
advised of the possibility of such damages.
16. SUBLEASE OF PREMISES
16.01 Xionics shall use reasonable efforts to sublet suitable premises within
its facility at 70 Blanchard Road, Burlington, Massachusetts, to WaveMark, on
mutually agreeable terms and conditions; provided that Xionics shall not be
required to offer any premises to WaveMark for subleasing hereunder unless they
are self-contained and isolated from Xionics' own premises, or capable of being
made so at reasonable expense which shall be borne by WaveMark.
17. RIGHT OF FIRST REFUSAL
17.01 In the event a bona fide offer is made by any third party to acquire all
or substantially all of the assets or capital stock of WaveMark which WaveMark
desires to accept, WaveMark shall afford Xionics the opportunity to make an
offer to acquire the same assets or capital stock and, if Xionics makes such an
offer, WaveMark shall accept it, subject to the approval of its Board of
Directors and stockholders, provided that
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its terms and conditions, taken as a whole, are at least as favorable to
WaveMark's stockholders as those of the third-party offer. Upon closing of an
initial public offering of capital stock of WaveMark or the expiration of three
(3) years from the Effective Date, whichever occurs first, this Section 17.
shall be void and of no further force and effect.
18. GENERAL
18.01 This Agreement may be modified, changed or amended only in a writing
signed by both parties. No employee of either party other than an authorized
officer of that party shall have any actual or apparent authority to modify the
terms of this Agreement.
18.02 The delay or failure of either party to exercise any right provided
herein shall in no way affect its rights at a later time to enforce that right
or any other rights under this Agreement. No waiver shall be effective unless in
writing signed by the waiving party.
18.03 Except as otherwise provided to the contrary herein, all remedies are
cumulative and any specific remedies set forth in this Agreement are
supplemental to any other rights or remedies provided at law, in equity, or
elsewhere in this Agreement.
18.04 If any provision of this Agreement is declared invalid by any lawful
tribunal, then it shall be adjusted to conform to legal requirement of that
tribunal and that modification shall automatically become a part of this
Agreement; or, if no adjustment can be made, the provision shall be deleted as
though never included in this Agreement and the remaining provisions of this
Agreement shall remain in full force and effect.
18.05 WaveMark and Xionics are independent contractors, and neither party shall
be, nor represent itself to be, the joint venturer, franchisor, franchisee,
partner, broker, employee, servant, agent or representative of the other party
for any purpose. Neither party shall be responsible for the acts or omissions of
the other party, and neither party shall have the authority to make any
representations or incur any obligations on behalf of the other party.
18.06 Neither this Agreement nor individual transactions or rights under it
shall be assigned nor shall any obligation be delegated by either party without
the prior written consent of the other; except that either party may freely
assign its rights under this Agreement to its successor in interest in the event
of a merger or other combination with, or a sale of all or substantially all of
its assets to, any third party other than a competitor of the assigning party
listed on Exhibit I.
18.07 Neither party will be liable for any failure or delay in performance due,
in whole or in part, to any cause beyond that party's reasonable control.
18.08 Neither party shall export, either directly or indirectly, software or
technology belonging to the other in violation of the Export Administration
Regulations of the U.S. Department of Commerce. This Section 18.08 shall survive
any termination or expiration of this Agreement indefinitely.
18.09 Except as otherwise specifically provided herein, each notice required or
permitted under this Agreement shall be in writing and signed by a duly
authorized representative of the party initiating the notice, and shall be
delivered by hand or sent by registered or certified mail, return receipt
requested, postage pre-paid, to the following address unless changed by written
notice:
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To WaveMark: WaveMark Technologies, Inc.
70 Blanchard Road
Burlington, MA 01803
Attn: President
To Xionics: Xionics Document Technologies, Inc.
70 Blanchard Road
Burlington, MA 01803
Attn: General Counsel
Each notice shall be effective upon initial receipt by the addressee regardless
of whether notice is rejected.
18.10 This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts, excluding its conflict of laws rules.
Each party consents to the jurisdiction of the state and federal courts sitting
within Massachusetts in any matter arising out of this Agreement.
18.11 The following Exhibits, attached hereto, are incorporated herein and made
a part of this Agreement:
Exhibit A Description of Xionics Programs
Exhibit B Definition of High-Performance Color Printer
Exhibit C List of Strategic Customers and Prospects
Exhibit D Minimum Terms and Conditions for Object Code
Sublicense
Exhibit E Required Form of Royalty Report
Exhibit F Xionics Maintenance Agreement
Exhibit G Xionics Engineering Support Agreement
Exhibit H Form of Warranty
Exhibit I Lists of WaveMark and Xionics Competitors
18.12 This Agreement and its Exhibits are the complete and exclusive statement
of the agreement between the parties and supersede all prior oral and written
agreements, communications, representations, statements, negotiations and
undertakings relating to the subject matter hereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives as of the date first set forth above.
XIONICS DOCUMENT TECHNOLOGIES WAVEMARK TECHNOLOGIES, INC.
INC.
By: /s/ Carolyn E. Ramm By: /s/ Robert Downs
------------------------------ ------------------------------
Name: Carolyn E. Ramm Name: Robert Downs
---------------------------- ----------------------------
Title: VP & General Counsel Title: President
--------------------------- ---------------------------
Date: 6/23/97 Date: 6/23/97
---------------------------- ----------------------------
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Exhibit A
To Cooperative Development And License Agreement
Between Xionics Document Technologies, Inc. And Wavemark Technologies, Inc.
1. STANDARD SOURCE CODE SOFTWARE DELIVERABLES
* DELIVERY AND EMULATION ENVIRONMENT
All XIONICS IPS/2000 deliverables are fully specified in this Exhibit A.
Standard source code will be delivered on SUN tapes unless otherwise
specified. The following outlines the hardware and software that comprise the
XIONICS CORE Development Environment. Changes to this Environment, required
for certain product deliverables, are identified in the appropriate product
deliverable description.
Sun Microsystems' Workstations:
o Sun SPARC or equivalent
o 16 MB RAM minimum
o 1 GB minimum disk storage
o SunOS 4.1 compatible Boot PROM
Printers:
o HP LaserJet 4MP, 4M Plus, 5Si, 5L
o HP Laser Jet 5
o HP Laser Jet 6
o HP Color Laser Jet
o HP DeskJet 1600C(M)
o HP DeskJet 1200C(M)
o Optra C
o Parallel interface on the SPARC
o X.11 driver is included with Source Code
Software:
o SunOS version 4.1
o GNU C compiler version 2.70
XIONICS will deliver to LICENSEE the Programs contained in IPS/2000
Release 2.0, including the following. Any additional programs that may be
included in IPS/2000 Release 2.0 must be licensed separately from XIONICS or
the applicable vendor.
* IPS-PRINT PS2 - POSTSCRIPT LEVEL 2 COMPATIBLE LANGUAGE INTERPRETER
This module contains Source code (C Source capable of running in the XIONICS
Core Development environment) for the black and white, color and contone
versions of IPS-PRINT PS2 (PostScript Level 2 Compatible Language
Interpreter).
TARGETS:
The black and white version is compatible with the Adobe PostScript Language,
Version 2014.108 as implemented in the Hewlett Packard LaserJet 5M.
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The color version is compatible with the Adobe PostScript Language Version
2015 as implemented in the Tektronix Phaser 550.
The contone version is compatible with the Adobe PostScript Language Version
2013 as implemented in the Tektronix II SDX.
The Kanji version is compatible with the Adobe PostScript Language Version
2011 as implemented in the Oki Microline 800 PSIILT for Type 1 format fonts.
Any differences or anomalies between the compatibility targets and the Source
Code will be specifically explained in documentation accompanying the Source
Code deliverable. Targets may change reflecting developments in the market
place.
Caching of patterns in display list form is not implemented. Patterns are
executed as bitmaps or executable PostScript.
Xionics Color PS2 Core Source Code includes a CIE rendering dictionary provided
"as is" for reference only. LICENSEE is not licensed to ship this dictionary and
XIONICS does not support it. LICENSEE must create and tune LICENSEE's default
dictionary for LICENSEE'S particular printer technology and port. The core
reference table will not provide adequate results for CIE tests and XIONICS will
not accept as "bugs" any color differences.
The Xionics PS2 Source Code deliverable package includes:
SOFTBAND
Softband is a high-performance software-only display list/banding architecture
for PostScript printers that may be configured to behave as a full-frame buffer;
or, configured for a reduced memory (RAM) implementation. Using SoftBand, the
Xionics interpreter converts page description commands into a display list. The
display list is then divided into a number of bands which are then sent to the
print engine. In reduced memory configurations, under certain conditions,
depending on the board design and CPU selection, a PostScript job may generate a
complexity error. SoftBand reduces printer complexity errors through a
proprietary bitmap rendering and memory management including compression
techniques. The low memory target for Xionics PS2 (black & white) at 600 dpi is
2 MB. Raster images will run as well as compression allows.
ENHANCED COLOR SCREENING (ECS)
Provided as a configurable option, the XIONICS color screening technique
consists of a series of mathematical algorithms which assign unique parameters
to angles, sizes, and spot functions for creating color halftone images. The
screening eliminates moire patterns. The screening technology also includes a
color transfer function for matching color output to a particular print engine.
Use of the XIONICS Enhanced Color Screening option will produce output which
will appear different from the target.
SUPER MULTIGRAY
Super MultiGray is capable of providing up to 125 levels of gray at 600 dpi.
Super MultiGray provides halftone output which is comparable to the LJ4M+ type 9
half-tone dictionary.
XIONICS PS2-J DOUBLE-BYTE KANJI POSTSCRIPT COMPATIBLE LANGUAGE INTERPRETER
This module contains Source Code (C Source Code capable of running in the
XIONICS Core Development environment) for the Xionics PS2-J/PLI (Kanji
PostScript Compatible Language Interpreter). The black and
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white and color versions are compatible with the Adobe Version 2011 as
implemented in the Oki Microline 800 PSII LT. (There is no separate color Kanji
compatibility target.) The Xionics PS2-J/PLI (Kanji) Source code supports
PostScript Level 2 language features as identified in the Xionics PS2/PLI
product description plus: Composite Font Extensions and Disk Management
Capabilities providing support for Kanji font sets and vertical writing. Xionics
PS2-J/PLI includes support for Bitstream Ryobi resident fonts and Adobe
Morisawa, NIS and TypeBank downloaded fonts.
QUALITY
IPS-PR1NT PS2 Source Code passes the Genoa Application Test Suite (ATS) and
Functional Test Suite (FTS). This release has also been tested using the Genoa
Command Emulation Test (CET) suite. Genoa's CET is used in conjunction with
XIONICS tests to test the IPS-PRINT core Software for each release. The Genoa
Command Evaluation Tests (CET) are run and reviewed for software crashes and
noticeable visual anomalies only. The CET is a hand coded language probe
developed as an engineering tool designed to stress the technology beyond the
capabilities of commercially available software. No emulation software is
capable of successfully passing 100% of the CET test suite. Genoa's CET is not
used to test PS2 ports. Testing results are provided with Source Code
documentation.
* IPS-P IN SIX- PCL 6 (PCL5E + PCL XL) COMPATIBLE LANGUAGE INTERPRETER
This module contains Source Code (C Source Code capable of running in the
XIONICS IPS-PRINT Core Development environment) for the IPS-PR1NT SIX (PCL 6
compatible) interpreter.
The IPS-PRINT SIX monochrome interpreter code is compatible with the
Hewlett-Packard PCL 6 (PCL 5E+XL) printer control language as defined in the HP
PCL XL Feature Reference Manual (revision 1.0, BLD 4600) and implemented in the
Hewlett-Packard LaserJet 5 printer. IPS-PRINT PCL SIX may, however, emulate any
resolved problems in PCL 6 (PCL 5E+XL) as implemented in the LaserJet 6P.
IPS-PRINT SIX IS A MONOCHROME INTERPRETER. HENCE EVEN THOUGH XIONICS' COLORPAGE
EMULATION OF PCL5C IS INCLUDED IN THE STANDARD PCl5E SOURCE CODE DELIVERABLES,
OEMs SHOULD NOT EXPECT TO IMPLEMENT IT AS PART OF A PCL SIX IMPLEMENTATION.
The low memory target for the IPS-PRINT SIX interpreter is 2 MB at 600 dpi and
emulates the Hewlett-Packard LaserJet 6P for memory usage. For low memory, the
XIONICS software implements numerous functions comparable to HP's MET technology
including its patented SoftBand technology. SoftBand is a high-performance
software-only display list/banding architecture for printers that may be
configured to behave as a full-frame buffer; or, configured for a reduced memory
(RAM) implementation. Using SoftBand, the IPS-PRINT interpreter converts page
description commands into a display list. The display list is then divided into
a number of bands which are then sent to the print engine. In reduced memory
configurations, under certain conditions, depending on the board design and CPU
selection, a PCL job may generate a complexity error. SoftBand reduces printer
complexity errors through a proprietary bitmap rendering and memory management
including compression techniques and complexity metrics. (Actual low memory
behavior depends on many factors, such as driver settings, engine speed and
controller performance. XIONICS tests the IPS-PRINT SIX interpreter on a SUN
workstation simulating the LaserJet 6P environment.)
There is no support for HP Macro font cartridges (custom cartridges that contain
PCL5E macro definitions for customer-provided forms) and flash in the standard
product.
The PCL 6 (PCL 5E+XL) language is basically resolution independent including
support for non-square resolutions.
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Xionics tests IPS-PRINT SIX on printers with standard resolutions of 300 dpi and
600 dpi only. There will be issues that will have to be considered by the OEM in
implementing PCL 6 (PCL 5E+XL) on a non-standard resolution including driver
implications.
QUALITY
IPS-PRINT SIX Source Code passes the Genoa Application Test Suite (ATS) and
Functional Test Suite (FTS). The Genoa Command Evaluation Tests (CET) are run
and reviewed for software crashes and noticeable visual anomalies only. The CET
is a hand coded language probe developed as an engineering tool designed to
stress the technology beyond the capabilities of commercially available
software. Genoa's CET is used in conjunction with XIONICS tests to exhaustively
test the IPS-PRINT SIX core Software for each release. No emulation software is
capable of successfully passing 100% of the CET test suite. Genoa's CET is not
used to test PCL 6 (XL) ports. Testing results are provided with Source Code
documentation.
IPS-PRINT SIX incorporates the IPS-PRINT PCL FIVE-E PCL5E Compatible Language
Interpreter, described as follows:
* IPS-PRINT- PCL FIVE-E AND COLORPAGE - PCL 5E AND 5C COMPATIBLE LANGUAGE
INTERPRETER
This module contains Source Code (C Source Code capable of running in the
XIONICS IPS-PRINT-PRINT Core Development environment) for the IPS-PRINT
FIVE-E (PCL 5E compatible) and ColorPage (PCL 5C compatible) interpreters.
The IPS-PR1NT PCL FIVE-E monochrome interpreter code is compatible with the
Hewlett-Packard PCL 5E printer control language as defined in the HP PCL5
Printer Language Technical Reference Manual (manual part no. 5961-0509) and
implemented in the Hewlett-Packard LaserJet 4P and 4+ laser printers. The
LJ4P is the target for the graphics model, anchor comer and all other
relevant features except any LJ4P bugs addressed in the L J4+.
The low memory target for the IPS-PRINT FIVE-E interpreter is 1 MB at 600 dpi
and emulates the Hewlett-Packard Laser Jet 5L for memory usage and font
selection only. For low memory, the XIONICS software implements numerous
functions comparable to HP's MET technology including its patented SoftBand
technology. SoftBand is a high-performance software-only display list/banding
architecture for printers that may be configured to behave as a full-frame
buffer; or, configured for a reduced memory (RAM) implementation. Using
SoftBand, the IPS-PRINT interpreter converts page description commands into a
display list. The display list is then divided into a number of bands which
are then sent to the print engine. In reduced memory configurations, under
certain conditions, depending on the board design and CPU selection, a PCLjob
may generate a complexity error. SoftBand reduces printer complexity errors
through a proprietary bitmap rendering and memory management including
compression techniques and complexity metrics. (Actual low memory behavior
depends on many factors, such as driver settings, engine speed and controller
performance. XIONICS has tested the IPS-PRINT PCL FIVE-E interpreter on a SUN
workstation simulating the 5L environment and has achieved overall fewer
complexity problems than the standard LJ5L printer.)
ColorPage is a one bit, sequential, four color plane implementation of the
PCL 5C interpreter as defined in the Hewlett Packard PCL 5 Technical
Reference Manual (manual part no. 5961-0509) and the Hewlett Packard Color
Technical Reference Manual (manual part no. 5961-0635). The ColorPage
interpreter code is compatible with the Hewlett-Packard PCL 5C printer
control language as implemented in the Color LaserJet (primary) and 1600C
(secondary). There are some features specific to the HP color printers that
are NOT fully supported in ColorPage(level of support is detailed in the
Source Code documentation):
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o Device independent color (Color Laser Jet)
o Arbitrary clipping path (1600c)
o CMYK color raster transfer (1600c)
Unlike the HP color printers which only print color images at 300 dpi,
ColorPage supports both 300 and 600 dpi resolution for color imaging. For
this reason, XIONICS used the Lexmark Optra C (non-contone) for 600 dpi only
testing. The printer were used to generate test output from the Genoa ATS and
FTS suites. Visual differences arising from the features not emulated in
ColorPage were studied and documented.
For low memory, the ColorPage software implements numerous functions
equivalent to the FIVE-E. The low memory target for ColorPage is 6MB at
600 dpi.
There is no support for HP Macro font cartridges (custom cartridges that
contain PCL5E macro definitions for customer-provided forms) in the standard
product.
IPS-PRINT FIVE-E and ColorPage will operate on printers with standard
resolutions of 300 dpi and 600 dpi. While the PCL language does not
inherently support other resolutions including non-square resolutions,
XIONICS has made every effort to keep its PCL interpreters resolution
independent. There will be issues that will have to be considered by the OEM
in implementing PCL on a non-standard resolution such as rescaling rasters,
bitmap fonts, built-in and user-defined fill patterns. XIONICS offers and
maintains a 400 dpi fixed resolution monochrome configuration which is
available upon specific request.
QUALITY
IPS-PRINT FIVE-E Source Code passes the Genoa Application Test Suite (ATS)
and Functional Test Suite (FTS). The Genoa Command Evaluation Tests (CET) are
run and reviewed for software crashes and noticeable visual anomalies only.
The CET is a hand coded language probe developed as an engineering tool
designed to stress the technology beyond the capabilities of commercially
available software. Genoa's CET is used in conjunction with XIONICS tests to
exhaustively test the IPS-PRINT FIVE-E core Software for each release. No
emulation software is capable of successfully passing 100% of the CET test
suite. Genoa's CET is not used to test PCL 5E ports. Testing results are
provided with Source Code documentation.
ColorPage is tested using the PCL 5C Genoa Application Test Suite (ATS) and
Functional Test Suite (FTS). Genoa used the HP Color LaserJet when modeling
these tests. The Command Evaluation Tests (CET) are run and reviewed for
crashes and noticeable visual anomalies only. The CET is a hand coded
language probe developed as an engineering tool designed to stress the
technology beyond the capabilities of commercially available software.
Genoa's CET is used in conjunction with XIONICS tests to exhaustively test
the IPS-PRINT ColorPage core Software for each release. No emulation software
is capable of successfully passing 100% of the CET test suite. Genoa's CET is
not used to test PCL 5C ports. The test suites are run through the ColorPage
emulation and output at both 300 DPI and 600 DPI. In addition, XIONICS has
developed a test suite specifically for exercising 600 dpi resolution. Test
results are provided with Source Code documentation.
* IPS Architecture and Page Description Interface (PDI)
IPS-PRiNT software includes source code (C source capable of running in the
Xionics Core Development environment) for the IPS Architecture components:
XIONICS-supplied Hardware Services, Systems Programming Interface (SPI),
System and Control Services, and Applications 'Programming Interface (API).
Hardware services are required to provide the basic operating system services
and device drivers.
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Hardware Services supplied are Tasking Services subsystem and an interface
for the ISI(TM) pSOS operating system.
The SPI provides functions for calling the various hardware dependent and
real-time software modules. The SPI is a standard interface that separates
all calls, control and data that comprise the hardware services from the rest
of the system. The System and Control Services are a set of process and
control functions for imaging applications. IPS Control Services provide
detailed sequencing, system policy and administrative services to the system
and include: state manager, sniffer, control panel and PJL. System services
supplies functions that are common to printer description languages including
print queue manager, options manager, output drivers, memory manager, time
and timers, and file system.
The IPS API is a set of functions that provides an interface between the
Print interpreter and the System and control Services.
IPS-PRINT software also includes source code for the IPS Page Description
Interface (PDI). The PDI is a library of modules which provide the imaging
functions for the Print interpreters.
* IPS-PRINT PJL
This module within the Control Services component of the IPS Architecture
contains Source Code (C Source Code capable of running in the XIONICS
IPS-PRINT Core Development environment) for the PJL (Printer Job Language)
emulation as defined in Hewlett-Packard Printer Job Language Reference Manual
(manual part number 5010-3999 and implemented in the Hewlett-Packard LaserJet
5Si. Many of the PJL commands and environment variables are implementation
specific and as such are not fully supported in the Sun Source Code. These
differences are identified in the IPS-PRINT documentation and release notes.
* COMMONSENSE (IPS-PRINT EMULATION SENSING/SWITCHING)
IPS-PRINT CommonSense evaluates the data stream generated by the printer
driver and switches between PostScript Level 2 and PCL. When the PostScript
interpreter is running, the input stream is evaluated after a set of defined
events. These events include, for example, CTRL-D, time-out and front panel
reset. Likewise, when the PCL interpreter is running, the input stream is
evaluated after a set of defined events; including, for example, ESC E,
implicit or explicit form-feed, front panel reset.
* PS-PRINT PRINTER EXPANSION PORT (PEP)
The Printer Expansion Port Module contains Source Code (C Source Code capable
of running in the XIONICS Core Development environment) that provides a
standard mechanical, electrical and protocol interface between an optional
expansion card and the printer. This interface is defined by the Printer
Expansion Port Specification as published by Digital Products, Inc. A variety
of expansion card designs are possible. The initial implementation is a
network interface card supporting 10Base2 and 10BaseT networks with Novell
NetWare, EtherTalk and TCP/IP protocols. The Printer Expansion Port Module is
integrated into the IPS-PRINT Supervisor and may be implemented in any
printer operating environment. A porting guide is provided for this purpose.
2. FONT RENDERERS AND FONT SETS
Fonts are delivered solely for development purposes only and may not be
sub-licensed or shipped by LICENSEE until LICENSEE has obtained a license
from the appropriate font vender.
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A. TRUETYPE RENDERER
This module contains the TrueType Font Renderer that processes fully hinted,
resident or downloaded TrueType fonts.
B. BITSTREAM TRUEDOC FONT RENDERER AND POSTSCRIPT FONT SET MADE UP OF THE
FOLLOWING 35 FONTS:
The list contains the names which should be used in marketing materials. The
names in parenthesis are Bitstream's generic names which appear in the header
portion of the TrueDoe font files. The names in parenthesis are not for
publication.
1. Dutch 801 Roman
2. Dutch 801 Bold
3. Dutch 801 Italic
4. Dutch 801 Bold Italic
5. Swiss 721 Roman
6. Swiss 721 Oblique
7. Swiss 721 Bold
8. Swiss 721 Bold Oblique
9. Courier Roman (Monospace 850 Courier)
10. Courier Italic (Monospace 850 Courier Bold)
11. Courier Bold (Monospace 850 Courier Oblique)
12. Courier Bold Italic (Monospace 850 Courier Bold Oblique)
13. Symbol Set (Pi Font)
14. Century Schoolbook Roman (Century 702 Century Schoolbook)
15. Century Schoolbook Italic (Century 702 Century Schoolbook Italic)
16. Century Schoolbook Bold (Century 702 Century Schoolbook Bold)
17. Century Schoolbook Bold Italic (Century 702 Century Schoolbook Bold
Italic)
18. ITC Bookman Demibold (Revival 711 ITC Bookman Demi)
19. ITC Bookman Demibold Italic (Revival 711 ITC Bookman Demi Italic)
20. ITC Bookman Light (Revival 711 ITC Bookman Demi Light)
21. ITC Bookman Light Italic (Revival 711 ITC Bookman Demi Light Italic)
22. Swiss 721 Narrow Roman
23. Swiss 721 Narrow Oblique
24. Swiss 721 Narrow Bold
25. Swiss 721 Narrow Bold Oblique
26. ITC Avant Garde Gothic Book (Geometric 711 ITC Avant Garde Gothic Book)
27. ITC Avant Garde Gothic Book Oblique (Geometric 711 ITC Avant Garde
Gothic Book Oblique)
28. ITC Avant Garde Gothic Demibold (Geometric 711 ITC Avant Garde Gothic
Book Demi)
29. ITC Avant Garde Gothic Demibold Oblique (Geometric 711 ITC Avant Garde
Gothic Book Demi Oblique)
30. ITC Zapf Chancery Medium (Chancery 801 ITC Zapf Chancery Medium Italic)
31. ITC Zapf Dingbats
32. Zapf Calligraphic 801 Roman
33. Zapf Calligraphic 801 Italic
34. Zapf Calligraphic 801 Bold
35. Zapf Calligraphic 801 Bold Italic
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C. BITSTREAM TRUEDOC FONT RENDERER AND LASERJET 5L PCL 5E FONT SET MADE UP
OF THE following 26 FONTS:
The list contains the names which should be used in marketing materials. The
names in parenthesis are Bitstream's generic names which appear in the header
portion of the TrueDoc font files. The names in parenthesis are not for
publication.
1. Dutch 801 SWC (CG Times)
2. Dutch 801 Italic SWC (CG Times Italic)
3. Dutch 801 Bold SWC (CG Times Bold)
4. Dutch 801 Bold Italic SWC (CG Times Bold Italic)
5. Swiss 742 SWC (Univers)
6. Swiss 742 Italic SWC (Univers Italic)
7. Swiss 742 Bold SWC (Univers Bold)
8. Swiss 742 Bold Italic SWC (Univers Bold Italic )
9. Swiss 742 Condensed SWC (Univers Medium Condensed)
10. Swiss 742 Condensed Italic SWC (Univers Condensed Italic)
11. Swiss 742 Bold Condensed SWC (Univers Bold Condensed)
12. Swiss 742 Bold Condensed Italic SWC (Univers Bold Condensed Italic)
13. Fixed Pitch 810 Courier Roman SWC (Courier Medium)
14. Fixed Pitch 810 Courier Italic SWC (Courier Italic)
15. Fixed Pitch 810 Courier Bold SWC (Courier Bold)
16. Fixed Pitch 810 Courier Bold Italic SWC (Courier Bold Italic)
17. Fixed Pitch 810 Letter Gothic 12 pitch/text SWC (Letter Gothic Regular)
18. Fixed Pitch 850 Letter Gothic Italic 12 pitch/text SWC (Letter Gothic
Italic)
19. Fixed Pitch 850 Letter Gothic Bold 12 pitch/text SWC (Letter Gothic
Bold) 20. Flareserif 821 SWC (Albertus)
21. Flareserif 821 Extra Bold SWC (Albertus Extra Bold)
22. Incised 901 SWC (Antique Oliver Medium)
23. Incised 901 Italic SWC (Antique Olive Italic)
24. Incised 901 Bold SWC (Antique Olive Bold)
25. Ribbon 131 SWC (Coronet)
26. Wingbats SWM (Wingdings)
D. BITSTREAM TRUEDOC FONT RENDERER AND LASER JET 4 PCL 5E FONT SET MADE UP
OF THE FOLLOWING 45 FONTS:
The list contains the names which should be used in marketing materials. The
names in parenthesis are Bitstream's generic names which appear in the header
portion of the TrueDoc font files. The names in parenthesis are not for
publication.
1. Dutch 801 SWC (CG Times)
2. Dutch 801 Italic SWC (CG Times Italic)
3. Dutch 801 Bold SWC (CG Times Bold)
4. Dutch 801 Bold Italic SWC (CG Times Bold Italic)
5. Swiss 742 SWC (Univers)
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<PAGE> 114
6. Swiss 742 Italic SWC (Univers Italic)
7. Swiss 742 Bold SWC (Univers Bold)
8. Swiss 742 Bold Italic SWC (Univers Bold Italic )
9. Swiss 742 Condensed SWC (Univers Medium Condensed)
10. Swiss 742 Condensed Italic SWC (Univers Condensed Italic)
11. Swiss 742 Bold Condensed SWC (Univers Bold Condensed)
12. Swiss 742 Bold Condensed Italic SWC (Univers Bold Condensed Italic)
13. Fixed Pitch 8l0 Courier Roman SWC (Courier Medium)
14. Fixed Pitch 8l0 Courier Italic SWC (Courier Italic)
15. Fixed Pitch 810 Courier Bold SWC (Courier Bold)
16. Fixed Pitch 810 Courier Bold Italic SWC (Courier Bold Italic)
17. Fixed Pitch 850 Letter Gothic 12 pitch/text SWC (Letter Gothic Regular)
18. Fixed Pitch 850 Letter Gothic Italic 12 pitch/text SWC (Letter Gothic
Italic)
19. Fixed Pitch 850 Letter Gothic Bold 12 pitch/text SWC (Letter Gothic
Bold)
20. Flareserif 821 SWC (Albertus)
21. Flareserif 821 Extra Bold SWC (Albertus Extra Bold)
22. Incised 901 SWC (Antique Oliver Medium)
23. Incised 901 Italic SWC (Antique Olive Italic)
24. Incised 901 Bold SWC (Antique Olive Bold)
25. Clarendon 701 Clarendon Condensed SWC (Clarendon Condensed)
26. Ribbon 131 SWC (Coronet)
27. Aldine 430 Original Garamond SWC (Garamond)
28. Aldine 430 Original Garamond Italic SWC (Garamond Italic)
29. Aldine 430 Original Garamond Bold SWC (Garamond Bold)
30. Aldine 430 Original Garamond Bold Italic (Garamond Bold Italic)
31. Audrey Two SWC (Marigold)
32. Zapf Humanist 601 SWC (CG Omega)
33. Zapf Humanist 601 Italic SWC (CG Omega Italic)
34. Zapf Humanist 601 Bold SWC (CG Omega Bold)
35. Zapf Humanist 601 Bold Italic SWC (CG Omega Bold Italic)
36. Swiss 721 SWM (Arial)
37. Swiss 721 Bold SWM (Arial Bold)
38. Swiss 721 Italic SWM (Arial Italic)
39. Swiss 721 Bold Italic SWM (Arial Bold Italic)
40. Dutch 801 Roman SWM (Times New Roman)
41. Dutch 801 Roman Italic SWM (Times New Roman Italic)
42. Dutch 801 Roman Bold SWM (Times New Roman Bold)
43. Dutch 801 Roman Bold Italic SWM (Times New Roman Bold Italic)
44. Symbol SWM (Symbol)
45. Wingbats SWM (Wingdings)
E. AGFA MICROTYPE FONT RENDERER AND POSTSCRIPT FONT SET MADE UP OF THE
FOLLOWING 35 FONTS:
1. Times Roman
2. Times Bold
3. Times Italic
4. Times Bold Italic
5. Helvetica Roman
6. Helvetica Oblique
26
<PAGE> 115
7. Helvetica Bold
8. Helvetica Bold Oblique
9. Courier
10. Courier Bold
11. Courier Oblique
12. Courier Bold Oblique
13. Symbol
14. New Century Schoolbook Roman
15. New Century Schoolbook Italic
16. New Century Schoolbook Bold
17. New Century Schoolbook Bold Italic
18. ITC Bookman Demi
19. ITC Bookman Demi Italic
20. ITC Bookman Light
21. ITC Bookman Light Italic
22. Helvetica Narrow
23. Helvetica Narrow Oblique
24. Helvetica Narrow Bold
25. Helvetica Narrow Bold Oblique
26. ITC Avant Garde Gothic Book
27. ITC Avani Garde Gothic Book Oblique
28. ITC Avant Garde Gothic Demi
29. ITC Avant Garde Gothic Demi Oblique
30. ITC Zapf Chancery Medium Italic
31. ITC Zapf Dingbats
32. Palatino
33. Palatino Bold
34. Palatino Bold Italic
35. Palatino Italic
F. AGFA MICROTYPE FONT RENDERER AND LASER JET 5L PCL 5E DIGITAL FONT SET
MADE UP OF THE FOLLOWING 26 FONTS:
1. CG Times
2. CG Times Italic
3. CG Times Bold
4. CG Times Bold Italic
5. Univers Medium
6. Univers Medium Italic
7. Univers Bold
8. Univers Bold Italic
9. Univers Medium Condensed
10. Univers Medium Condensed Italic
11. Univers Bold Condensed
12. Univers Bold condensed Italic
13. Courier
14. Courier Italic
15. Courier Bold
16. Courier Bold Italic
27
<PAGE> 116
17. Letter Gothic
18. Letter Gothic Italic
19. Letter Gothic Bold
20. Albertus
21. Albertus Extra Bold
22. Antique Olive Medium
23. Antique Olive Italic
24. Antique Olive Bold
25. Wingdings
26. Coronet Italic
G. AGFA MICROTYPE FONT RENDERER AND LASERJET 4 PCL 5E FONT SET MADE UP OF
THE FOLLOWING 45 FONTS:
1. CG Times
2. CG Times Italic
3. CG Times Bold
4. CG Times Bold Italic
5. Univers Medium
6. Univers Medium Italic
7. Univers Bold
8. Univers Bold Italic
9. Univers Medium Condensed
10. Univers Medium Condensed Italic
11. Univers Bold Condensed
12. Univers Bold Condensed Italic
13. Courier
14. Courier Italic
15. Courier Bold
16. Courier Bold Italic
17. Letter Gothic
18. Letter Gothic Italic
19. Letter Gothic Bold
20. Albertus
21. Albertus Extra Bold
22. Antique Olive Medium
23. Antique Olive Italic
24. Antique Olive Bold
25. Clarendon Bold Condensed
26. Coronet Italic
27. Garamond Antiqua
28. Garamond Antiqua Kursiv
29. Garamond Antiqua Halbfett
30. Garamond Antiqua Halbfett Kursiv
31. Marigold
32. CG Omega
33. CG Omega Italic
34. CG Omega Bold
35. CG Omega Bold Italic
28
<PAGE> 117
36. Arial
37. Arial Italic
38. Arial Bold
39. Arial Bold Italic
40. Times New Roman
41. Times New Roman Italic
42. Times New Roman Bold
43. Times New Roman Bold Italic
44. Symbol
45. Wingdings
H. BITMAP FONTS FOR PCL 5E EMULATION (300 DPI) CONSISTING OF:
1. Line Printer Medium, 16.67 Pitch/8.5 Point
I. HP-GL STICK FONT FOR GL OR PCL 5 EMULATION
1. Non-proportional
2. Proportional
J. BITSTREAM/RYOBI KANJI FONT SET MADE UP OF THE FOLLOWING 2 FONTS
(POSTSCRIPT COMPOSITE TYPE 1):
1. Mincho
2. Gothic
K. HANYANG HANGUL FONT SET MADE UP OF THE FOLLOWING FONTS (TRUETYPE
FORMAT):
1. Myungjo Composite
2. Sammul Composite
3. Gothic Composite
4. HanYang Myungjo
5. HanYan Sammul
6. HanYang Gothic.
3. CERTIFICATION
The IPS-PRINT Certification Process is designed to verify that the OEM's
product containing XIONICS' Source Program, or Source Code of the Custom Port
meets XIONICS' compatibility/quality standards. Acceptance authorizes the OEM
to begin shipping product and to use the XIONICS trademarked names and
XIONICS logo with the product and in related advertising, promotion,
marketing, and sales materials.
Certification is a requirement and the OEM may be required to participate in
the process by performing portions of the tests. The OEM has the option to
submit either hard-copy output or the actual device(s) for Certification,
either to XIONICS or WAVEMARK.
The OEM is required to deliver the OEM's product or hard-copy output four (4)
weeks prior to the OEM first customer shipment. XIONICS requires four (4)
weeks to conduct the Certification Process. Should the OElX/I opt to submit
the OEM's product, then the OEM must provide Four (4) hardware units (along
with an adequate supply of toner and paper as well as any options such as
paper trays to properly execute the
29
<PAGE> 118
testing) for certification of the product. These units will be returned to
the OEM upon completion of the certification.
At a minimum, Certification includes:
1. Execute selected tests on the OEM's product
2. Validate output against XIONICS' Core software
3. Tabulate performance
4. Document errors and differences in the form of bug reports
5. Receipt of font certification letter from the Font Vender (OEM
responsible for obtaining certification tests and providing the
certification letter from the Font Vender to XIONICS)
6. Prepare test report indicating Certification acceptance or rejection
XIONICS will identify compatibility errors and submit test reports to the
OEM. After fixing bugs, the OEM will re-submit the OEM's product for final
Certification. If the OEM's product fails the second pass, then the OEM will
be charged on a Time-and-Materials (T&M) basis for the certification work
performed on the re-submitted product and for any additional certification
work performed by XIONICS. All additional certifications are provided on a
T&M basis for all submissions.
CET TEST SUITES
XIONICS does not use Genoa's CET to test specific IPS-PRINT ports. The CET is
a hand coded language probe developed as an engineering tool and in many
cases go beyond the capabilities of commercially available software. Genoa
cautions the use of the CET as an acceptance tool and has explicitly stated
no printer emulation can pass all of the CET. IPS-PRINT, including XIONICS
FIVE-E, ColorPage and PS2 core software has been thoroughly tested with CET
and any known errors do not impact reasonable real world application's usage.
If the OEM chooses to include CET as part of its internal QA testing of the
IPS-PRINT port and identifies bugs, XIONICS will investigate them if
properly documented and reported. CET bugs must be reproducible in a
commercially shipping software application. The OEM must reference in the
report the name of the software application package which simulates the CET
bug.
30
<PAGE> 119
Exhibit B
to Cooperative Development and License Agreement
between Xionics Document Technologies, Inc. and WaveMark Technologies, Inc.
DEFINITION OF HIGH-PERFORMANCE COLOR PRINTER
Year
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEAR SINGLE BIT CONTONE
SPEED IN PPM MB PER PAGE SPEED IN PPM MB PER PAGE
1997 4 ppm 16 MB 3 ppm 64 MB
1998 5 ppm 16 MB 4 ppm 64 MB
1999 6 ppm 16 MB 5 ppm 64 MB
2000 8 ppm 16 MB 6 ppm 64 MB
</TABLE>
31
<PAGE> 120
Exhibit C
to Cooperative Development and License Agreement
between Xionics Document Technologies, Inc. and WaveMark Technologies, Inc.
LIST OF STRATEGIC CUSTOMERS/PROSPECTS
Lexmark
Xerox
Hewlett-Packard
IBM
Sharp
Fuji Xerox
NEC
Canon
Minolta
Ricoh
Mita
32
<PAGE> 121
Exhibit D
to Cooperative Development and License Agreement
between Xionics Document Technologies, Inc. and WaveMark Technologies, Inc.
MINIMUM TERMS AND CONDITIONS FOR OBJECT CODE SUBLICENSE
- - Use restrictions as in Section 4.02(a)
- - Confidentiality provisions as in Section 8.01
- - Restrictions on reverse engineering as in Section 4.03(f) (second sentence)
- - Warranty and disclaimer as in Exhibit H, Section II
- - Limitation of liability as in Exhibit H, Section II
- - Government rights clause, as follows:
"U.S. GOVERNMENT RESTRICTED RIGHTS
This software and documentation are provided with RESTRICTED RIGHTS. Use,
duplication or disclosure by the U.S. Government is subject to restrictions
as set forth in subparagraph (c)(1)(iii) of the Rights in Technical Data and
Computer Software clause at DFARS 252.227-7013 or subparagraphs (c)(1) and
(2) of Commercial Computer Software - Restricted Rights at 48 CFR 52.227-19,
as applicable. Contractor/manufacturer is Xionics Document Technologies,
Inc./70 Blanchard Road/Burlington, MA 01803."
- - Export restrictions as in Section 18.08
33
<PAGE> 122
Exhibit E
to Cooperative Development and License Agreement
between Xionics Document Technologies, Inc. and WaveMark Technologies, Inc.
REQUIRED FORM OF ROYALTY REPORT
_________("Payor") represents and warrants to__________ ("Payee") that the
following is a true and accurate accounting of units of ___ Xionics Programs ___
other products(please specify below) reported shipped by Payor's OEMs during the
reporting period shown below.
OEM Name (please use a separate page for each OEM): ________________________
Date of Contract: _______________________________________________
Reporting Period: _______________________________________________
CALCULATION OF PER-UNIT ROYALTIES DUE
<TABLE>
<CAPTION>
OEM Device Royalty-Bearing Per-Unit Royalty** Total No. of Units Total Per-
(Name/Model) Product(s) of Payee Shipped Unit
Included* Royalties
Earned
<S> <C> <C> <C> <C>
1.
2.
3.
4.
5.
</TABLE>
* If any third-party products have been sublicensed to OEMs by Payor, as
reflected in Exhibit A, please complete tire attached worksheet and use the
resulting numbers to complete this table.
CALCULATION OF PREPAID ROVALTY BALANCE **
<TABLE>
<CAPTION>
<S> <C>
(1) Payor's Prepaid Royalty Balance with Payee: $_____________
(2) Total Royalties Earned During Reporting Period: $_____________
(3) Remaining Prepaid Royalty Balance (if line 1 exceeds line 2): $_____________
or
(4) Amount Due with this Report (if line 2 exceeds line 1): $_____________
</TABLE>
I HEREBY CERTIFY THAT THE ABOVE REPORT IS ACCURATE AND COMPLETE.
____________________________________
Authorized Signature
Print Name: ________________________ Title:_______________ Date:____________
34
<PAGE> 123
Exhibit E, page two
THIRD-PARTY ROYALTY WORKSHEET
Instructions: Please complete this worksheet only if you have sublicensed
third-party products through XIONICS, as reflected in Exhibit A, and such
third-party products are included in the OEM Device(s) for which shipments are
reported in the attached royalty report. Please complete a separate worksheet
for each separate OEM Device included in the report.
OEM Device (Name/Model): __________________________
Third-Party Products Included:
<TABLE>
<CAPTION>
<S> <C> <C>
Check If Applicable Third-Party Product Included Applicable Third-Party Per-
Unit License Fee
ISI pSOS $
Fonts (please specify font set) $
Other (please specify) $
TOTAL THIRD-PARTY $
FEES for this Device:
Total Third-Party Fees for this Device: $______________
plus
+
Royalty on Payee's Programs included in this OEM Device: $______________
Total Royalty per unit for this OEM Device:
(please enter this number in Column 3 of
attached report) $______________
</TABLE>
<PAGE> 124
Exhibit F
to Cooperative Development and License Agreement
between Xionics Document Technologies, Inc. and WaveMark Technologies, Inc.
Rev. 5/9/97
IPS-PRINT(TM)
SOFTWARE MAINTENANCE AGREEMENT
MAINTENANCE PLUS PROGRAM
This IPS-PRINT(TM) SOFTWARE MAINTENANCE AGREEMENT (the "Agreement") is entered
into as of June __, 1997 (the "Effective Date"), by and between Xionics
Document Technologies, Inc., ("XIONICS") and WaveMark Technologies, Inc.
("LICENSEE").
LICENSEE has licensed the source code of certain of XIONICS' IPS-PR1NT printer
language interpreter software programs (the "Programs") from XIONICS under a
Cooperative Development and License Agreement of even date herewith (the
"License Agreement"). XIONICS agrees to provide maintenance services for the
Programs, beginning with IPS-PRINT Release No. 1.0, on the terms and conditions
set forth below.
1. MAINTENANCE
XIONICS shall provide the following maintenance deliverables and services to
LICENSEE during the term of this Agreement:
1.01 UPDATES. An Update is an updated release of a standard XIONICS Program,
having a higher number to the right of the decimal point in its release
number than the release of that Program previously delivered to LICENSEE,
which is delivered by XIONICS to its maintenance customers generally from
time to time for the purpose of enhancing existing features of the
Program, incorporating changes to industry standards with which the
Program is compatible, and correcting problems identified by XIONICS and
its customers since the last Update. XIONICS will deliver Updates to
LICENSEE when and as they become available, and expects to deliver an
average of two Updates per Program per year.
1.02 MAINTENANCE PATCH RELEASES. A Maintenance Patch Release is an update to
one or more source code files of a standard XIONICS Program to correct a
specific problem or problems that may or may not be known to LICENSEE. It
consists of documentation describing each problem and its solution,
access to modified source files containing the solution, and a
description of a test procedure to confirm the solution. XIONICS will
deliver Maintenance Patch Releases from time to time, as XIONICS
determines that they are necessary or desirable.
1.03 RAPID RESPONSE RELEASES. A Rapid Response Release is a correction for a
single, specific source code problem in a Program, as delivered to
LICENSEE by XIONICS, which is identified and reported in writing by
LICENSEE and determined by XIONICS to be of a high-priority nature.
LICENSEE will cooperate with XIONICS in identifying, verifying,
classifying and correcting such problems on a high-priority basis.
XIONICS will deliver Rapid Response Releases, in the form of modified
source code files, as they are completed. Problems which XIONICS
determines are not high-priority problems will be considered for
resolution in Maintenance Patch Releases and/or Updates.
1.04 TRAINING. This Agreement entitles LICENSEE to send up to three (3)
engineers to one of XIONICS' periodic scheduled Porting Seminars
held at XIONICS' headquarters. LICENSEE's
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<PAGE> 125
engineers shall be entitled to attend those classroom modules of each
Porting Seminar which relate to the Programs covered by the License
Agreement. Porting Seminar attendance must occur while this Agreement
remains in effect. LICENSEE will be responsible for its employees'
expenses of attending the Porting Seminar. LICENSEE may purchase
additional training at a discount of 20% of XIONICS' then-current
standard day rate for training for up to three (3) engineers.
1.05 TECHNICAL SUPPORT, XIONICS will provide up to ten (10) base hours of
technical support services, plus an additional ten (10) hours for each
IPS-PRINT Program (IPS-PRIN PS2 and/or IPS-PRINT PCL) described in the
License Agreement, for a total of twenty (20) hours for one IPS-PRINT
Program or thirty (30) hours for both IPS-PRINT Programs. Support
services will be provided during XIONICS' normal business hours (8:30
a.m. - 5:00 p.m. EST) and will consist of researching and responding to
LICENSEE's verbal and/or written questions about the Programs' workings,
by telephone, fax, or electronic mail. XIONICS will acknowledge all
requests for support services within two (2) business days. XIONICS will
account for its time spent in providing support services in increments of
thirty (30) minutes, and will provide LICENSEE with a monthly report of
the time used to date. Such reports will be sent within two (2) weeks
after the end of each month. XIONICS' obligation to provide such reports
will end when all available time has been used or upon expiration of this
Agreement, whichever is earlier.
1.06 PROJECT MANAGEMENT. Xionics will assign a Project Manager to LICENSEE's
maintenance account, to be responsible for ensuring delivery of all of
the deliverables and services described above.
2. ANNUAL MAINTENANCE FEES
In consideration of LICENSEE's performance under the License Agreement, all
maintenance fees are hereby waived for the first contract year and any year
thereafter if, in the foregoing year, XIONICS' revenue derived from its
relationship with LICENSEE is at least three times XIONICS' then-current
standard annual maintenance fee. XIONICS may thereafter charge LICENSEE for
maintenance at a reasonable rate not to exceed XIONICS' then-current standard
maintenance fee for the Maintenance Plus Program.
3. TERM
This Maintenance Agreement shall remain in effect for so long as the License
Agreement remains in effect.
4. ELIGIBILITY
4.01 Only the Program release shown at the beginning of this Agreement and
later releases of the same Program(s) will be maintained under this
Agreement. If LICENSEE desires maintenance services for earlier releases
of a Program, it may obtain such services by subscribing to XIONICS'
Engineering Support Program.
4.02 XIONICS reserves the right to withhold maintenance services at any time
when LICENSEE is not current in the payment of all fees and charges due
XIONICS under this Agreement, the License Agreement, or any other
agreements between them.
4.03 XIONICS will use reasonable efforts to provide technical support and
error correction for LICENSEE's authorized modifications of the Programs
under Sections 1.03 and 1.05 above if LICENSEE delivers such
modifications to XIONICS; however, XIONICS cannot be responsible for
resolving issues with LICENSEE's code and reserves the right to decline
or discontinue maintenance services with respect to such modifications.
37
<PAGE> 126
5. GENERAL
5.01 In the event of any conflict or inconsistency between this Agreement and
the License Agreement, the License Agreement shall govern.
5.02 XIONICS DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, WITH REGARD TO THE
SERVICES PROVIDED HEREUNDER, INCLUDING WITHOUT LIMITATION ALL WARRANTIES
OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARISING OUT OF OR
IN CONNECTION WITH THE PERFORMANCE OF THIS AGREEMENT.
5.03 XIONICS' liability to LICENSEE under this Agreement, if any, shall not
under any circumstances exceed the total fees paid to XIONICS under the
License Agreement for the particular Program that is the subject of the
claim; and under no circumstances shall XIONICS be liable for any lost
profits, consequential damages or any claim or demand against the
LICENSEE by any third person.
5.04 This Maintenance Agreement sets forth the entire agreement and
understanding of the parties as to the subject matter hereof and
supersedes all prior and contemporaneous written and/or oral agreements,
arrangements, communications and understandings relating to the subject
matter hereof.
5.05 This Maintenance Agreement shall be governed by the laws of the
Commonwealth of Massachusetts without regard to its conflict of laws
rules.
XIONICS DOCUMENT TECHNOLOGIES, WAVEMARK TECHNOLOGIES, INC.
INC.
By: __________________________ By: __________________________
Name: ________________________ Name: ________________________
Title: _______________________ Title: _______________________
Date: ________________________ Date: ________________________
38
<PAGE> 127
Exhibit G
to Cooperative Development and License Agreement
between Xionics Document Technologies, Inc. and WaveMark Technologies, Inc.
Rev. 5/9/97
IPS-PRINT(TM)
ENGINEERING SUPPORT PROGRAM AGREEMENT
This IPS-PRINT ENGINEERING SUPPORT PROGRAM AGREEMENT (the "ESP Agreement") is
made and entered into as of June__, 1997, by and between Xionics Document
Technologies, Inc. ("XIONICS") and WaveMark Technologies, Inc. ("LICENSEE").
LICENSEE has licensed the source code of certain of XIONICS' IPS-PRINT printer
language interpreter software programs (the "Programs") from XIONICS under a
Cooperative Development and License Agreement of even date herewith (the
"License Agreement"). XIONICS agrees to provide engineering support services for
LICENSEE's use of the Programs on the terms and conditions set forth below.
1. ENGINEERING SUPPORT SERVICES
1.01 During the initial one (1)-year term of this ESP Agreement, XIONICS will
provide up to one hundred twenty (120) hours of engineering support
services for the porting of the Programs licensed under the License
Agreement to LICENSEE's devices. Under this ESP Agreement XIONICS will
provide system-level architectural and/or programming assistance and
quality assurance activities designed to accelerate time-to-market by
providing hands-on engineering assistance for LICENSEE's porting
project(s). LICENSEE will be able to determine exactly how the available
XIONICS engineering resources are deployed to support its porting
project. As part of the ESP, Xionics project managers are available to
assist the porting engineer where necessary, without charge to the hours
of engineering support purchased under the ESP. Engineering and quality
assurance time will be charged to the hours purchased.
1.02 XIONICS will assign a qualified engineering employee to LICENSEE's
account and make all reasonable efforts to make such employee's services
available on the schedule requested by LICENSEE; however, XIONICS is not
required to dedicate such employee to LICENSEE on an exclusive basis.
1.03 XIONICS will account for time spent providing engineering support
services in increments of thirty (30) minutes, and will provide LICENSEE
with a monthly report of the time used to date. Such reports shall be due
within two (2) weeks after the end of each month. XIONICS' obligation to
provide such reports will end when all available time has been used or
upon expiration oft he initial one (1)-year term, whichever is earlier.
1.04 LICENSEE understands and agrees that all engineering support services
purchased hereunder must be used during the initial one (1)-year term of
this ESP Agreement, and may not be carried over into subsequent years.
2. ENGINEERING SUPPORT FEES
2.01 LICENSEE agrees to pay the following Engineering Support Fees:
First 120 hours of support No Charge (in consideration of
LICENSEE's performance under the
License Agreement)
39
<PAGE> 128
Each additional 8-hour day of
support $ 2,000/day
2.02 Payment of any daily fees incurred shall be due in accordance with the
terms set forth in XIONICS' invoice for such fees.
2.03 LICENSEE will reimburse XIONICS for all travel expenses incurred by
XIONICS in connection with engineering services provided at LICENSEE's
premises. Travel expenses are not included in, and may not be offset
against, the Engineering Support Fees.
3. ELIGIBILITY
3.01 LICENSEE must be current in the payment of all fees and charges due
XIONICS under this ESP Agreement, the License Agreement and any and all
other agreements between them in order to receive engineering support
services hereunder.
3.02 LICENSEE must have a current agreement with XIONICS for software
maintenance covering the Programs to be ported in order to be eligible to
enroll in the Engineering Support Program (unless XIONICS does not offer
maintenance on the Programs in question, or otherwise agrees to provide
engineering support services in the absence of a maintenance agreement).
4. TERM
4.01 This ESP Agreement shall become effective as of the first date written
above, and shall remain in effect for an initial term of one (1) year.
4.02 Upon expiration of the initial term LICENSEE may renew this ESP Agreement
for the next succeeding year by remitting XIONICS' then-current
Engineering Support Fee. Upon renewing this ESP Agreement, LICENSEE will
be entitled to an additional one hundred twenty (120) hours of
engineering support, as described in Section 1. above.
4.03 If LICENSEE elects not to renew this ESP Agreement, it may still obtain
additional engineering support services on an AD HOC basis at the daily
rate set forth in Exhibit A. XIONICS will use reasonable efforts to make
engineering, quality assurance and project management personnel available
to provide such services on a daily basis, but such availability will be
subject to XIONICS' other commitments.
5. GENERAL
5.01 EXCEPT AS SPECIFIED HEREIN, XIONICS DISCLAIMS ALL WARRANTIES, EXPRESS OR
IMPLIED, WITH REGARD TO THE SERVICES PROVIDED HEREUNDER, INCLUDING
WITHOUT LIMITATION ALL WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE ARISING OUT OF OR IN CONNECTION WITH THE PERFORMANCE
OF THIS ESP AGREEMENT.
5.02 LICENSEE agrees that the liability of XIONICS to LICENSEE, if any, shall
not under any circumstances exceed the engineering support fees paid to
XIONICS under this ESP Agreement, and that under no circumstances shall
XIONICS be liable for any lost profits, consequential damages or any
claim or demand against the LICENSEE by any third person. This section
sets forth XIONICS' sole and exclusive liability to LICENSEE under this
ESP Agreement.
5.03 This ESP Agreement sets forth the entire agreement and understanding of
the parties as to the subject matter hereof and supersedes all prior and
contemporaneous written and/or oral
40
<PAGE> 129
agreements, arrangements, communications and understandings relating to
the subject matter hereof.
5.04 This ESP Agreement shall be governed by the laws of the Commonwealth of
Massachusetts without regard to its conflict. of laws rules.
XIONICS DOCUMENT TECHNOLOGIES, WAVEMARK TECHNOLOGIES, INC.
INC.
By: __________________________ By: __________________________
Name: ________________________ Name: ________________________
Title: _______________________ Title: _______________________
Date: ________________________ Date: ________________________
41
<PAGE> 130
Exhibit H
to Cooperative Development and License Agreement
between Xionics Document Technologies, Inc. and WaveMark Technologies, Inc.
FORM OF WARRANTY FOR OEMS
I. Software Warranty -- Source Code
[XIONICS][WAVEMARK] warrants that the Source Programs, as delivered to
LICENSEE by [XIONICS][WAVEMARK], will for a period of ninety (90) days after
LICENSEE's receipt thereof, perform in accordance with the Specifications.
(LICENSEE shall be deemed to receive the Source Programs on the earlier of
the date on which LICENSEE actually receives them or the tenth day after
[XIONICS][WAVEMARK] ships them, unless LICENSEE gives [XIONICS][WAVEMARK]
actual notice that they have not been received by that time.)
[XIONICS][WAVEMARK] will, at its own expense, use all reasonable efforts to
promptly correct any Errors reported by the LICENSEE in the Source Programs
that cause them not to perform in accordance with the Specifications,
provided that (i) such Errors are reported to [XIONICS][WAVEMARK] within the
ninety (90)-day warranty period and (ii) [XIONICS][WAVEMARK] is able to
reproduce the Error at its premises, either on its own or with hardware and
software furnished by LICENSEE at LICENSEE's expense. If [XIONICS][WAVEMARK]
is unable to reproduce the Error, then LICENSEE's alleged Error report shall
be treated as a "Feature Enhancement Request" and [XIONICS][WAVEMARK] will
deliver a time and material quotation to LICENSEE in a timely fashion.
THIS SECTION SETS FORTH LICENSEE'S SOLE AND EXCLUSIVE REMEDIES FOR ANY AND
ALL BREACHES OF THE WARRANTIES SET FORTH ABOVE. THE WARRANTY SET FORTH IN
SECTION __ ABOVE SHALL BE NULL AND VOID WITH RESPECT TO ANY SOURCE PROGRAMS
THAT HAVE BEEN MODIFIED IN ANY WAY BY LICENSEE OR ITS AGENTS, WHETHER OR NOT
SUCH MODIFICATIONS WERE PERMITTED HEREUNDER.
[XIONICS] [WAVEMARK] MAKES NO WARRANTIES, EITHER EXPRESS OR IMPLIED, WITH
RESPECT TO PROGRAMS OR THE SOURCE PROGRAMS OTHER THAN THOSE EXPRESSLY SET
FORTH IN THIS SECTION __., AND [XIONICS][WAVEMARK] EXPRESSLY DISCLAIMS AND
ALL OTHER WARRANTIES, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
II. Software Warranty -- Object Code
DISCLAIMER AND LIMITED WARRANTY
[XIONICS][WAVEMARK] warrants the disk (if any) on which the [XIONICS][WAVEMARK]
Product is supplied to be free from defects in materials and workmanship under
normal use for a period of ninety (90) days from the date of delivery to you.
[XIONICS'][WAVEMARK's] entire liability and your exclusive remedy as to a disk
shall be, at [XIONICS'][WAVEMARK's] option, either return of the purchase price
(if any) or replacement of the disk. If failure of any disk has resulted from
accident, abuse, or misapplication, [XIONICS][WAVEMARK] shall have no
responsibility to replace the disk or refund the purchase price. Any replacement
disk will be warranted for the remainder of the original warranty period or
thirty (30) days, whichever is longer. This warranty gives you specific legal
rights. You may have other rights, which vary from state to state.
EXCEPT AS EXPRESSLY PROVIDED ABOVE, THE XIONICS PRODUCT AND DOCUMENTATION ARE
PROVIDED "AS IS." [XIONICS][WAVEMARK] DOES NOT MAKE ANY WARRANTY OF ANY KIND,
EXPRESS
<PAGE> 131
OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
THE ENTIRE RISK AS TO THE QUALITY AND PERFORMANCE OF THE XIONICS PRODUCT AND
DOCUMENTATION IS WITH YOU. [XIONICS][WAVEMARK] DOES NOT WARRANT THAT THE
FUNCTIONS CONTAINED IN THE [XIONICS][WAVEMARK} PRODUCT WILL MEET YOUR
REQUIREMENTS OR THAT THE OPERATION OF THE SOFTWARE WILL BE UNINTERRUPTED OR
ERROR-FREE.
[XIONICS][WAVEMARK] SHALL NOT BE LIABLE FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL
OR INCIDENTAL DAMAGES (INCLUDING DAMAGES FROM LOST PROFITS, LOST INFORMATION AND
THE LIKE) ARISING OUT OF THE USE OF OR INABILITY TO USE THE [XIONICS][WAVEMARK]
PRODUCT EVEN IF [XIONICS][WAVEMARK] HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
BECAUSE SOME STATES DO NOT ALLOW EXCLUSION OR LIMITATION OF LIABILITY FOR
CONSEQUENTIAL OR INCIDENTAL DAMAGES, THE ABOVE LIMITATION MAY NOT APPLY TO YOU.
III. Hardware Warranty
(a) Manufacturer warrants that the Boards manufactured by Manufacturer shall
perform in accordance with its specifications for a period agreed upon between
Manufacturer and Customer, but in any event not less than one year from the date
of shipment ("Warranty Period"). All components, materials and equipment
supplied by Manufacturer under this Agreement shall be warranted in accordance
with the individual manufacturer's warranty and any defects in the material or
workmanship of the Boards occurring or identified during the Warranty Period
shall be corrected/replaced by Manufacturer without cost to Customer. Customer's
sole remedy and Manufacturer's sole obligation shall be to repair or replace (at
Manufacturer's option) the defective Product.
(b) Customer shall contact Manufacturer for a RMA prior to returning any
Product for repair. Manufacturer will provide the RMA within 2 business days (1
day for priority requests) of receipt. Customer will forward the defective
Product to Manufacturer freight prepaid. Manufacturer will return the repaired
or replaced Product, freight prepaid, to Customer as quickly as practical, but
no later than 30 days from the date Manufacturer received the defective Product.
(c) This warranty is void if Product(s) have been subjected to abuse, misuse,
accident, alteration, neglect, operation outside the parameters or environment
identified in Customer's product specifications, or unauthorized repair,
installation or alterations by anyone other than Manufacturer.
(d) EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH IN THIS AGREEMENT, THE
FOREGOING WARRANTY PROVISIONS SET FORTH MANUFACTURER'S SOLE LIABILITY AND ARE
XIONICS' AND CUSTOMER'S EXCLUSIVE REMEDIES FOR CLAIMS BASED UPON DEFECTS IN, OR
FAILURE OF ANY PRODUCT PROVIDED HEREUNDER. MANUFACTURER HEREBY SPECIFICALLY
DISCLAIMS ANY AND ALL OTHER WARRANTIES WITH RESPECT TO PRODUCTS SUPPLIED
HEREUNDER INCLUDING ANY WARRANTY OF MERCHANTABILITY AND FITNESS FOR ANY
PARTICULAR PURPOSE.
43
<PAGE> 132
Exhibit I
to Cooperative Development and License Agreement
between Xionics Document Technologies, Inc. and WaveMark Technologies, Inc.
LIST OF WAVEMARK COMPETITORS
Electronics for Imaging, Inc.
Peerless Systems, Inc.
Adobe Systems Incorporated
Pipeline Associates, Inc.
Personal Computer Products, Inc.
Pixel Magic, Inc.
Jetfax
Granite Systems
Questra
AHT
HDE, Inc.
Splash/Quintar
LIST OF XIONICS COMPETITORS
Electronics for Imaging, Inc.
Peerless Systems, Inc.
Adobe Systems Incorporated
Pipeline Associates, Inc.
Personal Computer Products, Inc.
Pixel Magic, Inc.
Jetfax
Oasys
AHT
HDE, Inc.
Visioneer
44
<PAGE> 1
Exhibit 10.15
[XIONICS LOGO]
XIONICS DOCUMENT TECHNOLOGIES, INC.
STOCK OPTION AGREEMENT
(TIME VESTED)
AGREEMENT dated this 27th of June, 1997, 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 150,000 shares (the "Optioned
Shares") of the Company's Common Stock, par value $.01 per share (the
"Stock"), at a price of Eleven Dollars and Fifty cents per share. This
Option is granted as of April 1, 1997.
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
9,375 Optioned Shares each, one (1) such installment is immediately
available for exercise; and the balance of (15) fifteen installments
are exercisable from and after the first day of each of the fifteen
(15) 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.
[LETTER FOOT OF XIONICS]
<PAGE> 2
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/ Peter Simone
-----------------------------------
/s/ Robert E. Gilkes Optionee: Peter Simone
Title: Chief Executive Officer Optionee's Address:
-----------------------
61 Lehigh Road
-----------------------------------
Wellesley, MA 02181
-----------------------------------
-----------------------------------
2
<PAGE> 3
[XIONICS LOGO]
XIONICS DOCUMENT TECHNOLOGIES, INC.
STOCK OPTION AGREEMENT
(TIME VESTED)
AGREEMENT dated this 27th of June, 1997, 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 100,000 shares (the "Optioned Shares") of the Company's Common
Stock, par value $.01 per share (the "Stock"), at a price of Eleven Dollars and
Fifty cents per share. This Option is granted as of April 1, 1997.
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 as follows: These options shall becomes 100% vested
on the earlier of (a) the average common Xionics stock price remaining over
Fifty Dollars for (60) sixty consecutive days (in which case the options granted
under this Option will vest at 12:00pm on the day after the end of such (60) day
period; or (b) the eighth anniversary of the date upon which these options have
been granted.
PROVIDED, HOWEVER, that after termination of the Optionee's employment or other
association with the Company, for any reason, no 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.
[LETTER FOOT OF XIONICS]
<PAGE> 4
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 E. Gilkes /s/ Peter Simone
--------------------------------
Robert E. Gilkes Optionee: Peter Simone
Title: Chief Executive Officer Optionee's Address:
-----------------------
61 Lehigh Road
--------------------------------
Wellesley, MA 02181
--------------------------------
--------------------------------
2
<PAGE> 1
EXHIBIT 11.1
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
XIONICS DOCUMENT TECHNOLOGIES, INC.
CALCULATION OF NET INCOME (LOSS) PER SHARE
FOR THE YEAR ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
Net Income (Loss).................................................... $ 852,349 $(1,532,677)
Reconciliation of average number of shares outstanding to amount used
in net income (loss) per share computation:
Weighted average number of shares outstanding................... 9,948,607 8,320,392
Assumed exercise of stock options............................... 2,157,717 --
---------- ---------
Weighted average number of shares outstanding, as adjusted...... 12,106,324 8,320,392
Net Income (Loss) Per Share.......................................... $ 0.07 $ (0.18)
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF XIONICS DOCUMENT TECHNOLOGIES, INC.
There follows a list of the subsidiaries of the Registrant, all wholly
owned:
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY JURISDICTION OF ORGANIZATION
----------------------------------------------- -------------------------------
<S> <C>
Xionics Holdings Limited United Kingdom
Xionics International Limited United Kingdom
Xionics Document Technologies GmbH Germany
Xionics Geschaftsfuhrungs GmbH Germany
Xionics GmbH & Co. KG Software Consulting Germany
Xionics Inc. Delaware
Xionics Securities Corporation Massachusetts
Seaport Imaging California
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
As independent public accountants, we hereby consent to the incorporation
of our report, included in the Form 10-K, into Xionics Document Technologies,
Inc.'s previously filed Registration Statements on Form S-8 (File No. 333-4613).
ARTHUR ANDERSEN LLP
Boston, Massachusetts
September 15, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 21,455,132
<SECURITIES> 0
<RECEIVABLES> 4,713,752
<ALLOWANCES> 121,241
<INVENTORY> 1,237,104
<CURRENT-ASSETS> 35,105,586
<PP&E> 4,584,023
<DEPRECIATION> 1,819,825
<TOTAL-ASSETS> 39,643,918
<CURRENT-LIABILITIES> 8,007,249
<BONDS> 0
0
0
<COMMON> 108,968
<OTHER-SE> 43,808,524
<TOTAL-LIABILITY-AND-EQUITY> 31,636,669
<SALES> 2,174,821
<TOTAL-REVENUES> 9,829,321
<CGS> 992,135
<TOTAL-COSTS> 2,039,152
<OTHER-EXPENSES> 11,954,920
<LOSS-PROVISION> 11,000
<INTEREST-EXPENSE> 30,833
<INCOME-PRETAX> (3,513,645)
<INCOME-TAX> (514,667)
<INCOME-CONTINUING> (2,998,978)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,998,978)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> (0.28)
</TABLE>
