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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, 1998
[ ] 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
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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. [ ]
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant as of September 15, 1998, was $37,239,827,
based on the last sale price as reported by The Nasdaq Stock Market.
As of September 15, 1998, there were 12,393,941 shares of the registrant's
common stock issued and 12,169,878 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 November 23, 1998 is incorporated by
reference in Part III of this Annual Report on Form 10-K.
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TABLE OF CONTENTS
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PART I
ITEM 1. BUSINESS.................................................... 2
ITEM 2. PROPERTIES.................................................. 7
ITEM 3. LEGAL PROCEEDINGS........................................... 7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS......................................... 8
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA........................ 9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 10
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK........................................................ 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 18
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................... 18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 19
ITEM 11. EXECUTIVE COMPENSATION...................................... 19
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................. 19
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM
8-K......................................................... 20
SIGNATURES............................................................ 23
SUMMARY OF TRADEMARKS................................................. 24
FINANCIAL STATEMENTS.................................................. F-1
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PART I
IN ADDITION TO HISTORICAL INFORMATION, 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.
THESE STATEMENTS INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS.
FACTORS THAT MIGHT CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED BELOW IN THE SECTION ENTITLED "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --
FACTORS AFFECTING FUTURE RESULTS." READERS SHOULD CAREFULLY REVIEW THESE RISKS
AND THE RISKS DESCRIBED IN OTHER DOCUMENTS THE COMPANY FILES FROM TIME TO TIME
WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE QUARTERLY REPORTS ON
FORM 10-Q TO BE FILED IN THE COMPANY'S 1999 FISCAL YEAR. READERS ARE CAUTIONED
NOT TO PLACE UNDUE RELIANCE ON THE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY
AS OF THE DATE OF THIS ANNUAL REPORT ON FORM 10-K. THE COMPANY UNDERTAKES NO
OBLIGATION TO PUBLICLY RELEASE ANY REVISIONS TO THE FORWARD-LOOKING STATEMENTS
OR UPDATE THEM TO REFLECT EVENTS OR CIRCUMSTANCES OCCURRING AFTER THE DATE OF
THIS ANNUAL REPORT ON FORM 10-K.
ITEM 1. BUSINESS.
BUSINESS OVERVIEW
Xionics Document Technologies, Inc. ("Xionics" or the "Company") is a
leading designer, developer and supplier of innovative software and silicon
solutions for printing, scanning, copying, processing and transmitting digital
documents to computer peripheral devices that perform document imaging
functions. Such devices include printers, copiers, scanners, and fax machines,
as well as multifunction peripherals ("MFPs") that perform a combination of
these imaging functions. The Company offers integrated, modular embedded
software products, along with firmware and silicon technology products, that
enable the high-speed capture, processing, printing, copying and transmission of
complex electronic documents locally and across networks. The Company also
offers complementary personal computer software products, including printer
drivers and MFP applications software. Xionics provides standards-based
technology around which its customers -- original equipment manufacturers
("OEMs") of peripheral devices -- can design and develop differentiated
products. Xionics' technology and expertise is packaged as a range of products
and services, from licenses of core source code to complete turnkey controller
solutions, all designed to help OEMs get their devices to market quickly and
cost-effectively. Xionics markets its solutions directly to OEMs such as
Hewlett-Packard, Xerox, Ricoh, Seiko Epson and Sharp.
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. The Company's executive offices are at 70 Blanchard
Road, Burlington, Massachusetts 01803. Its telephone number is 781-229-7000.
CORE TECHNOLOGIES
Intelligent Peripheral System. At the heart of Xionics' enabling
technology for OEMs, and forming the foundation of Xionics' embedded systems
product offerings, is the Intelligent Peripheral System ("IPS"), a modular,
scalable, layered software and hardware architecture that provides processing
and control of document imaging peripheral devices. IPS was developed based on
Xionics' longstanding expertise in the development of page description language
interpreters, and enhanced and extended into a complete controller architecture
for printers and MFPs through Xionics' intensive investment in research and
development over the past several years. The Intelligent Peripheral System gives
OEMs the ability to build high-performance, network-enabled devices quickly and
cost-effectively. As OEMs increasingly rely on outside suppliers to
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provide foundation technology for their document imaging devices, IPS enables
Xionics to meet OEMs' outsourcing needs and capture a significant share of the
expanding market for outsourced technology and engineering services. The
Intelligent Peripheral System is productized in a series of software developer
packages and hardware components, as follows.
PRODUCTS
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. (A controller is a printed
circuit board inside the printer that contains all of the processing components,
circuitry and firmware necessary to enable the printer to convert data received
from a user's personal computer into marks on the printed page.) The package
includes Xionics' industry-leading compatible implementations of
industry-standard 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
patented methods for significantly reducing the amount of printer memory
necessary for rendering complex pages.
IPS-MFP. IPS-MFP is a software developer package that includes all of the
components of IPS-PRINT plus additional components, including the Company's
XipChip family of application-specific integrated circuits ("ASICs"), that are
designed to allow OEMs to build high-performance, cost-effective controllers for
multifunction peripheral devices. The additional software components include
applications for copy, scan and fax functions plus the extended core system
services needed to support the concurrent operation of multiple functions.
IPS-MFP includes XipApp, an image and document management software development
toolkit, that will allow OEMs to create their own MFP product extensions and
enhancements.
IPS/2000 Operating System. The IPS/2000 operating system provides a
real-time, multitasking core services system based on a dataflow architecture
which permits the direction of multiple parallel data streams through a system
of software-defined and hardware-executed pipelines. IPS/2000 controls
conventional RISC processors in printer-only configurations, and can control the
XipChip family of MFP-oriented ASICs in multiple-function configurations.
XipChip Family of ASICs. Xionics has completed development of XipChip 1.5,
the first in its family of parallel image data processing ASICs directed at the
processing needs of advanced MFPs. The XipChip processor family is expected to
provide the massive bandwidth required to drive advanced MFPs and provide true
concurrent operation of two or more functions (for example, receiving a fax and
making a copy) running simultaneously on the same MFP device. XipChip 1.5 is
expected to ship in commercial volumes in an OEM's MFP device in the fourth
calendar quarter of 1998.
Printer Drivers. Xionics offers printer drivers for the PCL6, PCL5E and
PostScript page printing environments and the Microsoft Windows 3.1, Windows 95,
Windows 98 and Windows NT 4.0 operating systems. Driver user interfaces may be
customized to match the individual OEM's look and feel, and translated into a
wide variety of human languages, including Asian languages.
Sale of Assets of Digital Document Products Division. On August 12, 1998,
the Company sold substantially all of the assets of its Digital Document
Products Division ("DDPD") to GammaGraphX, Inc. ("GGX") of Waltham,
Massachusetts for consideration consisting of future royalties on GGX's future
sales of all products purchased from the Company in this transaction from the
date of closing through September 2001, or until royalties reach an aggregate of
$2.2 million, subject to provisions as defined in the asset purchase agreement;
assumption of certain liabilities; and promissory notes, payable in 1999 and
2000, totaling $1.28 million, subject to collection of receivables sold in the
transaction. The assets sold include the line of print and scan image
acceleration products formerly marketed by the Company under the names Turbo,
Lightning, PowerLightning and XipPrint, as well as the scanner control board
products and bar code recognition software products formerly marketed by Seaport
Imaging ("Seaport"), which was acquired by the Company in August, 1997.
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SERVICES
Non-Recurring Engineering Services. Xionics assists OEMs in deploying its
products and technology in their devices by providing engineering services which
may include complete controller design as well as custom engineering for
vendor-specific features that complement the Company's standard technology. In
addition, during fiscal 1998 the Company established the Xionics Partners
Program to give Xionics and OEM customers the option of using an independent
development partner closely allied with Xionics for development and integration
services.
Manufacturing Services. Xionics provides comprehensive management services
to OEMs wishing to procure a total turnkey controller solution through Xionics
working with its development and manufacturing partners to have a controller
board designed and produced for the OEM. Manufacturing services which Xionics
provides include complete project management of the design, development, and
manufacturing start-up, as well as management of the ongoing production of the
OEM's controller board by a third-party manufacturing contractor.
OEM Services. The Company's OEM Services group provides customer support
in every aspect of development, training and maintenance. Software maintenance
service is provided on a contract basis, and includes updates of the licensed
software along with support in the form of telephonic and electronic mail
response to customer questions. Engineering support services, in which Xionics
engineers perform or assist with specific engineering tasks for OEMs, are
available for a fee either on a project-specific or general as-needed basis.
SALES AND MARKETING
The Company markets and sells its products and services, and licenses its
software, directly to OEMs of document imaging peripheral devices such as
printers, copiers and scanners, who in turn distribute their products worldwide.
In addition, Xionics has licensed certain of its independent development
partners, participants in the Xionics Partners Program who perform porting or
controller design services for OEMs, to distribute its printer software to OEMs
for inclusion in the products being developed by the partners for the OEMs. As
of September 15, 1998, the Company's sales force had a staff of 11 people
engaged in direct sales and sales support and located at the Company's
headquarters in Burlington, Massachusetts and the Company's sales office in
Tokyo, Japan. The Company derives a significant portion of its revenue from
sales and licenses of its products to international customers. 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. The
Company regularly participates in trade shows such as COMDEX, CeBIT, and the
Seybold Seminars. 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 with the address
www.xionics.com.
CUSTOMERS
The Company's customers consist primarily of OEMs that manufacture
printers, copiers and scanners, and also include several suppliers of subsystems
or components to such OEMs. As of September 15, 1998, the Company had licensed
its IPS products to over 42 OEMs. For the fiscal year ended June 30, 1998, one
customer, Hewlett-Packard Company, accounted for approximately 53% of the
Company's net revenue and a second customer, Mita Digital Design, Inc.
(including its affiliates), accounted for approximately 14% 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, 1998, 1997, and 1996, revenue from
Hewlett-Packard accounted for approximately 53%, 58%, and 54%, respectively, of
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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 "1996 HP
Agreement"), the Company licensed certain of its page description language
technology, including its version of the PostScript page description language,
to Hewlett-Packard. The Company has met all performance milestones on which its
right to receive future payments under the 1996 HP Agreement was conditioned.
The Company's revenue stream from Hewlett-Packard under the 1996 HP Agreement
will continue until February 1999, and its cash flow under the 1996 HP Agreement
will continue through calendar 1999.
In June 1998, the Company entered into a new agreement with Hewlett-Packard
(the "1998 HP Agreement"), under which the Company will develop and license
additional page description language technology to Hewlett-Packard. The Company
expects that its revenue and cash receipts from Hewlett-Packard will continue
after the expiration of the 1996 HP Agreement as the result of the new agreement
through December 2000. However, the Company's right to receive payments under
the 1998 HP Agreement is conditioned upon the Company's meeting specified
delivery milestones. Hewlett-Packard has the right to terminate the 1998 HP
Agreement upon a failure by the Company to comply with any of the provisions of
the 1998 HP Agreement that is not cured within 30 days, and upon the
commencement of certain bankruptcy or insolvency proceedings.
By its nature, the OEM market for embedded printing and imaging systems and
software is limited to a small number of companies worldwide who manufacture
document imaging devices. This market, in turn, is dominated by a very few
companies, most of whom are customers of Xionics. The Company's dependence on
its relationships with this small group of companies, combined with the limited
number of OEMs in the market, means that the Company's business, results of
operations and financial condition could be materially adversely affected if the
Company were unable to sustain its customer relationships or if any of its
significant customers were to experience financial, operational or other
difficulties that resulted in a reduction of orders to the Company or a failure
to pay amounts due to the Company.
RESEARCH AND DEVELOPMENT
The Company's research and development activities are primarily conducted
at the Company's headquarters in Burlington, Massachusetts. As of September 15,
1998, the Company employed 114 software and hardware design engineers, project
managers and engineering 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-PRINT printer software products and the
enhanced systems technology for its IPS-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 1998, 1997, and 1996 was $15.5 million, $13.4 million and $8.1 million,
respectively. The Company anticipates that it will continue to commit
substantial resources to research and development, although a significant
percentage of the engineering staff will be devoted to customer sponsored
engineering, which is included in cost of revenue.
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 family of ASICs, 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. The Company is participating in IBM
Microelectronics' core-plus-ASIC program, whereunder Xionics and IBM
Microelectronics are working jointly to produce the XipChip family of ASICs to
Xionics' proprietary design.
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COMPETITION
The market for the Company's products is highly competitive, and many of
the Company's competitors have significantly more resources than the Company.
Principal competitive factors include brand identity, features, price,
performance, ease of integration, service and time to market.
In the market for embedded printer systems, the Company's IPS-PRINT product
line has one primary competitor, Adobe Systems Incorporated ("Adobe"), which has
significantly greater resources than the Company. Adobe was the developer of the
PostScript page description language, which acquired a significant brand name
image. However, Hewlett-Packard, the Company's largest customer for its
IPS-PRINT page description language interpreter products, has discontinued the
use of Adobe PostScript in some of its 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 line 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,
including integrated processor chips which could compete with the Company's
XipChip family of ASICs. 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.
In the market for printer driver software, the Company competes primarily
with a small number of companies, including Software 2000 Limited and Peerless
Systems Corporation, who also offer such software. In addition, a few OEMs have
their own internal driver development capacity.
In the market for engineering services and manufacturing services the
Company competes primarily with OEMs' internal development and manufacturing
groups, as well as with third-party design houses and contract manufacturers.
Several other companies, including Peerless Systems Corporation, also compete
with the Company in this area.
INTELLECTUAL PROPERTY
The Company possesses four United States patents, which will expire at
various future dates beginning in 2011, and has recently received a Notice of
Allowance of a fifth patent from the U.S. Patent and Trademark Office. 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.
The Company believes that, because embedded systems and software technology
for printers and MFPs changes and develops rapidly, patent, trade secret and
copyright protection are less important to its ability to compete effectively
than factors such as the knowledge, ability and experience of its employees;
contractual relationships with its market-leading OEM customers; and ongoing
product development and technological innovation.
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OPERATIONS
The Company's operations consist primarily of materials planning for its
controller design and manufacturing services businesses. The Company provides
quality-assurance services in order to test its software and controller products
in conjunction with its OEM customers' printers and MFP devices. 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. To date,
the Company has not experienced significant difficulties in obtaining raw
materials for the manufacture of its OEM customers' turnkey controller boards or
duplication of its software products, although an interruption in production by
a supplier could delay shipments of OEMs' products incorporating those of the
Company. There was no material backlog of product orders as of September 15,
1998.
The Company expects IBM Microelectronics to be its sole source of supply
for its XipChip 1.5 and 2.0 ASICs. Although the Company believes it could
develop other sources for these custom components, 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 15, 1998, Xionics had approximately 168 full-time
employees. The Company employs 114 people in engineering for company or
customer-sponsored development, 21 in sales and marketing, 11 in manufacturing
services and operations, and 22 in accounting and administrative functions. The
Company hires temporary employees on an as-needed basis to meet development
goals. The Company implemented a small reduction in force in mid-fiscal 1998 for
expense control reasons. 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. Competition in recruiting personnel in the
high-technology industry is intense. The Company believes that its future
success will depend in part on its continued ability to recruit and retain
highly skilled engineering and technical personnel.
ITEM 2. PROPERTIES.
The Company's principal administrative, sales, marketing, and research and
development facility is located in a leased facility with approximately 74,000
square feet of space in Burlington, Massachusetts, which the Company occupies
under a lease expiring in 2002. Xionics' 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 related to its printer driver
business at a leased facility in Freiberg/Neckar, Germany. The Company believes
that its facilities are adequate for its current and foreseeable future needs,
and that suitable additional space is likely to be available on commercially
reasonable terms to accommodate the Company's additional future needs.
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, 1998.
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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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COMMON STOCK
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HIGH LOW
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QUARTERS ENDED:
September 30, 1996....................................... $15.00 $14.25
December 31, 1996........................................ $15.38 $12.00
March 31, 1997........................................... $22.25 $12.00
June 30, 1997............................................ $17.50 $10.00
September 30, 1997....................................... $18.00 $10.25
December 31, 1997........................................ $19.63 $ 3.19
March 31, 1998........................................... $ 6.38 $ 3.47
June 30, 1998............................................ $ 7.75 $ 4.00
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On September 15, 1998, the last sale price of the Common Stock was $3.06.
STOCKHOLDERS
As of September 15, 1998, there were approximately 97 stockholders of
record and 12,169,878 outstanding shares of Common Stock. The Company believes
there are approximately 3,500 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, 1998, the Company sold 143,432 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 1993, 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 $0.51, and the total consideration received by the Company for
the sale of such shares was $72,847.
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 Gesellschaft fur
Computer-Anwendung mbH ("GCA") and Seaport. 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, 1997 and June 30, 1998 and the Statement of
Operations Data for each of the three years in the period ended June 30, 1998,
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
LLP, independent public accountants, as indicated by their report thereon
contained elsewhere herein. The Balance Sheet Data as of June 30, 1994, June 30,
1995 and June 30, 1996 has been derived from consolidated financial statements
of the Company not included in this Form 10-K that have been audited by Arthur
Andersen LLP, independent public accountants. The financials statements as of
and for the year then ended June 30, 1994 are those of the Company's Digital
Document Products Division only, and have been restated to reflect the
accounting for the sale of the Division's assets as discontinued operations. 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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YEAR ENDED JUNE 30,
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1994 1995 1996 1997 1998
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(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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STATEMENTS OF OPERATIONS DATA:
Net revenue............................... $ -- $ 4,758 $ 13,172 $ 29,179 $ 29,101
Cost of revenue........................... -- 594 1,289 3,649 11,255
--------- --------- --------- ---------- ----------
Gross profit.............................. -- 4,164 11,883 25,530 17,846
Operating expenses:
Research and development................ -- 3,834 8,125 13,428 15,544
Selling, general and administrative..... -- 3,311 5,720 7,144 6,996
Non-recurring charges................... -- -- -- -- 6,690
Charge for purchased research and
development........................... -- 3,492 -- 5,400 --
--------- --------- --------- ---------- ----------
Loss from operations...................... -- (6,472) (1,962) (442) (11,384)
Other income (expense), net............... -- (292) (119) 853 843
--------- --------- --------- ---------- ----------
Income (loss) before provision for income
taxes................................... -- (6,764) (2,081) 411 (10,541)
Provision for income taxes................ -- -- -- 346 272
--------- --------- --------- ---------- ----------
Income (loss) from continuing
operations.............................. -- (6,764) (2,081) 65 (10,814)
Income (loss) from discontinued
operations, net of taxes................ 243 739 548 787 (5,438)
--------- --------- --------- ---------- ----------
Net income (loss)......................... $ 243 $ (6,025) $ (1,533) $ 852 $ (16,252)
========= ========= ========= ========== ==========
Income from continuing operations per
share
Basic................................... $ -- $ -- $ (1.37) $ 0.01 $ (0.91)
--------- --------- --------- ---------- ----------
Diluted................................. $ -- $ -- $ (1.37) $ 0.01 $ (0.91)
========= ========= ========= ========== ==========
Income (loss) from discontinued operations
per share
Basic................................... $ -- $ -- $ 0.36 $ 0.08 $ (0.46)
========= ========= ========= ========== ==========
Diluted................................. $ -- $ -- $ 0.36 $ 0.07 $ (0.46)
========= ========= ========= ========== ==========
Net income (loss) per share
Basic................................... $ 0.04 $ (4.54) $ (1.01) $ 0.09 $ (1.37)
========= ========= ========= ========== ==========
Diluted................................. $ 0.18 $ (4.54) $ (1.01) $ 0.07 $ (1.37)
========= ========= ========= ========== ==========
Weighted average number of shares
outstanding
Basic................................... 1,327,293 1,327,293 1,517,674 9,948,607 11,830,541
========= ========= ========= ========== ==========
Diluted................................. 5,613,780 1,327,293 1,517,674 12,080,987 11,830,541
========= ========= ========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
---------------------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $ -- $ 1,226 $ 2,760 $ 20,844 $ 15,243
Working capital........................... -- (2,365) (28,343) 26,872 15,766
Total assets.............................. -- 6,888 9,110 42,297 33,933
Long-term debt, net of current
maturities.............................. -- 4,849 2,658 -- 575
Redeemable preferred stock................ -- 2,276 8,231 -- --
Stockholders' equity (deficit)............ $ -- $ (5,377) $ (6,570) $ 35,278 $ 19,519
</TABLE>
9
<PAGE> 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
Xionics Document Technologies, Inc. designs, develops and markets
innovative software and silicon solutions for printing, scanning, copying,
processing and transmitting digital documents to computer peripheral devices
that perform document imaging functions. Such devices include printers, copiers,
scanners, and fax machines, as well as multifunction peripherals that perform a
combination of these imaging functions. 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 procedures and
techniques, including approximately $5.4 million of in-process research and
development. Acquired intangibles include the assembled workforce of GCA and
goodwill.
In June 1998 the Company announced a restructuring of its operations to
position the Company to return to profitability resulting in non-recurring
charges including amounts in discontinued operations of $9.4 million. In
addition to the restructuring, the Company announced its intent to sell the
Company's Digital Document Products Division ("DDPD"), which sells print and
scan image accelerator products. DDPD also includes the assets of Seaport
Imaging ("Seaport"), which was acquired in August 1997 for $2.5 million,
including direct acquisition costs, of which $1.1 million was paid at closing
and $1.1 in promissory notes payable over two years. The sale of DDPD has been
accounted for as discontinued operations resulting in a loss of $5.4 million,
including the loss on the sale and the loss from discontinued operations. All
comparative financial statements have been restated to reflect this accounting
treatment. On August 12, 1998, the Company announced the sale of substantially
all of the assets of DDPD for consideration consisting of future royalties on
GGX's sales of products purchased in the transaction through September 2001 or
until royalties reach an aggregate of $2.2 million; assumption of certain
liabilities; and promissory notes totaling $1.28 million payable in 1999 and
2000, subject to collection of receivables sold in the transaction.
The Company derives its revenue primarily from sales of its printer
software products, which include revenue from software licenses, royalties,
engineering and manufacturing services and maintenance. 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
or a fixed amount 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 and is recognized as revenue as the
services are performed or using percentage of completion contract accounting.
Manufacturing services revenue is derived from fees received for providing
design and manufacturing coordination and support on behalf of the OEM. These
fees are earned over the manufacturing period. 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 32%, 24% and
16% of the Company's net revenue for the fiscal years
10
<PAGE> 12
ended June 30, 1998, 1997 and 1996, respectively. The Company's export revenue
is primarily denominated and collected in United States dollars.
In March 1996, the Company entered into an amendment of its preexisting
development and license agreement with Hewlett-Packard (the "1996 HP
Agreement"). Under the 1996 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 1996 HP Agreement
will be recognized by the Company over three years using percentage of
completion contract accounting. Such revenue accounted for 53%, 58% and 54% of
the Company's net revenue for the fiscal years ended June 30, 1998, 1997 and
1996, respectively. Payments under the 1996 HP Agreement include the Company's
charges for source code access, engineering services, license rights and ongoing
maintenance and support. In June 1998, the Company entered into a new agreement
with Hewlett-Packard (the "1998 HP Agreement") that will result in an ongoing
revenue stream beyond the existing contract at levels nearly comparable with the
existing agreement. Hewlett-Packard has the right to terminate the 1998 HP
Agreement upon a failure by the Company to comply with any of the provisions of
the 1998 HP Agreement that is not cured within 30 days, and upon the
commencement of certain bankruptcy or insolvency proceedings involving the
Company. Under the 1996 HP Agreement revenue will end in February 1999, although
cash payments will continue until December 1999. Under the 1998 HP Agreement
which expires in December 2000, the Company will develop, license and support
new page description languages.
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. As part of the
restructuring announced in June 1998, the Company included as non-recurring cost
of revenue a $2.7 million charge representing certain costs under contracts with
Ricoh, including the future costs to complete the development of an MFP. Under
the contract, Ricoh made a certain level of guaranteed payments to the Company
for the MFP development. However, the estimated cost to complete now exceeds any
further development payments from Ricoh, which as required by generally accepted
accounting principles, results in the immediate recognition of the loss. Once
the MFP is deployed by Ricoh, which is anticipated for the fall 1998, the
Company will receive a royalty on each unit shipped. The Ricoh MFP is the first
product to include the XipChip, an integrated ASIC for multifunctional devices,
which the Company intends to market to other manufacturers of MFPs. Also as part
of the restructuring the Company implemented a workforce reduction of
approximately 10%, predominantly in the marketing and administrative areas. This
workforce reduction coupled with the sale of DDPD has brought the Company's
total personnel down to 168 from a high of approximately 220 reached during
fiscal 1998. The Company intends to maintain its current level of staffing and
will increase its engineering expenses to meet specific customer sponsored
engineering services requirements.
The Company had no provision for income taxes for fiscal 1996 due to net
losses incurred in the period. In fiscal 1998 and 1997, the Company recorded a
tax provision of approximately $272,000 and $345,000, respectively. In fiscal
1998, the provision relates primarily to taxes on foreign operations which do
not benefit from loss carryforwards. As of June 30, 1998, the Company had
available net operating loss carryforwards of approximately $11.9 million for
U.S. federal income tax reporting purposes. These carryforwards may be used to
offset future taxable income, if any and are subject to review and possible
adjustment by the Internal Revenue Service.
11
<PAGE> 13
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,
-----------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Net revenue......................................... 100.0% 100.0% 100.0%
Cost of revenue..................................... 38.7 12.5 9.8
----- ----- -----
Gross profit........................................ 61.3 87.5 90.2
Operating expenses:
Research and development.......................... 53.4 46.0 61.7
Selling, general and administrative............... 24.0 24.5 43.4
Non-recurring charges............................. 23.0 0.0 0.0
Charge for purchased research and development..... 0.0 18.5 0.0
----- ----- -----
Loss from operations................................ (39.1) (1.5) (14.9)
Other income (expense), net......................... 2.9 2.9 (0.9)
----- ----- -----
Income (loss) before provision for income taxes..... (36.2) 1.4 (15.8)
Provision for income taxes.......................... 0.9 1.2 0.0
----- ----- -----
Income (loss) from continuing operations............ (37.1) 0.2 (15.8)
Income (loss) from discontinued operations.......... (18.7) 2.7 4.2
----- ----- -----
Net income (loss)................................... (55.8)% 2.9% (11.6)%
===== ===== =====
</TABLE>
FISCAL YEARS ENDED JUNE 30, 1998 AND JUNE 30, 1997
Revenue. Revenue totaled $29.1 million in fiscal 1998, essentially flat
with fiscal 1997 revenue of $29.2 million. However, the components of revenue
changed between the years. In 1998, revenues from sales of manufactured boards
and customer sponsored engineering services that were subcontracted directly to
third parties increased to 21.6% of revenue in 1998 vs. 4.6% in 1997. Revenues
from the sale of driver software increased to approximately 5.3% of revenue in
1998 vs. 3.5% in 1997. Offsetting these increases were decreases in revenues
from royalties and licensing of the Company's PDL software products, including
revenue recognized under the 1996 HP Agreement, which represented approximately
68.4% of fiscal 1998 revenue compared to approximately 84.2% in 1997. The
decline in royalty and license revenue resulted primarily from the reduction in
royalties from Lexmark on printers that incorporated the Company's IPS printer
language software, but which had reached the end of their product life, and a
decline in the recognition of revenue under the 1996 HP Agreement.
Hewlett-Packard represented 53.3% of revenue in 1998 vs. 57.5% in 1997. Also
offsetting the increase in revenue was revenue recognized on the development
contract of the MFP which declined to approximately 0.8% of revenue in 1998 vs.
approximately 5.6% in 1997.
Gross Profit. Gross profit declined to $17.8 million, or 61.3% of revenue,
in 1998 versus $25.5 million, or 87.5% of revenue, in 1997. The decline in gross
profit was primarily attributable to two factors. The first was the inclusion in
1998 of non-recurring charges of $2.7 million related to the losses on certain
contracts with Ricoh, primarily related to the future costs to complete the MFP.
Excluding the non-recurring cost of revenue, gross profit would have been
approximately 70.8% versus 87.5% for the prior year. The second factor was the
inclusion in revenue of manufactured boards and customer sponsored engineering
services contracted to third parties which carry very little gross margin. It is
the intent of the Company to structure these activities such that they will not
be included in revenue or cost of revenue in future periods.
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,
driver software and color technologies. Research and development expenses
increased 15.8% to $15.5 million for
12
<PAGE> 14
fiscal 1998 from $13.4 million in fiscal 1997. The higher expense level resulted
primarily from increased personnel expenditures, particularly outside
contractors hired to complete the development of the MFP. As a percentage of
revenue, research and development expenses increased to 53.4% for fiscal 1998
from 46.0% for fiscal 1997.
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 remained fairly constant, decreasing 2.1% to $7.0
million for fiscal 1998 from $7.1 million in fiscal 1997. As a percentage of
revenue, selling, general and administrative expenses decreased to 24.0% for
fiscal 1998 from 24.5% for fiscal 1997.
Non-recurring Charges. The Company recognized non-recurring operating
charges in 1998 of $6.7 million related to the write-down of intangible assets
which were deemed to have no future value, the provision for severance payments
related to a workforce reduction and management restructuring, and provision for
lease expense on excess facilities.
Charge for Purchased Research and Development. The charge in fiscal 1997
for purchased research and development represents the February 21, 1997
acquisition of GCA 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 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. Net other income, consisting primarily of
interest income earned on cash and cash equivalents, totaled $843,000 in 1998
versus $853,000 in 1997. Interest income in 1998 declined as cash and cash
equivalents declined during 1998. However, offsetting this decline in interest
income was a decline in interest expense from 1997. The 1997 interest expense
included bank lines of credit and a note payable to a shareholder, which were
repaid in full by December 31, 1996 from the proceeds of the Company's IPO.
Discontinued Operations. In June 1998 the Company announced its intent to
sell the Company's Digital Document Products Division ("DDPD"), which sells
print and scan image accelerator products. DDPD also includes the assets of
Seaport Imaging ("Seaport"), which was acquired in August 1997 for $2.5 million.
The sale of DDPD has been accounted for as discontinued operations resulting in
a loss of $5.4 million, including the loss on DDPD operations of $3.2 million
and an estimated loss on the disposal of the business, its assets and
liabilities of approximately $2.2 million. On August 12, 1998, the Company
announced the sale of substantially all of the assets of DDPD for consideration
consisting of the future royalties on GCX's sales of products purchased in the
transaction through September 2001 or until royalties reach an aggregate of $2.2
million; assumption of certain liabilities; and promissory notes totaling $1.28
million payable in 1999 and 2000, subject to collection of receivables sold in
the transaction.
FISCAL YEARS ENDED JUNE 30, 1997 AND JUNE 30, 1996
Revenue. Revenue increased 121.5% to $29.2 million for fiscal 1997
compared to $13.2 million for fiscal 1996. This increase resulted primarily from
growth in royalties and licensing revenues of the Company's printer software
products, including approximately $6.4 million of incremental revenue recognized
under the 1996 HP Agreement. Also contributing to the increase were development
fees earned on the development contract for an MFP and revenue earned on the
development and sale of software drivers for printers.
Gross Profit. Cost of revenue consists primarily of costs associated with
non-recurring engineering services, amortization of acquired intangibles and the
cost of providing services and maintenance. Gross profit
13
<PAGE> 15
increased 114.8% to $25.5 million for fiscal 1997 from $11.9 million for fiscal
1996. Gross margin percentage declined to 87.5% for fiscal 1997 compared to
90.2% for fiscal 1996. The slight decline is attributable to a higher content of
services revenue in 1997 which has a lower margin than royalty and license
revenue.
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 65.3% to
$13.4 million for fiscal 1997 from $8.1 million in fiscal 1996. The higher
expense level resulted primarily from increased expenditures relating to the
Company's MFP, PDL and color technologies. As a percentage of revenue, research
and development expenses decreased to 46.0% for fiscal 1997 from 61.7% 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 increased 24.9% to $7.1 million for fiscal 1997 from
$5.7 million in fiscal 1996. As a percentage of revenue, selling, general and
administrative expenses decreased to 24.5% for fiscal 1997 from 43.4% for fiscal
1996.
Charge for Purchased Research and Development. In February 1997, the
Company completed the acquisition of GCA 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 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. Net other income (expense), consisting
primarily of interest income offset by interest expense, totaled $853,000 in
1997 versus an expense of $119,000 in 1996. The decrease in interest expense
resulted primarily from the reduction in bank lines of credit and a note payable
to a shareholder, which were repaid in full by December 31, 1996. The increase
in interest income resulted primarily from increased cash and cash equivalent
balances as a result of receiving net proceeds from the Company's September 26,
1996 initial public offering.
Discontinued Operations. In 1997, discontinued operations includes the
operating income (revenue less operating expenses and a provision for taxes)
related to DDPD which the Company treated as discontinued operations in fiscal
1998 financial statements based on the June 1998 announcement of its intention
to sell this division. As a result of this accounting treatment all comparative
financial statements have been restated to reflect the operating results of DDPD
as discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had cash and cash equivalents of $15.2
million, a decrease of $5.6 million from the $20.8 million of cash and cash
equivalents at June 30, 1997. This decrease is primarily due to the net cash
used in operating activities including the net loss for fiscal 1998, as well as
cash spent in acquiring Seaport in September 1997.
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, 1998, although the Company
expects the credit agreement to be extended beyond the expiration date. As of
June 30, 1998, there were no outstanding borrowings under the working capital
line of credit or term loan facility. 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, cash payments on the 1996 HP
Agreement which continue through December 1999 and
14
<PAGE> 16
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.
FACTORS AFFECTING FUTURE RESULTS
Dependence on Relationship with Hewlett-Packard. The Company derived 53%
of its revenue from Hewlett-Packard in fiscal 1998. Therefore, any significant
disruption or deterioration of its relationship with Hewlett-Packard would have
a material adverse effect on the Company's business, results of operations and
financial condition. The Company has met all of its obligations necessary to
secure the right to receive ongoing payments from Hewlett-Packard under its 1996
agreement with Hewlett-Packard discussed above, and is also current in
performing its obligations under various other less material agreements it has
with Hewlett-Packard. However, there can be no assurance that the Company will
continue to meet all such obligations in the future. Hewlett-Packard has the
right to terminate each of its agreements with the Company if the Company
breaches its obligations under that agreement and does not cure such breach
within 30 days. In addition, competitors of the Company, including without
limitation Adobe and Peerless, are continuously engaged in efforts to win
Hewlett-Packard's business away from the Company, and are likely to continue
such efforts in the future. There can be no assurance that one or more of the
Company's competitors will not be successful in competing with the Company for
some or all of Hewlett-Packard's business. Further, although Hewlett-Packard has
shown a strong tendency to outsource embedded systems software and development
for its printer products over the past several years, there can be no assurance
that this trend will continue or that Hewlett-Packard's internal development
groups will not compete successfully for some or all of this outsourced business
in the future. Finally, any adverse change in Hewlett-Packard's business,
results of operations or financial condition could in turn have a material
adverse effect on the Company's business, results of operations and financial
condition.
Dependence on Market Success of Third Parties. The markets for the
Company's products and services are characterized by rapidly changing
technology, evolving industry standards and needs, and frequent new product
introductions. The Company currently derives substantially all of its revenue
from the licensing of technology, including royalty streams derived from OEMs'
shipments of document imaging devices containing the Company's products, and the
sale of related products and services to manufacturers of document imaging
devices. The Company anticipates that these sources of revenue will continue to
account for substantially all of its revenue for the foreseeable future. In
order to assure that the Company will derive future royalty streams from the
shipment of OEM devices, the Company and its OEMs are required to develop and
release in a regular and timely manner new document imaging products with
increased speed, enhanced output resolutions, reduced memory requirements,
multiple functions, and network connectivity. The Company's OEMs are under
tremendous pressure to continually shorten the development cycles of these
products, leading to increased complexity and cost of development to the Company
and its OEMs. The Company's success will depend on, among other things: market
acceptance of the Company's technology and the document imaging devices of the
Company's OEMs; the ability of the Company and its OEMs to meet industry changes
and market demands in a timely manner; achievement of new design wins by the
Company; successful implementation of the Company's technology in new document
imaging devices being developed by its OEMs; and successful marketing of those
devices by the OEMs. Any failure by the Company or its OEMs to anticipate or
respond adequately to the rapidly changing technology and evolving industry
standards and needs in the market for document imaging devices could result in a
loss of competitiveness or revenue, which could have a material adverse effect
on the Company's business, results of operations and financial condition.
Product Development; Product Delays. The Company has in the past
experienced delays in development of its products and in implementation of those
products in its customers' document imaging devices. There can be no assurance
that the Company will not experience similar, or more severe, delays in the
future. Prior delays have resulted from numerous factors such as changing OEM
product specifications, difficulties in allocating engineering personnel among
competing projects, other resource limitations, difficulties with independent
contractors, changing market or competitive requirements and unanticipated
engineering complexity. There can be no assurance that these or other factors
will not contribute to future delays; that OEMs
15
<PAGE> 17
will tolerate such delays; or that delayed document imaging devices, once
introduced, will meet with market acceptance or success. Given the short product
life cycles in the market for document imaging devices, any delay or
unanticipated difficulty associated with new product development or introduction
could have a material adverse effect on the Company's business, results of
operations and financial condition.
Competition. The market for the Company's products and services is
intensely competitive, and the Company has numerous competitors, including not
only other suppliers of outsourced products and services such as Peerless
Systems Corporation, but its OEM customers' own internal development groups as
well. The Company's page description language interpreter products compete
directly with those of Adobe Systems, Inc., which is substantially larger than
the Company and has significantly greater resources and name recognition than
the Company. In addition, the Company's OEM customers compete fiercely with one
another, and with other manufacturers of document imaging devices, for market
share in a market characterized by rapid development cycles, short product life
cycles, and ever-increasing consumer demand for greater performance and
functionality at reduced prices. There can be no assurance that the Company or
its OEMs will be able to compete successfully against their respective current
or future competitors, or that competitive pressures faced by the Company and
its OEMs will not have a material adverse effect on its business, results of
operations or financial condition.
Technological Change/Developing Markets. A substantial portion of the
Company's recent development effort has been directed at the development of new
embedded imaging technologies, including next-generation PDLs, the XipChip
family of ASICs, other foundation technology for MFPs, and embedded digital
color copier technology. While the Company has substantial experience in certain
of these areas, it has limited experience in others. The Company's future
success will depend to a significant degree on its ability to complete
development of these technologies and have them deployed in OEMs' document
imaging devices. This success will be dependent in part on the ability of the
Company's OEMs to develop new products that provide the functionality,
performance, speed, and connectivity demanded by the market at acceptable
prices, and to convince end users to adopt new generations of products for
office and desktop use. There can be no assurance that the market for MFP, color
imaging and other products will develop or continue to expand as currently
anticipated by the Company; that the Company's OEM customers will choose the
Company's technology for use in their printers, MFPs, color copiers or other
devices; that the Company's OEM customers will be successful in developing or
introducing such devices; or that such products will gain market acceptance. The
failure of any of these events to occur could have a material adverse effect on
the Company's business, results of operations and financial condition. Likewise,
there can be no assurance that future changes in the technological or marketing
direction of industry leaders such as Microsoft Corporation or Intel
Corporation -- for example, the possibility that Microsoft may include native
print rendering capability in future versions of its personal computer operating
systems -- will not render the Company's key products such as printer languages,
interpreters and drivers obsolete or reduce market demand for them. Any such
developments could also have a material adverse effect on the Company's
business, results of operations and financial condition.
Investment in Ricoh MFP and XipChip. The Company has made a substantial
investment in research and development in order to create a family of MFP
devices for its customer Ricoh Co., Ltd., and to develop its XipChip ASICs for
use in those devices. While shipment of commercial volumes of the first Ricoh
MFP containing Xionics' MFP technology is expected to occur during the second
quarter of the Company's 1999 fiscal year, there can be no assurance that Ricoh
will be successful in marketing or selling such product, or that it will sell
sufficient quantities of current or future MFPs based on Xionics technology to
enable Xionics to recoup its investment in the development of such devices.
Similarly, there can be no assurance that the Company will succeed in marketing
current or future versions of the XipChip ASICs to other customers in addition
to Ricoh, or that it will sell production units of XipChips in sufficient
quantities to recoup its investment in the development thereof.
Asian Economic Crisis. The Company has several significant OEM customers
in Japan, South Korea, and other parts of Asia. The adverse economic
circumstances currently prevailing in Japan and elsewhere in Asia could affect
these customers' willingness or ability to do business with the Company in the
future or their success in developing and launching document imaging devices
containing the Company's products, which in turn could have a material adverse
effect on the Company's business, results of operations and financial
16
<PAGE> 18
condition. During 1998, the Company derived 14% of its revenue from Mita Digital
Design, Inc. ("MDD"), a wholly-owned U.S. subsidiary of Mita Industrial Co.,
Ltd. ("Mita"), and other affiliates of Mita. Mita, a Japanese corporation,
petitioned the Japanese court for reorganization on August 10, 1998, in a
proceeding analogous (although not identical) to a Chapter 11 bankruptcy filing
in the United States. While MDD and Mita's other international subsidiaries have
stated publicly that they do not anticipate any immediate effect on their
ability to do business as the result of Mita's reorganization, these
subsidiaries derive a significant portion of their operating revenue from Mita.
Therefore there can be no assurance that Mita's reorganization will not affect
its subsidiaries' willingness or ability to continue to do business with the
Company at the levels experienced during fiscal 1998, or at all. Further, there
can be no assurance that other Japanese or Asian customers of the Company will
not also enter reorganization or bankruptcy as the result of the Asian economic
situation. One or more of the Company's significant Asian customers entering
reorganization or bankruptcy could result in a material adverse effect on the
Company's business, results of operations and financial condition.
Risks Associated with Provision of Controller Design and Manufacturing
Services. The Company provides comprehensive services for the management and
coordination of the design and manufacturing of controller boards for its OEM
customers by third parties. The Company seeks to confine its role in such
arrangements to that of agent for the OEM. However, in response to customer or
supplier requirements the Company has at times assumed contractual
responsibility for the delivery of development deliverables and manufactured
boards. There can be no assurance that the Company will not incur liability to
its customers as the result of its third-party contractors' failure or inability
to develop and manufacture controller boards for such OEMs as agreed.
Recruitment and Retention of Employees. The Company's future success is
dependent in part upon its ability to attract and retain qualified employees,
especially highly skilled engineering and technical employees. The current labor
market, both in the Company's geographical area and in the high-technology
industry in general, is such that the number of open positions in these
disciplines far exceeds the supply of personnel qualified to fill them. In
consequence, the Company must continually compete with other high-technology
employers for this limited pool of available employees. There can be no
assurance that the Company will be able to attract or retain the employees it
needs to execute against its current or future business plans. Any failure to do
so could have a material adverse effect on the Company's business, results of
operations and financial condition.
The Year 2000. Many computer programs written during approximately the
past 20 years use two digits rather than four to identify a calendar year, and a
number of these programs are still in widespread use. Such programs could
recognize a date represented as "00" as the calendar year 1900 rather than the
calendar year 2000 when performing date-sensitive operations. This in turn could
cause the programs to generate erroneous data or fail when called upon to
perform date-sensitive operations using the year 2000 or subsequent years.
Although the Company believes its products and systems are Year 2000 compliant,
the Company utilizes third-party equipment and software which may not be Year
2000 compliant. Failure of such third-party equipment or software to operate
properly with regard to dates in the year 2000 and subsequent years could
require the Company to incur unanticipated expenses to remedy any problems,
which could have a material adverse effect on the Company's business, results of
operations and financial condition. Furthermore, the purchasing patterns of
customers or potential customers may be affected by Year 2000 issues as
companies expend significant resources to correct their current systems for Year
2000 compliance. These expenditures may result in reduced funds available to
purchase products and services such as those offered by the Company, which could
have a material adverse effect on the Company's business, results of operations
and financial condition.
Because the Company licenses and provides services relating to embedded
software and firmware, the Company may become involved in investigations or
allegations regarding Year 2000 issues. The Company believes its current
products are Year 2000 compliant and do not require modification to function
correctly in and after the year 2000. Accordingly, the Company does not
anticipate any material exposure arising from Year 2000 issues relating to its
own products and services. To date, the Company has not spent a material amount
on Year 2000 expenditures and does not anticipate further expenditures to be
material to its financial
17
<PAGE> 19
position or results of operations in any given year. However, the Company's
software and firmware is often commingled with that of its customers or other
vendors when such software and firmware is incorporated in the customers'
products, and the Company has no knowledge of the Year 2000 readiness of such
third parties' software and firmware. Therefore, the Company cannot anticipate
the degree to which it could be the subject of claims or complaints regarding
Year 2000 issues.
Factors Affecting Stock Price. The market price of the Company's common
stock has been, and may continue to be, subject to significant fluctuations in
response to quarter-to-quarter variations in the Company's operating results,
announcements of technological innovations or strategic relationships by the
Company or its competitors, and other events or factors. In addition, the stock
market in recent months and years has experienced extreme price and volume
fluctuations which have affected the market price of the stock of many
technology companies, and in particular those with small market capitalizations.
These fluctuations, as well as general economic and market conditions, may
materially and adversely affect the market price of the Company's common stock.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Derivative Financial Instruments, Other Financial Instruments, and
Derivative Commodity Instruments. The Company does not participate in derivative
financial instruments, other financial instruments for which fair value
disclosure would be required under SFAS No. 107, or derivative commodity
instruments. All of the Company's investments are in short-term,
investment-grade commercial paper and money market accounts that are carried at
fair value on the Company's books. Accordingly, the Company has no quantitative
information concerning the market risk of participating in such investments.
Primary Market Risk Exposures. The Company's primary market risk exposures
are in the areas of interest rate risk and foreign currency exchange rate risk.
The Company's investment portfolio of cash equivalents is subject to interest
rate fluctuations, but the Company believes this risk is immaterial due to the
short-term nature of these investments. Substantially all of the Company's
business outside the United States is conducted in U.S. dollar-denominated
transactions, whereas the Company's operating expenses in Japan and Germany are
denominated in local currency. The Company has no foreign exchange contracts,
option contracts or other foreign hedging arrangements. However, the Company
believes that the operating expenses of its foreign operations are immaterial,
and therefore any associated market risk is unlikely to have a material adverse
effect on the Company's business, results of operations or financial condition.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
XIONICS DOCUMENT TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
NUMBER
------
<S> <C>
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENTS:
Report of Independent Public Accountants.................... F-1
Consolidated Balance Sheets as of June 30, 1998 and June 30,
1997...................................................... F-2
Consolidated Statements of Operations for the Fiscal Years
Ended June 30, 1998, June 30, 1997, and June 30, 1996..... F-3
Consolidated Statements of Redeemable Preferred Stock and
Stockholders' Equity (Deficit) for the Fiscal Years Ended
June 30, 1998, June 30, 1997 and June 30, 1996............ F-4
Consolidated Statements of Cash Flows for the Fiscal Years
Ended June 30, 1998, June 30, 1997 and June 30, 1996...... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
18
<PAGE> 20
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 November 23, 1998 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 November 23, 1998 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 November 23,
1998 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 November 23, 1998 Annual Meeting of Stockholders.
19
<PAGE> 21
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 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)
10.6.1 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)
10.7 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>
20
<PAGE> 22
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.8 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)
10.9 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)
10.10 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)
10.11 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 (filed as Exhibit 10.13 to the Company's
Annual Report on Form 10-K dated September 29, 1997)
10.12 Securities Purchase Agreement between WaveMark Technologies,
Inc. and the Company dated June 20, 1997 (filed as Exhibit
10.14 to the Company's Annual Report on Form 10-K dated
September 29, 1997)
10.13 Stock Option Agreements between the Company and Peter J.
Simone dated June 27, 1997 (filed as Exhibit 10.15 to the
Company's Annual Report on Form 10-K dated September 29,
1997)
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
- ------- -----------
<C> <S>
10.14 Stock Purchase Agreement between Xionics, Inc., Xionics
Document Technologies, Inc., Seaport Imaging, et al dated
August 13, 1997
10.15 Employment Agreement between the Company and Larry Krummel
dated September 5, 1998
10.16 Letter agreement between the Company and Robert E. Gilkes
dated February 24, 1998
10.17 Technology and Services Agreement between the Company and
Hewlett-Packard Company dated June 19, 1998*
10.18 Rights Agreement between the Company and BankBoston N.A.
dated April 15, 1998
10.19 Second Loan Modification Agreement between the Company and
Fleet National Bank dated December 31, 1997
10.20 Employment Agreement between the Company and Peter J. Simone
dated March 18, 1998
10.21 Letter Agreement between the Company and Paul R. Low dated
March 16, 1998
10.22 Form of Stock Option Agreement pursuant to the Company's
1993, 1995 and 1996 Stock Option Agreements
11.1 Statement re Computation of Per Share Earnings
21.1 Subsidiaries of the Registrant
</TABLE>
21
<PAGE> 23
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
23.1 Consent of Arthur Andersen LLP
27 Financial Data Schedule
- ---------------
* To be filed as an amendment to this Annual Report on Form 10-K; confidential
treatment to be requested for certain portions of this exhibit.
ITEM 14(b) REPORTS ON FORM 8-K.
On April 15, 1998, the Company filed a current report on Form 8-K,
announcing the resignation of Gerard T. Feeney as Vice President -- Finance,
Chief Financial Officer and Treasurer, and the appointment of Robert L. Lentz as
Senior Vice President -- Finance and Administration, Chief Financial Officer and
Treasurer. On April 21, 1998, the Company filed a current report on Form 8-K,
announcing the adoption of a Shareholders Rights Plan.
22
<PAGE> 24
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 17th day of September, 1998.
XIONICS DOCUMENT TECHNOLOGIES, INC.
By: /s/ PETER J. SIMONE
----------------------------------
PETER J. SIMONE
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND DIRECTOR
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
--------- ----- ----
<C> <S> <C>
/s/ PETER J. SIMONE President, Chief Executive September 17, 1998
- --------------------------------------------------- Officer, and Director
PETER J. SIMONE (principal executive
officer)
/s/ PAUL R. LOW Chairman of the Board of September 17, 1998
- --------------------------------------------------- Directors
PAUL R. LOW
/s/ RICHARD A. D'AMORE Director September 17, 1998
- ---------------------------------------------------
RICHARD A. D'AMORE
/s/ DAVID R. SKOK Director September 17, 1998
- ---------------------------------------------------
DAVID R. SKOK
/s/ THOMAS A. ST. GERMAIN Director September 17, 1998
- ---------------------------------------------------
THOMAS A. ST. GERMAIN
/s/ ROBERT L. LENTZ Senior Vice President- September 17, 1998
- --------------------------------------------------- Finance and
ROBERT L. LENTZ Administration, Chief
Financial Officer, and
Treasurer (principal
financial and accounting
officer)
</TABLE>
23
<PAGE> 25
SUMMARY OF TRADEMARKS
The following trademarks of Xionics Document Technologies, Inc. or its
subsidiaries, which may be registered in certain jurisdictions, are referenced
in this Form 10-K:
Intelligent Peripheral System
IPS-PRINT
IPS-MFP
Xionics
XipApp
XipChip
24
<PAGE> 26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of
Xionics Document Technologies, Inc. and Subsidiaries:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Xionics Document Technologies and
subsidiaries included in this Form 10-K, and have issued our report thereon
dated July 28, 1998 (except with respect to the matters discussed in Note 2 as
to which the date is August 12, 1998). Our audits were made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedule listed in the index is the responsibility of the Company's management
and is presented for purposes of complying with the Securities and Exchange
Commission's rules and regulations and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states, in all material respects, the financial data required to be set forth
herein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
July 28, 1998
25
<PAGE> 27
SCHEDULE II
XIONICS DOCUMENT TECHNOLOGIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1996, 1997, AND 1998
<TABLE>
<CAPTION>
BALANCE,
ALLOWANCE FOR DOUBTFUL ACCOUNTS FOR BEGINNING OF CHARGED TO BALANCE,
CONTINUING OPERATIONS: YEAR EXPENSE WRITE-OFFS END OF YEAR
----------------------------------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
June 30, 1996...................... $ 56,000 $ -- $ -- $ 56,000
June 30, 1997...................... $ 56,000 $ -- $ -- $ 56,000
June 30, 1998...................... $ 56,000 $ -- $ -- $ 56,000
</TABLE>
<TABLE>
<CAPTION>
BALANCE,
ALLOWANCE FOR DOUBTFUL ACCOUNTS FOR BEGINNING OF CHARGED TO BALANCE,
DISCONTINUED OPERATIONS: YEAR EXPENSE WRITE-OFFS END OF YEAR
----------------------------------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
June 30, 1996...................... $148,000 $ (23,000) $ (41,000) $ 84,000
June 30, 1997...................... $ 84,000 $ 67,000 $ (88,000) $ 63,000
June 30, 1998...................... $ 63,000 $ 870,000 $ (92,000) $ 841,000
</TABLE>
<TABLE>
<CAPTION>
BALANCE, CHARGED
BEGINNING OF CHARGED TO TO THE BALANCE,
DISCONTINUED OPERATIONS ACCRUAL: YEAR EXPENSE ACCRUAL END OF YEAR
-------------------------------- ------------ ---------- ------- -----------
<S> <C> <C> <C> <C>
June 30, 1996...................... $ -- $ -- $ -- $ --
June 30, 1997...................... $ -- $ -- $ -- $ --
June 30, 1998...................... $ -- $1,045,000 $ -- $1,045,000
</TABLE>
<TABLE>
<CAPTION>
BALANCE, CHARGED
BEGINNING OF CHARGED TO TO THE BALANCE,
RESERVES FOR RESTRUCTURING: YEAR EXPENSE ACCRUAL END OF YEAR
--------------------------- ------------ ---------- ------- -----------
<S> <C> <C> <C> <C>
June 30, 1996...................... $ -- $ -- $ -- $ --
June 30, 1997...................... $ -- $ -- $ -- $ --
June 30, 1998...................... $ -- $1,399,000 $(479,000) $ 920,000
</TABLE>
26
<PAGE> 28
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, 1998 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, 1998. 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, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
July 28, 1998, except with respect to the
matters discussed in Note 2 as to which
the date is August 12, 1998
F-1
<PAGE> 29
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 15,243,438 $ 20,843,911
Accounts receivable, less reserves of approximately
$56,000 at June 30, 1998 and 1997.................... 3,953,722 4,351,611
Contract receivable.................................... 9,927,416 7,411,288
Prepaid expenses and other current assets.............. 480,802 1,283,930
------------ ------------
Total current assets.............................. 29,605,378 33,890,740
------------ ------------
NET ASSETS OF DISCONTINUED OPERATIONS....................... -- 2,113,195
PROPERTY AND EQUIPMENT, NET................................. 2,575,141 2,629,248
DEFERRED TAX ASSET.......................................... 1,030,000 930,000
ACQUIRED INTANGIBLES, NET OF ACCUMULATED AMORTIZATION OF
APPROXIMATELY $782,000 AT JUNE 30, 1997................... -- 420,833
OTHER ASSETS, NET OF ACCUMULATED AMORTIZATION OF
APPROXIMATELY $450,000 AT JUNE 30, 1997................... 722,607 2,312,611
------------ ------------
$ 33,933,126 $ 42,296,627
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable, current portion......................... $ 527,631 $ --
Accounts payable....................................... 2,184,184 1,958,117
Accrued expenses....................................... 9,030,835 3,755,625
Deferred revenue....................................... 2,096,531 1,305,033
------------ ------------
Total current liabilities......................... 13,839,181 7,018,775
------------ ------------
NOTES PAYABLE, NET OF CURRENT PORTION....................... 575,000 --
COMMITMENTS (Notes 7 and 10)
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value; Authorized -- 40,000,000
shares Issued -- 12,261,438 shares at June 30, 1998
and 11,831,762 at June 30, 1997
Outstanding -- 12,037,375 shares at June 30, 1998 and
11,607,699 at June 30, 1997.......................... 122,614 118,317
Additional paid-in capital............................. 46,303,791 45,815,462
Accumulated deficit.................................... (26,756,214) (10,504,681)
Treasury stock, at cost -- 224,063 shares of common
stock at June 30, 1998 and 1997...................... (151,246) (151,246)
------------ ------------
Total stockholders' equity........................ 19,518,945 35,277,852
------------ ------------
$ 33,933,126 $ 42,296,627
============ ============
</TABLE>
F-2
<PAGE> 30
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
------------------------------------------
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
Net revenue........................................ $ 29,101,136 $29,179,466 $13,172,397
Cost of revenue.................................... 8,510,491 3,649,188 1,289,364
Nonrecurring cost of revenue....................... 2,744,500 -- --
------------ ----------- -----------
Gross profit.................................. 17,846,145 25,530,278 11,883,033
Operating expenses:
Research and development......................... 15,544,150 13,428,466 8,124,975
Selling, general and administrative.............. 6,996,031 7,144,055 5,720,256
Nonrecurring charges............................. 6,690,053 -- --
Charge for purchased research and development.... -- 5,400,000 --
------------ ----------- -----------
29,230,234 25,972,521 13,845,231
------------ ----------- -----------
Loss from continuing operations............... (11,384,089) (442,243) (1,962,198)
Interest and other income (expense):
Interest expense................................. (1,567) (95,462) (286,613)
Interest income.................................. 870,715 956,402 163,686
Other income (expense)........................... (25,783) (8,001) 4,099
------------ ----------- -----------
843,365 852,939 (118,828)
------------ ----------- -----------
Income (loss) from continuing operations before
provision for income taxes....................... (10,540,724) 410,696 (2,081,026)
Provision for income taxes....................... 272,374 345,500 --
------------ ----------- -----------
Net income (loss) from continuing operations..... (10,813,098) 65,196 (2,081,026)
Discontinued operations (Note 2)
Income (loss) from discontinued operations of
DDPD (net of provision for income taxes of
approximately $0, $398,000 and $0,
respectively)................................. (3,182,447) 787,153 548,349
Loss on sale of discontinued operations.......... (2,255,988) -- --
------------ ----------- -----------
Net income (loss)................................ $(16,251,533) $ 852,349 $(1,532,677)
============ =========== ===========
Income (loss) from continuing operations per share
Basic......................................... $ (0.91) $ 0.01 $ (1.37)
============ =========== ===========
Diluted....................................... $ (0.91) $ 0.01 $ (1.37)
============ =========== ===========
Income (loss) from discontinued operations per
share
Basic......................................... $ (0.46) $ 0.08 $ 0.36
============ =========== ===========
Diluted....................................... $ (0.46) $ 0.07 $ 0.36
============ =========== ===========
Net income (loss) per share
Basic......................................... $ (1.37) $ 0.09 $ (1.01)
============ =========== ===========
Diluted....................................... $ (1.37) $ 0.07 $ (1.01)
============ =========== ===========
Weighted average number of shares outstanding
Basic......................................... 11,830,541 9,948,607 1,517,674
============ =========== ===========
Diluted....................................... 11,830,541 12,080,987 1,517,674
============ =========== ===========
</TABLE>
F-3
<PAGE> 31
XIONICS DOCUMENT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
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, 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............ -- -- -- -- -- --
Exercise of stock options....... -- -- -- -- -- --
Issuance of Common Stock under
Employee Stock Purchase Plan
(ESPP)........................ -- -- -- -- -- --
Tax benefit from exercise of
incentive stock options....... -- -- -- -- -- --
Net loss........................ -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, JUNE 30, 1998............ -- $ -- -- $ -- -- $ --
=========== =========== =========== =========== =========== ===========
</TABLE>
F-4
<PAGE> 32
XIONICS DOCUMENT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
(CONTINUED)
<TABLE>
<CAPTION>
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, 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................. -- -- -- -- -- --
Exercise of stock options............ -- -- -- -- -- --
Issuance of Common Stock under
Employee Stock Purchase Plan
(ESPP)............................. -- -- -- -- -- --
Tax benefit from exercise of
incentive stock options............ -- -- -- -- -- --
Net loss............................. -- -- -- -- -- --
---------- ----------- ---------- -------- -------- -------
BALANCE, JUNE 30, 1998................. -- $ -- -- $ -- -- $ --
========== =========== ========== ======== ======== =======
</TABLE>
F-5
<PAGE> 33
XIONICS DOCUMENT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
(CONTINUED)
<TABLE>
<CAPTION>
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, 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
Exercise of stock options....... 394,246 3,943 172,714 -- -- -- 176,657
Issuance of Common Stock under
Employee Stock Purchase Plan
(ESPP)........................ 35,430 354 147,605 -- -- -- 147,959
Tax benefit from exercise of
incentive stock options....... -- -- 168,010 -- -- -- 168,010
Net loss........................ -- -- -- (16,251,533) -- -- (16,251,533)
---------- -------- ----------- ------------ -------- --------- -----------
BALANCE, JUNE 30, 1998............ 12,261,438 $122,614 $46,303,791 $(26,756,214) 224,063 $(151,246) $19,518,945
========== ======== =========== ============ ======== ========= ===========
</TABLE>
F-6
<PAGE> 34
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
----------------------------------------
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................................... $(16,251,533) $ 852,349 $(1,532,677)
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities --
Charge for purchased research and development......... 2,000,000 5,400,000 --
Depreciation and amortization......................... 2,044,446 1,369,506 814,173
Noncash compensation charge........................... -- -- 182,000
Deferred income taxes................................. (100,000) (930,000) --
Loss on disposal of property and equipment............ -- 22,712 --
Nonrecurring charges.................................. 6,690,053 -- --
Nonrecurring cost of revenue.......................... 2,000,000 -- --
Changes in current assets and current liabilities --
Accounts receivable................................ (3,733) (2,948,470) 146,142
Contract receivable................................ (2,516,128) (7,411,288) --
Prepaid expenses and other current assets.......... 673,559 (1,063,488) 9,253
Assets and liabilities of discontinued operations,
net.............................................. 2,113,195 58,868 756,072
Accounts payable................................... 201,459 40,841 266,792
Other accrued expenses............................. 536,007 2,425,562 (98,168)
Deferred revenue................................... 791,498 (63,800) (114,340)
------------ ----------- -----------
Net cash (used in) provided by operating
activities................................... (1,821,777) (2,247,208) 429,247
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in short-term investments........... -- 644,613 (644,613)
Increase in other assets................................ (1,428,133) (2,342,697) (500)
Acquisitions, net of cash acquired and acquisition costs
paid.................................................. (2,225,228) (5,205,475) --
Purchases of property and equipment..................... (1,721,192) (1,504,395) (1,066,780)
------------ ----------- -----------
Net cash used in investing activities.......... (5,374,553) (8,407,954) (1,711,893)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
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)
Borrowing under notes payable........................... 1,102,631 -- --
Repayments of secured promissory notes payable to
stockholder........................................... -- (2,094,000) (300,000)
Stock repurchase........................................ -- -- (250,000)
Repurchase of Class D Redeemable Preferred.............. -- -- (4,500,000)
Proceeds from exercise of stock options................. 176,657 409,427 35,398
Proceeds from employee stock purchase plan.............. 147,959 69,570 --
Tax benefit from exercise of incentive stock options.... 168,010 1,600,000 --
Sale of Common Stock, net of issuance costs............. -- 30,685,000 --
Deferred offering costs................................. -- (400,000) (526,439)
------------ ----------- -----------
Net cash provided by financing activities...... 1,595,257 29,383,214 2,172,141
------------ ----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ (5,600,473) 18,728,052 889,495
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ 20,843,911 2,115,859 1,226,364
------------ ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 15,243,438 $20,843,911 $ 2,115,859
============ =========== ===========
</TABLE>
F-7
<PAGE> 35
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 innovative software and silicon solutions for
printing, scanning, copying, processing and transmitting digital documents to
computer peripheral devices that perform document imaging functions. The
Company's products enable the high-speed capture, processing, printing, copying
and display of complex electronic documents, both locally and across networks.
In August 1998, the Company sold the Digital Document Products Division
("DDPD") business to GammaGraphX, Inc. ("GGX"). The sale involves the transfer
of all DDPD assets and personnel and certain liabilities to GGX, for future
consideration, including notes issued for certain assets and future royalties
(see Note 2).
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,
Xionics, Inc. and Xionics Securities Corporation. Xionics International Limited
("Xionics UK") is a wholly owned subsidiary of Limited. Xionics
Geschaftsfuhrungs GmbH and Xionics GmbH & Co. KG Software Consulting ("Xionics
KG") are wholly owned subsidiaries of Xionics Document Technologies GmbH. GCA
Software GmbH is a wholly owned subsidiary of Xionics KG. 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. 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. Nonrefundable 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. During 1998, the Company recorded
contract losses of approximately $2.7 million which are included in nonrecurring
cost of revenue in the accompanying statements of operations. There were no
contract loss provisions at June 30, 1997. During 1997, the American Institute
of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP")
97-2, Software Revenue Recognition, which is effective for fiscal years
beginning after December 15, 1997. The Company will adopt this statement for
fiscal year 1999 and does not believe the adoption of this accounting
pronouncement will have a significant impact on the Company's financial
statements.
F-8
<PAGE> 36
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Nonrecurring Charges
During 1998, the Company recorded nonrecurring charges of approximately
$6.7 million. The components of these charges are as follows:
<TABLE>
<S> <C>
Write-down of intangible and other assets to net realizable
value..................................................... $4,904,891
Provision for lease costs of excess facilities and other.... 1,785,162
----------
$6,690,053
==========
</TABLE>
As a result of the change in market conditions for certain products, the
Company assesses the realizability of long-lived assets in accordance with
Statement of Financial Accounting Standards ("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 including intangibles for impairment whenever changes in circumstances
indicate that the carrying amount of an asset may not be fully recoverable.
During 1998, the Company recorded charges of approximately $4.9 million relating
to the impairment of long-lived assets which is included in the operating
non-recurring charges in the accompanying consolidated statements of operations.
The Company wrote off certain intangible assets that the Company determined were
impaired including $3.3 million of purchased technology, $1.0 million of prepaid
royalties and $0.6 million of other assets for which there is no estimated
future economic benefit based upon the Company's estimated revenue forecasts.
The lease loss and other accrual of $1.8 million consists of $0.9 million of
costs related to excess facilities and $0.9 million related to additional
commitments that the Company is required to pay under nonrecurring arrangements
that the Company determined were impaired in the fourth quarter of 1998.
(d) 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.
(e) Research and Development Costs
Research and development costs are charged to operations as incurred. 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 and are not expected to be material.
(f) Cash and Cash Equivalents
The Company accounts for investments under SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities. The Company considers all
highly liquid investments with original maturities of
F-9
<PAGE> 37
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
less than three months at the time of purchase to be cash equivalents. As of
June 30, 1998 and 1997, cash and cash equivalents consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash and cash equivalents --
Commercial paper................................ $ 9,498,630 $ --
Cash............................................ 2,458,583 2,106,636
Money market accounts........................... 1,644,009 15,735,463
U.S. government and agency securities........... 1,642,216 3,001,812
----------- -----------
Total cash and cash equivalents......... $15,243,438 $20,843,911
=========== ===========
</TABLE>
(g) Property and Equipment
The Company records property and equipment at cost. Maintenance and repair
items are charged to expense when incurred. Depreciation and amortization is
recorded for financial statement purposes on a straight-line basis over the
estimated useful lives of the assets, as follows:
<TABLE>
<CAPTION>
JUNE 30,
ESTIMATED ------------------------
ASSET CLASSIFICATION USEFUL LIFE 1998 1997
- -------------------- ----------- ---------- ----------
<S> <C> <C> <C>
Computer equipment............................. 3 years $4,510,519 $2,845,427
Furniture and fixtures......................... 3 - 7 years 1,127,905 1,021,612
Machinery and equipment........................ 3 years 256,790 306,983
---------- ----------
5,895,214 4,174,022
Less -- Accumulated depreciation and
amortization................................. 3,320,073 1,544,774
---------- ----------
$2,575,141 $2,629,248
========== ==========
</TABLE>
(h) Accrued Expenses
Accrued expenses as of June 30, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Accrued payroll and related expenses................ $1,054,903 $2,212,642
Accrued nonrecurring charges........................ 1,407,228 --
Accrued contract loss............................... 2,000,000 --
Accrued discontinued operations..................... 1,045,000 --
Accrued other....................................... 3,523,704 1,542,983
---------- ----------
$9,030,835 $3,755,625
========== ==========
</TABLE>
(i) Foreign Currency Translation
The Company follows the translation principles established by SFAS No. 52,
Foreign Currency Translation. Gains and losses resulting from changes in
exchange rate 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).
F-10
<PAGE> 38
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(j) 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 disclosure 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. Financial instruments that potentially subject the
Company to concentrations of credit risk are principally cash equivalents,
marketable securities and accounts receivable. Concentration of credit risk with
respect to accounts receivable is limited to certain customers to whom the
Company makes substantial sales. The Company performs periodic credit
evaluations of its customers and has recorded allowances for estimated losses.
The following table summarizes the number of customers that individually
comprise greater than 10% of total revenue and/or total accounts receivable and
their aggregate percentage of the Company's total net revenues and accounts
receivable.
<TABLE>
<CAPTION>
NET REVENUE ACCOUNTS RECEIVABLE
-------------------------------- ----------------------------
PERCENTAGE OF
CUSTOMER REVENUES PERCENTAGE OF
SIGNIFICANT ----------------- SIGNIFICANT TOTAL TRADE
CUSTOMERS A B C CUSTOMERS RECEIVABLE
----------- --- --- --- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Fiscal Year Ended --
June 30, 1998................... 2 53% 14% 0% 3 40%
June 30, 1997................... 1 58% 0% 0% 5 79%
June 30, 1996................... 2 54% 0% 15% 3 65%
</TABLE>
(k) Income (Loss) per Share
In accordance with SFAS No. 128, Earnings per Share, basic and diluted net
income (loss) per common share is calculated by dividing net income (loss) by
the weighted average number of common shares outstanding for all periods
presented. 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. The Company has applied the provisions of SFAS No. 128
and Staff Accounting Bulletin (SAB) No. 98 retroactively to all periods
presented.
The following table reconciles the weighted average common shares
outstanding to the shares used in the computation of basic and diluted weighted
average common shares outstanding:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------------
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
Weighted average common shares outstanding...... 11,830,541 9,948,607 1,517,674
Incremental weighted average common shares
issuable upon exercise of stock options
outstanding................................... -- 2,132,380 --
---------- ---------- ---------
Diluted weighted average common shares
outstanding................................... 11,830,541 12,080,987 1,517,674
========== ========== =========
</TABLE>
Diluted weighted average shares outstanding for 1998 and 1996 exclude all
potential common shares from stock options and convertible preferred stock
because to include such shares would have been antidilutive due to the Company's
net loss in both years. Dilutive weighted average shares outstanding for 1997
exclude only potential common shares from stock options that would be
antidilutive. As of June 30, 1998, 1997 and 1996, 2,213,775, 364,750 and
8,332,078 potential common shares were outstanding, respectively, but not
included in the above calculation as their effect would have been antidilutive.
F-11
<PAGE> 39
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(l) Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(m) 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.
(n) Accounting for Stock Compensation Plans
The Company applies Accounting Principles Board Opinion ("APB") No. 25,
Accounting for Stock Issued to Employees in accounting for stock option activity
for employees and directors. The Company has adopted the disclosure-only
provisions of SFAS No. 123, Accounting for Stock-Based Compensation (see Note
9(c)).
(o) Reclassifications
Certain amounts from prior years have been reclassified to conform with the
current year's presentation.
(p) Other Assets
Other assets as of June 30, 1998 consist of long-term deposits and an
investment representing less than 10% ownership in a company which was founded
by the previous chief operating officer of the Company. This investment is being
accounted for under the cost method of accounting. As of June 30, 1997 other
assets consisted principally of purchased technology and prepaid royalties. The
amount related to purchased technology relates to software technologies that
have achieved technological feasibility at the date of acquisition. These
technologies were to be incorporated in various products under development by
the Company. As discussed at Note 1(c) these amounts were written off during
fiscal 1998 as they were determined to be impaired.
(q) New Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, Reporting Comprehensive Income. SFAS No. 130 requires disclosure of all
components of comprehensive income on an annual and interim basis. Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources. SFAS No. 130 is effective for fiscal years beginning after December 15,
1997. The Company does not believe the adoption of this accounting pronouncement
will have a significant impact on the Company's financial statements.
In July 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information. SFAS No. 131 requires certain financial
and supplementary information to be disclosed on an annual and interim basis for
each reportable segment of an enterprise. SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997. Unless impracticable, companies would
be required to restate prior period information upon adoption. The Company does
not believe the adoption of this accounting pronouncement will have a
significant impact on the Company's financial statements.
In March 1998, the AICPA issued SOP 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use, which provides
guidance on accounting for costs of computer software developed
F-12
<PAGE> 40
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
or obtained for internal use. SOP 98-1 is effective for fiscal years beginning
after December 15, 1998. The Company does not believe the adoption of this
accounting pronouncement will have a significant impact on the Company's
financial statements.
(r) 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,
--------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
In connection with the initial public offering of Common
Stock (Note 9(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
=========== =========== ==========
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
=========== =========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest................................... $ 1,567 $ 135,631 $ 236,297
=========== =========== ==========
Cash (refunded) paid for income taxes.................... $ (648,668) $ 910,097 $ 14,580
=========== =========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS RELATED TO ACQUISITIONS:
During 1997 and 1998, the Company acquired GCA and
Seaport Imaging as described in Notes 3 and 4.
These acquisitions are summarized as follows-
Fair value of assets acquired, excluding cash............ $ 2,492,052 $ 5,750,648 $ --
Payments in connection with the acquisitions, net of cash
acquired............................................... (2,225,228) (5,205,475) --
----------- ----------- ----------
Liabilities assumed.................................. $ 266,824 $ 545,173 $ --
=========== =========== ==========
</TABLE>
F-13
<PAGE> 41
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) DISCONTINUED OPERATIONS
In fiscal 1998, the Company made the decision to shift all of its focus to
the Company's core embedded systems business and to sell or otherwise dispose of
its DDPD division. The Company's DDPD division sells print and scan accelerators
in the production scanner market. The Company's $5,438,000 or $0.46 per share,
loss reported from discontinued operations for the year ended June 30, 1998
represents a loss from DDPD operations of $3,182,000 or $.27 per share that
includes a $2,000,000 charge for purchased research and development in
connection with the Seaport Imaging ("Seaport") acquisition discussed at Note 4.
In addition, the Company has recorded the estimated loss on the disposal of the
business, including the write-off of assets and extinguishment of liabilities of
approximately $2,256,000, or $0.19 per share, which includes an estimated
operating loss of approximately $400,000 to be incurred during the first quarter
of fiscal 1999. The Company has recorded no estimated proceeds from the
disposition due to the uncertainty of realizing any proceeds form the sale of
the DDPD business as discussed below.
On August 12, 1998, the Company sold substantially all of the assets of its
DDPD division to GGX of Waltham, Massachusetts for consideration consisting of
future royalties on GGX's future sales of all products purchased from the
Company in this transaction from the date of closing through September 2001, or
until royalties reach an aggregate of $2.2 million, subject to provisions as
defined in the asset purchase agreement; assumption of certain liabilities; and
promissory notes totaling $1.28 million payable in 1999 and 2000, subject to
collection of receivables sold in the transaction.
The assets sold include the line of print and scan image acceleration
products formerly marketed by the Company under the names Turbo, Lightning,
PowerLightning and XipPrint, as well as the scanner control board products and
bar code recognition software products formerly marketed by Seaport, which was
acquired by the Company in August 1997. Based on the terms of the sale and the
fact that the Company will not receive any cash from these notes for at least
one year, and then only when certain conditions are met, management believes
that there is significant uncertainty that these notes will be collected.
Therefore, the Company has provided a full reserve against these notes. If
proceeds are collected in the future, the Company will record them as income
from discontinued operations.
The accompanying consolidated financial statements contain certain accounts
that have been reclassified in each of the periods presented to reflect this
disposition by the Company. Reported revenue, costs and expenses exclude the
operating results of the Company's DDPD business. The results of the Company's
DDPD business are presented on a net basis in the consolidated statements of
operations as income (loss) from discontinued operations. Product revenues from
the DDPD business were approximately $6,190,000, $8,621,000 and $10,637,000 for
the years ended June 30, 1998, 1997, and 1996, respectively.
The components of net assets of discontinued operations included in the
accompanying consolidated balance sheets as of June 30, 1997 are as follows:
<TABLE>
<S> <C>
Accounts receivable, net.................................... $1,094,302
Inventories................................................. 1,006,086
Prepaid expense and other current assets.................... 107,872
Property and equipment, net................................. 207,421
Accounts payable and accrued expenses....................... (302,486)
----------
$2,113,195
==========
</TABLE>
(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
F-14
<PAGE> 42
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 use, totaling $5,400,000 was charged to expense as of the
acquisition date. Acquired intangibles include the assembled workforce of GCA
and goodwill. During 1998, these intangibles were determined to be impaired due
to the Company's change in business focus and were written off (see Note 1(c)).
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
Basic........................................... $ 0.07 $ (1.06)
=========== ===========
Diluted......................................... $ 0.06 $ (1.06)
=========== ===========
</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) ACQUISITION OF SEAPORT IMAGING
On August 13, 1997, the Company acquired Seaport for $2,450,000, which
included direct acquisition costs of approximately $250,000. The Company paid
$1,100,000 in cash at closing and the balance is evidenced by a promissory note
payable over two years, subject to adjustment. The acquisition has been
accounted for as a purchase in accordance with APB Opinion No. 16, and
accordingly, Seaport's operating results from August 13, 1997 are included in
the accompanying financial statements. The Seaport results combined with the
$2,000,000 charge for in-process R&D has been included in the loss from
discontinued operations for the year ended June 30, 1998.
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 in an independent appraisal as intangible assets using proven
valuation procedures and techniques, including approximately $2,000,000 of
in-process R&D. The in-process R&D represents the fair value of projects that
did not have a future alternative use and was therefore charged to expense as of
the
F-15
<PAGE> 43
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
acquisition date. Acquired intangibles include the assembled workforce and
existing product technology of Seaport. These acquired intangibles were also
written off and included in the loss from discontinued operations for the year
ended June 30, 1998.
Unaudited pro forma operating results for the Company, assuming the
acquisition of Seaport occurred on July 1, 1996, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
<S> <C> <C>
Net income (loss)................................ $(16,432,069) $664,135
Net income (loss) per share
Basic.......................................... $ (1.39) $ 0.07
============ ========
Diluted........................................ $ (1.39) $ 0.05
============ ========
</TABLE>
For the purposes of these pro forma operating results, the in-process R&D
was assumed to have been written off prior to July 1, 1996, so that the
operating results presented include only recurring costs.
The purchase price of $2,450,000, including direct acquisition cost was
allocated as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 434,595
Property and equipment...................................... 35,209
In-process R&D.............................................. 2,000,000
Other assets................................................ 4,314
Acquired intangibles........................................ 242,706
Liabilities assumed......................................... (266,824)
----------
$2,450,000
==========
</TABLE>
(5) 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 Company's provision for income taxes for the years
ended June 30, 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal.......................................... $ -- $ -- $ --
State............................................ 35,000 18,000 --
Foreign.......................................... 337,374 44,000 --
Deferred:
Federal.......................................... (65,000) 579,000 --
State............................................ (35,000) 102,190 --
-------- -------- --------
Total provision for income taxes................... $272,374 $743,190 $ --
======== ======== ========
</TABLE>
F-16
<PAGE> 44
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the federal statutory rate to the Company's effective
tax rate is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Tax (benefit) at statutory rate............................. (34.0)% 34.0% (34.0)%
State taxes, net of federal benefit......................... (5.0) 6.3 (6.0)
Foreign taxes............................................... 1.0 1.1 --
Utilization of federal and foreign net operating loss
carryforwards............................................. -- (91.4) --
Increase in valuation allowance and other, net.............. 39.5 96.6 40.0
----- ----- -----
Tax provision............................................... 1.5% 46.6% 0.0%
===== ===== =====
</TABLE>
The tax effects of the components of the Company's deferred income tax
assets are as follows:
<TABLE>
<CAPTION>
JUNE 30,
---------------------------
1998 1997
------------ -----------
<S> <C> <C>
Deferred Tax Assets --
Domestic net operating loss carryforwards.............. $ 5,443,967 $ 1,896,298
Foreign net operating loss carryforwards............... 1,301,082 490,585
Temporary differences --
Intangible and acquired incomplete research and
development related to the Phoenix acquisition.... 1,009,725 1,099,218
Intangible and acquired incomplete research and
development related to the GCA acquisition........ 1,584,000 2,016,000
Discontinued operations............................. 3,920,000 --
Allowance for doubtful accounts..................... 140,985 22,425
Inventory valuation allowance....................... 9,018 85,466
Allowance for sales returns......................... 92,000 92,000
Other temporary differences, net.................... 314,728 349,058
------------ -----------
Total gross deferred tax asset................. 13,815,505 6,051,050
Less -- Valuation allowance.............................. (12,785,505) (5,121,050)
------------ -----------
Net deferred tax asset................................. $ 1,030,000 $ 930,000
============ ===========
</TABLE>
At June 30, 1998, the Company had available net operating loss ("NOL")
carryforwards of approximately $11,924,000 for U.S. income tax purposes, which
may be used to offset future taxable income, if any. The NOL carryforwards begin
to expire in 2009 and are subject to review and possible adjustment by the
Internal Revenue Service. The NOL carryforwards available for use in any given
year may be limited in the event of a significant change in ownership, as
defined by the Internal Revenue Code.
The Company has recorded a deferred tax asset for that portion of their
deferred tax asset 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 $12,785,000. If
realized, approximately $2,570,000 of this amount will be credited to additional
paid-in capital since these amounts were generated from the utilization of
disqualifying dispositions related to the exercise of incentive stock options.
(6) NOTES PAYABLE
In relation to the acquisition of Seaport, the Company entered into two
notes payable with various individuals who were the stockholders of Seaport.
These notes, totaled $1,150,000. A portion of the notes are due on the first
anniversary of the closing date (August 13, 1998) and the remaining portion is
due on the
F-17
<PAGE> 45
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
second anniversary. These notes are subject to reductions, as defined in the
stock purchase agreement. As of June 30, 1998, total reductions to the notes
were approximately $47,000.
(7) 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 cancelled and a new secured
promissory note payable to Phoenix was entered into by the Company for
$2,734,000 as part of the consideration for the purchase of certain assets in
fiscal 1995. 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.
(8) 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 and term loan facility expires on December 1, 1998.
Borrowings under the Line bear interest at the Bank's prime rate (8.5% at June
30, 1998), and borrowings under the term loan facility bear interest at the
prime rate (8.5% at June 30, 1998) plus 0.5% 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 of noncompliance, with all covenants as of June 30, 1998.
There are no outstanding borrowings under the Line or term loan facility as of
June 30, 1998.
(9) STOCKHOLDERS' EQUITY
(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 was 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 was amended by the Board of
Directors on October 10, 1997 to increase the number of shares available for
grants thereunder by 800,000 shares to 1,750,000 shares, and such amendment was
approved by the Company's stockholders on December 8, 1997. The 1996 Plan
provides for the grant or award of options to purchase shares of the
F-18
<PAGE> 46
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company's Common Stock. 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. All employees (including officers), directors and consultants of the
Company are eligible to receive stock options under the 1996 Plan.
The 1996 Plan is administered by the Board of Directors. Subject to the
provisions of the 1996 Plan, the Board of Directors has the authority to
designate participants, determine the number of shares to be covered by each
grant, the time at which each stock option is exercisable, the method of payment
and any other terms and conditions of the stock options. All stock options shall
be evidenced by a stock option agreement between the Company and the
participant.
While the Board of Directors determines the prices at which options 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. At June 30, 1998, the aggregate
number of shares of Common Stock available for future grants under the 1996
Plan, as amended, is 275,166.
The Company's 1996 Director Stock Option Plan (the "Director Plan") was
approved by the Board of Directors and the Company's stockholders on July 12,
1996. The Director Plan provides for the automatic grant of stock options
("Director Stock Options") to purchase shares of Common Stock of the Company to
nonemployee directors of the Company once annually, for so long as the
nonemployee director serves on the Board of Directors and is not employed by the
Company. Director Stock Options granted under the Director Plan must be
nonstatutory options. The purpose of the Director Plan is to attract and retain
outstanding nonemployee directors through the incentives of stock ownership. The
Director Plan authorizes the grant of options to purchase up to a total of
350,000 shares.
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, 1995................ 1,893,650 $ 0.20 $ 0.20
---------- ------------ ------
Granted................................. 919,406 0.20-6.50 1.19
Terminated.............................. (127,764) 0.20-1.84 0.35
Exercised............................... (175,202) 0.20-0.68 0.20
---------- ------------ ------
Outstanding, June 30, 1996................ 2,510,090 $ 0.20-6.50 $ 0.55
---------- ------------ ------
Granted................................. 874,900 10.00-15.00 12.77
Terminated.............................. (169,494) 0.20-14.45 8.83
Exercised............................... (1,182,475) 0.20-10.00 0.35
---------- ------------ ------
Outstanding, June 30, 1997................ 2,033,021 $ 0.20-15.00 $ 5.24
---------- ------------ ------
Granted................................. 1,588,588 3.50-15.25 4.68
Terminated.............................. (1,017,593) 0.68-15.25 12.17
Exercised............................... (394,246) 0.20-11.25 0.45
---------- ------------ ------
Outstanding, June 30, 1998................ 2,209,770 $ 0.20-15.25 $ 2.52
========== ============ ======
Exercisable, June 30, 1998................ 914,851 $0.20-$15.25 $ 1.61
========== ============ ======
</TABLE>
F-19
<PAGE> 47
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The range of exercise prices for options outstanding and options
exercisable at June 30, 1998 are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE PER SHARE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- --------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.20 346,289 6.60 $ 0.20 346,289 $ 0.20
$0.68 365,975 7.39 0.68 191,600 0.68
$1.84 86,625 7.73 1.84 43,754 1.84
$3.50 16,000 9.68 3.50 -- --
$3.56 1,246,131 9.66 3.56 331,113 3.56
$3.66 125,000 9.70 3.66 -- --
$4.25 20,000 9.71 4.25 1,250 4.25
$6.50 1,000 7.80 6.50 500 6.50
$15.25 2,750 9.34 15.25 345 15.25
--------- ---- ------ ------- ------
$0.20-$15.25 2,209,770 8.73 $ 2.52 914,851 $ 1.61
========= ==== ====== ======= ======
</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 40,979 shares as of June 30, 1998. As of
June 30, 1998, 159,021 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 APB
Opinion No. 25, Accounting for Stock Issued to Employees. In October 1995, the
FASB 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-20
<PAGE> 48
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, 1998 and
1997 using the Black-Scholes option pricing model as prescribed by SFAS No. 123.
The weighted average information and assumptions used are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- ------------
<S> <C> <C> <C>
Risk free interest rate................. 5.44% - 6.11% 5.90% - 6.69% 5.26% - 6.21%
Expected dividend yield................. -- -- --
Expected lives.......................... 4 years 4 years 4 years
Expected volatility..................... 65% 65% 65%
Weighted average value at grant date.... $4.70 $12.75 $--
Weighted average remaining contractual
life of options outstanding........... 8.73 8.65 8.81
</TABLE>
The pro forma effect of applying SFAS No. 123 would be as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ -------- -----------
<S> <C> <C> <C>
Net income (loss) as reported................ $(16,251,533) $852,349 $(1,532,677)
Pro forma net income (loss) as adjusted...... $(18,214,462) $ 41,890 $(1,589,835)
Net (loss) income per share as reported:
Basic...................................... $ (1.37) $ 0.09 $ (1.01)
============ ======== ===========
Diluted.................................... $ (1.37) $ 0.07 $ (1.01)
============ ======== ===========
Pro forma net income (loss) per share as
adjusted:
Basic...................................... $ (1.54) $ 0.00 $ (1.05)
============ ======== ===========
Diluted.................................... $ (1.54) $ 0.00 $ (1.05)
============ ======== ===========
</TABLE>
(10) OPERATING LEASE COMMITMENTS
The Company leases office facilities and certain equipment under operating
leases which expire at various dates through July 2002. Rent expense for all
operating leases charged to operations was approximately $1,302,000, $1,268,000
and $1,095,000 for the years ended June 30, 1998, 1997 and 1996, respectively.
Future minimum lease payments under operating leases as of June 30, 1998
are approximately as follows:
<TABLE>
<S> <C>
1999..................................................... $1,670,000
2000..................................................... 1,751,000
2001..................................................... 1,773,000
2002..................................................... 1,746,000
2003..................................................... 851,000
----------
Total minimum payments................................. $7,791,000
==========
</TABLE>
(11) 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
contributions to the Plan were approximately $152,000 and $146,000 for the years
ended June 30, 1998 and 1997, respectively. There was no contribution in the
year ended June 30, 1996.
F-21
<PAGE> 49
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(12) 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,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
United States....................... $19,854,302 $22,325,462 $11,087,319
Asia................................ 8,716,175 5,135,131 1,573,998
Europe.............................. 530,659 1,718,873 511,080
----------- ----------- -----------
$29,101,136 $29,179,466 $13,172,397
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
-----------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
United States....................................... 68.2% 76.5% 84.2%
Asia................................................ 30.0% 17.6% 11.9%
Europe.............................................. 1.8% 5.9% 3.9%
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
F-22
<PAGE> 1
Exhibit 10.14
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is made and entered into as of
the 13th day of August, 1997, by and between Xionics, Inc., a Delaware
corporation ("Xionics"), Xionics Document Technologies, Inc., a Delaware
corporation ("XDT"), those parties listed in Exhibit A hereto ("Sellers"), and
Seaport Imaging, a California corporation ("Company").
WHEREAS, Sellers are the owners of 1,045,000 shares of common stock
(collectively the "Shares") of Seaport Imaging (the "Company"), which Shares, as
of the Closing Date, shall constitute one hundred percent of the issued and
outstanding capital stock of the Company; and
WHEREAS, Xionics desires to purchase the Shares from the Sellers, and
Sellers desire to sell the Shares to Xionics, upon the terms and subject to the
conditions hereinafter set forth; and
WHEREAS, the parties desire to allow Xionics to assume effective operating
control of the Company as of the date of this Agreement; and
WHEREAS, Xionics is a wholly-owned subsidiary of XDT.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, together with the covenants
hereinafter contained, Sellers and Xionics hereby agree as follows:
I - DEFINITIONS
1.1 As used in this Agreement, the following terms shall have the meaning
assigned to them in this Article I:
1.1 "ASSOCIATED PERSON" shall have the meaning specified in Section 5.3(b)
hereof.
1.2 "BALANCE SHEET" shall have the meaning used in generally accepted
accounting principles.
1.3 "BROKER" shall mean The Omni Group, 15318 Elm Park, Monte Sereno, CA 95030.
1.4 "CLOSING" shall mean the consummation of the transactions contemplated
hereby.
1.5 "CLOSING DATE" shall have that meaning set forth in Section 4.1.
1.5 "FUNDAMENTAL DOCUMENTS" shall mean, collectively: (I) this Agreement; (ii)
the Note defined in Section 1.8 below; and (iii) the Employment Agreements
described in Section 8.1(k)(ii) below.
1.6 "INDEBTEDNESS FOR BORROWED MONEY" as used in this Agreement 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.
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<PAGE> 2
1.7 "MATERIAL ADVERSE EFFECT" shall mean any material adverse effect on the
assets, business, condition (financial or otherwise) or prospects of the
Company, taken as a whole, or any circumstances which would prevent Sellers from
consummating the transactions described in this Agreement.
1.8 "NOTE" shall mean one or more promissory notes for payment of a specified
portion of the Purchase Price (as hereinafter defined), in substance and form
attached hereto as Exhibit C, and guaranteed by XDT.
1.9 "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.
1.10 "PRINCIPAL SELLERS" shall mean Larry Krummel, Gaymond Schultz and Bill
Zech.
1.11 "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and all
rules and regulations of the Securities and Exchange Commission promulgated
thereunder.
1.12 "SELLER REPRESENTATIVE" shall mean Larry Krummel, on behalf of all Sellers.
1.13 "Outside Closing Date" shall have the meaning set forth in Section 8.2 of
this Agreement.
II - AUTHORIZATION OF CAPITAL STOCK
The Sellers represent and warrants to Xionics and XDT as follows:
2.1. CAPITALIZATION OF COMPANY.
(a). The authorized capital stock of the Company will, on and as of the Closing
Date (as defined in Article IV hereof), consist of: 10,000,000 shares of Common
Stock, $0.00 (zero) par value per share. A description of the common stock and
of the voting powers, rights and privileges thereof is as set forth in the
By-laws and Articles of Incorporation, as amended, of the Company and the
California Corporations Code, as applicable.
(b). On and as of the Closing Date (and prior to giving effect to the
transactions contemplated by this Agreement), 1,045,000 shares of Common Stock
will be validly issued and outstanding, and will be fully-paid and
non-assessable. No other shares of Common Stock will be issued or outstanding as
of the Closing Date.
2.2. NO ISSUANCE OF ADDITIONAL STOCK. The Company will not, prior to the Closing
Date, authorize the issuance of, or issue, any shares of Common or any other
Stock.
2.3 As of the Closing Date, Sellers will be the only owners of the outstanding
Shares, and such Shares owned by Sellers will be one hundred percent of the
outstanding stock of the Company.
III - PURCHASE AND SALE OF STOCK AT CLOSING
3.1. 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, Sellers hereby agree to sell, and Xionics hereby agrees to purchase, on
the Closing Date, all of the Shares.
3.2 Subject to those adjustments described in this Agreement, including without
limitation Section 3.4 below, the purchase price for the sale and transfer of
the Shares as described in 3.1 above shall be the
2
<PAGE> 3
total amount of U.S. $2,250,000 (hereinafter the "Purchase Price"), which
Purchase Price shall be paid in the manner more particularly described in 3.3
below.
3.3 On the Closing Date, Xionics shall, subject to those adjustments described
in 3.4 below, and subject to all of the terms and conditions set forth in this
Agreement, deliver to the Sellers in amounts equal to their respective ownership
percentage the Purchase Price (after deduction of Broker fees and certain
closing costs borne by the Sellers and paid by Xionics in accordance with the
written instructions of the Seller Representative) by means of cash payments and
Notes as follows:
(a) Cash payment of $1,100,000 on Closing Date (see note * below)
(b) Note for $575,000 due and payable on first anniversary of the Closing Date
(the "First Note") (see note * below)
(c) Note for $575,000 due and payable on second anniversary of the Closing Date
(the "Second Note") (see note * below)
* The cash payment, First Note and Second Note to be delivered to Sellers
shall be reduced by such closing costs of Sellers (e.g. Broker fees, legal and
accounting fees) as Seller Representative may instruct Xionics in writing at
Closing (in which case Xionics shall make such closing cost payments as so
instructed).
3.4 The Purchase Price will be adjusted as follows:
(a) In the event any of the items listed on the Closing Balance Sheet (as
hereinafter defined) are found, at a later date, to be incorrect, overstatements
of any items will be credited to the portion of the Purchase Price to be payable
on the First Note, and understatements of any items will be deducted from the
portion of the Purchase Price to be payable on the First Note. The following
describes a number of specific examples of adjustments to the Purchase Price
which may occur. To the extent there is a contradiction between the foregoing
description of adjustments, and the following description of adjustments, the
following description of adjustment shall control.
(i) TOTAL STOCKHOLDERS EQUITY. The Balance Sheet as of the end of the day on
August 31, 1997 (the "Closing Balance Sheet") will reflect a total of $509,000.
Accordingly, in the event the total stockholders' equity reflected in the
Closing Balance Sheet is less than $509,000.00, the Purchase Price shall be
reduced by the amount by which $509,000.00 exceeds the total stockholders'
equity reflected on the Closing Balance Sheet. One-half of such reduction in
Purchase Price shall be reflected by a reduction in the cash payment due to
Sellers on the Closing Date; the remaining one-half of such adjustment shall be
reflected by a reduction in the principal balance owing under the First Note. In
the event the Closing Balance Sheet reflects total stockholders' equity of more
than $509,000, the Purchase Price will be increased by the amount by which total
stockholders' equity exceeds $509,000. One half of such increase in the Purchase
Price shall be reflected by an increase in the cash payment due to Sellers on
the Closing Date; the remaining one-half of such adjustment shall be reflected
by an increase in the principal balance owing under the First Note.
(ii) MONTHLY EXPENSES. It is agreed that the monthly statement of operating
expenses for the Company for the month immediately prior to the Closing Date
(the "Closing Date Statement") should be $105,000. The Closing Date Statement
shall reflect monthly personnel salary costs of $78,500 or less based upon the
employees noted as "retained" on Exhibit D hereto (plus any other employees
employed by Company)being employed by the Company on the Closing Date. If the
Closing Date Statement indicates monthly expenses in excess of the $105,000
target because the $78,500 salary expense described above is exceeded, and if
after the Closing Date the Company or Xionics reduces personnel in order to
reach the $78,500 salary expense goal, then the expenses (including severance
pay) incurred by
3
<PAGE> 4
Company or Xionics, using their reasonable business judgment, in reducing the
salary expense to $78,500 per month will be deducted from the portion of the
Purchase Price paid in the First Note.
(iii) ACCOUNTS RECEIVABLE. In the event the accounts receivable reflected on the
Closing Balance Sheet (net of reserves) are not collected by Xionics within 120
days after the Closing Date, the Purchase Price will be reduced by the amount of
such accounts receivable which remain uncollected as of such date. Xionics shall
only be required to use normal good faith business efforts to collect such
amounts (which normal good faith business efforts may include, if Xionics deems
it appropriate under the circumstances in its reasonable business judgment,
withholding shipments or services to delinquent customers). The uncollected
accounts receivable shall, upon the request of the Seller Representative, be
assigned by Xionics to the Seller Representative (or any Seller designated by
the Seller Representative) for the benefit of the Sellers personally (in which
event such Sellers shall indemnify Xionics against any claims by the remaining
Sellers, if any, in respect of such accounts receivable). The Purchase Price
will be reduced in the foregoing situation by a corresponding reduction in the
principal amount of the First Note. In the event any such accounts receivable
are collected by Xionics after 120 days after the Closing Date, the amount
collected will be added back to the First Note.
(iv) INVENTORY. In the event any discrepancies in the inventory reflected on
the Closing Balance Sheet are noted in relation to the physical inventory count
conducted at Closing due to nonexistent material, the Purchase Price shall be
reduced by the amount attributable to such discrepancy as determined by Xionics
in its reasonable business judgment. The Purchase Price will be reduced in the
foregoing situation by a corresponding reduction in the cash payment due on the
Closing Date or the principal amount of the First Note, as the case may be based
upon the date the discrepancy is determined. Inventory, as used in the preceding
sentences and as recorded on the Closing Balance Sheet shall only include that
actual physical inventory located on Company's San Jose, CA premises or their
third party manufacturer's premises and in new, resaleable, condition and not
determined on the Closing Date to be obsolete or excess quantity on the Closing
Date. The inventory at the manufacturing facility includes raw materials,
work-in-progress, finished goods and manufacturing re-work. The field inventory
(i.e., that inventory that is not located on Company's San Jose, CA premises or
their third party manufacturer's premises) will be identified as to quantity,
cost and then known location at the Closing Date. This field inventory will not
be counted toward the inventory balance on the Closing Balance Sheet. The cost
of the field inventory on the Closing Date, plus the sum of $10,000, shall
hereinafter be referred to as the "Field Inventory Cost". For a period of six
months after the Closing Date, (i) one hundred percent (100%) of the revenue
received from sales of field inventory (up to the Field Inventory Cost) will be
credited towards a positive Purchase Price adjustment, and (ii) fifty percent
(50%) of the revenue received from sales of field inventory in excess of the
Field Inventory Cost will be credited towards a positive Purchase Price
adjustment. This Purchase Price credit is to be added to the principal balance
owing under the First Note. From and after the six month anniversary of Closing
Date, all revenue generated from sales of field inventory will be retained by
Xionics, and no Purchase Price adjustment will be made on account of such sales.
(v) ACCOUNTS PAYABLE. On the Closing Date, Sellers will present to Xionics a
list of all accounts payable, which list shall be in the same amount as
reflected in the liabilities section of the Closing Balance Sheet. Xionics will
pay such amounts as they come due in the normal course of business. In the event
any other accounts payable are due which required accrual on the Closing Balance
Sheet under generally accepted accounting principles but which are not listed on
such list of accounts, Xionics will pay such amounts and will have the right to
make a corresponding reduction in the amount of the Purchase Price covered by
the First Note.
(vi) VACATION. Sellers will cause the Company to make the appropriate accruals
on the Closing Balance Sheet for actual vacation time earned by employees of the
Company through and including the
4
<PAGE> 5
Closing Date, however no such accruals shall exceed ten (10) days of vacation
for any one employee. In recognition of the fact that some employees may be due
more than ten (10) days of vacation time, the Sellers will cause the Company to
pay to applicable employees an equitable amount in lieu of taking vacation time
for the difference between the ten (10) days accrued for on the Company's book
and the actual amount of vacation time otherwise due to such employee. The First
Note shall be increased by (i) the amount paid by Company to such employees for
vacation time as described above and (ii) the amount required to increase the
accruals on the Closing Balance Sheet for vacation time to the above specified
amount.
b) All amounts calculated pursuant to this Section 3.4, including, without
limitation, prepaid expenses (i.e. rent, payroll, etc.), shall be calculated
using generally accepted accounting principles consistently applied.
(c) In the event of a dispute as to the amount of any adjustment to the
Purchase Price, the parties will work in good faith to resolve such dispute. In
the event the parties are unable to mutually agree upon the amount of any
adjustment previously described in this Section 3.4 within ten (10) days after
notification by Xionics to Sellers of the amount of any adjustment, Xionics and
the Seller Representative shall, within ten (10) days of such prior period,
either mutually agree upon the choice of an independent accounting firm or, if
they are unable to mutually agree, each will select an independent accounting
firm, and each such firm will be instructed by Xionics and the Seller
Representative to select, within ten (10) days of their selection, a mutually
agreeable independent accounting firm that is not currently performing work (or
has not performed work with in the prior two years) for any party to this
Agreement (the "Independent Accounting Firm"). Xionics and the Seller
Representative shall, within five (5) days of selection of the Independent
Accounting Firm, submit to the Independent Accounting Firm all applicable
information related to the adjustment at issue, and the Independent Accounting
Firm shall, within ten (10) days of receipt of such information deliver to
Xionics and the Seller Representative its determination of the appropriate
amount of the adjustment to the Purchase Price, which determination shall be
conclusive and binding upon the parties. The costs and fees of the Independent
Accounting Firm shall be paid by the Sellers (or included in the amount deducted
from Purchase Price if not paid within ten (10) days of receipt of Independent
Accounting Firm's invoice) if the Independent Accounting Firm fully agrees with
the position asserted by Xionics, and shall be paid by Xionics if the
Independent Accounting Firm fully agrees with the position asserted by the
Seller Representative, and shall be split evenly between Buyer and Sellers if
the Independent Accountant does not fully agree with either Buyer or the Seller
Representative.
IV - THE CLOSING
4.1. The Closing under this Agreement will take place at the offices of Seaport
Imaging in San Jose, CA, at 10:00 a.m., local time, or such other place and time
as the parties may agree, on or before September 4, 1997 or at such other place
and time and on such other date as may be mutually agreed upon in writing by
Xionics and the Sellers. The date of the Closing is herein called the "Closing
Date". At the Closing, the Sellers will (among other things) deliver to Xionics
stock certificates representing all of the Shares purchased by Xionics
hereunder, appropriately endorsed or accompanied by separate stock powers, and
Xionics will deliver to the Sellers the portion of the Purchase Price and the
Notes due as of the Closing Date as described in Article III of this Agreement.
4.2 Notwithstanding the Closing Date described above, the parties acknowledge
and agree that Xionics will assume effective control of the Company, including,
without limitation, direction of the operations of the Company, effective as of
the date of this Agreement, subject to the conditions set forth in Section
6.1(i).
5
<PAGE> 6
V - ADDITIONAL REPRESENTATIONS OF THE SELLERS
5.1 Each Seller severally represents and warrants to Xionics and XDT that the
following representations and warranties are true and complete on and as of this
date and the Closing Date:
(a) Seller is the legal and economic sole owner of the respective number of
Shares set forth in Exhibit A, each of which is fully paid and non-assessable,
duly and validly issued and free of any third party right, security, pledge,
lien and other burden whatsoever.
(b) Seller has the full right, power and authority to enter into this Agreement
and to transfer, convey and sell to Xionics the number of Shares set forth in
Exhibit A of this Agreement.
(c) NO MISLEADING STATEMENTS. Neither this Section 5.1 nor any representations
and/or warranties set forth herein, taken as a whole, contains any untrue
statement of any material fact or omits to state any material fact necessary in
order to make the statements contained herein or therein not misleading.
5.2 The Company and Principal Sellers, jointly and severally, hereby represent
and warrant to Xionics and XDT on and as of this date and on the Closing Date (
except for such representations and warranties that by their nature relate
solely to an earlier or later date, as the case may be), that:
(a) CORPORATE STATUS/AUTHORITY
(i) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of California. 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.
(ii) There are no other jurisdictions where the character of the property
owned or leased by Company or the nature of its activities requires Company to
be qualified as a foreign corporation.
(iii) The execution and delivery by the Sellers of this Agreement, the
performance by the Sellers or by the Company of all of the agreements and
obligations of Sellers under 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 Amended Articles of Incorporation or By-laws, (b) conflict with, or
result in a breach of the terms, conditions or provisions of, or constitute a
default under, any agreement, trust deed, indenture, mortgage or other
instrument to which the Company is a party or by which the Company 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), (d) require any
waivers, consents or approvals from any of the creditors or trustees for
creditors of the Company, 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.
(iv) The Company has no subsidiaries and neither owns nor has any direct
or indirect interest in or control of any corporation, partnership, joint
venture or entity of any kind whether by ownership of shares of capital or
otherwise.
6
<PAGE> 7
(v) The execution and delivery by the Company of this Agreement, the
performance by the Company of all of its agreements and obligations hereunder,
and the implementation of all of the other transactions contemplated by this
Agreement do not and will not prevent the merger by Company into Xionics as of
the Closing Date or any other future date.
(vi) The Company is not in violation of or in default under any provision
of its Articles of Incorporation, as amended, or By-laws.
(b) VALIDITY OF SHARES
(i) The Shares sold and delivered to Xionics by the Sellers pursuant to
this Agreement have been duly and validly issued and are fully paid and
nonassessable. No repayments of capital have been made.
(ii) Upon the purchase by Xionics of the Shares, and the delivery by the
Sellers to Xionics of the stock certificates representing such Shares, all in
accordance with the terms of this Agreement, lawful, valid and marketable title
to each such Share shall be conveyed to and vested in Xionics, free and clear of
all voting agreements, shareholder agreements, restrictions, liens and other
encumbrances, except the agreements, restrictions and other encumbrances imposed
by the Articles of Incorporation and/or this Agreement.
(iii) As of the Closing Date there will be no outstanding securities
exchangeable for or convertible into or carrying any rights to acquire from the
Company any shares of any class in the capital of the Company, and as of the
Closing Date there will be no outstanding options, warrants or other similar
rights to acquire from the Company any shares of any class in the capital stock
of the Company.
(iv) No shareholder of the Company or any other person has any preemptive
or other similar rights under the Articles of Incorporation, as amended, 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.
(v) Neither Sellers nor 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
set forth in Exhibit A to this Agreement.
(vi) No shares of any class in the capital of the Company are subject to
any voting agreements, voting trusts, trust deeds, irrevocable proxies,
shareholder agreements or any other similar agreements or instruments.
(vii) Set forth in Exhibit A are (a) the name of each person who owns or
holds of record, on and as of the Closing Date, any Shares, (b) the number of
Shares owned by such person on the Closing Date, and (c) each person who as of
the Closing Date will hold employee stock options entitling such person to
acquire any number of Shares (without giving effect to vesting provisions). As
of the Closing Date there will be no other rights in any other person to acquire
Shares, whether by options, warrants or other rights to acquire any Shares.
(c) MATERIAL AGREEMENTS
(i) The Sellers have provided and will continue, until the Closing Date,
to provide, Xionics with a full opportunity to inspect and evaluate every
currently effective contract in the Company's possession, which shall include
the following contracts to which the Company is a party, whether written or oral
(collectively, the "Contracts"), which will continue after the Closing Date:
7
<PAGE> 8
(1) a list of the customers of the Company (which list of Customers shall
be deemed to be Confidential Information of the Company as that term is defined
in that certain Non-Disclosure Agreement between XDT and Company dated June 2,
1997);
(2) all software development agreements, software license agreements
(other than license agreements from shrink-wrapped software purchased from a
retail source) and hardware and software service maintenance agreements;
(3) all loan agreements, mortgages and guaranties;
(4) all pledges, conditional sale or title retention agreements, security
agreements;
(5) all contracts which either involve payments or receipts by the Company
of more than U.S. $5,000.00 in the case of any single contract under which full
performance (including payment) has not been rendered;
(6) all free lance, employment and consulting agreements, executive
compensation plans, bonus plans, deferred compensation agreements, pension
plans, group life, health and accident insurance, severance agreements and
plans, stock option plans, and other employee benefit plans;
(7) all agency, distributor, sales representative, franchise, partner or
similar agreements;
(8) all contracts between the Company and any of the Sellers;
(9) all lease and leasing contracts for property, and all lease and
leasing contracts for any other matter with a value of more than $3,000 per
year;
(10) all lease contracts of real property;
(11) all insurance contracts/policies;
(12) all collective bargaining agreements; and
(13) any other material contracts and any contract under which the
consequences of a default or termination could have a Material Adverse Effect.
(ii) Except as set forth below or in Exhibit E,
(1) each such Contract is a valid and binding obligation of the Company;
(2) the Company has fulfilled all obligations required pursuant to the
Contracts on its part prior to the date hereof, and the Sellers have no reason
to believe that the Company would not be able to fulfill, when due, all of its
obligations under the Contracts which remain to be performed after the date
hereof in the absence of the purchase of the Shares by Xionics;
(3) Neither the Company nor any other party is in breach or default under
any Contract, and no event has occurred which with the passage of time or giving
of notice or both would constitute such a breach or default;
(4) No breach or default by any other party to any Contract exists;
8
<PAGE> 9
(5) No Contract is likely to result in a material financial loss to the
Company;
(6) None of the Contracts, other than those identified as such in Exhibit
E, contain a provision requiring the consent of any other party thereto, or
giving rise to a right to terminate the Contract, in the event of a change of
control of the Company or directly results in any termination or other right on
the part of the other party to the Contract.
(7) true, correct and complete copies of all Contracts of the Company have
previously been or will be prior to the Closing Date delivered to Xionics by the
Sellers; Seller shall have the right, with Xionics approval, to submit a list of
non-customer contracts for matters within the normal course of business (i.e.
copier lease, water cooler lease, etc.) in lieu of copies of the actual
contracts for such matters (provided that Sellers shall provide copies of any
particular contracts at Xionics request).
(8) Notwithstanding V(b)(ii)(6) above, Sellers shall have, as of the
Closing Date, obtained the written approval and have provided Xionics with a
true, correct and complete copy, of the approval of the sale of the Shares of
the Company to Xionics of the following contracts:
- Standard office lease between Company and B&B VI dated March 7,
1991, as amended;
- Marketing and License Agreement between Company and Optimis
Systems, Inc. dated 6/17/97;
- Seaport Imaging Software License Card between Company and Optimis
Systems, Inc.; - Manufacturing License Agreement between Company
and Picture Elements, Inc. dated 1/5/96;
- Eretek manufacturing agreement
(d) PERSONNEL
(i) The Company does not employ any employees, consultants or contractors
except those listed in Exhibit D attached hereto. Except as listed in Exhibit D,
Company is not a party to any written employment contract with respect to any
such employees. All employees listed on Exhibit D as a Retained Employee shall
be employed by the Company as of the Closing Date.
(ii) Other than as noted in Exhibit M hereto, Company has no pension,
profit sharing, welfare, severance, benefit or other plan or agreement
(collectively, "Benefit Plans") subject to or governed by the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") covering Company's
employees or any similar laws or regulations. Each of Company's Benefit Plans
has been administered and will through the Closing Date be administered in
compliance with its terms in all material respects and is and will be in
compliance in all material respects with the applicable provisions of ERISA,
including, but not limited to , the funding and prohibited transactions
provisions thereof) and all other applicable laws. Sellers shall provide to
Xionics prior to the Closing a copy of the most recent IRS determination letter,
if any, and the most recent annual report on Form 5500, if any.
(e) PENSION LIABILITIES
Other than may be described in the Simple IRA account Company has with
Charles Schwab & Co., Inc. (Account No 7982-6965), there are no pension
liabilities of the Company.
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(f) INTELLECTUAL PROPERTY
(i) Exhibit F attached hereto sets forth a true, correct and complete
list of all patents, trademarks, material trade secrets and copyrights that are
owned by the Company.
(ii) Except as otherwise disclosed in Exhibit H:
(1) Company owns exclusively or has the exclusive right to use, free and
clear of all liens, charges, claims and restrictions, all patents, trade
secrets, trademarks, service marks, trade names, copyrights, licenses and rights
necessary to its business as now conducted ("Intellectual Property Rights"), and
Company is not infringing upon or otherwise acting adversely to the right or
claimed right of any person under or with respect to any of the foregoing. The
Company has the right to use all patents, trademarks, material trade secrets and
copyrights that are owned by third parties and used in the present conduct of
Company's business due to valid license agreements with such third parties.
(2) The Company has not received notice of a pleading or threatening
claim including, without limitation, a letter before action, based on patent,
trademark, trade name, copyright, trade secret or other intellectual property
right; and the Sellers have no reason to believe, and are not aware of any
allegation whatsoever, that the Company, or any product or technology developed
by the Company or any of its employees, consultants, agents or representatives
infringes any intellectual property right of any third party.
(iii) Neither the execution nor delivery of this Agreement, nor the
carrying on of Company's business by the employees of Company will, to the best
of Company's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under or a violation of any
fiduciary duty or any contract, covenant or instrument under which any of the
Company's employees are now obligated. Company does not believe it is or will be
necessary to utilize any inventions of any of its employees made prior to their
employment by Company.
(g) ADMINISTRATIVE APPROVALS, LICENSES, GOVERNING LAW
(i) The Company has obtained all Federal and state approvals and licenses
which are required for the operation of its business as presently conducted.
(ii) The business of the Company as presently conducted is in compliance
with all applicable Federal and state laws. The Company has complied with all
laws and regulations, all orders, rulings and interpretations thereunder, and
all judgments, decrees and orders of courts and governmental or regulatory
authorities, applicable to the Company, its business or operations, the
violation or contravention of which could reasonably be expected to have a
Material Adverse Effect. The Company has not received any notice from any
governmental authority of any violation or noncompliance with Federal and/or
state laws, and there are no outstanding notices of a violation or noncompliance
which have not been cured.
(iii) No approval, consent, order, notice, authorization or license by any
governmental or regulatory authority, bureau, agency or official is required,
under any provision of any applicable law:
(1) for the execution and delivery by the Sellers of this Agreement, or
for the performance by the Sellers or Company of any of its agreements or
obligations hereunder or in connection herewith, including, without limitation,
the sale of the Shares by Sellers to Xionics as described hereunder; or
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(2) to ensure the continuing legality, validity, binding effect, or
enforceability of this Agreement;
(h) LITIGATION
(i) Except as set forth on Exhibit H, there is no pending or, to Seller's
knowledge, 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, its officers or
directors or in which the Company, its officers or directors is a participant.
(ii) No resolution has been passed by the shareholders of the Company for
the winding up, liquidation or dissolution of the Company. The Company has not
made an assignment for the benefit of creditors or become insolvent. Neither the
Company nor the Sellers have 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.
(i) TAXES
(i) With the exception of 1996 Federal and state taxes, the Company has
filed all Federal, state and local tax returns and other returns to be filed
according to applicable law when due, and all such returns are complete and
correct in all respects.
(ii) With the exception of 1996 Federal and state taxes (against which
Company has made estimated payments), the Company has paid all taxes and duties
when due, including, without limitation, estimated payments for 1997 Federal and
state taxes.
(iii) The Company has withheld and passed on to the relevant tax
authorities and social security parties all taxes and social security charges
which it is required to deduct from any payments to employees or others.
(iv) All necessary and usual amounts in connection with the preparation,
filing and payment of 1996 Federal and state taxes will have been accrued for on
the Closing Balance Sheet, including without limitation any and all late
fees/penalties, interest and the like. Sellers represent that as of the date of
this Agreement, Company's accountants are in the process of preparing the 1996
Federal and tax filings, and they will continue to process the same in the
normal course of business with the understanding that the same will be filed in
a timely manner to avoid late fees/penalties, interest and the like.
(v) No assessment that has not been settled or otherwise resolved has
been made with respect to taxes not shown on the previously filed tax returns of
the Company. No deficiency in Taxes or other proposed adjustment that has not
been settled or otherwise resolved has been asserted in writing by any taxing
authority against Company. To the knowledge of the Company and the Principal
Sellers, no tax return of the Company is now under examination by any applicable
taxing authority, The Company has not consented to any extension for the period
for assessment or collection with respect to any tax. There are no liens for
taxes (other than current taxes not yet due and payable) on any of the assets of
the Company. No claim has ever been made by a taxing authority in a jurisdiction
where Company does not pay taxes or file tax returns that the Company may be
subject to taxes assessed by that jurisdiction.
(vi) Adequate accruals have been made on the June 30, 1997 Balance Sheet,
and will be made on the Closing Balance Sheet, for all taxes of Company in
respect of all periods through the respective dates thereof. To the extent that
after preparation and filing by or on behalf of Xionics of any
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tax returns for the period ending on the end of the day prior to the date of
this Agreement Xionics has incurred any costs or expenses which were not accrued
for as aforesaid, Xionics shall have the right to reduce the First Note by the
amount of such costs or expenses, all pursuant to the provisions of Section
3.4(c) of this Agreement. To the extent that the tax return for the period
ending on the end of the day prior to the date of this Agreement provides a
refund or requires a payment in excess of the amounts accrued on the Closing
Balance Sheet, an appropriate adjustment shall be made to the First Note.
(vii) For purposes of this Agreement, , "tax" shall mean any federal,
state, local or foreign income, gross receipts, franchise, estimated,
alternative, minimum, add-on minimum, sales, use, transfer, registration, value
added, excise, natural resources, severance, stamp, occupation, premium,
windfall profit, environmental, customs, duties, real property, personal
property, capital stock, intangibles, social security, unemployment, disability,
payroll, license, employee or other tax, levy, of any kind whatsoever, including
any interest, penalties or additional to the tax in respect of the foregoing;
and "tax return" shall mean any return, declaration, report, claim for refund,
information return or other document (including any related or supporting
estimates, elections, schedules, statements or information) filed or required to
be filed in connection with the determination , assessment or collection of any
tax or the administration of any laws, regulations or administrative
requirements relating to any tax.
(j) CUSTOMER DISPUTES
There are no pending disputes between the Company and any of the customers,
and the Sellers are not aware of any significant dissatisfaction on the part of
any of the customers of the Company.
(k) FINANCIAL STATEMENTS/ABSENCE OF UNDISCLOSED LIABILITIES
(i) The Company has made available to Xionics copies of the balance
sheets of the Company as of December 31 for the fiscal years 1994, 1995 and
1996, inclusive, and the related statements of income, changes in stockholders'
equity and cash flows for the fiscal years 1994, 1995 and 1996, inclusive,
prepared by the Company's independent accountants, together with all other
customary and usual financial statements of Company; and each of such statements
(including the related notes, where applicable) has been prepared in accordance
with generally accepted accounting principles consistently applied during the
period involved, except as otherwise set forth in the notes thereto. The
financial statements of the Company are unaudited financial statements. The
books and records of the Company have been and are being maintained in
accordance with generally accepted accounting principles consistently applied
and applicable legal and regulatory requirements.
(ii) The Balance Sheet of the Company as June 30, 1997 (the "June 30, 1997
Balance Sheet") is attached hereto as Exhibit B.
(iii) Except as reflected in the June 30, 1997 Balance Sheet, or incurred
in the ordinary course of business after the date of such Balance Sheet, the
Company has no material liabilities or obligations of any nature (absolute,
accrued, contingent or otherwise), including, without limitation, tax
liabilities, whether already due or due in the future, provided they relate to
the period before the date of Closing, which would be required to be reflected
on or reserved against in the June 30, 1997 Balance Sheet or the Closing Balance
Sheet, as the case may be, in order to cause the June 30, 1997 Balance Sheet or
the Closing Balance Sheet, as the case may be, to fairly represent the financial
condition of the Company as of June 30, 1997 or the Closing Date, as the case
may be, and which were not fully reflected on or reserved against in the June
30, 1997 Balance Sheet or the Closing Balance Sheet, as the case may be.
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(iv) The Company does not have any Indebtedness for Borrowed Money which is
not reflected in the June 30, 1997 Balance Sheet or the Closing Balance Sheet,
as the case may be.
(v) The prepayment reflected on the June 30, 1997 Balance Sheet is for the
prepayment of various expenses in the normal course of business (i.e. rent,
insurance, etc.). The Closing Balance Sheet will reflect similar prepaid
expenses, and in addition will reflect a prepaid royalty relating to the IP-10
family of products in the amount of approximately $20,000. This royalty
prepayment to be reflected on the Closing Balance Sheet, is the only prepayment
of royalties or other like amounts under any agreements between Company and any
of its suppliers.
(l) WARRANTY AND PRODUCT LIABILITY CLAIMS. Each software program, hardware
board, and other product manufactured, sold, leased, licensed or delivered by
the Company is in material conformity with all applicable contractual
commitments and all express and implied warranties applicable thereto.
(m) TITLE TO PROPERTIES.
(i) The Company has good, valid and marketable title in and to all of its
properties and assets reflected on the June 30, 1997 Balance Sheet, except to
the extent the same has been sold or otherwise disposed of in the normal course
of business prior to the date of this Agreement; provided, however, that no
capitalized equipment has been or will be sold or otherwise disposed of, whether
in the normal course of business or otherwise, from and after the period
reflected on the June 30, 1997 Balance Sheet through the Closing Date (except
that company has disposed of 2 laptop computers (1 loss, 1 part of severance
package to ex-employee). All properties and assets of the Company (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 (1) liens for
current taxes not yet due and payable, and (2) 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 subject thereto or affected thereby, and do
not otherwise adversely affect or impair the business or operations of the
Company taken as a whole.
(ii) The Company does not own any real property.
(n) INSURANCE. The Company maintains property and liability insurance with
reputable insurance companies insuring all of the Company's material assets
against such risks and in such amounts as are appropriate and reasonable
considering the properties, business and operations of the Company and will
maintain the same through the Closing Date. The Company is in compliance with
the requirements of the insurance policies maintained by the Company as
aforesaid.
(o) INTERIM BUSINESS DEVELOPMENTS
(i) Except as set forth on Exhibit J, since June 30, 1997, the Company has
not entered into any contract or commitment or taken any other action that is
not in the ordinary course of business as conducted in prior periods; and
(ii) Since June 30, 1997, there has been no damage, accident or other
detrimental event materially affecting the business of the Company.
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(p) PRIVATE OFFERING.
(i) Neither the Company, Sellers, nor anyone acting on its behalf has
offered any Shares 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 Xionics.
(ii) Based on and assuming the accuracy of Xionics' representation in
6.1(c) below, the offer and sale of Shares to Xionics contemplated by this
Agreement are exempt from the registration and prospectus delivery requirements
of the Securities Act. Based on and assuming the accuracy of Xionics'
representation in 6.1(c) below, the sale by the Sellers of the Shares
contemplated by this Agreement are exempt from registration or qualification
under the registration or qualification requirements of California law.
(q) ACCURACY AS OF CLOSING DATE. All warranties and representations of
Principal Sellers in this Agreement will, on the Closing Date, be true and
complete on and as of the Closing Date.
(p) NO MISLEADING STATEMENTS. Neither this Agreement (including the Exhibits
hereto), any representations and/or warranties set forth herein, nor any of the
other documents delivered at the Closing to Xionics by Sellers pursuant to this
Agreement (including the Exhibits hereto), taken as a whole, contains any untrue
statement of any material fact or omits to state any material fact necessary in
order to make the statements contained herein or therein not misleading.
5.3 The Company and Sellers, jointly and severally, hereby represent and
warrant to Xionics and XDT on and as of this date and on the Closing Date,
except for such representations and warranties that relate to an earlier or
later date, as the case may be, that:
(a) BINDING EFFECT OF DOCUMENTS, ETC.
(i) This Agreement has been duly executed and delivered by the Sellers and
is in full force and effect. The agreements and obligations of the Sellers
herein constitute legal, valid and binding obligations of the Sellers
enforceable against the Sellers jointly and severally in accordance with their
respective terms.
(ii) The representations and warranties made by the Sellers in paragraph
(i) of this Section 5.3(a) are subject to the following qualifications:
(1) the enforceability of any rights and remedies provided in this
Agreement against any particular party hereto is subject to any applicable
bankruptcy, reorganization, moratorium or other similar laws affecting generally
the enforcement of rights against any party; and
(2) the availability of equitable remedies for the enforcement of any
provision of this Agreement may be subject to the discretion of the court before
which any proceeding for the enforcement of any such provision may be brought.
(b) TRANSACTIONS WITH ASSOCIATED PERSONS, ETC.
(i) Except as otherwise described in Exhibit G, (1) none of the Sellers or
the Company 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
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party or under which any Associated Person has or is to acquire any rights,
interests or benefits, (2) the Company is not 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, (3)
the Company is not committed to make nor has any investments of any kind in any
Associated Person, (4) no Associated Person has or is committed to make any
investments of any kind in the Company , (5) there is no Indebtedness for
Borrowed Money of the Company to any Associated Person, and (6) there is no
Indebtedness for Borrowed Money of any Associated Person to the Company.
(ii) As used herein, the term "ASSOCIATED PERSON" shall mean:
(1) any person who owns or holds, of record and/or beneficially, any
shares of any class in the capital of the Company;
(2) any person who is a director or an officer of the Company;
(3) 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
(4) 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 Xionics or
XDT.
(iii) Sellers warrant and represent that the Note to Larry Krummel
from the Company reflected on Exhibit G will be paid in full by the Company
prior to the Closing Date.
(c) NO MISLEADING STATEMENTS. Neither this Section 5.3 nor any representations
and/or warranties set forth herein, taken as a whole, contains any untrue
statement of any material fact or omits to state any material fact necessary in
order to make the statements contained herein or therein not misleading.
(d) BROKER. No broker or finder other than Broker has acted for Sellers in
connection with this Agreement or the transactions contemplated hereby, and no
broker or finder other than Broker is entitled to any brokerage or finder's fee
or other commission. Sellers will jointly and severally indemnify and hold
Xionics harmless from any such payment alleged to be due by or through the
Sellers to any broker or finder other than Broker as a result of the action of
Sellers or its officers and agents. Sellers agree that the amounts due and
payable by the Company to Broker will be paid by the Sellers out of the Purchase
Price proceeds.
(e) ACCURACY AS OF CLOSING DATE. All warranties and representations of Sellers
in this Agreement will, on the Closing Date, be true and complete on and as of
the Closing Date.
VI - REPRESENTATIONS OF XIONICS
6.1 Xionics and XDT jointly and severally represent and warrant to the Sellers
that:
(a) DUE ORGANIZATION, ETC. Xionics and XDT are corporations duly organized,
legally existing and in good standing under the laws of the State of Delaware.
Xionics and XDT have all requisite power and authority to enter into this
Agreement, and to perform, observe and comply with all of their agreements and
obligations hereunder.
(b) BINDING EFFECT OF DOCUMENTS. This Agreement has been duly authorized,
executed and delivered by Xionics and XDT, and constitutes the valid and legally
binding agreement of Xionics and XDT, enforceable in accordance with its terms,
except as such validity, binding effect or enforceability may be affected by (i)
applicable bankruptcy, reorganization, moratorium or other similar laws
affecting generally the enforcement of rights, or (ii) the availability of
equitable remedies.
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(c) INVESTMENT REPRESENTATIONS. Xionics acknowledges that the Shares to be
delivered hereunder have not been registered. The Shares to be delivered
hereunder are being acquired for Xionics' own account, for investment only,
without a view to distribution, as that phrase has meaning under the Securities
Act, of all or any part of the Shares. Xionics and XDT understand that the
effect of such representation and warranty is that the Shares must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from such registration is available at the time of any proposed
sale or other transfer thereof. Xionics and XDT agree to indemnify and hold
harmless Sellers against all liabilities, costs and expenses including
reasonable attorney's fees, incurred by Sellers as a result of any sale,
transfer or other disposition by Xionics (or its successor) of all or any part
of the Shares in violation of the Securities Act.
(d) NO CONFLICT. The execution, delivery and performance of this Agreement by
Xionics and XDT do not and will not (i) violate or conflict with any material
law, rule, regulation, order, judgment, injunction, decree determination or
award applicable to Xionics or XDT, (ii) violate or conflict with the
certificate of incorporation or by-laws of Xionics or XDT, or (iii) require any
material pre-Closing consent, notice, authorization or approval under, result in
any material breach of or constitute a material default (or event which with
notice or lapse of time or both would become a material default) under, or
result in the creation of any material lien or other encumbrance on any of the
properties or assets of Xionics or XDT pursuant to any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument to which Xionics, XDT or any of their affiliates is a party or by
which any of them, any of its or their respective properties is bound, or
affected, which might have a material adverse effect on the consummation of the
transactions contemplated by this Agreement,
(e) ABSENCE OF LITIGATION. There is no private or governmental suit, claim,
action at law or in equity, proceeding, investigation or audit pending or to
Xionics' and XDT's knowledge threatened, before any arbitrator, court or
governmental or regulator authority, against Xionics or XDT that challenges or
reasonably could be expected to prevent the consummation of the transactions
contemplated hereby nor to Xionics' nor XDT's knowledge is there any basis for
any of the foregoing.
(f) CONSENTS AND APPROVALS. The execution, delivery and performance of this
Agreement by Xionics and XDT do not require any consent, approval, authorization
or other action by, or filing with or notification to, any domestic or foreign
governmental or regulatory authority or any other person, except where the
failure to obtain such consents, approvals, authorizations or actions, or to
make such filings or notifications, would not (i) prevent Xionics or XDT from
performing any of its obligations under this Agreement, or (ii) otherwise
prevent the consummation of the transactions contemplated herein by Xionics or
XDT.
(g) ABSENCE OF UNTRUE OR MISLEADING STATEMENTS. No representation and/or
warranty of Xionics or XDT as set forth herein or in any document to be
delivered at the Closing contains any untrue statement of any material fact or
omits to state any material fact necessary in order to make the statements
contained herein not misleading.
(h) BROKERS OR FINDERS. Xionics, XDT and their officers and agents have
incurred no obligation or liability, contingent or otherwise, for brokerage or
finders fees or agents commissions or other like payment in connection with this
Agreement and Xionics and XDT will indemnify and hold Sellers harmless from any
such payment alleged to be due by or through Xionics or XDT as a result of the
action of Xionics, XDT or their officers and agents.
(i) INTERIM ACTION BY XIONICS. Xionics agrees that it will not, from the time
it assumes effective operating control of the Company as of the date of this
Agreement, until the Closing has occurred, direct
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or require the Company or any of its employees, directors or officers to take
any action out of the ordinary course of business, and Company shall be entitled
(without Xionics' consent) to continue to operate in a manner consistent with
its prior ordinary course of business and to take such other actions as
described in Section 7.1 below as may be reasonably necessary to comply with its
obligations under this Agreement.
(j) ACCURACY AS OF THE CLOSING DATE. All representations an warranties of
Xionics and XDT will, on the Closing Date, be true and complete on and as of the
Closing Date.
VII - ADDITIONAL AGREEMENTS OF THE PARTIES
7.1 In connection with Sellers' obligations described elsewhere in this
Agreement, the parties agree that Company shall, and Sellers shall cause Company
to take any or all of the actions noted below as the Company and Sellers deem
appropriate in order to comply with their respective obligations under this
Agreement, notwithstanding the provisions to the contrary described in Section
5.2(o) of this Agreement; provided, however, that no other actions out of the
ordinary course of business (including without limitation termination of
contracts between Company and any third party) may be taken by Company or
Sellers without the prior consent of Xionics in each instance; and further
provided that neither Company nor Sellers is affirmatively obligated to take any
of the actions noted below.
(a) terminate employees of the Company, other than those employees noted as
"retained" on Exhibit D hereto (which termination shall include payment of all
amounts due in connection with such termination of personnel, including, without
limitation, all amounts due pursuant to the laws of California through the
Closing Date for salaries, wages, bonuses, overtime, vacations, sick and
personal days, pension contributions, severance benefits and all other
applicable amounts due to such terminated personnel as a result of their
employment by the Company or related thereto;
(b) repurchase issued and outstanding stock of the Company (which repurchase
shall be at a price no lower than the current fair market value of the Shares);
For purposes of this Section 7.1(b), fair market value shall mean a price no
lower than the per share price reflected by the terms of this Agreement, as
reduced by the estimated sale transaction costs (including Broker fees,
attorneys costs and accounting costs) to be borne by the Sellers entering into
this Agreement.
(c) make the appropriate applications and filings with the state which are
required by the provisions of this Agreement (including payment of all filing
fees and the like);
(d) conduct appropriate stockholder and/or Board of Directors meetings in order
to obtain the necessary approvals contemplated by the provisions of this
Agreement;
(e) obtain approvals of those parties identified in Section 5.2(c)(ii)(8);
VIII - CONDITIONS OF CLOSING
8.1 The obligations of Xionics to purchase and pay for the Shares being
purchased by Xionics 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:
(a) DUE DILIGENCE INVESTIGATION. Completion by Xionics of a due diligence
investigation satisfactory to it of Seaport's assets, liabilities and business;
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(b) CERTIFIED COPIES OF CHARTER DOCUMENTS. Xionics 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 (1) the Articles of
Incorporation and all amendments thereto in effect on the Closing Date, and (2)
the By-laws of the Company, in effect on the Closing Date, and (3) any documents
described in Section 5.2(a)(iii)(d) and (e). Each of such documents shall be
reasonably satisfactory in form and substance to Xionics. Xionics acknowledges
having received a copy of Company's representation of the current form of each
such documents through and including August 31, 1990 (with respect to the
By-laws) and March 13, 1991 (with respect to the Articles of Incorporation) and
agrees that the form and substance of the same are satisfactory to Xionics.
(c) PROOF OF CORPORATE ACTION. Xionics 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`s
Board of Directors to authorize this Agreement.
(d) REPRESENTATIONS AND WARRANTIES. Receipt by Xionics of a Certificate signed
by each of the Sellers that each of the representations and warranties made by
the Sellers to Xionics in this Agreement are 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 Xionics by the Sellers on
and as of the Closing Date. The Sellers shall have performed and complied, or
shall have caused the Company to have performed and complied, in all material
respects with all agreements and conditions contained in this Agreement which
are required to be performed or complied with by the Company and Sellers 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 breach or default on the part of the Company
and/or Sellers of any representation, warranty or other material term hereunder.
(e) PROCEEDINGS. All corporate and other proceedings to be taken by Sellers and
the Company in connection with the arrangements and transactions contemplated
hereunder shall be reasonably satisfactory in form and substance to Xionics, and
Xionics shall have received all such originals or certified or other copies of
all such documents, including records of corporate or other proceedings, as
Xionics shall have reasonably requested.
(f) DELIVERY OF STOCK CERTIFICATES. Sellers shall have delivered on the Closing
Date to Xionics duly issued stock certificates representing all of the Shares
being purchased by Xionics hereunder on the Closing Date, appropriately endorsed
or accompanied by separate stock powers.
(g) QUALIFICATIONS. All authorizations, approvals or permits (if any) of any
governmental or regulatory authority or agency of the United States, the State
of Delaware, the State of California, or any other State of the United States
which are required in connection with the sale of the Shares pursuant to this
Agreement shall have been duly obtained by Sellers and shall be effective on and
as of the Closing Date.
(h) MEMBERSHIP ON BOARD OF DIRECTORS. All current members of the Board of
Directors of the Company shall have resigned as of the Closing Date.
(i) OPINIONS. Receipt by Xionics of an opinion of Sellers counsel in the form
set forth in Exhibit L to this Agreement. and receipt by Xionics of an opinion
of Company's independent accounting firm customary in connection with the
certification of the completeness and accuracy of Company's December 31, 1996
financial statements;
(j) CONTINUATION OF BUSINESS. Subject to Section 7.1 above, Seaport will have
continued its operations in the ordinary course of business until the Closing;
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(k) CERTIFICATES. Receipt by Xionics of both corporate and tax Certificates of
Good Standing from the State of California.
(l) OTHER AGREEMENTS.
(i) There shall have been executed and delivered by the Retained
employees of the Company such agreements, including, without limitation,
employment agreements, non-compete agreements and confidentiality agreements, as
Xionics shall require, and all of such agreements shall be in form and substance
satisfactory to Xionics.
(ii) Larry Krummel and William Zech shall have, as of the Closing Date,
signed employment agreements with Xionics in form mutually agreeable to the
parties thereto.
(iii) Larry Krummel shall have assigned the patent and patent application
described in Exhibit F hereto to XDT as of the Closing Date. Xionics will
prepare the required paperwork in connection with such assignment and will pay
the costs of preparing and filing the same.
(l) CONSENTS OF THIRD PARTIES. Xionics shall have received a copy of all
consents required to be obtained as described in Section 5.2(c)(ii)(8) of this
Agreement.
8.2 Unless the Closing shall have occurred on or before September 8, 1997 (the
"outside closing date"), this Agreement shall be terminated and the
unconsummated portions of the transactions herein contemplated shall be
abandoned as of such date, and Xionics shall immediate relinquish control of the
Company to Sellers; provided, however, that the aforesaid outside closing date
may be extended by mutual written agreement of the parties. Xionics shall have
the right to terminate this Agreement prior to the Closing Date in the event its
due diligence investigation identifies any matters unsatisfactory to Xionics in
its sole discretion and the parties are unable to reach a mutually agreeable
resolution of such matter.
IX - CONDITIONS OF SELLERS' OBLIGATION TO SELL SHARES
9.1 The obligations of the Sellers to sell the Shares to Xionics on the Closing
Date in accordance with the terms hereof shall be subject to the satisfaction,
prior thereto or concurrently therewith, of each of the following conditions
precedent:
(a) REPRESENTATIONS AND WARRANTIES. Receipt by Sellers of a Certificate
signed by an officer of Xionics and XDT that each of the representations and
warranties made by Xionics and XDT to Sellers in this Agreement are 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
Sellers by Xionics and XDT on and as of the Closing Date. Each of the
representations and warranties made by Xionics and XDT to the Sellers in Article
VI hereof shall be true and correct when made by Xionics and XDT and shall be
true and correct on the Closing Date.
(b) PAYMENT OF PURCHASE PRICE. Xionics shall have delivered to the
Company, in full and complete payment for the Shares to be purchased by Xionics
from the Company hereunder, the portion of the Purchase Price payable by Xionics
as of the Closing Date as described in Article III and shall deliver the Notes
described in Article III, all as described in Article III of this Agreement.
(c) NO PROHIBITION BY LAW. There is no provision of any applicable law or
regulation and no judgment, injunction, order or decree that prohibits the
consummation of this Closing.
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(d) CORPORATE ACTION. Sellers shall have received copies, certified by an
authorized officer of the Xionics and XDT to be true and complete on and as of
the Closing Date, of the records of all corporate action taken by Xionics' Board
of Directors to authorize this Agreement.
9.2 Both Sellers (collectively) and Xionics shall have the right to terminate
this Agreement at any time prior to the Closing Date in the event that any
matter arises that the terminating party in good faith and in its reasonable
business judgment determines would have a Material Adverse Effect on the
operation of the Company's business and the parties are unable to reach a
mutually agreeable resolution of such matter.
X - SURVIVAL OF REPRESENTATIONS; DEFAULT; INDEMNIFICATION
10.1 intentionally left blank
10.2 DEFAULT. In the event of any breach or default by Sellers of any of the
provisions of this Agreement prior to the Closing Date, after giving notice to
Sellers of such breach or default, and if Sellers are not able to remedy the
breach or default to the satisfaction of Xionics within 3 days of such notice
(or such longer period of time as is mutually agreed upon between the parties in
the event the matter giving rise to such breach or default is not capable of
being cured within 3 days, provided that Sellers are diligently pursuing the
cure of such breach), Xionics shall have the right, but not the obligation, to
remedy the situation or condition giving rise to such breach or default, in
which case the Purchase Price shall be reduced by the amount incurred by Xionics
in curing such default (but only to the extent that Sellers are not already
providing indemnification for that breach pursuant to Section 10.3 below).
10.3 INDEMNIFICATION BY SELLERS.
(a) The Sellers agree to indemnify Xionics as follows:
(i) The Principal Sellers shall jointly and severally indemnify and hold
Xionics and XDT harmless from and against, and to pay to Xionics and XDT, on
demand by Xionics or XDT from time to time, the full amount of any loss, claim,
damage, liability, cost or expense (including reasonable attorneys' fees)
resulting to Xionics, XDT and/or Company during the Indemnification Period from
(1) any false, incorrect or misleading representation or warranty of the Sellers
or the Company contained in Article II or Section 5.2 of this Agreement, or in
any agreement, instrument or document delivered by the Sellers or the Company to
Xionics or XDT pursuant to any of the provisions of this Agreement; (2) any
claim or litigation brought by parties other than XDT or Xionics (whether
brought prior to or after the Closing Date) which is demonstratably related to
(i) the operation of the business of the Company prior to the Closing Date, or
(ii) any event, act or omission of the Company occurring prior to the Closing
Date (including without limitation those actions taken pursuant to Section 7.1
of this Agreement); (3) product liability claims brought against the Company for
goods sold prior to the Closing Date, or (4) the breach of any covenant or
obligation of the Company or the Principal Sellers under this Agreement or (5)
which arise in connection with the matter described in Exhibit H (other than
economic damages - i.e. lost sales and the like).
(ii) The Sellers shall severally indemnify and hold Xionics and XDT
harmless from and against, and pay to Xionics or XDT, on demand by Xionics or
XDT from time to time, the full amount of any loss, claim, damage, liability,
cost or expense (including reasonable attorneys' fees) resulting to Xionics, XDT
and/or Company from claims asserted during the Indemnification Period relating
to any false, incorrect or misleading representation or warranty of that Seller
contained in Section 5.1 of this Agreement, or in any agreement, instrument or
document delivered by the Sellers to Xionics or XDT pursuant to any of the
provisions of this Agreement.
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(iii) The Sellers shall jointly and severally indemnify and hold Xionics
and XDT harmless from and against, and pay to Xionics or XDT, on demand by
Xionics or XDT from time to time, the full amount of any loss, claim, damage,
liability, cost or expense (including reasonable attorneys' fees) resulting to
Xionics, XDT and/or Company from claims asserted during the Indemnification
Period relating to any false, incorrect or misleading representation or warranty
of that Seller contained in Section 5.3 of this Agreement.
(iv) The aggregate liability of any individual Seller under Sections 10.2,
Section 10.3 and 10.6 shall not exceed the total proportionate share of the
Purchase Price actually received by that individual Seller (if the Purchase
Price has been fully paid at the time of the indemnification) or to be received
by that individual Seller (if the Purchase Price has not been fully paid at the
time of the indemnification), after any applicable Purchase Price adjustments
allocated to that Seller pursuant to Article III of this Agreement have been
made, if any, on the date indemnification is due; provided, however, that Seller
Larry Krummel's maximum liability shall be as previously set forth in this
Section 10.3(a)(iv), plus an additional $93,014.00.
(b) (i) Any claim for payment under these provisions (other than otherwise
addressed in Section 10.6) by Xionics or XDT shall be delivered (along with a
brief description of the facts upon which such claim is based and the amount of
such claim) in writing to the Seller against whom the claim is made (or if the
claim is made against all Principal Sellers or all Sellers, then notice need
only be delivered to the Seller Representative). If the Seller to whom the
notice was delivered shall, in good faith, notify Xionics or XDT in writing
(within fifteen (15) days following receipt of the notice delivered by Xionics
or XDT) of the Seller's agreement with or objection to the claim of
indemnification, and if following any such objection and discussing the matter
in good faith the parties are unable to agree on the validity of the claim for
indemnification, the dispute shall be submitted for binding arbitration in San
Jose, CA pursuant to the procedures and rules of the American Arbitration
Association,. Such arbitration shall be conducted by one (1) arbitrator mutually
acceptable to Xionics and those Sellers against whom the claim for
indemnification has been brought. If the parties are unable to agree upon an
arbitrator within ten (10) days, an arbitrator shall be appointed pursuant to
the procedures of the American Arbitration Association. The parties hereto shall
submit all pertinent documents to the arbitrator at the time the arbitrator is
appointed. The arbitrator shall make its decision within ten (10) days of its
appointment. The costs and expenses (including reasonable counsel fees) of any
such arbitrator shall be borne by the parties against whom the award is
rendered, or as may otherwise be determined by the arbitrator. To the extent
that Xionics or XDT shall have prevailed in such arbitration, or in the event
that the applicable Seller(s) did not deliver written notice of objection to the
indemnity claim within the fifteen (15) day period specified in the second
sentence of this Section 10.6(b)(i), Xionics shall have the right to reduce the
Purchase Price by means of a reduction to the amount owing to the applicable
Seller(s) under the First Note or the Second Note by the amount determined by
the arbitrator to be owing to Xionics or XDT as a result of such indemnity
claim, plus the costs of the arbitrator if Seller(s) do not pay the same within
thirty (30) days of their receipt of an invoice for the same.
10.4 INDEMNIFICATION BY XIONICS AND XDT. Xionics and XDT shall jointly and
severally indemnify, and hold Sellers harmless from and against any loss, claim,
damage, liability, cost or expense (including reasonable attorneys' fees)
resulting to Sellers from any claim asserted during the Indemnification Period
relating to (i) any false, incorrect or misleading representation or warranty of
Xionics or XDT contained in this Agreement, or in any agreement, instrument or
document delivered by Xionics or XDT to Sellers pursuant to any provision of
this Agreement, or (ii) any breach by Xionics or XDT of the terms of this
Agreement.
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10.5 ATTORNEYS FEES. If any legal action or other proceeding is brought for the
enforcement of this Agreement or because of an alleged dispute, breach, default
or misrepresentation in connection with any of the provisions of this Agreement,
or to interpret this Agreement or any of the provisions hereof, the successful
or prevailing party shall be entitled to recover reasonable attorneys' fees and
other costs incurred in that action or proceeding, whether or not the action or
proceeding goes to final judgment, in addition to any other relief which it or
they may be entitled to. In the event Sellers, (or any individual Seller, as the
case may be) fail to pay to Xionics any such amounts owing, Xionics shall have
the right to reduce the Purchase Price payable to Sellers (or any individual
Seller, as the case may be), by means of a reduction in the First Note or the
Second Note, by the amount due to be paid to Xionics by Sellers.
10.6 DEFENSE OF THIRD PARTY CLAIMS. In the event of the assertion or
commencement by any Person of any claim or legal proceeding (whether against the
Company, Xionics, XDT, or against any other Person) with respect to which the
Sellers may become obligated to hold harmless, indemnify, compensate or
reimburse Xionics or XDT pursuant to Section 10.3, the procedure set forth below
shall be followed.
(a) NOTICE. Xionics or XDT shall give immediate written notice of any claim or
the commencement of any claim or legal proceeding against Xionics, XDT or the
Company for which indemnity may be sought under Section 10.3 together with a
description of the claim or such legal proceeding and the specific basis upon
which such indemnity may be sought consistent with the provisions of this
Agreement. The Indemnification Period shall be tolled solely with respect to a
particular claim for the period beginning on the date the Indemnifying Party
receives written notice of that claim until the final resolution of such claim
so long as such claim is made within the Indemnification Period.
(b) DEFENSE OF CLAIM. (i) The Seller Representative may elect (by written
notice to Xionics within ten (10) days after receipt of written notice under
Section 10.6(a)) to assume the defense of or otherwise control the handling of
any such claim or legal proceeding for which indemnity is sought, subject to the
limitations provided herein. Any such election by the Seller Representative
shall be deemed binding upon all Sellers, each of whom shall share in the cost
of defending the claim, which defense shall be provided pursuant to the terms of
Section 10.3(a) above.
If the Seller Representative elects to assume the defense of any such claim or
legal proceeding:
(A) the Seller Representative shall proceed to defend such claim or legal
proceeding in a diligent manner with counsel reasonably satisfactory to
Xionics;
(B) Xionics shall cooperate fully in all aspects of any defense and shall
make available to the Seller Representative any documents and materials in
the possession of Xionics and reasonable access to employees that may be
necessary to the defense of such claim or legal proceeding;
(C) The Seller Representative shall keep Xionics informed of all material
developments and events relating to such claim or legal proceeding;
(D) Xionics shall have the right to participate in the defense of such
claim or legal proceeding at Xionics' expense; and
(E) at their expense, the Seller Representative, together with the
remaining Sellers, shall have the right to settle, adjust or compromise
such claim or legal proceeding with the consent of Xionics; provided,
however, that Xionics shall not unreasonably withhold such consent.
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(ii) If the Seller Representative does not elect to assume the defense of
any such claim or legal proceeding, Xionics may proceed with the defense of such
claim or legal proceeding on its own. If Xionics so proceeds with the defense of
any such claim or legal proceeding on its own:
(A) all third party expenses relating to the defense of such claim or
legal proceeding (whether or not incurred by Xionics) shall be borne and
paid exclusively by the Sellers; provided, however, that the Sellers shall
not be liable for the costs of more than one counsel on behalf of Xionics
collectively; in the event Sellers fail to pay such expenses within fifteen
(15) days of receipt of an invoice therefore, Xionics shall have the right
to deduct the costs incurred by Xionics from the unpaid portion of the
Purchase Price covered by the First Note or the Second Note, as the case
may be.
(B) the Sellers shall make available to Xionics any documents and
materials in the possession or control of the Sellers that may be necessary
to the defense of such claim or legal proceeding except for documents or
materials which are sealed by a court order or are subject to a
nondisclosure agreement prohibiting disclosure by the applicable Seller;
(C) Xionics shall keep the Seller Representative informed of all material
developments and events relating to such claim or legal proceeding; and
(D) Xionics shall have the right to settle, adjust or compromise such
claim or legal proceeding only with the consent of the Seller
Representative, which such consent shall not be unreasonably withheld.
(E) The provisions of Section 10.3(b) shall not apply to this Section
10.6(b)(ii).
(c) EXERCISE OF REMEDIES BY INDEMNITEES OTHER THAN XIONICS OR XDT. No person
other than Xionics, XDT or any affiliate thereof or successor thereto or
assignee thereof shall be permitted to assert any indemnification claim or
exercise any other remedy under Section 10.3(a) of this Agreement unless
Xionics (or XDT or any affiliate thereof or any successor thereto or assign
thereof) shall have consented to the assertion of such indemnification
claim or the exercise of such other remedy.
10.7 INDEMNIFICATION PERIOD/ SURVIVAL OF REPRESENTATIONS. The representations
and warranties of the Sellers 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 Xionics, and the
Closing hereunder for a period of two (2) years with respect to all matters not
relating to calculation, payment or filing of taxes, and for a period of three
(3) years with respect to all matters relating to calculation, payment of filing
of taxes. The Indemnification Period shall terminate (i) two (2) years after the
Closing Date for all matters except matters related to the calculation, payment
of filing of taxes, and (ii) three (3) years after the Closing Date for matters
relating to the calculation, payment of filing of taxes; accordingly, all
claims, demands or requests by Xionics for indemnification by Sellers as
described in this Section X must be submitted to Sellers within seven (7) days
after the expiration of the Indemnification Period.
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10.8 The Sellers shall not be required to make any indemnification payment
pursuant to Section 10.2 or 10.3, or on account of any other provision of this
Agreement, for any inaccuracy in or breach of any of the representations and
warranties set forth in Articles II or V hereof, or in any certificate delivered
by Xionics in connection with this Agreement, until such time as the total
amount of all indemnified damages that have been suffered or incurred by Xionics
and XDT, collectively, or to which Xionics and XDT, collectively, have otherwise
become subject, exceeds Fifty Thousand Dollars ($50,000) in the aggregate.
XI - NON-COMPETITION
11.1 COVENANT NOT TO SOLICIT. In consideration of the Purchase Price, the
Sellers noted on Exhibit A as being subject to the provisions of this Section
11.1 hereby agree that until the later of (i) the third (3rd) anniversary of the
Closing Date hereof or (ii) one year after such Seller's association with the
Company, Xionics and/or XDT (whether by employment, consulting or otherwise)
such Sellers will not, without the Xionics' written approval, directly or
indirectly:
(a) recruit, solicit or knowingly induce, or attempt to induce, any employee or
consultant of the Company or Xionics to terminate his or her employment or
consulting relationship with the Company or Xionics (except as otherwise
provided in Section 7.1(a) of this Agreement); or
(b) solicit, divert or take away, or attempt to do so, the business or
patronage of any of the clients, customers, or accounts, or prospective clients,
customers or accounts, of the Company, Xionics, XDT or any affiliate of any of
them.
In the event this Agreement is terminated, the aforesaid provisions of this
Section 11.1 shall be of no force and effect.
11.2 CESSATION OF USE OF NAME. As of the Closing Date, Sellers shall refrain
from using the business name Seaport Imaging after Closing except as otherwise
directed by Xionics in connection with any Seller's employment by Xionics.
11.3 NONCOMPETITION AGREEMENTS. The Company will, on the Closing Date, cause
each Seller noted on Exhibit A as being subject to this Section 11.3 to execute
and deliver to Company a noncompetition and confidentiality agreement in
substantially the form set forth on Exhibit K.
11.4 CONFIDENTIALITY AGREEMENTS. The Company will, on the Closing Date, cause
each of the employees, consultants and agents of the Company with access to
confidential information or documents of the Company to execute and deliver to
Xionics a confidentiality agreement in form and substance substantially similar
to that which Xionics or XDT requires to be executed by all of its employees,
consultants and agents with similar duties and responsibilities.
XII - MISCELLANEOUS
12.1. NOTICES.
(a) All notices and other communications pursuant to this Agreement shall be in
writing, either delivered in hand or sent by overnight delivery, first-class
mail, postage prepaid, or sent by telex, telecopier, facsimile machine or
telegraph, addressed as follows:
(i) if to the Sellers, at the address of the Sellers set forth on Exhibit
I hereof, or at such other address as shall have been furnished to Xionics in
writing by the Sellers, with a copy to David A. Renas, Esq., Gray Cary Ware &
Freidenrich, 4365 Executive Drive, Suite 1600, San Diego, CA 92121; or
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(ii) if to Xionics or XDT, at 70 Blanchard Road, Burlington, MA 01803, or
at such other address as shall have been furnished to the Sellers by Xionics in
writing, and marked Attn: General Manager - Imaging, with a copy to Attn:
General Counsel.
(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 12.1, when transmitted, or (iii) if sent
by first-class mail, postage prepaid, and properly addressed in accordance with
the foregoing provisions of this 12.1, (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.
12.2. 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.
12.3. 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
Sellers or Xionics contained in this Agreement, may be amended, modified,
supplemented, waived or terminated unless all parties hereto shall execute an
instrument in writing agreeing or consenting to such amendment, modification,
supplement, waiver or termination
12.4. INTEGRATION. Annexed to this Agreement are Exhibits A through M. Such
Exhibits are an integral part of this Agreement and are hereby incorporated by
reference.
12.5. NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the part of Xionics
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. In the event there
are amounts due to Xionics at the time the Second Note would otherwise be due
and payable due to the fact that the Second Note has been reduced as described
in this Agreement to the extent that there are additional amounts to be reduced
and no remaining balance against which to apply such amounts, then, subject to
any other limitations described herein (i.e. limitations under the
indemnification provisions of this agreement), Xionics shall have the right to
bring an action for recovery of the amounts due to Xionics against the Sellers
who would are responsible for the matter giving rise to the right of reduction
against the amounts due under the Second Note. If any dispute under this
Agreement is ongoing and the Second Note becomes due, Xionics shall have the
right to withhold from payment under such Note an amount which Xionics in its
reasonable business judgment using good faith believes may be the amount by
which the Second Note will be reduced, and such amount withheld will be paid to
a mutually acceptable escrow agent to be held in an interest bearing escrow
account until the matter in dispute is resolved, at which time such amount, plus
any earned interest, will either be returned to Xionics or paid to the Sellers,
based upon the resolution of the dispute.
12.6. ENTIRE AGREEMENT. This Agreement, including the Exhibits hereto,
constitutes the entire agreement among the parties hereto with respect to the
subject matter hereof and supersedes any prior understandings or agreements
concerning the subject matter hereof.
12.7. SEVERABILITY. The invalidity or unenforceability of any provision hereof
shall in no way affect the validity or enforceability of any other provision.
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12.8. BINDING EFFECT. All of the covenants and agreements of the Sellers
contained in, and all of the rights granted by the Sellers pursuant to, this
Agreement, shall inure to the benefit of Xionics and XDT. None of such
covenants, agreements or rights shall be assignable or transferable by Sellers
to any person.
12.9. 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.
12.10 EXPENSES. Each party will pay its own expenses and costs incidental to the
completion of the acquisition contemplated by this Agreement, including legal
and accounting fees, whether or not the acquisition is completed. In the event
this Agreement is terminated or expires because the Closing Date has not
occurred, Xionics shall immediately relinquish control of the Company to
Sellers, and Xionics shall have no liability of any kind or nature in connection
with its interim control of the Company, and Sellers and/or Company shall be
fully liable in all respects for all matters arising in connection therewith.
12.11 NON-DISCLOSURE; PUBLICITY. Each party agrees that it will not without the
prior written consent of the other party disclose publicly or to any third party
the terms and conditions of the Letter of Intent dated July 24, 1997 between
Company and XDT, this Agreement or the subsequent negotiations between the
parties, except to the extent required by law. After the Closing Date, Xionics
shall have the right to disclose any information it deems appropriate in
connection with its announcement of this Agreement. At any time prior to or
after the Closing Date, Xionics shall have the right to announce all information
required to be announced by it in connection with its compliance with all
Federal laws applicable.
12.12 HEADINGS. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
12.13 FURTHER ASSURANCES. At any time and from time to time, including after
Closing, each party hereto, without further consideration, shall cooperate, take
such further action and execute and deliver such further instruments and
documents as may be reasonably requested by any other party in order to carry
out the provisions and purposes of this Agreement and to transfer the Shares.
12.14 SURVIVAL. The provisions of Sections I, 5.3(d), 6.1(h), 8.2, X, 12.10,
12.11 shall survive the termination of this Agreement. The provisions of
Sections I, II, III, V, VI, X, XI, and XII shall survive the Closing Date (and
if any referenced section specifies a limited survival period, such limited
survival period for such referenced section shall apply).
12.15 SIMULTANEOUS DELIVERY. All document and instruments to be delivered on the
Closing Date shall be regarded as having been delivered simultaneously, and no
document or instrument shall be regarded as having been delivered until all
Closing documents and instruments have been delivered.
IN WITNESS WHEREOF, XIONICS and SELLERS have executed this Agreement as of
the day and year first above written.
XIONICS, INC. XIONICS DOCUMENT TECHNOLOGIES, INC.
By: /s/ Gary Ambrosino By: /s/ Peter J. Simone
------------------------------ --------------------------------
Peter Simone
Name: Gary Ambrosino President
Title: Vice President
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SEAPORT IMAGING
By: /s/ Larry Krummel
Name: Larry Krummel
Title: President
SELLERS
By: /s/ Larry Krummel By: /s/ Sarah Krummel
------------------------------- ---------------------------
Name: Larry Krummel Name: Sarah Krummel
By: /s/ Gaymond Schultz By: /s/ Suzanne Krummel
------------------------------- ---------------------------
Name: Gaymond Schultz Name: Suzanne Krummel
By: /s/ William R. Zech
-------------------------------
Name: William R. Zech
-------------------------------
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EXHIBITS REFERENCES
Exhibit Description
- ------- -----------
Exhibit A List of Shareholders/# of shares owned/rights to acquire stock
Exhibit B June 30, 1997 Balance Sheet
Exhibit C Note and Guaranty
Exhibit D Employees/Retained Employees
Exhibit E Retained Contracts/consent requirements
Exhibit F Intellectual property
Exhibit G Transactions with Associated Persons
Exhibit H Litigation/Liabilities
Exhibit I Address of Sellers and Wire Transfer Instructions
Exhibit J Contracts and/or commitments entered into since June 30, 1997
Exhibit K Form of noncompetition and confidentiality agreement
Exhibit L Form of Legal Opinion
Exhibit M Plans or Agreements subject to ERISA
28
<PAGE> 1
Exhibit 10.15
9/4/97
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into this ___
day of September, 1997, by and between Xionics, Inc. (the "Employer") and Larry
Krummel (the "Employee").
WHEREAS, the Employer is a wholly-owned subsidiary of Xionics Document
Technologies, Inc. a Delaware corporation; and
WHEREAS, the Employer intends to purchase from the Employee all of the shares
held by the Employee in Seaport Imaging ("Seaport"), a California corporation
which, it is intended, will become a wholly-owned subsidiary of the Employer on
the date of closing of the Employer's purchase of all of the shares in Seaport
from their current owners (the "Closing Date"); and
WHEREAS, Employer wishes to employ the Employee as Senior Director of Imaging,
and the Employee wishes to work for the Employer in that capacity, on the terms
and conditions set forth below;
NOW THEREFORE, the parties hereby agree as follows:
1. EMPLOYMENT. The Employer hereby employs the Employee, and the Employee
hereby accepts employment, upon the terms and subject to the conditions
hereinafter set forth.
2. DUTIES.
2.1 The Employee shall be employed as Senior Director of Imaging of the
Employer, provided that the Employer reserves the right, in its discretion,
to reassign the Employee to another position that, in the reasonable
judgment of the Employer, calls for similar skills, experience and/or
knowledge. Such reassignment may, at the Employer's discretion, include
assignment of Employee to a subsidiary or other affiliate of the Employer.
The Employee shall have such specific duties and responsibilities as are
assigned by the President or Vice President and General Manager, Imaging,
of the Parent Corporation, or the delegee(s) of any of them (collectively,
the "Authorized Officers"). Except for vacations in accordance with Section
4.2 below and absences due to temporary illness, the Employee agrees to
devote his full working time, attention and energies to the performance of
his duties to the Employer.
2.2 The Employee's duties shall be performed substantially at Seaport's current
California offices or at some other offices in the Silicon Valley. The
Employee will undertake business travel to the extent required for the
performance of his duties hereunder, as determined by an Authorized
Officer.
3. TERM. The initial term of employment of the Employee hereunder shall
commence on the Closing Date and shall continue until the third anniversary
of the Closing Date (the "Initial Term"), unless earlier terminated
pursuant to the provisions of Section 8. below. Thereafter the Employee may
remain employed by Employer if both parties so desire, but shall be
considered an employee at will in accordance with applicable state law.
<PAGE> 2
4. COMPENSATION AND BENEFITS. For so long as this Agreement remains in effect,
and in consideration of the services to be supplied by the Employee
hereunder, the Employer shall compensate the Employee as follows:
4.1 BASE SALARY. The Employer shall pay the Employee, in accordance with the
Employer's then-current payroll practices, a base salary (the "Base
Salary"). The Base Salary will initially be paid at an annual rate of One
Hundred and Fifty Thousand Dollars ($150,000.00 U.S.), and may be increased
from time to time in the discretion of the Employers' Board of Directors or
the Authorized Officers, or any of them.
4.2 VACATION. The Employee shall be entitled to paid vacation in accordance
with the Employer's vacation policy as such policy is in effect from time
to time. Any vacation shall be taken at the reasonable and mutual
convenience of the Employer and the Employee.
4.3 INSURANCE, ETC. Accident, disability, life and health insurance for the
Employee and his dependents shall be provided by the Employer under the
group policies maintained by the Employer for its full-time salaried
employees, on the same terms (including terms requiring reasonable employee
contributions to the costs of such coverage) on which such benefits are
made available to Employer's other full-time salaried employees from time
to time.
4.4 (a) (i) The term "SeaWorthy Products" shall mean those products listed
in Exhibit A hereto under the title SeaWorthy Products.
(ii) The term "Cruise Line Products" shall mean shall mean those
products listed in Exhibit A hereto under the title Cruise Line
Products.
(iii) The term "SeaBars Products" shall mean shall mean those products
listed in Exhibit A hereto under the title SeaBars Products.
(iv) The term "individual Seaport Product" shall mean any individual
product of the SeaWorthy Products, Cruise Line Products or SeaWorthy
Products.
(v) The term "Seaport Products" shall mean SeaWorthy Products,
Cruise Line Products and SeaBars Products, collectively.
(b) In addition to the Base Salary described in 4.1 above, and as a
material inducement to Employee's willingness to enter into this Agreement,
Employer shall pay to Employee a portion (the "Additional Salary") of Employer's
income from the SeaWorthy Products, SeaBars Products and Cruise Line Products in
the manner described below:
(i) SeaWorthy Products - Employer shall pay to Employee twenty
percent (20%) of the revenue received by Employer for the direct sale
of Seaworthy Products for the first three (3) years following
commencement of this Agreement, and ten percent (10%) of the revenue
received by Employer for the direct sale of Seaworthy Products for the
two (2) years following the third anniversary of the commencement of
this Agreement;
(ii) SeaBars Products - Employer shall pay to Employee twenty percent
(20%) of the revenue received by Employer for the direct sale of
SeaBars Products for the first three (3) years following commencement
of this Agreement, and ten percent (10%) of the revenue received by
Employer for the
2
<PAGE> 3
direct sale of SeaBars Products for the two (2) years following the
third anniversary of the commencement of this Agreement;
(iii) Cruise Line Products - Employer shall pay to Employee ten
percent (10%) of the revenue received by Employer for the direct sale
of Cruise Line Products for the first three (3) years following
commencement of this Agreement; provided, however, that such revenue
shall be calculated after deduction of amounts due by Seaport or
Employer to Optimis Systems, Inc. for such products pursuant to that
certain Marketing and License Agreement dated June 17, 1997 between
Optimis Systems, Inc. and Seaport Imaging, Inc. (the "Optimis
Agreement"), as the same may be amended from time to time.
(c) All revenue described above shall be calculated after deduction of
credits, returns, stock rotations and warranty replacements. The Additional
Salary payments shall be made on a monthly basis, in arrears, and shall be
accompanied by such reasonable documentation as shall evidence the
calculation of the amounts paid. "Direct sale" as used in 4.4(b) above
shall mean any sale and/or license by Seaport or Employer of the individual
Seaport Products and any successor products (for instance updates and
upgrades) or any other form in which the individual Seaport Product may be
recast or transformed during the term of employment referenced above .
(d) For and with respect to the individual Seaport Products or their
successor products which are at a later date incorporated (whether embedded
or as an add-on product) into any other product(s) of Employer or its
affiliates (such product into which any or all of such individual Seaport
Products are incorporated is hereinafter referred to as a "Xionics
Product"), Xionics shall pay the employee Additional Salary calculated in
the following manner:
(i) SeaWorthy Products- Employer shall pay to employee 20% of the
calculated revenue (as hereinafter described), if any, for the
first three (3) years of the term of this Agreement, and 10% of
the calculated revenue, if any, for the next two (2) years of
this Agreement.
(ii) SeaBars Products - Employer shall pay to employee 20% of the
calculated revenue (as hereinafter described), if any, for the
first three (3) years of the term of this Agreement, and 10% of
the calculated revenue, if any, for the next two (2) years of
this Agreement.
(iii) Cruise Line Products- Employer shall pay to employee 10% of the
Cruise Line calculated revenue (hereinafter described), if any,
for the first (3) years of the term of this agreement.
(e) (i) "Calculated revenue" shall mean the result of (a) the actual
sale price of the Xionics Product multiplied by (b) the amount which is the
result of dividing (1) the list price of the individual Seaport Product by
(2) the total of list prices of all components of the Xionics Product.
3
<PAGE> 4
As an example:
<TABLE>
<S> <C>
(List Price of individual Seaport
Products included in Xionics Product) X (the actual sale price = calculated revenue
---------------------------------------- of the Xionics Product)
(Total of List Prices of all components
in the Xionics Product)
</TABLE>
(ii) If the Xionics Product is an embedded product, the pricing for
the embedded product will include line item pricing, and such line item
prices will be maintained on a published price list for the period of time
during which the Additional Salary payments are due.
(iii) Cruise Line calculated revenue shall mean the result of (a) the
actual sale price for the Cruise Line Product, less amounts due by Seaport
or Employer to Optimis Systems, Inc. pursuant to the Optimis Agreement, for
such product, multiplied by (b) the amount which is the result of dividing
(1) the list price of the Cruise Line Product included in the Xionics
Product by (2) the total of list prices of all components of the Xionics
Product.
(f) In the event the total actual sales for all products which comprised
products of the company Seaport Imaging prior to the Closing Date
("Seaport's traditional products"), other than the Seaport Products, during
the first six (6) months after the date of execution of the Stock Purchase
Agreement ("Total Sales") is less than $1,100,000.00, then two times the
difference between the Total Sales and $900,000.00 shall be deemed to be
"Earned Credit". The difference between the Earned Credit, if any, and
$400,000.00 shall be the "Offset Amount". After calculation of the Offset
Amount, the Offset Amount, if any, will be deducted from future monthly
payments of Additional Salary otherwise due to Employee as described in
4.4(b) above until the Offset Amount has been completely exhausted. (As an
example only, if Total Sales equals $1,050,000.00 for the period, the
Earned Credit would be $300,000.00, and the amount deducted from future
monthly payments of Additional Salary would be $100,000.00).
Notwithstanding the foregoing, in no event shall the Offset Amount exceed
$400,000.00.
(g) Except as set forth below, the Additional Salary payments described
in Section 4.4(b) shall continue for the full period anticipated under
Section 4.4(b) regardless of whether or not this Agreement is sooner
terminated for any reason whatsoever or expires or whether Employee is
employed by the Employer as anticipated by this Agreement at the time such
payment is due to Employee. In the event of employees death or disability
during the period when Additional Salary payments would otherwise be due,
employer shall continue to pay the Additional Salary to the Employee or his
estate or heirs, as the case may be. Notwithstanding the foregoing, in the
event that employee resigns his position with Employer prior to the
expiration of the Initial Term, then the Additional Salary payments will
continue, but will be reduced as follows: the total Additional Salary,
after calculation, will be reduced by 10% for the period of months
remaining in the Initial Term (in other words, Additional Salary payments
will be calculated at 18% of the applicable revenue rather than 20% for the
remainder of the Initial Term with respect to SeaWorthy Products and
SeaBars Products, and 9% of the applicable revenue rather than 10% with
respect to Cruise Line Products).
4
<PAGE> 5
(h) Employer will keep and maintain, for a period of two years, proper
records and books of account relating to Employers marketing and
distribution of products for which Additional Salary is payable here under.
Employer will have conducted, as a part of the independent review of its
corporate books, quarterly during the first year of this Agreement and
thereafter on an annual basis (or quarterly if so requested by Employee),
an independent review of the Additional Salary calculations payable and
paid to Employee under this Agreement. Upon completion of the independent
review, the auditor performing the review will provide to Employee a
certification of the accuracy of the Additional Salary payments made during
the period covered by the review. If the payments made were less than that
which was due, the balance due will be paid with the next monthly
Additional Salary payment. If the payments were in excess of what should
have been paid, the over payment will be deducted from the next months
Additional Salary payment. The cost to perform this independent review will
be born by the Employer and will continue for the period the Additional
Salary payments are due pursuant to the terms of this Agreement.
5. RELOCATION. The Employee is currently resident in California. In the event
Employee's permanent presence in Employer's Burlington, MA office is
desired by Xionics, Employee may at his discretion relocate to
Massachusetts at the earliest feasible date following such request. The
Employer agrees to pay the mutually agreed upon, reasonable, customary and
ordinary expenses of such relocation.
6. INVENTION DISCLOSURE AND CONFIDENTIALITY. The Employee understands that his
position with the Employer is one of high trust and confidence, by reason
of his access to and contact with the trade secrets and confidential and
proprietary information of the Employer. Therefore, the Employee agrees
that he will execute the Employer's standard Employee Invention and
Non-Disclosure Agreement, in the form attached hereto as Exhibit B; and
that upon its execution such Employee Invention and Non-Disclosure
Agreement will be incorporated in and made a part of this Agreement.
7. TERMINATION. Notwithstanding Section 3. above, the Employee's employment
shall terminate:
7.1 DEATH OR DISABILITY. Upon the death of the Employee during the term of his
employment hereunder or, at the option of the Employer, upon thirty (30)
days' prior written notice from the Employer in the event of the Employee's
disability. The Employee shall be deemed disabled if an independent medical
doctor (selected by the Employer's health or disability insurance carrier)
certifies that the Employee has, for ninety (90) days, consecutive or
non-consecutive, in any twelve (12)-month period been materially impaired
in his ability to perform his duties under this Agreement.
7.2 FOR CAUSE. For Cause, as defined below, immediately upon written notice
given to the Employee by the Employer. For purposes of this Agreement,
"Cause" shall mean any one or more of the following:
(a) An act of fraud, embezzlement, misappropriation or breach of fiduciary
duty committed by the Employee against the Employer, including but not
limited to the offer, payment, solicitation or acceptance of any unlawful
bribe or kickback with respect to the Employer's business;
(b) The Employee's conviction by a court of competent jurisdiction of any
felony;
5
<PAGE> 6
(c) The Employee's breach of any of the covenants, terms or provisions of
the Employee Invention and Non-Disclosure Agreement to be executed pursuant
to Section 6. above;
(d) The Employee's substantial failure to perform (whether because of
inability, unwillingness, negligence, or any other reason based upon the
act or failure to act of Employee) the duties and responsibilities
reasonably assigned to him by the Employer in a manner reasonably
satisfactory to the Employer, which failure continues for sixty (60) days
after notice of such failure from an Authorized Officer; or
(e) The Employee's refusal to obey any lawful direction by an Authorized
Officer which is consistent with his duties and responsibilities hereunder,
which refusal continues for five (5) days after written notice to the
Employee specifying such refusal in reasonable detail.
7.3 RIGHTS AND REMEDIES ON TERMINATION. If the Employer shall terminate the
Employee's employment hereunder other than as provided in Sections 7.1 and
7.2 above, then the Employee shall be entitled to receive, as severance pay
and in consideration of his ongoing obligations under the Employee
Invention and Non-Disclosure Agreement referred to above, in accordance
with the Employer's then-current payroll practices, payment of his Base
Salary in effect at the time of termination for the shorter of one (1) year
or the remainder of the Initial Term (the "termination payment period");
provided, however, that in the event of any such termination, half way
through the termination payment period, the parties shall determine
Employee's employment status, and if at such time Employee has secured
other employment, then no additional payments for the balance of the
termination payment period shall be due from Employer to Employee.
7.4 EFFECT OF NO CLOSING. Notwithstanding any of the other provisions of this
Agreement, in the event the Closing Date does not occur on or before
September 10, 1997, this Agreement shall become null and void, as if the
same had never been entered into between the parties, and no obligations of
either party hereto shall be enforceable against the other, and no amounts
otherwise due from Employer to Employee under any section of this Agreement
shall be due or payable.
8. GENERAL.
8.1 NO RIGHTS IN SOFTWARE/HARDWARE. Except for that certain patent number
5,557,091 (which employee will assign to Employer pursuant to the terms of
the Stock Purchase Agreement between Employer and Employee, as one of the
Sellers under that agreement), Employee represents that Employee has no
right, title or interest of any kind or nature in the Seaworthy Products,
SeaBars Products or Cruise Line Products, or any other software or hardware
products of Seaport Imaging, Micro Machines, Inc. or any other related
entity, whether by ownership, license or otherwise.
8.2 ASSIGNMENT. This Agreement shall be binding on and inure to the benefit of
the heirs and successors of each of the parties hereto. This Agreement
shall not be assignable by the Employee, it being understood and agreed
that this is a contract for the Employee's personal services. This
Agreement shall not be assignable by the Employer except to a subsidiary or
affiliate of the Employer, or in connection with a merger involving, or a
6
<PAGE> 7
sale or transfer of all or substantially all of the assets and business of,
the Employer; provided, that assignment in such instances shall be
permitted only if the conditions and circumstances of the Employee's
employment would not be materially altered as the result of the assignment,
or if the Employee agrees in advance to any material alterations that would
result from the assignment.
8.3 ENTIRE AGREEMENT. This Agreement contains the entire understanding of the
parties relating to the Employee's employment by the Employer; supersedes
all prior agreements and understandings relating to the subject matter
hereof; and shall not be amended except by a writing signed by each of the
parties hereto.
8.4 GOVERNING LAW. This Agreement shall be construed and governed in accordance
with the laws of the Commonwealth of Massachusetts, without giving effect
to principles of choice of laws.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties hereto
have caused this Agreement to be duly executed as of the date first written
above.
EMPLOYER:
XIONICS, INC.
By: /s/ Gary Ambrosino
Title:
EMPLOYEE:
/s/ Larry Krummel
Larry Krummel
7
<PAGE> 1
Exhibit 10.16
February 24, 1998
Robert E. Gilkes
363 Barretts Mill Road
Concord, MA 01742
Dear Bob:
I am pleased that you have accepted the position of special advisor to the Board
of Directors of Xionics Document Technologies, Inc., and would like to outline
the terms and conditions applicable to your service in that capacity.
We have agreed that you will provide advice and counsel to the Board on various
matters relating to the Company's strategic direction from January 1, 1998
through July 31, 1999. Your primary contact will be with Paul Low, Chairman of
the Board. Your gross salary will be Ten Thousand Dollars ($10,000.00) per month
for the months of January through December, 1998, and Three Thousand Dollars
($3,000.00) per month for the months of January through July, 1999. You will of
course continue to be eligible to participate in the Company's benefit plans,
and the Invention and Nondisclosure Agreement between you and the Company dated
November 13, 1995, as amended, will continue in effect in accordance with its
terms. A copy of it is enclosed for your convenience. The arrangement described
above is terminable by you at any time, and by Xionics in the event of any
breach of your obligations under that Invention and Nondisclosure Agreement.
Bob, if the foregoing paragraph correctly states our agreement, please so
indicate by signing both copies of this letter in the space provided below and
return one to me, keeping the other for your records.
Sincerely,
XIONICS DOCUMENT TECHNOLOGIES,
INC.
/s/ PETER J. SIMONE
Peter J. Simone
President and Chief Executive Officer
Accepted:
/s/ ROBERT E. GILKES Date: February 25, 1998
- ---------------------------------- -----------------------------
Robert E. Gilkes
<PAGE> 1
Exhibit 10.18
- --------------------------------------------------------------------------------
XIONICS DOCUMENT TECHNOLOGIES, INC.
AND
BANKBOSTON, N.A.
AS RIGHTS AGENT
RIGHTS AGREEMENT
DATED AS OF APRIL 15, 1998
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
Page
----
Section 1. Certain Definitions ...................................... 1
Section 2. Appointment of Rights Agent .............................. 5
Section 3. Issue of Rights Certificates ............................. 5
Section 4. Form of Rights Certificates .............................. 7
Section 5. Countersignature and Registration ........................ 8
Section 6. Transfer, Split-Up, Combination and Exchange of
Rights Certificates; Mutilated, Destroyed, Lost or
Stolen Rights Certificates ........................... 9
Section 7. Exercise of Rights; Purchase Price; Expiration
Date of Rights ....................................... 9
Section 8. Cancellation and Destruction of Rights Certificates ...... 11
Section 9. Reservation and Availability of Preferred Shares ......... 12
Section 10. Preferred Shares Record Date ............................. 13
Section 11. Adjustment of Purchase Price, Number
and Kind of Shares or Number of Rights ............... 13
Section 12. Certificate of Adjusted Purchase Price or Number
of Shares ............................................ 23
Section 13. Consolidation, Merger or Sale or Transfer
of Assets or Earning Power of the Company ............ 23
Section 14. Additional Covenants ..................................... 26
Section 15. Fractional Rights and Fractional Shares .................. 26
Section 16. Rights of Action ......................................... 28
Section 17. Agreement of Rights Holders .............................. 28
<PAGE> 3
-2-
Section 18. Rights Certificate Holder Not Deemed a Stockholder....... 29
Section 19. Concerning the Rights Agent ............................. 29
Section 20. Merger or Consolidation or Change of
Name of Rights Agent ................................. 30
Section 21. Duties of Rights Agent .................................. 30
Section 22. Change of Rights Agent .................................. 32
Section 23. Issuance of New Rights Certificates ..................... 33
Section 24. Redemption .............................................. 33
Section 25. Exchange ................................................ 35
Section 26. Notice of Certain Events ................................ 36
Section 27. Notices ................................................. 37
Section 28. Supplements and Amendments .............................. 38
Section 29. Determination and Actions by the
Board of Directors, Etc ........................... 38
Section 30. Successors .............................................. 39
Section 31. Benefits of this Agreement .............................. 39
Section 32. Severability ............................................ 39
Section 33. Governing Law ........................................... 39
Section 34. Counterparts ............................................ 39
Section 35. Descriptive Headings .................................... 40
Signatures .......................................................... 41
<PAGE> 4
-3-
Exhibit A - Form of Certificate of Vote of Directors
Establishing a Series of a Class of Stock
Exhibit B - Form of Rights Certificate
Exhibit C - Summary of Rights to Purchase Preferred Shares
<PAGE> 5
Rights Agreement, dated as of April 15, 1998, between Xionics Documents
Technologies, Inc., a Delaware corporation (the "COMPANY"), and BankBoston, N.A,
a national banking association (the "RIGHTS AGENT").
WHEREAS, the Board of Directors of the Company has authorized and declared
a dividend distribution of one preferred share purchase right (a "RIGHT") for
each Common Share (as hereinafter defined) of the Company outstanding as of the
close of business on April 21, 1998 (the "RECORD DATE"), each Right representing
the right to purchase one one-thousandth of a Preferred Share (as hereinafter
defined), upon the terms and subject to the Conditions herein set forth, and in
addition has authorized and directed the issuance of one Right with respect to
each Common Share that shall become outstanding between the Record Date and the
earlier of the Distribution Date and the Expiration Date (as such terms are
hereinafter defined);
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto hereby agree as follows:
Section 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms have the meanings indicated:
"ACQUIRING PERSON" shall mean any Person (as such term is hereinafter
defined) who or which, together with all Affiliates and Associates (as such
terms are hereinafter defined) of such Person, shall be the Beneficial Owner (as
such term is hereinafter defined) of 15% or more of the Common Shares of the
Company then outstanding or who was such a Beneficial Owner at any time after
the date hereof, whether or not such Person continues to be the Beneficial Owner
of 15% or more of the Common Shares then outstanding, but shall not include any
Schedule 13G Investor, the Company, any Subsidiary (as such terms are
hereinafter defined) of the Company, any employee benefit plan of the Company or
any Subsidiary of the Company, or any entity holding securities of the Company
organized, appointed or established by the Company or any Subsidiary for or
pursuant to the terms of any such plan. Notwithstanding the foregoing, no Person
shall become an "Acquiring Person" solely as the result of an acquisition of
Common Shares by the Company which, by reducing the number of shares
outstanding, increases the proportionate number of shares beneficially owned by
such Person to 15% or more of the Common Shares of the Company then outstanding;
PROVIDED, HOWEVER, that if a Person shall become the Beneficial Owner of 15% or
more of the Common Shares of the Company then outstanding by reason of share
purchases by the Company and shall, after such share purchases by the Company,
become the Beneficial Owner of any additional Common Shares of the Company, then
such Person shall be deemed to be an "Acquiring Person".
<PAGE> 6
-2-
"ADJUSTED SHARES" shall have the meaning set forth in Section 1l(a).
"AFFILIATE" and "ASSOCIATE" shall have the respective meanings ascribed to
such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange
Act, as in effect on the date of this Agreement.
A Person shall be deemed the "BENEFICIAL OWNER" of and shall be deemed to
"beneficially own" any securities:
(i) that such Person or any of such Person's Affiliates or Associates
beneficially owns, directly or indirectly;
(ii) that such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to acquire (whether such
right is exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement or understanding (whether or not in
writing) or upon the exercise of conversion rights, exchange rights, rights
(other than the Rights), warrants or options, or otherwise; PROVIDED,
HOWEVER, that a Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own", (A) securities tendered pursuant to a tender or
exchange offer made by such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for payment,
purchase or exchange, or (B) securities issuable upon exercise of Rights at
any time prior to the occurrence of a Triggering Event, or (C) securities
issuable upon exercise of Rights from and after the occurrence of a
Triggering Event if such Rights were acquired by such Person or any of such
Person's Affiliates or Associates prior to the Distribution Date or
pursuant to Section 3(a) or Section 23 hereof (the "Original Rights") or
pursuant to Section 1l(i) hereof in connection with an adjustment made
with respect to any Original Rights;
(iii) that such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to vote or dispose of or
has "beneficial ownership" of (as determined pursuant to Rule 13d-3 of the
General Rules and Regulations under the Exchange Act), including without
limitation pursuant to any agreement, arrangement or understanding, whether
or not in writing; PROVIDED, HOWEVER, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own", any security under this
subparagraph (iii) as a result of an oral or written agreement, arrangement
or understanding to vote such security if such agreement, arrangement or
understanding: (A) arises solely from a revocable proxy given in response
to a public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable provisions of the General Rules and
Regulations under the
<PAGE> 7
-3-
Exchange Act, and (B) is not also then reportable by such Person on
Schedule 13D under the Exchange Act (or any comparable or successor
report); or
(iv) that are beneficially owned, directly or indirectly, by any other
Person (or any Affiliate or Associate thereof) with which such Person (or
any such Person's Affiliates or Associates) has any agreement, arrangement
or understanding (whether or not in writing), for the purpose of acquiring,
holding, voting (except pursuant to a revocable proxy as described in the
proviso to subparagraph (iii) of this paragraph (d)) or disposing of any
voting securities of the Company or any securities exercisable for or
convertible into voting securities of the Company;
PROVIDED, however, that nothing in this paragraph (d) shall cause a Person
engaged in business as an underwriter of securities to be the "Beneficial Owner"
of, or to "beneficially own", any securities acquired through such Person's
participation in good faith in a firm commitment underwriting until the
expiration of forty days after the date of such acquisition.
Notwithstanding anything in this definition of Beneficial Ownership to the
contrary, the phrase "then outstanding," when used with reference to a Person's
beneficial ownership of securities of the Company, shall mean the number of such
securities then issued and outstanding together with the number of such
securities not then issued and outstanding which such Person would be deemed to
own beneficially hereunder.
"BUSINESS DAY" shall mean any day other than a Saturday, a Sunday, or a day
on which banking institutions in the State of the principal office of the Rights
Agent are authorized or obligated by law or executive order to close.
"CLOSE OF BUSINESS" on any given date shall mean 5:00 P.M., local time in
the State of the principal office of the Rights Agent, on such date; PROVIDED,
HOWEVER, that if such date is not a Business Day it shall mean 5:00 P.M., local
time in the State of the principal office of the Rights Agent, on the next
succeeding Business Day.
"COMMON SHARES" when used with reference to the Company shall mean the
shares of common stock, $.01 par value per share, of the Company. "COMMON
SHARES" when used with reference to any Person other than the Company shall mean
the capital stock with the greatest voting power, or the equity securities or
other equity interest having power to control or direct the management, of such
other Person or, if such other Person is a Subsidiary of another Person, of the
Person or Persons which ultimately control such first-mentioned Person and which
have issued and outstanding such capital stock, equity securities or equity
interests.
"CURRENT VALUE" shall have the meaning set forth in Section 11 (a).
<PAGE> 8
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"DISTRIBUTION DATE" shall have the meaning set forth in Section 3 hereof.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE RATIO" shall have the meaning set forth in Section 25(a).
"EXPIRATION DATE" shall have the meaning set forth in Section 7 hereof.
"FINAL EXPIRATION DATE" shall have the meaning set forth in Section 7
hereof.
"PERSON" shall mean any individual, firm, corporation, partnership, limited
liability company, business trust or other entity, and shall include any
successor (by merger or otherwise) of such entity.
"PREFERRED SHARES" shall mean shares of Series A Junior Participating
Preferred Stock, par value $.01 per share, of the Company having the rights and
preferences set forth in the Certificate of Secretary attached to this Agreement
as EXHIBIT A.
"PRINCIPAL PARTY" shall have the meaning set forth in Section 13 hereof.
"PURCHASE PRICE" shall have the meaning set forth in Section 4, subject to
Section 11 (a) hereof.
"RECORD DATE" shall mean April 21, 1998.
"REDEMPTION DATE" shall have the meaning set forth in Section 7 hereof.
"REDEMPTION PRICE" shall have the meaning set forth in Section 24 hereof.
"RIGHTS CERTIFICATES" shall have the meaning set forth in Section 3(a)
hereof.
"SECTION 11(a)(ii) EVENT" shall mean any event described in Section
11(a)(ii) hereof.
"SECTION 13 EVENT" shall mean any event described in clauses (x), (y) or
(z) of Section 13(a) hereof.
"SECTION 11(a)(ii) TRIGGER DATE" shall have the meaning set forth in
Section 11 (a)(iii) hereof.
"SCHEDULE 13 INVESTOR" means any Person that (i) acquires beneficial
ownership of 15% or more of the Common Shares of the Company then outstanding,
<PAGE> 9
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(ii) is eligible to, and does, report the beneficial ownership of such Common
Shares on SCHEDULE 13G pursuant to the provisions of Rule 13d-1 under the
Exchange Act, (iii) within sixty (60) days after acquiring beneficial ownership
of 15% or more of such Common Shares reduces its beneficial ownership to less
than 15% of the outstanding Common Shares and (iv) at no time acquires
beneficial ownership of 25% or more of the outstanding Common Shares of the
Company.
"SHARES ACQUISITION DATE" shall mean the first date of public announcement
(which, for purposes of this definition, shall include, without limitation, a
report filed pursuant to Section 13(d) under the Exchange Act) by the Company or
an Acquiring Person that an Acquiring Person has become such.
"SPREAD" shall have the meaning set forth in Section 11(a) hereof.
"SUBSIDIARY" of any Person shall mean any corporation or other entity of
which a majority of the voting power of the voting equity securities or equity
interest is owned, directly or indirectly, by such Person, or which is otherwise
controlled by such Person.
"SUBSTITUTION PERIOD" shall have the meaning set forth in Section 11(a)
hereof.
"SUMMARY OF RIGHTS" shall have the meaning set forth in Section 3(b)
hereof.
"TRADING DAY" shall have the meaning set forth in Section 11(d)(i) hereof.
"TRIGGERING EVENT" shall mean any Section 1l(a)(ii) Event or any Section
13 Event.
Section 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights (who,
in accordance with Section 3 hereof, shall prior to the Distribution Date also
be the holders of the Common Shares) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The Company may
from time to time appoint such Co-Rights Agents as it may deem necessary or
desirable upon ten (10) days' prior written notice to the Rights Agent. The
Rights Agent shall have no duty to supervise, and in no event be liable for, the
acts or omissions of any such Co-Rights Agent. In the event the Company appoints
one or more Co-Rights Agents, the respective duties of the Rights Agent and any
Co-Rights Agents shall be as the Company shall determine.
Section 3. ISSUE OF RIGHTS CERTIFICATES.
(a) Until the earliest of:
<PAGE> 10
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(i) the Close of Business on the tenth Business Day after the Shares
Acquisition Date; or
(ii) the tenth Business Day (or such later date as may be determined
by action of the Board of Directors prior to such time as any Person
becomes an Acquiring Person) after the date of the commencement by any
Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company or any
entity holding Common Shares for or pursuant to the terms of any such plan)
of, or of the first public announcement of the intention of any Person
(other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company or any
entity holding Common Shares for or pursuant to the terms of any such plan)
to commence, a tender or exchange offer the consummation of which would
result in any Person becoming the Beneficial Owner of Common Shares
aggregating 15% or more of the then outstanding Common Shares (including
any such date which is after the date of this Agreement and prior to the
issuance of the Rights; the earliest of such dates being herein referred to
as the "DISTRIBUTION DATE"):
(x) no Right may be exercised;
(y) the Rights shall be evidenced (subject to the provisions of
Section 3(b) hereof) by the certificates for Common Shares registered in
the names of the holders thereof (which certificates shall also be deemed
to be certificates for Rights) and not by separate certificates; and
(z) the Rights (and the right to receive certificates therefor)
will be transferable only in connection with the transfer of the underlying
Common Shares. As soon as practicable after the Distribution Date, the
Company shall prepare and execute, the Rights Agent shall countersign, and
the Company shall send or cause to be sent (and the Rights Agent shall, if
requested, send) by first-class, insured, postage-prepaid mail, to each
record holder of Common Shares as of the close of business on the
Distribution Date, at the address of such holder shown on the records of
the Company, a certificate for Rights, in substantially the form of EXHIBIT
B hereto (the "RIGHTS CERTIFICATES"), evidencing one Right for each Common
Share so held. As of and after the Distribution Date, the Rights shall be
evidenced solely by such Rights Certificates.
(b) On the Record Date, or as soon as practicable thereafter, the
Company shall send a copy of a Summary of Rights to Purchase Preferred Shares,
in substantially the form of EXHIBIT C hereto (the "SUMMARY OF RIGHTS"), by
first-class, postage-prepaid mail, to each record holder of Common Shares as of
the close of
<PAGE> 11
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business on the Record Date, at the address of such holder shown on the records
of the Company. With respect to certificates for Common Shares outstanding as of
the Record Date, until the Distribution Date (or earlier redemption, expiration
or termination of the Rights), the Rights shall be evidenced by such
certificates for Common Shares registered in the names of the holders thereof
together with a copy of the Summary of Rights attached thereto and the
registered holders of the Common Shares shall also be the registered holders of
the associated Rights. Until the Distribution Date (or earlier redemption,
expiration or termination of the Rights), the surrender for transfer of any
certificate for Common Shares outstanding on the Record Date, even without a
copy of the Summary of Rights attached thereto, shall also constitute the
transfer of the Rights associated with the Common Shares represented by such
certificate.
(c) Certificates issued for Common Shares (including, without
limitation, certificates issued upon transfer or exchange of Common Shares)
after the Record Date but prior to the earlier of the Distribution Date or the
Expiration Date shall be deemed also to be certificates for Rights and shall
have impressed on, printed on, written on or otherwise affixed to them the
following legend:
"This certificate also evidences and entitles the holder hereof to certain
rights as set forth in a Rights Agreement between Xionics Document
Technologies, Inc. and BankBoston, N.A., dated as of April 15, 1998 (the
"RIGHTS AGREEMENT"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal executive offices
of Xionics Document Technologies, Inc. Under certain circumstances, as set
forth in the Rights Agreement, such Rights may be redeemed, may expire, or
may be evidenced by separate certificates and no longer be evidenced by
this certificate. Xionics Document Technologies, Inc. will mail to the
holder of this certificate a copy of the Rights Agreement without charge
after receipt of a written request therefor. As described in the Rights
Agreement, under certain circumstances, Rights issued to Acquiring Persons
(as defined in the Rights Agreement) or certain related persons and any
subsequent holder of such Rights may become null and void."
With respect to such certificates containing the foregoing legend, until the
Distribution Date the Rights associated with the Common Shares represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby. In
the event that the Company purchases or acquires any Common Shares after the
Record Date but prior to the Distribution Date, any Rights associated with such
Common Shares shall be deemed cancelled and retired so that the Company shall
not be entitled to exercise any Rights associated with the Common Shares which
are no longer outstanding.
<PAGE> 12
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Section 4. FORM OF RIGHTS CERTIFICATES.
(a) The Rights Certificates (and the forms of election to purchase
shares and of assignment to be printed on the reverse thereof) shall each be
substantially the same as EXHIBIT B hereto and may have such marks of
identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange on which the Rights may from time to
time be listed, or to conform to usage. Subject to the provisions of Section 11
and Section 23 hereof, the Rights Certificates shall entitle the holders thereof
to purchase such number of one one-thousands of a Preferred Share as shall be
set forth therein at the price per one one-thousandth of a Preferred Share set
forth therein (the "PURCHASE PRICE"), but the number of such one one-thousands
of a Preferred Share and the Purchase Price shall be subject to adjustment as
provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a) or Section
23 hereof that represents Rights that the Company knows are beneficially owned
by: (i) an Acquiring Person or any Associate or Affiliate of an Acquiring
Person, (ii) a transferee of an Acquiring Person (or of any such Associate or
Affiliate) who becomes a transferee after the Acquiring Person becomes such, or
(iii) a transferee of an Acquiring Person (or of any such Associate or
Affiliate) who becomes a transferee prior to or concurrently with the Acquiring
Person becoming such and receives such Rights pursuant to either (A) a transfer
(whether or not for consideration) from the Acquiring Person to holders of
equity interests in such Acquiring Person or to any Person with whom such
Acquiring Person has any continuing oral or written plan, agreement, arrangement
or understanding regarding the transferred Rights or (B) a transfer which the
Board of Directors of the Company determines is part of any oral or written
plan, agreement, arrangement or understanding that has as a primary purpose or
effect the avoidance of Section 7(e) hereof, and any Rights Certificate issued
pursuant to Section 6 or Section 11 hereof upon transfer, exchange, replacement
or adjustment of any other Rights Certificate referred to in this sentence,
shall contain (to the extent feasible) the following legend:
"The Rights represented by this Certificate were issued to a Person who was
or became an Acquiring Person or an Affiliate or an Associate of an
Acquiring Person. Accordingly, this Certificate and the Rights represented
hereby may be or become null and void in the circumstances specified in
Section 7(e) of the Rights Agreement."
The provisions of Section 7(e) of this Rights Agreement shall be operative
whether or not the foregoing legend is contained on any such Rights Certificate.
<PAGE> 13
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Section 5. COUNTERSIGNATURE AND REGISTRATION. The Rights Certificates shall
be executed on behalf of the Company by the President, any Executive Vice
President, or the Treasurer of the Company, either manually or by facsimile
signature, shall have affixed thereto the Company's seal or a facsimile thereof,
and shall be attested by the Secretary or an Assistant Secretary of the Company,
either manually or by facsimile signature. The Rights Certificates shall be
manually countersigned by the Rights Agent and shall not be valid for any
purpose unless countersigned. In case any officer of the Company who shall have
signed any of the Rights Certificates shall cease to be such officer of the
Company before countersignature by the Rights Agent and issuance and delivery by
the Company, such Rights Certificates, nevertheless, may be countersigned by the
Rights Agent and issued and delivered by the Company with the same force and
effect as though the person who signed such Rights Certificates had not ceased
to be such officer of the Company; and any Rights Certificate may be signed on
behalf of the Company by any person who, at the actual date of the execution of
such Rights Certificate, shall be a proper officer of the Company to sign such
Rights Certificate, although at the date of the execution of this Rights
Agreement any such person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or cause to be
kept, at its office designated for such purpose, books for registration and
transfer of the Rights Certificates issued hereunder. Such books shall show the
names and addresses of the respective holders of the Rights Certificates, the
number of Rights evidenced on its face by each of the Rights Certificates and
the date of each of the Rights Certificates.
Section 6. TRANSFER, SPLIT-UP, COMBINATION AND EXCHANGE OF RIGHTS
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHTS CERTIFICATES. Subject
to the provisions of Sections 4(b), 7(e) and 15 hereof, at any time after the
close of business on the Distribution Date, and at or prior to the close of
business on the Expiration Date, any Rights Certificate or Rights Certificates
may be transferred, split-up, combined or exchanged for another Rights
Certificate or Rights Certificates, entitling the registered holder to purchase
a like number of one one-thousandths of a Preferred Share as the Rights
Certificate or Rights Certificates surrendered then entitled such holder to
purchase. Any registered holder desiring to transfer, split-up, combine or
exchange any Rights Certificate or Rights Certificates shall make such request
in writing delivered to the Rights Agent, and shall surrender the Rights
Certificate or Rights Certificates to be transferred, split up, combined or
exchanged at the office of the Rights Agent designated for such purpose.
Thereupon the Rights Agent shall countersign and deliver to the Person entitled
thereto a Rights Certificate or Rights Certificates, as the case may be, as so
requested. The Company may require payment of a sum sufficient to cover any tax
or governmental charge that may be imposed in connection with any transfer,
split-up, combination or exchange of Rights Certificates.
<PAGE> 14
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Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Rights
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Rights Certificate if mutilated, the Company shall execute and deliver a new
Rights Certificate of like tenor to the Rights Agent for delivery to the
registered holder in lieu of the Rights Certificate so lost, stolen, destroyed
or mutilated.
Section 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS.
(a) Subject to subsection (e), the registered holder of any Rights
Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein) in whole or in part at any time after the Distribution Date
upon surrender of the Rights Certificate, with the form of election to purchase
on the reverse side thereof duly executed, to the Rights Agent at the office of
the Rights Agent designated for such purpose, together with payment of the
Purchase Price for each one one-thousandth of a Preferred Share (or such other
number of Preferred Shares or other securities) as to which the Rights are
exercised, at or prior to the earliest of (i) the close of business on April 21,
2008 (the "FINAL EXPIRATION DATE"), (ii) the time at which the Rights are
redeemed as provided in Section 24 hereof (the "REDEMPTION DATE"), or (iii) the
time at which such Rights are exchanged as provided in Section 25 hereof (such
earliest time being herein referred to as the "EXPIRATION DATE").
(b) The Purchase Price for each one one-thousandth of a Preferred
Share pursuant to the exercise of a Right shall initially be $85.00, shall be
subject to adjustment from time to time as provided in Sections 11 and 13 hereof
and shall be payable in lawful money of the United States of America in
accordance with paragraph (c) below.
(c) Upon receipt of a Rights Certificate representing exercisable
Rights, with the appropriate form of election to purchase duly executed,
accompanied by payment of the Purchase Price for the shares to be purchased and
an amount equal to any applicable transfer tax required to be paid by the holder
of such Rights Certificate in accordance with Section 9 hereof in cash or by
certified check, cashier's check or money order or bank draft paid or payable to
the order of the Company, the Rights Agent shall thereupon promptly (i) (A)
requisition from any transfer agent of the Preferred Shares (or make available,
if the Rights Agent is the transfer agent) certificates for the number of
Preferred Shares to be purchased and the Company hereby irrevocably authorizes
its transfer agent to comply with all such requests, or (B) if the Company, in
its sole discretion, shall have elected to deposit the Preferred Shares issuable
upon conversion of the Rights hereunder into a depositary,
<PAGE> 15
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requisition from the depositary agent depositary receipts representing such
number of one one-thousandths of a Preferred Share as are to be purchased (in
which case certificates for the Preferred Shares represented by such receipts
shall be deposited by the transfer agent with the depositary agent) and the
Company shall direct the depositary agent to comply with such request, (ii) when
appropriate, requisition from the Company the amount of cash, if any, to be paid
in lieu of issuance of fractional shares in accordance with Section 15 hereof,
(iii) promptly after receipt of such certificates or depositary receipts, cause
the same to be delivered to or upon the order of the registered holder of such
Rights Certificate, registered in such name or names as may be designated by
such holder, and (iv) when appropriate, after receipt, promptly deliver such
cash to or upon the order of the registered holder of such Rights Certificate.
In the event that the Company is obligated to issue other securities of the
Company pursuant to Section 11(a), the Company shall make all arrangements
necessary so that such other securities are available for distribution by the
Rights Agent, if and when appropriate.
(d) In case the registered holder of any Rights Certificate shall
exercise less than all the Rights evidenced thereby, a new Rights Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be
issued by the Rights Agent to the registered holder of such Rights Certificate
or to his duly authorized assigns, subject to the provisions of Section 15
hereof.
(e) Notwithstanding anything in this Agreement to the contrary, from
and after the first occurrence of a Section 11(a)(ii) Event, any Rights
beneficially owned by (i) an Acquiring Person or any Associate or Affiliate of
an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee after the Acquiring Person
becomes such, or (iii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or concurrently with
the Acquiring Person becoming such and receives such Rights pursuant to either
(A) a transfer (whether or not for consideration) from the Acquiring Person to
holders of equity interests in such Acquiring Person or to any Person with whom
such Acquiring Person has any continuing oral or written plan, agreement,
arrangement or understanding regarding the transferred Rights or (B) a transfer
which the Board of Directors of the Company determines is part of any oral or
written plan, agreement, arrangement or understanding that has as a primary
purpose or effect the avoidance of this Section 7(e), shall become null and void
without any further action, and no holder of such Rights shall have any rights
whatsoever with respect to such Rights, whether under this Agreement or
otherwise. The Company shall use all reasonable efforts to insure that the
provisions of this Section 7(e) and Section 4(b) are complied with, but shall
have no liability to any holder of Rights Certificates or other Person as a
result of its failure to make any determinations hereunder with respect to an
Acquiring Person or the Affiliates, Associates or transferees of an Acquiring
Person.
<PAGE> 16
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(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless the certificate contained in the
form of election to purchase set forth on the reverse side of the Rights
Certificate surrendered for such exercise shall have been properly completed and
duly executed by the registered holder thereof and the Company shall have been
provided with such additional evidence of the identity of the Beneficial Owner
(or former Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonably request.
Section 8. CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES. All Rights
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Rights Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Rights Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all cancelled Rights Certificates to the Company, or shall, at the written
request of the Company, destroy such cancelled Rights Certificates, and in such
case shall deliver a certificate of destruction thereof to the Company.
Section 9. RESERVATION AND AVAILABILITY OF PREFERRED SHARES.
(a) The Company covenants and agrees that it shall cause to be
reserved and kept available out of its authorized and unissued Preferred Shares
or any Preferred Shares held in its treasury, the number of Preferred Shares (or
other securities) that will be sufficient to permit the exercise in full of all
outstanding Rights in accordance with Section 7 of this Agreement.
(b) The Company covenants and agrees that it shall take all such
action as may be necessary to ensure that all Preferred Shares or other
securities delivered upon exercise of Rights shall, at the time of delivery of
the certificates for such Preferred Shares or other securities (subject to
payment of the Purchase Price), be duly and validly authorized and issued and
fully paid and nonassessable.
(c) The Company further covenants and agrees that it shall pay when
due and payable any and all federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of the Rights Certificates
or of any Preferred Shares or other securities upon the exercise of Rights. The
Company shall not, however, be required to pay any transfer tax which may be
payable in respect of any transfer or delivery of Rights Certificates to a
Person other than, or the
<PAGE> 17
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issuance or delivery of certificates or depositary receipts for the Preferred
Shares or other securities in a name other than that of, the registered holder
of the Rights Certificate evidencing Rights surrendered for exercise or to issue
or to deliver any certificates or depositary receipts for Preferred Shares or
other securities upon the exercise of any Rights until any such tax shall have
been paid (any such tax being payable by the holder of such Rights Certificate
at the time of surrender) or until it has been established to the Company's
reasonable satisfaction that no such tax is due.
(d) If then required by applicable law, the Company shall use its
best efforts to (i) file, as soon as practicable following the Distribution
Date, a registration statement under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), with respect to the securities purchasable upon exercise of
the Rights on an appropriate form, (ii) cause such registration statement to
become effective as soon as practicable after such filing, and (iii) cause such
registration statement to remain effective (with a prospectus at all times
meeting the requirements of the Securities Act and the rules and regulations
thereunder) until the earlier of (A) the date as of which the Rights are no
longer exercisable for such securities or (B) the Expiration Date. The Company
will also take such action as may be appropriate under the securities laws of
the various states. The Company may temporarily suspend the exercisability of
the Rights in order to prepare and file such registration statement. Upon any
such suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended. The Company shall
thereafter issue a public announcement at such time as the suspension is no
longer in effect. Notwithstanding any provision of this Agreement to the
contrary, the Rights shall not be exercisable in any jurisdiction unless the
requisite qualification in such jurisdiction shall have been obtained.
(e) If at the time the Rights become exercisable, the then
outstanding Common Shares are listed on any national or regional securities
exchange or are quoted on the National Association of Securities Dealers, Inc.
Automated Quotations System ("NASDAQ") or any successor thereto or other
comparable quotation system, the Company shall use its best efforts to cause,
from and after such time as the Rights become exercisable, all Preferred Shares
(and, following the occurrence of a Triggering Event, other securities) reserved
for issuance upon such exercise to be quoted on such system or listed on such
exchange, as the case may be.
Section 10. PREFERRED SHARES RECORD DATE. Each Person in whose name any
certificate for Preferred Shares (or other securities) is issued upon the
exercise of Rights shall for all purposes be deemed to have become the holder of
record of the Preferred Shares represented thereby on, and such certificate
shall be dated, the date upon which the Rights Certificate evidencing such
Rights was duly surrendered and payment of the Purchase Price (and any
applicable transfer taxes) was made; provided, however, that if the date of such
surrender and payment is a date upon
<PAGE> 18
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which the transfer books of the Company for such Preferred Shares (or other
securities) are closed, such Person shall be deemed to have become the record
holder of such shares on, and such certificate shall be dated, the next
succeeding Business Day on which the transfer books of the Company for such
Preferred Shares (or other securities) are open. Prior to the exercise of the
Rights evidenced thereby, the holder of a Rights Certificate shall not be
entitled to any rights of a shareholder of the Company with respect to shares
for which the Rights shall be exercisable, including, without limitation, the
right to vote, to receive dividends or other distributions or to exercise any
preemptive rights, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.
Section 11. ADJUSTMENT OF PURCHASE PRICE. NUMBER AND KIND OF SHARES OR
NUMBER OF RIGHTS. The Purchase Price. the number and kind of shares covered by
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (c)
combine the outstanding Preferred Shares into a smaller number of Preferred
Shares or (D) issue any shares of its capital stock in a reclassification
of the Preferred Shares (including any such reclassification in connection
with a consolidation or merger in which the Company is the continuing or
surviving corporation), except as otherwise provided in this Section 11(a)
and in Section 7(e), the Purchase Price in effect at the time of the record
date for such dividend or of the effective date of such subdivision,
combination or reclassification, and the number and kind of shares of
capital stock issuable on such date, shall be proportionately adjusted so
that the holder of any Right exercised after such time shall be entitled to
receive the aggregate number and kind of shares of capital stock which, if
such Right had been exercised immediately prior to such date and at a time
when the transfer books of the Company for the Preferred Shares were open,
such holder would have owned upon such exercise and been entitled to
receive by virtue of such dividend, subdivision, combination or
reclassification; provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable
upon exercise of one Right. If an event occurs which would require an
adjustment under both this Section 11(a)(i) and Section 11(a)(ii), the
adjustment provided for in this Section 11(a)(i) shall be in addition to,
and shall be made prior to, any adjustment required pursuant to Section
11 (a)(ii).
(ii) Subject to Section 25 of this Agreement, in the event:
<PAGE> 19
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(A) any Acquiring Person or any Associate or Affiliate of any
Acquiring Person, at any time after the Shares Acquisition Date, directly or
indirectly;
(1) shall merge into the Company or otherwise combine with the
Company and the Company shall be the continuing or surviving corporation of
such merger or combination and the Common Shares of the Company or other
equity securities of the Company shall remain outstanding;
(2) shall, in one transaction or a series of transactions, transfer
any assets to the Company or to any of its Subsidiaries in exchange (in
whole or in part) for Common Shares, for shares of other equity securities
of the Company, or for securities exercisable for or convertible into
shares of equity, securities of the Company (Common Shares or otherwise) or
otherwise obtain from the Company, with or without consideration, any
additional shares of such equity securities or securities exercisable for
or convertible into shares of such equity securities (other than pursuant
to a pro rata distribution to all holders of Common Shares);
(3) shall sell, purchase, lease, exchange, mortgage, pledge, transfer
or otherwise acquire or dispose of assets in one transaction or a series of
transactions, to, from or with (as the case may be) the Company or any of
its Subsidiaries, on terms and conditions less favorable to the Company
than the Company would be able to obtain in arm's-length negotiation with
an unaffiliated third party, other than pursuant to a Section 13 Event:
(4) shall sell, purchase, lease, exchange, mortgage, pledge, transfer
or otherwise acquire or dispose of assets having an aggregate fair market
value of more than $5,000,000 in one transaction or a series of
transactions, to, from or with (as the case may be) the Company or any of
the Company's Subsidiaries (other than incidental to the lines of business,
if any, engaged in as of the date hereof between the Company and such
Acquiring Person or Associate or Affiliate), other than pursuant to a
Section 13 Event;
(5) shall receive any compensation from the Company or any of the
Company's Subsidiaries other than compensation for full-time employment as
a regular employee
<PAGE> 20
-16-
at rates in accordance with the Company's (or its Subsidiaries') past
practices; or
(6) shall receive the benefit, directly or indirectly
(except proportionately as a stockholder and except if resulting from
a requirement of law or governmental regulation), of any loans (other
than in the ordinary course of business), advances, guarantees,
pledges or other financial assistance or any tax credits or other tax
advantage provided by the Company or any of its Subsidiaries; or
(B) any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or any of its
Subsidiaries or any entity holding securities of the Company organized,
appointed or established by the Company or any of its Subsidiaries for or
pursuant to the terms of any such plan), alone or together with its
Affiliates and Associates, shall become an Acquiring Person; or
(c) during such time as there is an Acquiring Person, there
shall be any reclassification of securities (including any reverse stock
split), or recapitalization or reorganization of the Company or other
transaction or series of transactions involving the Company which has the
effect, directly or indirectly, of increasing by more than 1% the
proportionate share of the outstanding shares of any class of equity
securities of the Company or any of its Subsidiaries beneficially owned by
any Acquiring Person or any Affiliate or Associate thereof;
then, and in each such case, proper provision shall promptly be made so that,
following the Distribution Date, each holder of a Right, except as provided in
Section 7(e) hereof, shall have a right to receive, upon exercise thereof at a
price equal to the then current Purchase Price multiplied by the number of one
one-thousandths of a Preferred Share for which a Right is then exercisable, in
accordance with the terms of this Agreement and in lieu of Preferred Shares,
such number of Common Shares of the Company as shall equal the result obtained
by (x) multiplying the then current Purchase Price by the number of one
one-thousandths of a Preferred Share for which a Right was exercisable
immediately prior to the first occurrence of a Section 11(a)(ii) Event, and (y)
dividing that product (which, following such first occurrence, shall thereafter
be referred to as the "PURCHASE PRICE" for each Right and for all purposes of
this Agreement) by 50% of the then current per share market price of the
Company's Common Shares (determined pursuant to Section 11 (d) hereof) on the
date of such first occurrence (such number of shares, the "ADJUSTMENT SHARES");
PROVIDED, HOWEVER, that if the transaction that would otherwise give rise to the
foregoing adjustment is also subject to the provisions of Section 13 hereof,
then only
<PAGE> 21
-17-
the provisions of Section 13 hereof shall apply and no adjustment shall be made
pursuant to this Section 11 (a)(ii).
(iii) In the event that the number of Common Shares that are
authorized by the Company's Restated Articles of Organization, but not
outstanding or reserved for issuance for purposes other than upon
exercise of the Rights are not sufficient to permit the exercise in
full of the Rights in accordance with the foregoing subparagraph (ii)
of this Section 11(a), the Company shall:
(A) determine the excess of the value of the Adjustment
Shares issuable upon the exercise of a Right (the "CURRENT
VALUE") over the Purchase Price (such excess, the "SPREAD"); and
(B) with respect to each Right, make adequate provision to
substitute for the Adjustment Shares, upon payment of the
applicable Purchase Price:
(1) cash;
(2) a reduction in the Purchase Price;
(3) Common Shares of the same or a different class or
other equity securities of the Company (including, without
limitation, preferred shares or units of preferred shares that
the Board of Directors of the Company has deemed (based, among
other things, on the dividend and liquidation rights of such
preferred shares) to have substantially the same economic value
as Common Shares (such preferred shares hereinafter referred to
as "COMMON SHARES EQUIVALENTS"));
(4) debt securities of the Company;
(5) other assets, or
(6) any combination of the foregoing, having an
aggregate value equal to the Current Value, where such aggregate
value has been determined by the Board of Directors of the
Company after considering the advice of a competent investment
banking firm selected by the Board of Directors of the Company;
PROVIDED, HOWEVER, if the Company shall have not made adequate
provision to deliver value pursuant to clause (B) above within
thirty (30) days following the later of (x) the first occurrence
of a
<PAGE> 22
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Section 11 (a)(ii) Event and (y) the date on which the Company's
right of redemption pursuant to Section 24(b) expires (the later
of (x) and (y) being referred to herein as the "SECTION 11(a)(ii)
TRIGGER DATE"), then the Company shall be obligated to deliver,
upon the surrender for exercise of a Right and without requiring
payment of the Purchase Price, Common Shares (to the extent
available), and then, if necessary, cash, which shares and/or
cash have an aggregate value equal to the Spread. If the Board of
Directors of the Company shall determine in good faith that it is
likely that sufficient additional Common Shares could be
authorized for issuance upon exercise in full of Rights, the
thirty (30) day period set forth above may be extended to the
extent necessary, but not more than ninety (90) days after the
Section 11(a)(ii) Trigger Date, in order that the Company may
seek stockholder approval for the authorization of such
additional shares (such period, as it may be extended, the
"SUBSTITUTION PERIOD"). To the extent that the Company determines
that some action need be taken pursuant to the first and/or
second sentences of this Section 11 (a)(iii), the Company shall
provide, subject to Section 7(e) hereof, that such action shall
apply uniformly to all outstanding Rights, and may suspend the
exercisability of the Rights until the expiration of the
Substitution Period in order to seek any authorization of
additional shares and/or to decide the appropriate form of
distribution to be made pursuant to such first sentence and to
determine the value thereof. The Company shall make a public
announcement when the exercisability of the Rights has been
temporarily suspended, and again when such suspension is no
longer in effect. For purposes of this Section 11 (a)(iii), the
value of the Common Shares shall be the current market price (as
determined pursuant to Section 11(d) hereof) per Common Share on
the Section 11(a)(ii) Trigger Date and the value of any "common
share equivalent" shall be deemed to have the same value as the
Common Shares on such date.
(b) If the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Shares entitling them
(for a period expiring within 45 calendar days after such record date) to
subscribe for or purchase Preferred Shares (or shares having the same or more
favorable rights, privileges and preferences as the Preferred Shares
("EQUIVALENT PREFERRED SHARES")) or securities convertible into Preferred Shares
or equivalent preferred shares at a price per Preferred Share or equivalent
preferred share (or having a conversion price per share, if a security
convertible into Preferred Shares or equivalent preferred shares) less than the
then current per share market price of the Preferred Shares (as defined in
Section 11(d)) on such record date, the Purchase Price to be in effect after
such record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be
<PAGE> 23
-19-
the number of Preferred Shares outstanding on such record date plus the number
of Preferred Shares which the aggregate offering price of the total number of
Preferred Shares and/or equivalent preferred shares so to be offered (and/or the
aggregate initial conversion price of the convertible securities so to be
offered) would purchase at such current market price and the denominator of
which shall be the number of Preferred Shares outstanding on such record date
plus the number of additional Preferred Shares and/or equivalent preferred
shares to be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible); PROVIDED, HOWEVER, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right. In case such subscription price may be paid
in a consideration part or all of which shall be in a form other than cash, the
value of such consideration shall be as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent. Preferred Shares owned by or held for the account
of the Company shall not be deemed outstanding for the purpose of any such
computation. Such adjustment shall be made successively whenever such a record
date is fixed; and in the event that such rights, options or warrants are not so
issued, the Purchase Price shall be adjusted to be the Purchase Price which
would then be in effect if such record date had not been fixed.
(c) If the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of
indebtedness, cash or assets (other than a regular quarterly cash dividend or a
dividend payable in Preferred Shares) or subscription rights or warrants
(excluding those referred to in Section 11(b) hereof), the Purchase Price to be
in effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the then current per share market price of the
Preferred Shares on such record date, less the fair market value (as determined
in good faith by the Board of Directors of the Company, whose determination
shall be described in a statement filed with the Rights Agent) of the portion of
the assets, cash or evidences of indebtedness so to be distributed or of such
subscription rights or warrants applicable to one Preferred Share and the
denominator of which shall be such current per share market price of the
Preferred Shares; PROVIDED, HOWEVER, that in no event shall the consideration to
be paid upon the exercise of one Right be less than the aggregate par value of
the shares of capital stock of the Company to be issued upon exercise of one
Right. Such adjustments shall be made successively whenever such a record date
is fixed; and in the event that such distribution is not so made, the Purchase
Price shall again be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.
<PAGE> 24
-20-
(d) (i) For the purpose of any computation hereunder, other than
computations made pursuant to Section 11(a)(iii) hereof, the "CURRENT PER
SHARE MARKET PRICE" of any security (a "SECURITY" for the purpose of this
Section 11(d)(i)) on any date shall be deemed to be the average of the daily
closing prices per share of such Security for the 30 consecutive Trading Days
(as such term is hereinafter defined) immediately prior to such date; PROVIDED,
HOWEVER, that in the event that the current per share market price of the
Security is determined during a period following the announcement by the issuer
of such Security of (A) a dividend or distribution on such Security payable in
shares of such Security or securities convertible into such shares, or (B) any
subdivision, combination or reclassification of such Security and prior to the
expiration of 30 Trading Days after the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the current per share market
price shall be appropriately adjusted to reflect the current market price per
share equivalent of such Security. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Security is not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Security is listed or admitted to trading or, if the Security is
not listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by NASDAQ or such other
system then in use, or, if on any such date the Security is not quoted by any
such organization, the average of the closing bid and asked prices as furnished
by a professional market maker making a market in the Security selected by the
Board of Directors of the Company. The term "TRADING DAY" shall mean a day on
which the principal national securities exchange on which the Security is listed
or admitted to trading is open for the transaction of business or, if the
Security is not listed or admitted to trading on any national securities
exchange, a Business Day.
(ii) For the purpose of any computation hereunder, the "CURRENT
PER SHARE MARKET PRICE" of the Preferred Shares shall be determined in
accordance with the method set forth in Section 11(d)(i). If the Preferred
Shares are not publicly traded, the "current per share market price" of the
Preferred Shares shall be conclusively deemed to be the current per share market
price of the Common Shares as determined pursuant to Section 11(d)(i)
(appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof), multiplied by
<PAGE> 25
-21-
one thousand. If neither the Common Shares nor the Preferred Shares are
publicly held or so listed or traded, "current per share market price"
shall mean the fair value per share as determined in good faith by the
Board of Directors of the Company, whose determination shall be described
in a statement filed with the Rights Agent.
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the Purchase
Price; PROVIDED, HOWEVER, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest one one-millionth of a
Preferred Share or one ten-thousandth of any other share or security as the case
may be. Notwithstanding the first sentence of this Section 11(e), any
adjustment required by this Section 11 shall be made no later than the earlier
of (i) three years from the date of the transaction which requires such
adjustment or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section 1l(a)
hereof, the holder of any Right thereafter exercised shall become entitled to
receive any shares of capital stock of the Company other than Preferred Shares,
thereafter the number of such other shares so receivable upon exercise of any
Right shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the
Preferred Shares contained in Section 11(a) through (c), (e), (h) through (k)
and (m) and the provisions of Sections 7, 9, 10, 13, 14 and 15 with respect to
the Preferred Shares shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-thousandths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided
in Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11 (b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of one one-thousandths of
a Preferred Share (calculated to the nearest one one-millionth of a Preferred
Share) obtained by (i) multiplying (x) the number of one one-thousandths of a
share covered by a Right immediately prior to this adjustment by (y) the
Purchase Price in effect immediately prior to such adjustment of the Purchase
Price and (ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
<PAGE> 26
-22-
(i) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of one one-thousandths of a Preferred Share purchasable
upon the exercise of a Right. Each of the Rights outstanding after such
adjustment of the number of Rights shall be exercisable for the number of one
one-thousandths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one ten-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase Price. The
Company shall make a public announcement of its election to adjust the number of
Rights, indicating the record date for the adjustment, and, if known at the
time, the amount of the adjustment to be made. This record date may be the date
on which the Purchase Price is adjusted or any day thereafter, but, if the
Rights Certificates have been issued, shall be at least 10 days later than the
date of the public announcement. If Rights Certificates have been issued, upon
each adjustment of the number of Rights pursuant to this Section 11(i), the
Company shall, as promptly as practicable, cause to be distributed to holders of
record of Rights Certificates on such record date Rights Certificates
evidencing, subject to Section 15 hereof, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at the option of
the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Rights Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Rights Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Rights Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided
for herein (and may bear, at the option of the Company, the adjusted Purchase
Price) and shall be registered in the names of the holders of record of Rights
Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of one one-thousandths of a Preferred Share issuable upon the
exercise of the Rights, the Rights Certificates theretofore and thereafter
issued may continue to express the Purchase Price and the number of one
one-thousandths of a Preferred Share which were expressed in the initial Rights
Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below one one-thousandth of the then par value, if any, of
the Preferred Shares issuable upon exercise of the Rights, the Company shall
take any corporate action which may, in the opinion of its counsel, be necessary
in order that the Company may validly and legally issue fully paid and
nonassessable Preferred Shares at such adjusted Purchase Price.
<PAGE> 27
-23-
(1) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date of
the Preferred Shares and other capital stock or securities of the Company, if
any, issuable upon such exercise over and above the Preferred Shares and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; PROVIDED,
HOWEVER, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that any consolidation or subdivision of the Preferred Shares, issuance
wholly for cash of any Preferred Shares at less than the current market price,
issuance wholly for cash of Preferred Shares or securities which by their terms
are convertible into or exchangeable for Preferred Shares, stock dividends or
issuance of rights, options or warrants referred to hereinabove in this Section
11, hereafter made by the Company to holders of its Preferred Shares shall not
be taxable to such stockholders.
(n) Anything in this Agreement to the contrary notwithstanding, in
the event that the Company shall at any time after the date of this Agreement
and prior to the Distribution Date (i) declare a dividend on the outstanding
Common Shares payable in Common Shares, (ii) subdivide the outstanding Common
Shares, (iii) combine the outstanding Common Shares into a smaller number of
shares or (iv) issue any of its shares of capital stock in a reclassification of
the outstanding Common Shares (including any such reclassification in connection
with a consolidation or merger in which the Company is the continuing or
surviving entity), then in any such case, (A) the number of Rights associated
with each Common Share or other such shares then outstanding, or issued or
delivered thereafter but prior to the Distribution Date, shall be
proportionately adjusted so that the number of Rights thereafter associated with
each Common Share or other such shares following any such event shall equal the
result obtained by multiplying the number of Rights associated with each Common
Share immediately prior to such event by a fraction the numerator of which shall
be the total number of Common Shares outstanding immediately prior to the
occurrence of the event and the denominator of which shall be the total number
of Common Shares outstanding immediately following the occurrence of such event,
and (B) each Common Share outstanding immediately after such event shall have
issued with respect to it that number of Rights (which may be represented by the
certificate representing the underlying Common Shares in accordance with Section
3) which each Common Share outstanding immediately
<PAGE> 28
-24-
prior to such event had issued with respect to it. The adjustments provided for
in this Section 11(n) shall be made successively whenever such a dividend is
declared or paid or such a subdivision, combination or reclassification is
effected.
Section 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES.
Whenever an adjustment is made as provided in Sections 11 and 13 hereof, the
Company shall promptly (a) prepare a certificate setting forth such adjustment,
and a brief statement of the facts accounting for such adjustment, (b) file with
the Rights Agent and with each transfer agent for the Common Shares or the
Preferred Shares a copy of such certificate and (c) mail a brief summary thereof
to each holder of a Rights Certificate (or, if prior to the Distribution Date,
to each holder of a certificate representing Common Shares) in accordance with
Section 27 hereof. The Rights Agent may rely on such certificate without further
inquiry and may assume that no such adjustment has been made unless and until it
shall have received such certificate.
Section 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING
POWER OF THE COMPANY.
(a) In the event that, following the Shares Acquisition Date,
directly or indirectly:
(x) the Company shall consolidate with, or merge with and into,
any other Person (other than a Subsidiary of the Company in a transaction
that complies with Section 14(b) hereof), and the Company shall not be the
continuing or surviving corporation of such consolidation or merger;
(y) any Person (other than a Subsidiary of the Company in a
transaction that complies with Section 14(b) hereof) shall consolidate with
the Company, or merge with and into the Company and the Company shall be
the continuing or surviving corporation of such merger and, in connection
with such merger, all or part of the Common Shares shall be changed into or
exchanged for stock or other securities of any other Person (or the
Company) or cash or any other property; or
(z) the Company shall sell or otherwise transfer (or one or more
of its Subsidiaries shall sell or otherwise transfer), in one or more
transactions, assets or earning power aggregating 50% or more of the assets
or earning power of the Company and its Subsidiaries (taken as a whole) to
any Person (other than to the Company or one or more of its Subsidiaries in
one or more transactions, each of which complies with Section 14(b)
hereof), then, and in each such case, proper provision shall be made so
that:
<PAGE> 29
-25-
(i) following the Distribution Date, each holder of a Right, subject
to Section 7(e), shall have the right to receive, upon the exercise thereof at
the then current Purchase Price in accordance with the terms of this Agreement,
such number of freely tradable Common Shares of the Principal Party (as
hereinafter defined), free and clear of liens, rights of call or first refusal,
encumbrances or other adverse claims, as shall be equal to the result obtained
by:
(1) multiplying the then current Purchase Price by the number of
one one-thousandths of a Preferred Share for which a Right is exercisable
immediately prior to the first occurrence of a Section 13 Event (or, if a
Section 11(a)(ii) Event has occurred prior to the first occurrence of a
Section 13 Event, multiplying the number of such shares for which a Right
was exercisable immediately prior to the first occurrence of a Section
11(a)(ii) Event by the Purchase Price in effect immediately prior to such
first occurrence); and
(2) dividing that product (which, following the first occurrence
of a Section 13 Event, shall be referred to as the "PURCHASE PRICE" for
each Right and for all purposes of this Agreement) by 50% of the current
per share market price of the Common Shares of such Principal Party
(determined pursuant to Section 11(d) hereof) on the date of consummation
of such Section 13 Event;
(ii) such Principal Party shall thereafter be liable for, and shall
assume, by virtue of such consolidation, merger, sale or transfer, all the
obligations and duties of the Company pursuant to this Agreement;
(iii) the term "Company" shall thereafter be deemed to refer to such
Principal Party, it being specifically intended that the provisions of Section
11 hereof shall apply to such Principal Party; and
(iv) such Principal Party shall take such steps (including, but not
limited to, the reservation of a sufficient number of its Common Shares in
accordance with Section 9 hereof) in connection with such consummation as may be
necessary to assure that the provisions hereof shall thereafter be applicable,
as nearly as reasonably may be, in relation to the Common Shares thereafter
deliverable upon the exercise of the Rights.
(b) "PRINCIPAL PARTY" shall mean
<PAGE> 30
-26-
(i) in the case of any transaction described in (x) or (y) of
the first sentence of paragraph (a) of this Section 13, the Person that is
the issuer of any securities into which Common Shares of the Company are
converted in such merger of consolidation, and if no securities are so
issued, the Person that is the other party to the merger or consolidation
(including, if applicable, the Company, if it is the surviving
corporation); and
(ii) in the case of any transaction described in (z) of the first
sentence of paragraph (a) of this Section 13, the Person that is the party
receiving the greatest portion of the assets or earning power transferred
pursuant to such transaction or transactions;
PROVIDED, HOWEVER, that in any such case (1) if the Common Shares of such Person
are not at such time and have not been continuously over the preceding 12-month
period registered under Section 12 of the Exchange Act, and such Person is a
direct or indirect Subsidiary or Affiliate of another Person, "Principal Party"
shall refer to such other Person; (2) in case such Person is a Subsidiary,
directly or indirectly, or Affiliate of more than one Person, the Common Shares
of two or more of which are and have been so registered, "Principal Party" shall
refer to whichever of such Persons is the issuer of the Common Shares having the
greatest aggregate market value; and (3) in case such Person is owned, directly
or indirectly, by a joint venture formed by two or more Persons that are not
owned, directly or indirectly, by the same Person, the rules set forth in (1)
and (2) above shall apply to each of the chains of ownership having an interest
in such joint venture as if such party were a "Subsidiary" of both or all of
such joint venturers and the Principal Parties in each such chain shall bear the
obligations set forth in this Section 13 in the same ratio as their direct or
indirect interests in such Person bear to the total of such interests.
(c) The Company shall not consummate any such consolidation, merger,
sale or transfer unless the Principal Party shall have a sufficient number of
authorized Common Shares that have not been issued or reserved for issuance to
permit the exercise in full of the Rights in accordance with this Section 13 and
unless prior thereto the Company and each Principal Party and each other Person
who may become a Principal Party as a result of such consolidation, merger, sale
or transfer shall have executed and delivered to the Rights Agent a supplemental
agreement providing for the terms set forth in paragraphs (a) and (b) of this
Section 13 and further providing that, as soon as practicable after the date of
any Section 13 Event, the Principal Party at its own expense shall:
(i) prepare and file a registration statement under the
Securities Act with respect to the Rights and the securities purchasable
upon the exercise of the Rights on an appropriate form, will use its best
efforts to cause such registration statement to become effective as soon as
practicable
<PAGE> 31
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after such filing and will use its best efforts to cause such registration
statement to remain effective (with a prospectus at all times meeting the
requirements of the Securities Act) until the Expiration Date;
(ii) use its best efforts to qualify or register the Rights and
the securities purchasable upon exercise of the Rights under the securities
laws of such jurisdictions as may be necessary or appropriate;
(iii) use its best efforts to list (or continue the listing of)
the Rights and the securities purchasable upon exercise of the Rights on a
national securities exchange or to meet the eligibility requirements for
quotation on NASDAQ; and
(iv) deliver to holders of the Rights historical financial
statements for the Principal Party and each of its Affiliates which comply
in all material respects with the requirements for registration on Form 10
under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers. If a Section 13 Event shall occur at
any time after the occurrence of a Section 11(a)(ii) Event, the Rights which
have not theretofore been exercised shall thereafter become exercisable solely
in the manner described in paragraph (a) of this Section 13.
Section 14. ADDITIONAL COVENANTS.
(a) The Company covenants and agrees that it shall not at any time
after the Distribution Date (i) consolidate with, (ii) merge with or into, or
(iii) sell or transfer to, in one or more transactions, assets or earning power
aggregating more than 50% of the assets or earning power of the Company and its
Subsidiaries taken as a whole, any other Person if at the time of or after such
consolidation, merger or sale there are any charter or by-law provisions or any
rights, warrants or other instruments outstanding or any other action taken
which would diminish or otherwise eliminate the benefits intended to be afforded
by the Rights. The Company shall not consummate any such consolidation, merger
or sale unless prior thereto the Company and such other Person shall have
executed and delivered to the Rights Agent a supplemental agreement evidencing
compliance with this subsection.
(b) The Company covenants and agrees that, after the Distribution
Date, it will not, except as permitted by Section 24, Section 25 or Section 28
hereof, take any action if at the time such action is taken it is reasonably
foreseeable that such action will substantially diminish or otherwise eliminate
the benefits intended to be afforded by the Rights.
<PAGE> 32
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Section 15. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.
(a) The Company shall not be required to issue fractions of Rights,
except prior to the Distribution Date as provided in Section 11(n), or to
distribute Rights Certificates which evidence fractional Rights. In lieu of such
fractional Rights, there shall be paid to the registered holders of the Rights
Certificates with regard to which such fractional Rights would otherwise be
issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For the purposes of this Section 15(a), the current
market value of a whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such fractional Rights would
have been otherwise issuable. The closing price for any day shall be the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Rights are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Rights are listed or admitted to trading or, if the Rights are not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by NASDAQ or such other
system then in use or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Rights selected by the Board of
Directors of the Company. If on any such date no such market maker is making a
market in the Rights, the fair value of the Rights on such date as determined in
good faith by the Board of Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of Preferred
Shares (other than fractions which are integral multiples of one one-thousandth
of a Preferred Share) upon exercise of the Rights or to distribute certificates
which evidence fractional Preferred Shares (other than fractions which are
integral multiples of one one-thousandth of a Preferred Share). Fractions of
Preferred Shares in integral multiples of one one-thousandth of a Preferred
Share may, at the election of the Company, be evidenced by depositary receipts,
pursuant to an appropriate agreement between the Company and a depositary
selected by it; PROVIDED, that such agreement shall provide that the holders of
such depositary receipts shall have all the rights, privileges and preferences
to which they are entitled as beneficial owners of the Preferred Shares
represented by such depositary receipts. In lieu of fractional Preferred Shares
that are not integral multiples of one one-thousandth of a Preferred Share, the
Company shall pay to the registered holders of Rights Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one
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Preferred Share. For the purposes of this Section 15(b), the current market
value of a Preferred Share shall be the closing price of a Preferred Share (as
determined pursuant to Section 1l(d)(ii) hereof) for the Trading Day
immediately prior to the date of such exercise.
(c) Following the occurrence of one of the transactions or events
specified in Section 11 giving rise to the right to receive Common Shares upon
the exercise of a Right, the Company shall not be required to issue fractions of
Common Shares upon exercise of the Rights or to distribute certificates which
evidence fractional Common Shares. In lieu of fractional Common Shares, the
Company may pay to the registered holders of Rights Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of a Common Share. For purposes of this
Section 15(c), the current market value shall be determined in the manner set
forth in Section 1l(d) hereof for the Trading Day immediately prior to the date
of such exercise.
(d) The holder of a Right by the acceptance of the Right expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as provided above).
Section 16. RIGHTS OF ACTION. Excepting the rights of action given to the
Rights Agent under Section 19 hereof, all rights of action in respect of this
Agreement are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Rights Certificate (or, prior
to the Distribution Date, of the Common Shares), subject to Section 7(e),
without the consent of the Rights Agent or of the holder of any other Rights
Certificate (or, prior to the Distribution Date, of the Common Shares), may, in
his own behalf and for his own benefit, enforce, and may institute and maintain
any suit, action or proceeding against the Company to enforce, or otherwise act
in respect of, his right to exercise the Rights evidenced by such Rights
Certificate in the manner provided in such Rights Certificate and in this
Agreement. Without limiting the foregoing or any remedies available to the
holders of Rights, it is specifically acknowledged that the holders of Rights
would not have an adequate remedy at law for any breach of this Agreement and
will be entitled to specific performance of the obligations under, and
injunctive relief against actual or threatened violations of the obligations of
any Person subject to, this Agreement.
Section 17. AGREEMENT OF RIGHTS HOLDERS. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Shares;
<PAGE> 34
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(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office of the Rights Agent, duly endorsed or accompanied by a
proper instrument of transfer;
(c) subject to Section 6 and Section 7(f) hereof, the Company and the
Rights Agent may deem and treat the Person in whose name the Rights Certificate
(or, prior to the Distribution Date, the associated Common Shares certificate)
is registered as the absolute owner thereof and of the Rights evidenced thereby
(notwithstanding any notations of ownership or writing on the Rights
Certificates or the associated Common Shares certificate made by anyone other
than the Company or the Rights Agent) for all purposes whatsoever, and neither
the Company nor the Rights Agent shall be affected by any notice to the
contrary; and
(d) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to any holder
of a Right or a beneficial interest in a Right or other Person as a result of
its inability to perform any of its obligations under this Agreement by reason
of any preliminary or permanent injunction or other order, decree or ruling
issued by a court of competent jurisdiction or by a governmental, regulatory or
administrative agency or commission, or any statute, rule, regulation or
executive order promulgated or enacted by any governmental authority,
prohibiting or otherwise restraining performance of such obligation.
Section 18. RIGHTS CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No holder,
as such, of any Rights Certificate shall be entitled to vote, receive dividends
or be deemed for any purpose the holder of the Preferred Shares or any other
securities of the Company which may at any time be issuable on the exercise of
the Rights represented thereby, nor shall anything contained herein or in any
Rights Certificate be construed to confer upon the holder of any Rights
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 26 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Rights Certificate shall have been exercised in accordance with the
provisions hereof.
Section 19. CONCERNING THE RIGHTS AGENT. The Company agrees to pay to the
Rights Agent reasonable compensation for all services rendered by it hereunder
and, from time to time, on demand of the Rights Agent, its reasonable expenses
and counsel fees and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder. The
<PAGE> 35
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Company also agrees to indemnify the Rights Agent for, and to hold it harmless
against, any loss, liability, or expense, incurred without gross negligence, bad
faith or willful misconduct on the part of the Rights Agent, for anything done
or omitted by the Rights Agent in connection with the acceptance and
administration of this Agreement, including the costs and expenses of defending
against any claim of liability arising therefrom, directly or indirectly.
The Rights Agent shall be protected and shall incur no liability for or in
respect of any action taken, suffered or omitted by it in connection with its
administration of this Agreement in reliance upon any Rights Certificate or
certificate for Preferred Shares or other securities of the Company, instrument
of assignment or transfer, power of attorney, endorsement, affidavit, letter,
notice, direction, consent, certificate, statement, or other paper or document
reasonably believed by it to be genuine and to be signed, executed and, where
necessary, verified or acknowledged, by the proper Person or Persons.
Section 20. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT. Any
corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the stock transfer or
corporate trust business of the Rights Agent or any successor Rights Agent,
shall be the successor to the Rights Agent under this Agreement without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, provided that such corporation would be eligible for appointment
as a successor Rights Agent under the provisions of Section 22 hereof. In case
at the time such successor Rights Agent shall succeed to the agency created by
this Agreement any of the Rights Certificates shall have been countersigned but
not delivered, any such successor Rights Agent may adopt the countersignature of
the predecessor Rights Agent and deliver such Rights Certificates so
countersigned; and in case at that time any of the Rights Certificates shall not
have been countersigned, any successor Rights Agent may countersign such Rights
Certificates either in the name of the predecessor Rights Agent or in the name
of the successor Rights Agent; and in all such cases such Rights Certificates
shall have the full force provided in the Rights Certificates and in this
Agreement.
In case at any time the name of the Rights Agent shall be changed and at
such time any of the Rights Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Rights Certificates so countersigned; and in case at that time any
of the Rights Certificates shall not have been countersigned, the Rights Agent
may countersign such Rights Certificates either in its prior name or in its
changed name; and in all such cases such Rights Certificates shall have the full
force provided in the Rights Certificates and in this Agreement.
<PAGE> 36
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Section 21. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the duties
and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement
the Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of any Acquiring Person) be proved
or established by the Company prior to taking or suffering any action hereunder,
such fact or matter (unless other evidence in respect thereof be herein
specifically prescribed) may be deemed to be conclusively proved and established
by a certificate signed by any one of the President, any Executive Vice
President, any Vice President, the Treasurer or the Secretary of the Company and
delivered to the Rights Agent; and such certificate shall be full authorization
to the Rights Agent for any action taken or suffered in good faith by it under
the provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company and any
other Person only for its own gross negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the Rights
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof (except
the due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Rights Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Rights Certificate; nor shall it
be responsible for any adjustment required under the provisions of Section 11 or
Section 13 hereof or for the manner, method or amount of any adjustment or the
ascertaining of the existence of facts that would require any such adjustment
(except with respect to the exercise of Rights evidenced by Rights Certificates
after receipt of a certificate furnished pursuant to Section 12 describing any
such adjustment); nor shall it be responsible for any determination by the Board
of Directors of the Company of the
<PAGE> 37
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current market value of the Rights or Preferred Shares or Common Shares; nor
shall it by any act hereunder be deemed to make any representation or warranty
as to the authorization or reservation of any Preferred Shares or other
securities to be issued pursuant to this Agreement or any Rights Certificate or
as to whether any Preferred Shares or other securities will, when issued, be
validly authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the President, any Executive Vice President, any Vice President, the
Secretary or the Treasurer of the Company, and to apply to such officers for
advice or instructions in connection with its duties, and it shall not be liable
for any action taken or suffered by it in good faith in accordance with
instructions of any such officer or for any delay in acting while waiting for
those instructions. Any application by the Rights Agent for written instructions
from the Company may, at the option of the Rights Agent, set forth in writing
any action proposed to be taken or omitted by the Rights Agent under this
Rights Agreement and the date on and/or after which such action shall be taken
or such omission shall be effective. The Rights Agent shall not be liable for
any action taken by, or omission of, the Rights Agent in accordance with a
proposal included in any such application on or after the date specified in such
application (which date shall not be less than five Business Days after the date
any officer of the Company actually receives such application, unless any such
officer shall have consented in writing to an earlier date) unless, prior to
taking any such action (or the effective date in the case of an omission), the
Rights Agent shall have received written instructions in response to such
application specifying the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
<PAGE> 38
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accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
Section 22. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
of the Common Shares or Preferred Shares by registered or certified mail, and to
the holders of the Rights Certificates by first-class mail at the expense of the
Company. The Company may remove the Rights Agent or any successor Rights Agent
upon 30 days' notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent of the Common Shares and
Preferred Shares by registered or certified mail, and to the holders of the
Rights Certificates by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall appoint
a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of 30 days after giving notice of such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Rights Certificate
(who shall, with such notice, submit his Rights Certificate for inspection by
the Company), then the registered holder of any Rights Certificate may apply to
any court of competent jurisdiction for the appointment of a new Rights Agent.
Any successor Rights Agent, whether appointed by the Company or by such a court,
shall be a corporation organized and doing business under the laws of the United
States or any state of the United States so long as such corporation is in good
standing, which is authorized under such laws to exercise corporate trust or
stock transfer powers and is subject to supervision or examination by federal or
state authority and which has at the time of its appointment as Rights Agent a
combined capital and surplus of at least $100 million. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment, the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Shares and Preferred Shares, and mail a
notice thereof in writing to the registered holders of the Rights Certificates.
Failure to give any notice provided for in this Section 22, however, or any
defect therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights Agent, as
the case may be.
Section 23. ISSUANCE OF NEW RIGHTS CERTIFICATES. Notwithstanding any of the
provisions of this Agreement or of the Rights to the contrary, the Company may,
at
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its option, issue new Rights Certificates evidencing Rights in such form as may
be approved by its Board of Directors to reflect any adjustment or change in the
Purchase Price and the number or kind or class of shares or other securities or
property purchasable under the Rights Certificates made in accordance with the
provisions of this Agreement.
Section 24. REDEMPTION.
(a) The Rights may be redeemed by action of the Board of Directors
of the Company pursuant to paragraph (b) or (c) of this Section 24 and shall not
be redeemed in any other manner, except as provided by Section 32.
(b) The Board of Directors of the Company may, at its option, at any
time prior to the earlier of (x) the close of business on the tenth day
following a Shares Acquisition Date, or (y) 5:00 p.m., Boston local time, on the
Final Expiration Date, redeem all but not less than all the then outstanding
Rights at a redemption price of $.0001 per Right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring after
the date hereof (such redemption price being hereinafter referred to as the
"REDEMPTION PRICE"). The redemption of the Rights by the Board of Directors may
be made effective at such time on such basis and with such conditions as the
Board of Directors in its sole discretion may establish.
(c) In addition to the right of redemption reserved in Section 24(b),
the Board of Directors of the Company may redeem all but not less than all of
the then outstanding Rights at the Redemption Price following the occurrence of
a Shares Acquisition Date but prior to any event described in Section
1l(a)(ii)(A) or (C) or Section 13(a), at their option:
(i) if:
(A) an Acquiring Person shall have transferred or otherwise
disposed of a number of Common Shares in one transaction or series of
transactions, not directly or indirectly involving the Company or any
of its Subsidiaries, which did not result in the occurrence of a
Triggering Event, or the Company (with the approval of the Board of
Directors of the Company) shall have issued additional equity
securities, in either instance such that such Person is thereafter a
Beneficial Owner of less than 15% of the outstanding Common Shares;
and
(B) there is no other Acquiring Person immediately following
the occurrence of the event described in clause (A); or
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(ii) in connection with any Section 13(a) Event in which all holders
of Common Shares are treated alike and not involving (other than as a
holder of Common Shares being treated like all other such holders) an
Acquiring Person or an Affiliate or Associate of an Acquiring Person or any
other Person in which such Acquiring Person, Affiliate or Associate has any
interest, or any other Person acting directly or indirectly on behalf of or
in association with any Acquiring Person, Affiliate or Associate.
Any redemption of the Rights by the Board of Directors of the Company may
be made effective at such time, on such basis and with such conditions as
the Board of Directors of the Company in its sole discretion may establish.
(d) Immediately upon the action of the Board of Directors of the
Company, of the Company ordering the redemption of the Rights pursuant to
paragraph (b) or paragraph (c) of this Section 24, and without any further
action and without any notice, the right to exercise the Rights will terminate
and the only right thereafter of the holders of Rights shall be to receive the
Redemption Price. The Company shall promptly give public notice of any such
redemption; PROVIDED, HOWEVER, that the failure to give, or any defect in, any
such notice shall not affect the validity of such redemption. Within 10 days
after such action ordering the redemption of the Rights pursuant to paragraph
(b) or (c), as the case may be, the Company shall mail a notice of redemption to
all the holders of the then outstanding Rights at their last addresses as they
appear upon the registry books of the Rights Agent or, prior to the Distribution
Date, on the registry books of the transfer agent for the Common Shares. Any
notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of redemption
will state the method by which the payment of the Redemption Price will be made.
The Company may, at its option, pay the Redemption Price in cash, Common Shares
(based on the current per share market price of the Common Shares as of the time
of redemption) or any other form of consideration deemed appropriate by the
Board of Directors. Notwithstanding anything contained in this Agreement to the
contrary, the Rights shall not be exercisable after the first occurrence of a
Section 1l(a)(ii) Event until such time as the Company's right of redemption
under Section 24(b) has expired.
Section 25. EXCHANGE
(a) The Board of Directors of the Company may, at its option, at any
time after the occurrence of a Section 11 (a)(ii) Event, exchange all or part of
the then outstanding and exercisable Rights (which shall not include Rights that
have become void pursuant to the provisions of Section 7(e) hereof) for Common
Shares at an exchange ratio of one Common Share per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such exchange ratio being hereinafter referred
to as the "EXCHANGE RATIO").
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Notwithstanding the foregoing, the Board of Directors of the Company shall not
be empowered to effect such exchange at any time after any Person (other than
the Company, any Subsidiary of the Company, any employee benefit plan of the
Company or any such Subsidiary, or any entity holding Common Shares for or
pursuant to the terms of any such plan), together with all Affiliates and
Associates of such Person, becomes the Beneficial Owner of 50% or more of the
Common Shares then outstanding.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights pursuant to subsection (a) of this
Section 25 and without any further action and without any notice, the right to
exercise such Rights shall terminate and the only right thereafter of a holder
of such Rights shall be to receive that number of Common Shares equal to the
number of such Rights held by such holder multiplied by the Exchange Ratio. The
Company shall promptly give public notice of any such exchange; PROVIDED,
HOWEVER, that the failure to give, or any defect in, such notice shall not
affect the validity of such exchange. The Company promptly shall mail a notice
of any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent. Any
notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange will
state the method by which the exchange of the Common Shares for Rights will be
effected and, in the event of any partial exchange, the number of Rights which
will be exchanged. Any partial exchange shall be effected pro rata based on the
number of Rights (other than Rights which have become void pursuant to the
provisions of Section 7(e) hereof) held by each holder of Rights.
(c) In any exchange pursuant to this Section 25, the Company, at its
option, may substitute Preferred Shares (or equivalent preferred shares, as such
term is defined in Section 11(b) hereof) for Common Shares exchangeable for
Rights, at the initial rate of one one-thousandth of a Preferred Share (or
equivalent preferred share) for each Common Share, as appropriately adjusted to
reflect adjustments in the voting rights of the Preferred Shares pursuant to the
terms thereof, so that the fraction of a Preferred Share delivered in lieu of
each Common Share shall have the same Voting rights as one Common Share.
(d) In the event that there shall not be sufficient Common Shares or
Preferred Shares issued but not outstanding or authorized but unissued to permit
any exchange of Rights as contemplated in accordance with this Section 25, the
Company shall take all such action as may be necessary to authorize additional
Common Shares or Preferred Shares for issuance upon exchange of the Rights.
(e) The Company shall not be required to issue fractions of Common
Shares or to distribute certificates which evidence fractional Common Shares. In
lieu of such fractional Common Shares, the Company shall pay to the
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registered holders of the Rights Certificates with regard to which such
fractional Common Shares would otherwise be issuable an amount in cash equal to
the same fraction of the current market value of a whole Common Share. For the
purposes of this paragraph (e), the current market value of a whole Common Share
shall be the closing price of a Common Share (as determined pursuant to Section
11(d)(i) hereof) for the Trading Day immediately prior to the date of exchange
pursuant to this Section 25.
Section 26. NOTICE OF CERTAIN EVENTS.
(a) In case the Company shall propose, at any time after the
Distribution Date, (i) to pay any dividend payable in stock of any class to the
holders of its Preferred Shares or to make any other distribution to the holders
of its Preferred Shares (other than a regular quarterly cash dividend), (ii) to
offer to the holders of its Preferred Shares rights or warrants to subscribe for
or to purchase any additional Preferred Shares or shares of stock of any class
or any other securities, rights or options, (iii) to effect any reclassification
of its Preferred Shares (other than a reclassification involving only the
subdivision of outstanding Preferred Shares), (iv) to effect any consolidation
or merger into or with, or to effect any sale or other transfer (or to permit
one or more of its Subsidiaries to effect any sale or other transfer), in one or
more transactions, of 50% or more of the assets or earning power of the Company
and its Subsidiaries (taken as a whole) to, any other Person, (v) to effect the
liquidation, dissolution or winding-up of the Company, or (vi) to declare or pay
any dividend on the Common Shares payable in Common Shares or to effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares),
then, in each such case, the Company shall give to each holder of a Rights
Certificate, in accordance with Section 27 hereof, a notice of such proposed
action, which shall specify the record date for the purposes of such stock
dividend, or distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding-up is to take place and the date of participation
therein by the holders of the Common Shares and/or Preferred Shares, if any such
date is to be fixed, and such notice shall be so given in the case of any action
covered by clause (i) or (ii) above at least 20 days prior to the record date
for determining holders of the Preferred Shares for purposes of such action, and
in the case of any such other action, at least 20 days prior to the date of the
taking of such proposed action or the date of participation therein by the
holders of the Common Shares and/or Preferred Shares, whichever shall be the
earlier.
(b) In case any Section 11 (a)(ii) Event shall occur, (i) the Company
shall as soon as practicable thereafter give to each holder of a Rights
Certificate, in accordance with Section 27 hereof, a notice of the occurrence of
such event, which notice shall describe such event and the consequences of such
event to holders of Rights under Section 11(a)(ii) hereof, and (ii) all
references in the preceding
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paragraph to Preferred Shares shall be deemed thereafter to refer to Common
Shares or, if appropriate, other securities.
Section 27. NOTICES. Notices or demands authorized by this Agreement to be
given or made by the Rights Agent or by the holder of any Rights Certificate to
or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
Xionics Document Technologies, Inc.
70 Blanchard Road
Burlington, MA 01803
Subject to the provisions of Section 22 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Rights Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
BankBoston, N.A.
c/o Boston Equiserve
150 Royall Street
Canton, MA 02021
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate or
certificate representing Common Shares shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed to such holder at the
address of such holder as shown on the registry books of the Company.
Section 28. SUPPLEMENTS AND AMENDMENTS. Prior to the Distribution Date and
subject to the penultimate sentence of this Section 28, the Company and the
Rights Agent shall, if the Company so directs, supplement or amend any provision
of this Agreement without the approval of any holders of certificates
representing Rights Certificates and/or Common Shares. From and after the
Distribution Date and subject to the penultimate sentence of this Section 28,
the Company and the Rights Agent shall, if the Company so directs, supplement or
amend this Agreement without the approval of any holders of Rights Certificates
in order (i) to cure any ambiguity, (ii) to correct or supplement any provision
contained herein which may be defective or inconsistent with any other
provisions herein, (iii) to shorten or lengthen any time period hereunder, or
(iv) to change or supplement the provisions hereunder in any manner that the
Company may deem necessary or desirable and that shall not adversely affect the
interests of the holders of Rights Certificates (other than an Acquiring Person
or any Affiliate or Associate of an Acquiring Person); PROVIDED,
<PAGE> 44
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this Agreement may not be supplemented or amended to lengthen, pursuant to
clause (iii) of this sentence, (A) a time period relating to when the Rights may
be redeemed at such time as the Rights are not then redeemable, or (B) any other
time period unless such lengthening is for the purpose of protecting, enhancing
or clarifying the rights of, and/or the benefits to, the holders of Rights
(other than an Acquiring Person or any Affiliate or Associate of an Acquiring
Person). Upon the delivery of a certificate from an appropriate officer of the
Company which states that the proposed supplement or amendment is in compliance
with the terms of this Section 28, the Rights Agent shall execute such
supplement or amendment unless the Right Agent shall have determined in good
faith that such supplement or amendment would adversely affect its interests
under this Agreement. Notwithstanding anything contained in this Agreement to
the contrary, no supplement or amendment shall be made that changes the
Redemption Price, the Final Expiration Date, the Purchase Price or the number of
one-thousandths of a Preferred Share for which a Right is exercisable. Prior to
the Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of Common Shares.
Section 29. DETERMINATION AND ACTIONS BY THE BOARD OF DIRECTORS. ETC. For
all purposes of this Agreement, any calculation of the number of Common Shares
outstanding at any particular time, including for purposes of determining the
particular percentage of such outstanding Common Shares or any other securities
of which any Person is the Beneficial Owner, shall be made in accordance with
the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations
under the Exchange Act as in effect on the date of this Agreement. The Board of
Directors of the Company shall have the exclusive power and authority to
administer this Agreement and to exercise all rights and powers specifically
granted to the Board, or the Company, or as may be necessary or advisable in the
administration of this Agreement, including, without limitation, the right and
power to (i) interpret the provisions of this Agreement, and (ii) make all
determinations deemed necessary or advisable for the administration of this
Agreement (including a determination to redeem or not redeem the Rights or to
amend the Agreement).
Section 30. SUCCESSORS. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Rights Agent shall bind and inure to
the benefit of their respective successors and assigns hereunder.
Section 31. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any Person other than the Company, the Rights Agent and the
registered holders of the Rights Certificates (and, prior to the Distribution
Date, of the Common Shares) any legal or equitable right, remedy or claim under
this Agreement; but this Agreement shall be for the sole and exclusive benefit
of the Company, the Rights Agent and the registered holders of the Rights
Certificates (and, prior to the Distribution Date, of the Common Shares).
<PAGE> 45
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Section 32. SEVERABILITY. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated;
PROVIDED, HOWEVER, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid language from this Agreement would adversely affect the purpose or
effect of this Agreement, the right of redemption set forth in Section 24(b)
hereof shall be reinstated and shall not expire until the close of business on
the tenth day following the date of such determination by the Board of
Directors.
Section 33. GOVERNING LAW. This Agreement and each Rights Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of Delaware and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State.
Section 34. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
<PAGE> 46
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Section 35. DESCRIPTIVE HEADINGS. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
[Signature pages follow.]
<PAGE> 47
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested, as an instrument under seal, all as of the day and
year first above written.
XIONICS DOCUMENT
TECHNOLOGIES, INC.
Attest:
By: /s/ Suzanne M. Foster By: /s/ Carolyn E. Ramm
----------------------------- ---------------------------------------
Title: Assistant Secretary Title: Vice President & General Counsel
BANKBOSTON, N.A.
Attest:
By: /s/ William Chouinard By: /s/ Margaret Prentice
----------------------------- ---------------------------------------
Title: Account Manager Title: Director
<PAGE> 48
EXHIBIT A TO
RIGHTS AGREEMENT
XIONICS DOCUMENT TECHNOLOGIES, INC.
CERTIFICATE OF SECRETARY
The undersigned Secretary of Xionics Document Technologies, Inc., a
Delaware corporation (the "Corporation") hereby certifies that the following
resolutions of the Board of Directors of the Corporation were duly adopted at a
meeting of the Board of Directors held on March 31, 1998:
1. APPROVAL OF RIGHTS AGREEMENT AND DECLARATION OF RIGHTS DIVIDEND.
RESOLVED: That the Board of Directors hereby declares that a dividend of
one preferred share purchase right (each a "RIGHT") for each
outstanding share of common stock (the "COMMON STOCK"), $.01 par
value per share, of the Corporation be paid on April 21, 1998
(the "RECORD DATE"), to holders of record of the shares of Common
Stock issued and outstanding at the close of business on the
Record Date, each Right representing the right to purchase one
one-thousandth (1/1000) of a share of the Corporation's Series A
Junior Participating Preferred Stock, par value $.01 per share
(or, under certain circumstances, certain other securities), all
upon the terms and subject to the conditions set forth in the
form of Rights Agreement between the Corporation and BankBoston,
N.A., as Rights Agent, attached as Exhibit A hereto (the "RIGHTS
AGREEMENT"), which agreement is hereby approved in all respects.
RESOLVED: That the exercise price of the Rights shall be $85.00 per Right,
subject to adjustment as set forth in the Rights Agreement.
RESOLVED: That the proper officers of the Corporation be, and each of them
hereby is, authorized in the name and on behalf of the
Corporation to execute the Rights Agreement, with such
modifications as the officers executing the same shall approve,
and to deliver the same to the Rights Agent thereunder, such
execution and delivery to be conclusive evidence of the due
authorization and approval thereof by the Corporation.
<PAGE> 49
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2. RIGHTS CERTIFICATES.
RESOLVED: That certificates evidencing the Rights (the "RIGHTS
CERTIFICATES") shall be substantially in the form attached as
EXHIBIT B to the Rights Agreement and shall be issued and
delivered as provided in the Rights Agreement.
RESOLVED: That the Rights Certificates shall be signed by the President,
any Vice President or the Treasurer, and shall be attested by
the Secretary or any Assistant Secretary, of the Corporation
under its corporate seal (which may be in the form of a facsimile
of the seal of the Corporation), provided that the signature of
any of said officers of the Corporation may, but need not be, a
facsimile signature imprinted or otherwise reproduced on the
Rights Certificates, and that the Corporation hereby adopts for
such purpose the facsimile signature of the present or any future
President, Vice President, Secretary, Assistant Secretary, and
Treasurer of the Corporation, notwithstanding the fact that at
the time the Rights Certificates shall be authenticated and
delivered or disposed of he shall have ceased to be such officer.
RESOLVED: That the proper officers of the Corporation be, and each of them
hereby is, authorized to execute on behalf of the Corporation
and under its corporate seal (which may be in the form of a
facsimile of the seal of the Corporation) Rights Certificates
issued to replace lost, stolen, mutilated or destroyed Rights
Certificates, and such Rights Certificates as may be required for
exchange, substitution or transfer as provided in the Rights
Agreement in the manner and form to be required in or
contemplated by, the Rights Agreement.
RESOLVED: That the Rights Certificates shall be manually countersigned by
the Rights Agent and books for the registration and transfer of
the Rights Certificates shall be maintained by the Rights Agent
at its principal offices.
3. Appointment of Rights Agent.
RESOLVED: That BankBoston, N.A. (the "RIGHTS AGENT") be, and it hereby is,
appointed Rights Agent under the Rights Agreement, and that upon
presentation to it of Rights Certificates for exercise in
accordance with the Rights Agreement, the Rights Agent is
authorized, as Transfer Agent and Registrar for the Series A
Junior Participating Preferred Stock, to issue originally,
countersign, register and deliver the shares of Series A Junior
Participating Preferred Stock issuable
<PAGE> 50
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upon such exercise.
4. CREATION AND RESERVATION OF PREFERRED STOCK.
RESOLVED: That pursuant to Article V B of the Certificate of Incorporation,
as amended, of the Corporation, the Board of Directors hereby
establishes a series of Preferred Stock, par value $.01 per share
(the "PREFERRED STOCK"), of the Corporation and hereby states the
designation and number of shares, and fixes the preferences,
voting powers, qualifications and special or relative rights or
privileges thereof, all as set forth on EXHIBIT B attached
hereto.
RESOLVED: That all authorized shares of such Series A Junior Participating
Preferred Stock be, and they hereby are, reserved for issuance
upon exercise of the Rights.
RESOLVED: That BankBoston, N.A. be, and it hereby is, appointed Transfer
Agent and Registrar for the Series A Junior Participating
Preferred Stock of the Corporation.
5. SUBSEQUENT ISSUANCE OF RIGHTS
RESOLVED: That so long as the Rights are attached to the shares of Common
Stock of the Corporation as provided in the Rights Agreement, one
additional Right shall be delivered with each share of Common
Stock of the Corporation that shall become outstanding after the
Record Date, including but not limited to shares of Common Stock
issued upon conversion of any convertible securities of the
Corporation and the exercise of options to purchase shares of
Common Stock granted by the Corporation.
6. SECURITIES LAW REGISTRATION.
RESOLVED: That the proper officers of the Corporation be, and each of them
hereby is, authorized, for and on behalf of the Corporation, to
execute personally or by attorney-in-fact and to cause to be
filed with the Securities and Exchange Commission a registration
statement under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), for the registration of shares of Series A
Junior Participating Preferred Stock (or other securities)
issuable upon exercise of the Rights, and thereafter to execute
and cause to be filed any amended registration statement or
registration statements and amended prospectus or prospectuses,
or amendments or supplements to any of the foregoing, and to
cause such registration statement and any amendments thereto
<PAGE> 51
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to become effective in accordance with the Securities Act and the
General Rules and Regulations of the Securities and Exchange
Commission thereunder.
RESOLVED: That the Secretary of the Corporation be, and he hereby is,
appointed as agent for service of the Corporation with respect to
said registration statement with all the powers and functions
specified in the General Rules and Regulations of the Securities
and Exchange Commission under the Securities Act.
RESOLVED: That the proper officers of the Corporation be, and each of them
hereby is, authorized, jointly and severally, in the name and on
behalf of the Corporation, to take all such actions and to
execute all such documents as they may deem necessary or
appropriate in connection with the issuance of the Rights and the
shares of Series A Junior Participating Preferred Stock (or other
securities) issuable upon exercise of the Rights in order to
comply with the Securities Act and the Securities Exchange Act of
1934, as amended (the "1934 Act"), including without limitation
registration of the Rights under Section 12 of the 1934 Act.
7. "BLUE SKY" QUALIFICATION.
RESOLVED: That the Board of Directors deems it desirable and in the best
interests of the Corporation that the shares of Series A Junior
Participating Preferred Stock (or other securities) issuable upon
exercise of the Rights be qualified or registered for sale in
various jurisdictions; that the President, any Vice President,
the Treasurer, the Secretary, or any Assistant Secretary be, and
each of them hereby is, authorized to determine the jurisdictions
in which appropriate action shall be taken to qualify or register
for sale all or such part of the securities issuable upon
exercise of the Rights as said officers may deem advisable; that
said officers are hereby authorized to perform on behalf of the
Corporation any and all such acts as they may deem necessary or
advisable in order to comply with the applicable laws of any such
jurisdictions, and in connection therewith to execute and file
all requisite papers and documents, including, but not limited
to, applications, reports, surety bonds, irrevocable consents and
appointments of attorneys for service of process; and the
execution by such officers of any such papers or documents or the
doing by them of any act in connection with the foregoing matters
shall conclusively establish their authority therefor and the
approval and ratification by the Corporation of the papers and
documents so executed and the action so taken.
<PAGE> 52
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8. GENERAL RESOLUTIONS.
RESOLVED: That the Board of Directors hereby adopts, as if expressly set
forth herein, the form of any resolution required by any
authority to be filed in connection with any applications,
consents to service, issuer's covenants or other documents if (i)
in the opinion of the officers of the Corporation executing the
same, the adoption of such resolutions is necessary or desirable
and (ii)the Secretary or an Assistant Secretary of the
Corporation evidences such adoption by inserting in the minutes
of this meeting copies of such resolutions, which will thereupon
be deemed to be adopted by the Board of Directors with the same
force and effect as if presented at this meeting.
RESOLVED: That the proper officers of the Corporation be, and each of them
hereby is, authorized and directed, jointly and severally, for
and on behalf of the Corporation, to execute and deliver any and
all certificates, agreements and other documents, take any and
all steps and do any and all things which they may deem necessary
or advisable in order to effectuate the purposes of each and all
of the foregoing resolutions.
RESOLVED: That any actions taken by such officers prior to the date of this
meeting that are within the authority conferred hereby are hereby
ratified, confirmed and approved in all respects as the act and
deed of the Corporation.
<PAGE> 53
EXHIBIT B
PREFERENCES, VOTING POWERS AND QUALIFICATIONS AND SPECIAL OR RELATIVE RIGHTS OR
PRIVILEGES OF THE SERIES A JUNIOR PARTICIPATING PREFERRED STOCK.
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" (the "SERIES A
PREFERRED STOCK") and the number of shares constituting the Series A Preferred
Stock shall be 35,000. Such number of shares may be increased or decreased by
vote of the Board of Directors; provided, that no decrease shall reduce the
number of shares of Series A Preferred Stock to a number less than the number of
shares then outstanding plus the number of shares reserved for issuance upon the
exercise of outstanding options, rights or warrants or upon the conversion of
any outstanding securities issued by the Corporation.
Section 2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the rights of the holders of any shares of any series of
Preferred Stock (or any similar stock) ranking prior and superior to the
Series A Preferred Stock with respect to dividends, the holders of shares
of Series A Preferred Stock, in preference to the holders of Common Stock,
$.01 par value per share (the "COMMON STOCK"), of the Corporation, and of
any other junior stock, shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the first day of March,
June, September and December in each year (each such date being referred to
herein as a "QUARTERLY DIVIDEND PAYMENT DATE"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to the greater of (a) $1.00 or (b)
subject to the provision for adjustment hereinafter set forth, 1,000 times
the aggregate per share amount of all cash dividends, and 1,000 times the
aggregate per share amount (payable in kind) of all non-cash dividends or
other distributions, other than a dividend payable in shares of Common
Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect to
the first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Preferred Stock. In the event the
Corporation shall at any time (i) declare a dividend on the Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding shares of
Common Stock, (iii) combine the outstanding shares of Common Stock into a
smaller number of shares or (iv) issue any of its shares of capital stock
in a reclassification of the outstanding shares of Common Stock (including
any such reclassification in connection with a consolidation or merger in
which the Corporation is the continuing or surviving entity), then in each
such case the amount to which holders of shares of Series A Preferred Stock
were entitled immediately prior to
<PAGE> 54
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such event under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock); provided
that, in the event no dividend or distribution shall have been declared on
the Common Stock during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment Date, a dividend of
$1.00 per share on the Series A Preferred Stock shall nevertheless be
payable on such subsequent Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares, unless the date of issue
of such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue
from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment
Date, in either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series A
Preferred Stock in an amount less than the total amount of such dividends
at the time accrued and payable on such shares shall be allocated pro rata
on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive payment
of a dividend or distribution declared thereon, which record date shall be
not more than 60 days prior to the date fixed for the payment thereof.
Section 3. VOTING RIGHTS. The holders of shares of Series A Preferred Stock
shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series A Preferred Stock shall entitle the holder thereof to 1,000
votes on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time (i) declare a
dividend on the Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding shares of Common Stock, (iii) combine the
outstanding shares of Common Stock into a
<PAGE> 55
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smaller number of shares or (iv) issue any of its shares of capital stock
in a reclassification of the outstanding shares of Common Stock (including
any such reclassification in connection with a consolidation or merger in
which the Corporation is the continuing or surviving entity), then in each
such case the number of votes per share to which holders of shares of
Series A Preferred Stock were entitled immediately prior to such event
shall be adjusted by multiplying such number by a fraction, the numerator
of which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in any other Certificate of
Designation establishing a series of Preferred Stock or any similar stock,
or by law, the holders of shares of Series A Preferred Stock and the
holders of shares of Common Stock and any other capital stock of the
Corporation having general voting rights shall vote together as one class
on all matters submitted to a vote of stockholders of the Corporation.
(c) Except as set forth herein, or as otherwise provided by law, holders
of Series A Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to
vote with holders of Common Stock as set forth herein) for taking any
corporate action.
Section 4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred
Stock outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other distributions on,
or redeem or purchase or otherwise acquire for consideration any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock;
(ii) declare or pay dividends, or make any other distributions,
on any shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
<PAGE> 56
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(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock, provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such junior stock in exchange for
shares of any stock of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the
Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Series A Preferred Stock, or any shares of stock ranking
on a parity with the Series A Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as determined
by the Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this
Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. REACQUIRED SHARES. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Corporation's Certificate of Incorporation, as amended, or in any other
Certificate of Designation establishing a series of Preferred Stock or any
similar stock or as otherwise required by law.
Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made
(1) to the holders of shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series A Preferred Stock
unless, prior thereto, the holders of shares of Series A Preferred Stock shall
have received $10.00 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment; PROVIDED THAT the holders of shares of Series A Preferred Stock
shall be entitled to receive an aggregate amount per share, subject to the
provision for adjustment hereinafter set forth, equal to 1,000 times the
aggregate amount to be distributed per share to holders of shares of Common
Stock, or (2) to the holders of shares of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except distributions made ratably on
<PAGE> 57
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the Series A Preferred Stock and all such parity stock in proportion to the
total amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. In the event the Corporation shall at
any time (i) declare a dividend on the Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding shares of Common Stock, (iii) combine the
outstanding shares of Common Stock into a smaller number of shares or (iv) issue
any of its shares of capital stock in a reclassification of the outstanding
shares of Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Corporation is the continuing or surviving
entity), then in each such case the aggregate amount to which holders of shares
of Series A Preferred Stock were entitled immediately prior to such event under
the proviso in clause (1) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. CONSOLIDATION, MERGER, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 1,000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time (i) declare a dividend on the
Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding
shares of Common Stock, (iii) combine the outstanding shares of Common Stock
into a smaller number of shares or (iv) issue any of its shares of capital stock
in a reclassification of the outstanding shares of Common Stock (including any
such reclassification in connection with a consolidation or merger in which the
Corporation is the continuing or surviving entity), then in each such case the
amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Preferred Stock shall be adjusted by multiplying
such amount by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
Section 8. NO REDEMPTION. The shares of Series A Preferred Stock shall not
be redeemable.
Section 9. RANK. The Series A Preferred Stock shall rank, with respect to
the payment of dividends and the distribution of assets, junior to all other
series of the Corporation's preferred stock, unless the terms of any such series
shall provide otherwise.
Section 10. AMENDMENT. The Certificate of Incorporation, as amended, of the
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Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class; it being understood that nothing in this Section 10
shall be deemed to restrict the Corporation from designating additional shares
of Series A Preferred Stock if the Board of Directors determines that it is
necessary to do so in order to achieve the purposes of the Rights Agreement,
dated April 15, 1998 between the Corporation and BankBoston, N.A., as Rights
Agent.
Section 11. FRACTIONAL SHARES. Series A Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Preferred Stock.
<PAGE> 59
EXHIBIT B TO
RIGHTS AGREEMENT
Form of Rights Certificate
Certificate No. R__________ __________Rights
NOT EXERCISABLE AFTER APRIL 21, 2008 OR AFTER EARLIER
REDEMPTION OR EXCHANGE BY THE COMPANY. THE RIGHTS ARE
SUBJECT, AT THE OPTION OF THE COMPANY, TO REDEMPTION AT
$.0001 PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN
THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS
BENEFICIALLY OWNED BY AN ACQUIRING PERSON (AS SUCH TERM IS
DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER
OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS
REPRESENTED BY THIS CERTIFICATE WERE ISSUED TO A PERSON WHO
WAS OR BECAME AN ACQUIRING PERSON OR AN ASSOCIATE OR
AFFILIATE OF AN ACQUIRING PERSON. ACCORDINGLY, THIS
CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BE OR
BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN
SECTION 7(e) OF THE RIGHTS AGREEMENT.](1)
Rights Certificate
XIONICS DOCUMENT TECHNOLOGIES, INC.
This certifies that ______________, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of April 15, 1998 (the "RIGHTS AGREEMENT"), between Xionics
Document Technologies, Inc., a Delaware corporation (the "COMPANY"), and
BankBoston, N.A. (the "RIGHTS AGENT"), to purchase from the Company at any time
after the Distribution Date (as such term is defined in the Rights Agreement)
and prior to 5:00 P.M., Boston time, on April 21, 2008 at the office of the
Rights Agent designated for such purpose, or at the office of its successor as
Rights Agent designated for such purpose, one one-thousandth of a fully paid
nonassessable share of Series A Junior Participating Preferred Stock, par value
$.01 per share (the "PREFERRED SHARES"), of the Company, at a purchase price of
$85.00 per one one-thousandth of a
- -----------------------
(1) The portion of the legend in brackets shall be inserted only if applicable.
<PAGE> 60
-2-
Preferred Share (the "PURCHASE PRICE"), upon presentation and surrender of this
Rights Certificate with the Form of Election to Purchase duly executed. The
number of Rights evidenced by this Rights Certificate (and the number of one
one-thousands of a Preferred Share which may be purchased upon exercise
hereof) set forth above, and the Purchase Price set forth above, are the number
and Purchase Price as of April 21, 1998, based on the Preferred Shares as
constituted at such date. As provided in the Rights Agreement, the Purchase
Price and the number of one one-thousandths of a Preferred Share which may be
purchased upon the exercise of the Rights evidenced by this Rights Certificate
are subject to modification and adjustment upon the happening of certain events.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates. Copies of
the Rights Agreement are on file at the principal executive offices of the
Company and the above-mentioned offices of the Rights Agent.
This Rights Certificate, with or without other Rights Certificates, upon
surrender at the principal office of the Rights Agent, may be exchanged for
another Rights Certificate or Rights Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like aggregate number of
Preferred Shares as the Rights evidenced by the Rights Certificate or Rights
Certificates surrendered shall have entitled such holder to purchase. If this
Rights Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Rights Certificate or Rights Certificates
for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate (i) may be redeemed by the Company at its option at a
redemption price of $.0001 per Right or (ii) may be exchanged in whole or in
part by the Company at its option for Preferred Shares or shares of the
Company's Common Stock, $.01 par value per share.
No fractional Preferred Shares will be issued upon the exercise of any
Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-thousandth of a Preferred Share, which may, at the election
of the Company, be evidenced by depositary receipts), but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Rights Certificate, as such, shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of the Preferred
Shares or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of
<PAGE> 61
-3-
meetings or other actions affecting stockholders (except as provided in the
Rights Agreement), or to receive dividends or subscription rights, or otherwise,
until the Right or Rights evidenced by this Rights Certificate shall have been
exercised as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal. Dated as of ____________________, 19__.
ATTEST: XIONICS DOCUMENT
TECHNOLOGIES, INC.
By:
- ------------------------------ -------------------------------
Countersigned:
[_________________________]
By:
----------------------------
Authorized Signature
<PAGE> 62
-4-
Form of Reverse Side of Rights Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate.)
FOR VALUE RECEIVED ______________________________________________________
hereby sells, assigns and transfers unto _______________________________________
________________________________________________________________________________
(Please print name and address of transferee)
________________________________________________________________________________
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _______________ Attorney,
to transfer the within Rights Certificate on the books of the within-named
Company, with full power of substitution.
Dated:________________________, 19__
________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
- --------------------------------------------------------------------------------
ASSIGNMENT CERTIFICATION
The undersigned hereby certifies by checking the appropriate boxes that:
(1) The Rights evidenced by this Rights Certificate [ ] are [ ] are not
being sold, assigned and transferred by or on behalf of a Person who is or was
an Acquiring Person or an Affiliate or Associate of any such Acquiring Person
(as such terms are defined pursuant to the Rights Agreement);
<PAGE> 63
-5-
Form of Reverse Side of Rights Certificate -- continued
(2) After due inquiry and to the best knowledge of the undersigned, it [ ]
did [ ] did not acquire the Rights evidenced by this Rights Certificate from any
person who is, was or subsequently became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person.
Dated:________________________, 19 _____________________________
Signature
- --------------------------------------------------------------------------------
NOTICE
The signatures to the foregoing Assignment and Certification must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
- --------------------------------------------------------------------------------
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to
exercise the Rights Certificate.)
To XIONICS DOCUMENT TECHNOLOGIES, INC.
The undersigned hereby irrevocably elects to exercise ______________ Rights
represented by this Rights Certificate to purchase the Preferred Shares (or such
other securities of the Company or of any other person) issuable upon the
exercise of such Rights and requests that certificates for such shares be issued
in the name of:
Please insert social security
or other identifying number: _________________________
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
If the above number of Rights shall not be all the Rights evidenced by this
Rights Certificate, then a new Rights Certificate for the balance remaining of
such Rights shall be registered and returned to the undersigned, unless the
undersigned requests that the Rights Certificate for the balance be registered
in the name of and delivered to:
<PAGE> 64
-6-
Form of Reverse Side of Rights Certificate -- continued
Please insert social security
or other identifying number: _____________________________
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
Dated: _______________________, 19__
___________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
- --------------------------------------------------------------------------------
ELECTION CERTIFICATION
The undersigned hereby certifies by checking the appropriate boxes that:
(1) The Rights evidenced by this Rights Certificate [ ] are [ ] are not
being exercised, sold, assigned or transferred by or on behalf of a Person who
is or was an Acquiring Person or an Affiliate or Associate of any such Acquiring
Person (as such terms are defined pursuant to the Rights Agreement);
(2) After due inquiry and to the best knowledge of the undersigned, it [ ]
did [ ] did not acquire the Rights evidenced by this Rights Certificate from any
Person who is, was or subsequently became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person.
Dated:_______________________, 19__ ______________________________
Signature
- --------------------------------------------------------------------------------
<PAGE> 65
-7-
Form of Reverse Side of Rights Certificate -- continued
NOTICE
The signatures in the foregoing Election to Purchase and Certification must
conform to the name as written upon the face of this Rights Certificate in every
particular, without alteration or enlargement or any change whatsoever.
In the event the certification set forth above in the Assignment or the
Election to Purchase, as the case may be, is not completed, the Company and the
Rights Agent will deem the beneficial owner of the Rights evidenced by this
Rights Certificate to be an Acquiring Person or an Affiliate or Associate
thereof (as defined in the Rights Agreement) and such Assignment or Election to
Purchase will not be honored.
<PAGE> 66
EXHIBIT C TO
RIGHTS AGREEMENT
XIONICS DOCUMENT TECHNOLOGIES, INC.
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED SHARES
As of March 31, 1998, the Board of Directors of Xionics Document
Technologies, Inc., a Delaware corporation (the "COMPANY"), declared a dividend
distribution of one preferred share purchase right (a "RIGHT") for each
outstanding share of common stock, $.01 par value per share (the "COMMON
SHARES"), of the Company. The dividend is payable on April 21, 1998 (the "RECORD
DATE") to the stockholders of record on that date. Except as described below,
each Right, when exercisable, entitles the registered holder to purchase from
the Company one one-thousandth of a share of Series A Junior Participating
Preferred Stock, par value $.01 per share (the "PREFERRED SHARES"), of the
Company at a price of $85.00 per one one-thousandth of a Preferred Share (the
"PURCHASE PRICE"), subject to adjustment. The description and terms of the
Rights are set forth in a Rights Agreement (the "RIGHTS AGREEMENT;") between the
Company and BankBoston, N.A., as Rights Agent (the "RIGHTS AGENT").
Initially, the Rights will be attached to all certificates representing
Common Shares then outstanding, and no separate Rights certificates will be
distributed. Until the earlier to occur of (i) 10 business days following a
public announcement that a person or group of affiliated or associated persons
(an "ACQUIRING PERSON", which does not include certain institutional investors
which temporarily exceed the 15% threshold) have acquired beneficial ownership
of 15% or more of the outstanding Common Shares (the date of such an
announcement being a "SHARES ACQUISITION DATE"), or (ii) 10 business days (or
such later date as may be determined by action of the Board of Directors prior
to such time as any Person becomes an Acquiring Person) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 15% or more of such outstanding Common Shares
(the earliest of such dates being called the "DISTRIBUTION DATE"), the Rights
will be evidenced, with respect to any of the Common Share certificates
outstanding as of the Record Date, by such Common Share certificate together
with a copy of this Summary of Rights.
The Rights Agreement provides that, until the Distribution Date, the Rights
will be transferred with and only with the Common Shares. Until the Distribution
Date (or earlier redemption or expiration of the Rights), new Common Share
certificates issued after the Record Date upon transfer or new issuance of
Common Shares will contain a notation incorporating the Rights Agreement by
reference. Until the Distribution Date (or earlier redemption or expiration of
the Rights), the surrender for transfer of any certificates for Common Shares
outstanding as of the
<PAGE> 67
-2-
Record Date, even without such notation or a copy of this Summary of Rights
being attached thereto, will also constitute the transfer of the Rights
associated with the Common Shares represented by such certificate. As soon as
practicable following the Distribution Date, separate certificates evidencing
the Rights ("RIGHTS CERTIFICATION") will be mailed to holders of record of the
Common Shares as of the close of business on the Distribution Date, and the
separate Rights Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on April 21, 2008 (the "FINAL EXPIRATION DATE"), unless the Rights are
earlier exercised or redeemed by the Company, as described below.
The Purchase Price payable, and the number of Preferred Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Shares, (ii) upon the grant to holders of the Preferred Shares of certain rights
or warrants to subscribe for or purchase Preferred Shares at a price, or
securities convertible into Preferred Shares with a conversion price, less than
the then current market price of the Preferred Shares or (iii) upon the
distribution to holders of the Preferred Shares of evidences of indebtedness or
assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Preferred Shares) or of subscription
rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one one-thousandths of a
Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Shares or a stock
dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such case,
prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1 per share but will be entitled to an aggregate
dividend of 1,000 times the dividend declared per Common Share. In the event of
liquidation, the holders of the Preferred Shares will be entitled to a minimum
preferential liquidation payment of $10.00 per share but will be entitled to an
aggregate payment of 1,000 times the payment made per Common Share. Each
Preferred Share will have 1,000 votes, voting together with the Common Shares.
Finally, in the event of any merger, consolidation or other transaction in which
Common Shares are exchanged, each Preferred Share will be entitled to receive
1,000 times the amount received per Common Share. These rights are protected by
customary antidilution provisions.
<PAGE> 68
-3-
Because of the nature of the Preferred Shares' dividend, liquidation and
voting rights, the value of the one one-thousandth interest in a Preferred Share
purchasable upon exercise of each Right is intended to approximate the value of
one Common Share.
In the event that, after the first date of public announcement by the
Company or an Acquiring Person that an Acquiring Person has become such, the
Company is involved in a merger or other business combination transaction in
which the Common Shares are exchanged or changed, or 50% or more of the
Company's consolidated assets or earning power are sold (in one transaction or a
series of transactions), proper provision will be made so that each holder of a
Right (other than an Acquiring Person) will thereafter have the right to
receive, upon the exercise thereof at the then current exercise price of the
Right, that number of shares of common stock of the acquiring company (or, in
the event there is more than one acquiring company, the acquiring company
receiving the greatest portion of the assets or earning power transferred) which
at the time of such transaction would have a market value of two times the
exercise price of the Right.
In the event that (i) any person becomes an Acquiring Person, (ii) an
Acquiring Person engages in one or more "self-dealing" transactions as set forth
in the Rights Agreement, or (iii) during such time as there is an Acquiring
Person, there shall be a reclassification of securities or a recapitalization
or reorganization of the Company or other transaction or series of transactions
involving the Company which has the effect of increasing by more than 1% the
proportionate share of the outstanding shares of any class of equity securities
of the Company or any of its subsidiaries beneficially owned by the Acquiring
Person, proper provision shall be made so that each holder of a Right, OTHER
THAN RIGHTS BENEFICIALLY OWNED BY ANY ACQUIRING PERSON, WILL THEREAFTER HAVE THE
RIGHT TO RECEIVE UPON EXERCISE THAT NUMBER OF COMMON SHARES HAVING A MARKET
VALUE OF TWO TIMES THE EXERCISE PRICE OF THE RIGHT. UPON OCCURRENCE OF ANY OF
THE EVENTS DESCRIBED IN THE IMMEDIATELY PRECEDING SENTENCE ANY RIGHTS THAT ARE,
OR (UNDER CERTAIN CIRCUMSTANCES SPECIFIED IN THE RIGHTS AGREEMENT) WERE,
BENEFICIALLY OWNED BY ANY ACQUIRING PERSON SHALL IMMEDIATELY BECOME NULL AND
VOID. At any time after the occurrence of any such event and prior to the
acquisition by any person or group of 50% or more of the outstanding Common
Shares, the Board of Directors of the Company may exchange the Rights (other
than Rights owned by an Acquiring Person and certain related persons which have
become void), in whole or in part, at an exchange ratio of one Common Share, or
one one-thousandth of a Preferred Share (or of a share of a class or series of
the Company's preferred stock having equivalent rights, preferences and
privileges), per Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Preferred Shares will be issued (other than
fractions which are
<PAGE> 69
-4-
integral multiples of one one-thousandth of a Preferred Share, which may, at the
election of the Company, be evidenced by depositary receipts) and in lieu
thereof, an adjustment in cash will be made based on the market price of the
Preferred Shares on the last trading day prior to the date of exercise.
At any time prior to the earlier of (i) the tenth day after a Shares
Acquisition Date, or (ii) the expiration of the Rights, the Board of Directors
may redeem the Rights in whole, but not in part, at a price of $.0001 per Right
(the "Redemption Price"). Thereafter, the Rights may only be redeemed by the
Board of Directors in whole, but not in part, at the Redemption Price, (a)under
certain circumstances described in the Rights Agreement involving a disposition
of Common Shares by the Acquiring Person such that the Acquiring Person's common
share ownership is reduced to 10% or less, or (b) if such redemption is
incidental to a merger or other business combination transaction or series of
transactions involving the Company but not involving an Acquiring Person and
satisfying certain other conditions. The redemption of the rights may be made
effective at such time on such basis and with such conditions as the Board of
Directors in its sole discretion may establish. Immediately upon any redemption
of the Rights, the right to exercise the Rights will terminate and the only
right of the holders of Rights will be to receive the Redemption Price.
Other than those provisions relating to the principal economic terms of the
Rights, any of the provisions of the Rights Agreement may be amended by the
Board of Directors of the Company prior to the Distribution Date. After the
Distribution Date, the provisions of the Rights Agreement may be amended by the
Board of Directors in order to cure any ambiguity, to make changes that do not
adversely affect the interests of holders of Rights (excluding the interests of
any Acquiring Person), or to shorten or lengthen any time period under the
Rights Agreement; provided, however, that no amendment to adjust the time period
governing redemption shall be made at such time as the Rights are not
redeemable.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A. A
copy of the Rights Agreement is available free of charge from the Company. This
summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement, which is hereby
incorporated herein by reference.
------------------------------------------------
<PAGE> 1
Exhibit 10.19
SECOND LOAN MODIFICATION AGREEMENT
This Second Loan Modification Agreement ("this Agreement") is made as of
December 31, 1997 between Xionics Document Technologies, Inc., a Delaware
corporation (the "Borrower") and Fleet National Bank (successor by merger to
Fleet Bank of Massachusetts, N.A.) (the "Bank"). For good and valuable
consideration, receipt and sufficiency of which are hereby acknowledged, the
Borrower and the Bank act and agree as follows:
1. Reference is made to: (i) that certain letter agreement dated
September 27, 1995 among the Borrower, Xionics, Inc. ("Xionics") and Fleet Bank
of Massachusetts, N.A., as amended by letter dated May 9, 1996 and by Loan
Modification Agreement dated as of August 21, 1996 (as so amended, the "Letter
Agreement"), the Bank having succeeded to the rights of Fleet Bank of
Massachusetts, N.A. thereunder and Xionics having been merged with and into the
Borrower; (ii) that certain $4,000,000 face principal amount promissory note
dated August 21, 1996 (the "1996 Revolving Note") made by the Borrower and
payable to the order of the Bank; (iii) that certain Inventory, Accounts
Receivable and Intangibles Security Agreement dated September 27, 1995, as
amended (as so amended, the "IAR Security Agreement") given by the Borrower to
Fleet Bank of Massachusetts, N.A., the Bank having succeeded to the rights of
Fleet Bank of Massachusetts, N.A. thereunder; (iv) that certain Supplementary
Security Agreement - Security Interest in Goods and Chattels dated September 27,
1995, as amended (as so amended, the "Supplementary Security Agreement") given
by the Borrower to Fleet Bank of Massachusetts, N.A., the Bank having succeeded
to the rights of Fleet Bank of Massachusetts, N.A. thereunder; (v) that certain
Notice of Security Interest in Trademarks dated September 27, 1995, as amended
(as so amended, the "Trademark Notice") given by the Borrower to Fleet Bank of
Massachusetts, N.A., the Bank having succeeded to the fights of Fleet Bank of
Massachusetts, N.A. thereunder; (vi) that certain Collateral Assignment of
License dated September 27, 1995, as amended (as so amended, the "Xionics
License Assignment") relating to the "Xionics" name and mark given by the
Borrower to Fleet Bank of Massachusetts, N.A., the Bank having succeeded to the
rights of Fleet Bank of Massachusetts, N.A. thereunder; (vii) that certain
Agreement and Consent to Collateral Assignment of License dated September 27,
1995, as amended (as so amended, the "Xionics Consent") relating to the
"Xionics" name and mark given by Xionics Limited, an English corporation, to
Fleet Bank of Massachusetts, N.A., the Bank having succeeded to the rights of
Fleet Bank of Massachusetts, N.A. thereunder; (viii) that certain Notice of
Collateral Assignment of License dated September 27, 1995, as amended (as so
amended, the "Xionics License Notice") relating to the "Xionics" name and mark
given by the Borrower to Fleet Bank of Massachusetts, N.A., the Bank having
succeeded to the rights of Fleet Bank of Massachusetts, N.A. thereunder; (ix)
that certain Collateral Assignment of License dated September 27, 1995, as
amended (as so amended, the "Phoenix License Assignment") relating to the
"PhoenixPage" name and mark given by the Borrower to Fleet Bank of
Massachusetts, N.A., the Bank having succeeded to the rights of Fleet Bank of
Massachusetts, N.A. thereunder; (x) that certain Agreement and Consent to
Collateral Assignment of License dated September 21, 1995, as amended (as so
amended, the "Phoenix Agreement") between Phoenix Technologies Ltd. ("Phoenix")
and Fleet Bank of Massachusetts, N.A., the Bank having succeeded to the rights
of Fleet Bank of Massachusetts, N.A. thereunder; (xi) that certain Notice of
Collateral
<PAGE> 2
Assignment of License dated September 27, 1995, as amended (as so amended, the
"Phoenix License Notice") relating to the "PhoenixPage" name and mark given by
the Borrower to Fleet Bank of Massachusetts, N.A., the Bank having succeeded to
the rights of Fleet Bank of Massachusetts, N.A. thereunder; (xii) that certain
Notice of Security Interest in Patents dated September 27, 1995, as amended (as
so amended, the "Patent Notice") given by the Borrower to Fleet Bank of
Massachusetts, N.A., the Bank having succeeded to the rights of Fleet Bank of
Massachusetts, N.A. thereunder; (xiii) that certain $4,000,000 face principal
amount promissory note of even date herewith (the "1997 Revolving Note") made by
the Borrower and payable to the order of the Bank; and (xiv) that certain
$2,000,000 face principal amount term note of even date herewith (the "Term
Note") made by the Borrower and payable to the order of the Bank. The Letter
Agreement, the IAR Security Agreement, the Supplementary Security Agreement, the
Trademark Notice, the Xionics License Assignment, the Xionics Consent, the
Xionics License Notice, the Phoenix License Assignment, the Phoenix Agreement,
the Phoenix License Notice, the Patent Notice, the Term Note and the 1997
Revolving Note are hereinafter collectively referred to as the "Financing
Documents". The aforesaid Loan Modification Agreement dated as of August 21,
1996 is hereinafter referred to as the "First Modification".
2. The Letter Agreement is hereby amended, effective as of the date
hereof:
a. By deleting in its entirety clause (i) of Section 1.1 of the Letter
Agreement and by substituting in its stead the following:
"(i) that certain $4,000,000 face principal amount promissory note
(the 'Revolving Note') dated December 31, 1997 made by the Borrower
and payable to the order of the Bank,"
As a result, all references in the Letter Agreement to a "Revolving Note" will
be deemed to refer to the 1997 Revolving Note.
b. By deleting in its entirety clause (ii) of Section 1.1 of the Letter
Agreement and by substituting in its stead the following:
"(ii) that certain $2,000,000 face principal amount promissory note
(the 'Term Note') made by the Borrower and payable to the order of the
Bank,"
c. By deleting in their entireties Sections 1.4 and 1.5 of the Letter
Agreement and by substituting in their stead the following:
"1.4. TERM LOANS; TERM NOTE. In addition to the foregoing, the Bank
may make one or more loans (the 'Term Loans') to the Borrower in an
aggregate principal amount up to $2,000,000. A Term Loan shall be
made, no more than once per calendar quarter (except that more than
one Term Loan may be made in any calendar quarter provided that any
additional Term Loan in any one calendar quarter is in an amount of at
least $100,000), in order
-2-
<PAGE> 3
to finance costs of Qualifying Equipment acquired by the Borrower
within the 90 days preceding the request for such Term Loan, each such
Term Loan to be in such amount as may be requested by the Borrower;
provided that (i) no Term Loan will be made after the earlier of (A)
December 1, 1998 or (B) the earlier termination of the
within-described term loan facility pursuant to ss.5.2 or ss.6.7; (ii)
the aggregate original principal amounts of all Term Loans will not
exceed $2,000,000; and (iii) no Term Loan will be in an amount more
than 80% of the invoiced actual costs of the items of tangible
equipment constituting the items of Qualifying Equipment with respect
to which such Term Loan is made (excluding taxes, shipping, software,
installation charges, training fees and other 'soft costs'). Prior to
the making of each Term Loan, and as a precondition thereto, the
Borrower will provide the Bank with: (i) invoices supporting the costs
of the relevant Qualifying Equipment; (ii) such evidence as the Bank
may reasonably require showing that the Qualifying Equipment has been
delivered to and installed at the Borrower's Burlington, MA premises,
has become fully operational, has been paid for by the Borrower and is
owned by the Borrower free of all liens and interests of any other
Person (other than the security interest of the Bank pursuant to the
Security Agreement); (iii) Uniform Commercial Code financing
statements, if needed, reflecting the relevant Qualifying Equipment
with respect to which such Term Loan is being made; and (iv) evidence
satisfactory to the Bank that the Qualifying Equipment is fully
insured against casualty loss, with insurance naming the Bank as
secured party and first loss payee. The Term Loans will be evidenced
by the Term Note. Interest on the Term Loans shall be payable at the
times and at the rate provided for in the Term Note. Overdue principal
of any Term Loan and, to the extent permitted by law, overdue interest
shall bear interest at a fluctuating rate per annum which at all times
shall be equal to the sum of (i) four (4%) percent per annum plus (ii)
the per annum rate otherwise payable under the Term Note (but in no
event in excess of the maximum rate from time to time permitted by
then applicable law), compounded monthly and payable on demand. The
Borrower hereby irrevocably authorizes the Bank to make or cause to be
made, on a schedule attached to the Term Note or on the books of the
Bank, at or following the time of making each Term Loan and of
receiving any payment of principal, an appropriate notation reflecting
such transaction and the then aggregate unpaid principal balance of
the Term Loans. The amount so noted shall constitute presumptive
evidence as to the amount owed by the Borrower with respect to
principal of the Term Loans. Failure of the Bank to make any such
notation shall
-3-
<PAGE> 4
not, however, affect any obligation of the Borrower or any right of
the Bank hereunder or under the Term Note.
1.5. PRINCIPAL REPAYMENT OF TERM LOANS. The Borrower shall repay
principal of the Term Loans in 35 equal consecutive monthly
installments (each in an amount equal to 1/36th of the aggregate
principal amount of the Term Loans outstanding at the close of
business on December 1, 1998), such installments to commence January
1, 1999 and to continue thereafter on the first day of each month
through and including November 1, 2001, plus a 36th and final payment
due and payable on December 1, 2001 in an amount equal to all
principal of the Term Loans then remaining outstanding and all
interest accrued but unpaid thereon. The Borrower may prepay, at any
time or from time to time, without premium or penalty, the whole or
any portion of any Term Loan; provided that each such principal
prepayment shall be accompanied by payment of all interest on the sum
so prepaid accrued but unpaid to the date of payment. Any partial
prepayment of principal of the Term Loans will be applied to
installments of principal of the Term Loans thereafter coming due in
inverse order of normal maturity. Amounts repaid or prepaid with
respect to the Term Loans are not available for reborrowing."
d. By inserting into the third sentence of the third paragraph of Section
1.6 of the Letter Agreement (as amended by the First Modification), immediately
after the words "in immediately available funds" the following:
"in lawful currency of the United States"
e. By deleting in its entirety Subsection 2.1(b) of the Letter Agreement.
f. By deleting their entireties Sections 3.7, 3.8, 3.9 and 3.10 of the
Letter Agreement and by substituting in their stead the following:
"3.7. DEBT TO WORTH. The Borrower will maintain as at the end of each
fiscal quarter of the Borrower (commencing with December 31, 1997) on
a consolidated basis a Leverage Ratio of not more than 0.75 to 1. As
used herein, 'Leverage Ratio' means, as at any date when same is to be
determined, the ratio of (x) the outstanding consolidated Adjusted
Senior Debt of the Borrower and its Subsidiaries to (y) the Borrower's
consolidated Capital Base at such date.
3.8. CAPITAL BASE. The Borrower will maintain as at the end of each
fiscal quarter of the Borrower (commencing with December 31,
-4-
<PAGE> 5
1997) a consolidated Capital Base which shall not be less than the
then-effective Capital Base Requirement. As used in this ss.3.8, the
'Capital Base Requirement' will be deemed to have been $27,647,000 as
at September 30, 1997; and as at the last day of each fiscal quarter
thereafter (beginning with December 31, 1997) the Capital Base
Requirement will be deemed to become an amount equal to the sum off.
(i) that Capital Base Requirement which had been in effect on the last
day of the immediately preceding fiscal quarter, plus (ii) 80% of the
net proceeds of any equity securities sold by the Borrower during the
fiscal quarter then ended and 80% of the net proceeds of any
Subordinated Debt issued by the Borrower and/or any of its
Subsidiaries during said fiscal quarter then ended (nothing contained
herein being deemed to approve the issuance of any such Subordinated
Debt), plus (iii) 80% of the consolidated Net Income of the Borrower
and Subsidiaries during said fiscal quarter then ended (but without
giving effect to any Net Income which is less than zero for any fiscal
quarter).
3.9. QUICK RATIO. The Borrower will maintain as at the end of each
fiscal quarter (commencing with December 31, 1997) a Quick Ratio of
not less than 2.0 to 1. As used in this ss.3.9, 'Quick Ratio' means,
as at any date when same is to be determined the ratio of (x) the
Borrower's Net Quick Assets to (y) Current Liabilities of the Borrower
and/or its Subsidiaries then outstanding.
3.10. PROFITABILITY. The Borrower will achieve consolidated quarterly
Adjusted Net Income of at least the following: at least $150,000 for
its fiscal quarter ending December 31, 1997; at least $250,000 for its
fiscal quarter ending March 31, 1998; at least $250,000 for its fiscal
quarter ending June 30, 1998; at least $350,000 for its fiscal quarter
ending September 30, 1998; and at least $500,000 for its fiscal
quarter ending December 31, 1998 and for each fiscal quarter
thereafter. Without limitation of the foregoing, the Borrower will
achieve consolidated annual Adjusted Net Income of at least $1,750,000
for its fiscal year ending June 30, 1998 and will achieve consolidated
annual Adjusted Net Income of at least $2,000,000 for its fiscal year
ending June 30, 1999 and for each fiscal year thereafter. As used
herein, 'Adjusted Net Income' for any fiscal period means the sum of
(i) the Borrower's consolidated Net Income (or Net Loss, if relevant,
expressed as a negative number) for such period plus (ii) any charges
against income representing the amounts allocated for costs of
research and development acquired by the Borrower pursuant to any
acquisition to the extent that such charges are actually deducted on
the consolidated books of the Borrower for the purposes of determining
-5-
<PAGE> 6
the Borrower's consolidated Net Income (or consolidated Net Loss, as
the case may be) for such fiscal period."
g. By deleting from clause (a) of Section 5.1 of the Letter Agreement the
words "any Term Note" and by substituting in their stead the following:
"the Term Note"
h. By deleting from clause (a) of Section 5.2 of the Letter Agreement the
words "each Term Note" and by substituting in their stead the following:
"the Term Note"
i. By deleting from clause (c) of Section 5.2 of the Letter Agreement the
words "each Term Note" and by substituting in their stead the following:
"the Term Note"
j. By deleting from Section 6.1 of the Letter Agreement the words "any
Term Note", in each place where such words appear, and by substituting in their
stead, in each such place, the following:
"the Term Note"
k. By adding to Section 6.3 of the Letter Agreement, at the end thereof,
the following:
"In addition, and without limitation of the foregoing, in respect of
the within-described facility for Term Loans, the Borrower will pay to
the Bank a non-refundable facility fee of $10,000. Said fee shall be
payable in four installments of $2,500 each, the first such
installment being payable on December 31, 1997 and the subsequent
installments being payable on each of March 31, 1998, June 30, 1998
and September 30, 1998. In addition, if the within-described Term Loan
facility is terminated prior to September 30, 1998 by the Borrower for
any reason or by the Bank as a result of the Borrower's default, there
will forthwith become due and payable and the Borrower will, forthwith
upon such termination, pay to the Bank a sum equal to all of the
installments of the aforesaid $10,000 facility fee which would
otherwise have become due on or after the date of such termination."
1. By inserting into the fifth sentence of Section 6.7 of the Letter
Agreement, immediately after the words "second sentence of ss.6.3", the
following:
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<PAGE> 7
"and the sum described in the last sentence of ss.6.3"
m. By deleting in its entirety the definition of"Borrowing Base"
appearing in Section 7.1 of the Letter Agreement and by substituting in its
stead the following:
"'Borrowing Base' - At any time, the sum of: (i) 80% of the aggregate
principal amount of the Qualified Receivables of the Borrower then
outstanding, PLUS (ii) 80% of the aggregate principal amount of the
Other Approved Foreign Receivables of the Borrower then outstanding."
n. By deleting from the definition of"Current Liabilities" appearing in
Section 7.1 of the Letter Agreement the following sentence, which had been added
by the First Modification: "Notwithstanding the foregoing, 'Current Liabilities'
will not be deemed to include any liability which constitutes Deferred Revenue."
o. By deleting from the definition of"Expiration Date" appearing in
Section 7.1 of the Letter Agreement the date "December 1, 1997" (said date
having been inserted by the First Modification) and by substituting in its stead
the following:
"December 1, 1998"
As a result, from and after the date hereof, for the purposes of the Letter
Agreement and the other Financing Documents, the "Expiration Date" will be
deemed to be December 1, 1998.
p. By deleting from the definition of "Loan Documents" appearing in
Section 7.1 of the Letter Agreement the words "the Term Notes" and by
substituting in their stead the following:
"the Term Note"
q. By deleting in its entirety the definition of "Net Quick Assets"
appearing in Section 7.1 of the Letter Agreement and by substituting in its
stead the following:
"'Net Quick Assets' - Such current assets of the Borrower as consist
of cash, cash-equivalents, Receivables (less an allowance for bad debt
consistent with the Borrower's prior experience), and (without
duplication of any of the foregoing) contract receivables of the
Borrower. As used herein 'contract receivables' are only those amounts
which have been earned by performance under contracts and only to the
extent that same are properly shown as 'contract receivables' on a
balance sheet of the Borrower prepared consistently with the
Borrower's balance sheet as at June 30, 1997, heretofore delivered to
the Bank."'
-7-
<PAGE> 8
r. By deleting from the definition of "Notes" appearing in Section 7.1 of
the Letter Agreement the words "the Term Notes" and by substituting in their
stead the following:
"the Term Note"
s. By deleting in its entirety the definition of "Other Approved Foreign
Receivables" appearing in Section 7.1 of the Letter Agreement and by
substituting in its stead the following:
"'Other Approved Foreign Receivables' - Receivables owed to the
Borrower by a Qualifying Foreign Customer which satisfy all of the
criteria to be Qualified Receivables except that such Receivables are
owed by a customer not located in the United States. As used herein,
'Qualifying Foreign Customer' means any of the following entities:
Cannon, Inc., RICOH Company, Ltd., Sharp Corporation, Fuji Xerox
Company, Ltd. or Mita Industrial Company, Ltd."
t. By deleting from the definition of "Qualifying Equipment" appearing in
Section 7.1 of the Letter Agreement the date "April 1, 1995" and by substituting
in its stead the following:
"September 1, 1997"
u. By deleting from Subsection 7.2(a) of the Letter Agreement the words
"the Term Notes" and by substituting in their stead the following:
"the Term Note"
3. Wherever in any Financing Document, or in any certificate or opinion
to be delivered in connection therewith, reference is made to a "letter
agreement" or to the "Letter Agreement", from and after the date hereof same
will be deemed to refer to the Letter Agreement, as hereby amended.
4. Simultaneously with the execution and delivery of this Agreement, the
Borrower is executing and delivering to the Bank the 1997 Revolving Note, in
substitution for the 1996 Revolving Note. The 1997 Revolving Note is a
$4,000,000 promissory note of the Borrower, substantially in the form attached
hereto as Exhibit 1. Wherever in any of the Financing Documents or in any
certificate or opinion to be delivered in connection therewith, reference is
made to a "Revolving Note", from and after the date hereof same will be deemed
to refer to the 1997 Revolving Note. Promptly after the Borrower has duly
executed and delivered the 1997 Revolving Note and has given the Bank all
opinions, certificates and other documentation reasonably requested by the Bank
in connection therewith and has paid all interest then accrued under the 1996
Revolving Note, the Bank will mark the 1996 Revolving Note "canceled" and will
return same to the Borrower.
-8-
<PAGE> 9
5. By its execution below, Xionics International Limited represents to
the Bank that it has become the assignee of the "Xionics" name and mark, subject
to the license to such name and mark theretofore given to the Borrower by
Xionics Limited. Xionics Limited International confirms that such license to the
Borrower remains in full force and effect and confirms the Bank's rights under
the Xionics License Assignment. Xionics International Limited acknowledges and
agrees that the Xionics Consent remains in full force and effect for the benefit
of the Bank, and agrees to be bound thereby as effectively as if it has been an
original party thereto.
6. In order to induce the Bank to enter into this Agreement, the Borrower
further represents and warrants as follows:
a. The execution, delivery and performance of this Agreement, the 1997
Revolving Note and the Term Note have been duly authorized by the Borrower by
all necessary corporate and other action, will not require the consent of any
third party (except any such consents which have already been received) and will
not conflict with, violate the provisions of, or cause a default or constitute
an event which, with the passage of time or the giving of notice or both, could
cause a default on the part of the Borrower under its charter documents or
by-laws or under any contract, agreement, law, rule, order, ordinance,
franchise, instrument or other document, or result in the imposition of any lien
or encumbrance (except in favor of the Bank) on any property or assets of the
Borrower.
b. The Borrower has duly executed and delivered each of this Agreement,
the 1997 Revolving Note and the Term Note.
c. Each of this Agreement, the 1997 Revolving Note and the Term Note is
the legal, valid and binding obligation of the Borrower, enforceable against the
Borrower in accordance with its respective terms.
d. Giving effect to the amendments contained in this Agreement, the
statements, representations and warranties made in the Letter Agreement, in the
IAR Security Agreement and/or in the Supplementary Security Agreement continue
to be correct as of the date hereof; except as amended, updated and/or
supplemented by the attached Supplemental Disclosure Schedule.
e. Giving effect to the amendments contained in this Agreement, the
covenants and agreements of the Borrower contained in the Letter Agreement, in
the IAR Security Agreement and/or in the Supplementary Security Agreement have
been complied with on and as of the date hereof, except as certain transactions
set forth on the attached Supplemental Disclosure Schedule may require a waiver
or consent of the Bank (such waiver or consent being deemed given hereby).
f. Giving effect to the amendments contained in this Agreement, no event
which constitutes or which, with notice or lapse of time, or both, could
constitute, an Event of Default (as defined in the Letter Agreement) has
occurred and is continuing, except as certain
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<PAGE> 10
transactions set forth on the attached Supplemental Schedule may require a
waiver or consent of the Bank (such waiver or consent being deemed given
hereby).
g. No material adverse change has occurred in the financial condition of
the Borrower from that disclosed in the consolidated financial statements of the
Borrower dated September 30, 1997, heretofore furnished to the Bank, except as
otherwise disclosed on the financial projections furnished to the Bank by the
Borrower on December 30, 1997.
7. Except as expressly affected hereby, the Letter Agreement and each of
the other Financing Documents remains in full force and effect as heretofore.
8. Nothing contained herein will be deemed to constitute a waiver or a
release of any provision of any of the Financing Documents. Nothing contained
herein will in any event be deemed to constitute an agreement to give a waiver
or release or to agree to any amendment or modification of any provision of any
of the Financing Documents on any other or future occasion.
-10-
<PAGE> 11
Executed, as an instrument under seal, as of the day and year first above
written.
XIONICS DOCUMENT
TECHNOLOGIES, INC.
By: /s/ Gerard Feeney
-------------------------------------
Name: Gerard Feeney
Title: CFO
XIONICS INTERNATIONAL LIMITED
By: /s/ Gerard Feeney
-------------------------------------
Name: Gerard Feeney
Title: Director
Accepted and agreed:
FLEET NATIONAL BANK
By: /s/ Lucie Burke
-------------------------------
Name: Lucie Burke
Title: V.P.
-11-
<PAGE> 1
Exhibit 10.20
3/5/98
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into this 18th
day of March, 1998 by and between Xionics Document Technologies, Inc.
("Xionics") and Peter J. Simone ("Simone").
WHEREAS, Xionics engaged Simone as President as of April 1, 1997, and
additionally as Chief Executive Officer as of October 21, 1997; and
WHEREAS, Xionics' Board of Directors (the "Board") believes that it is in the
best interests of Xionics and its stockholders that Simone be provided with an
incentive to continue his employment with Xionics and to maximize the value of
Xionics for its stockholders;
NOW THEREFORE, the parties hereby agree as follows:
1. EMPLOYMENT. Xionics hereby ratifies and confirms its employment of Simone,
and Simone hereby ratifies and confirms his acceptance of such employment, upon
the terms and subject to the conditions hereinafter set forth.
2. DUTIES.
2.1 Simone shall be employed as President and/or Chief Executive Officer of
Xionics, as such position has been defined in terms of responsibilities as of
the effective date of this Agreement; provided, that the Board shall have the
right to revise such responsibilities in such manner as the Board in its
discretion may deem necessary or appropriate for the overall wellbeing of
Xionics, including without limitation the right to designate a second individual
as either President or Chief Executive Officer to serve in conjunction with
Simone.
2.2 Simone agrees to devote his full working time, attention and energies to
the performance of his duties and responsibilities to Xionics; to perform them
faithfully, diligently and competently; and to use his best efforts to further
the business of Xionics.
3. TERM. The initial term of this Agreement shall commence on the effective
date of this Agreement and shall continue until the third anniversary thereof
(the "Initial Term"), unless earlier terminated pursuant to the provisions of
Section 6. below. Thereafter Simone may remain employed by Xionics if both
parties so desire, but shall be considered an employee at will in accordance
with applicable state law.
4. COMPENSATION AND BENEFITS. For so long as this Agreement remains in effect,
and in consideration of the services to be supplied by Simone hereunder, Xionics
shall compensate Simone as follows:
4.1 BASE SALARY. Xionics shall pay Simone, in accordance with Xionics' payroll
practices in effect from time to time, a base salary (the "Base Salary").
The Base Salary will initially be paid at an annual rate of Two Hundred
Forty Thousand Dollars ($240,000.00 U.S.), and may be increased from time
to time in the discretion of the Compensation Committee of the Board. The
Base Salary will not be decreased at any time during the
<PAGE> 2
Initial Term hereof unless the Board determines that a decrease is
necessitated by Xionics' financial condition.
4.2 MANAGEMENT INCENTIVE BONUS. Simone shall receive from Xionics, for each
fiscal year of Xionics ended after the date hereof, a management incentive
bonus in an amount that may be awarded by the Compensation Committee of the
Board in its sole discretion. Notwithstanding the foregoing, Simone's bonus
for Xionics' fiscal year ending June 30, 1998, assuming achievement of all
corporate and personal goals and objectives required for full payment of
such bonus, shall be Sixty Thousand Dollars ($60,000.00 U.S.). Payment of
each bonus for which Simone is eligible hereunder, or any part thereof,
shall be conditioned upon the achievement of corporate and personal goals
and objectives to the extent required by Xionics' Management Incentive
Bonus Plan (or any successor plan) for any given year, as determined by the
Compensation Committee of the Board in its sole discretion.
4.3 VACATION. Simone shall be entitled to paid vacation in accordance with
Xionics' vacation policy as such policy is in effect from time to time. Any
vacation shall be taken at the reasonable and mutual convenience of Xionics
and Simone.
4.4 INSURANCE, ETC. Accident, disability, life and health insurance for Simone
and his dependents shall be provided by Xionics under the group policies
maintained by Xionics for its full-time salaried employees, on the same
terms (including terms requiring reasonable employee contributions to the
costs of such coverage) on which such benefits are made available to
Xionics' other full-time salaried employees from time to time.
4.5 STOCK OPTIONS. Simone acknowledges that Xionics has granted to him options
to purchase Two Hundred Fifty Thousand (250,000) shares of Xionics' common
stock, par value $0.01 per share, pursuant to Stock Option Agreements
between them dated April 1, 1997 (the "Stock Option Agreements"), and that
he has assented to the termination of the Stock Option Agreements pursuant
to Xionics' 1998 Employee Stock Option Exchange Program (the "Exchange
Program"). Subject to approval of the Board and to the terms of the
Exchange Program, Xionics agrees to grant to Simone new options to purchase
Two Hundred Twenty-Five Thousand (225,000) shares of Xionics' common stock,
at such time, and having such exercise price and vesting terms, as are
provided under the Exchange Program; provided, that the stock option
agreement evidencing such new options shall provide that such new options
shall become fully vested upon the closing of any merger, consolidation,
business combination or other reorganization involving Xionics, or an
acquisition (whether by stock transfer or asset purchase) of all or
substantially all of Xionics' business, in which Simone is not the chief
executive officer of the surviving entity, and/or the surviving entity is
not a publicly traded corporation.
5. INVENTION DISCLOSURE AND CONFIDENTIALITY; NONCOMPETITION. All of the
provisions of the Invention and Nondisclosure Agreement between Xionics and
Simone dated April 1, 1997 (the "Invention and Nondisclosure Agreement"), a
copy of which is attached hereto as Exhibit A, including without limitation
those relating to noncompetition, are hereby incorporated herein and by
reference made a part hereof.
2
<PAGE> 3
6. TERMINATION. Notwithstanding Section 3. above, Simone's employment shall
terminate:
6.1 DEATH OR DISABILITY. Upon the death of Simone during the term of his
employment hereunder or, at the option of Xionics, upon thirty (30) days'
prior written notice from Xionics in the event of Simone's Disability. For
purposes of this Section 6.1, "Disability" shall mean any physical or
mental illness or condition which materially impairs Simone's ability to
perform his duties under this Agreement for ninety (90) days, consecutive
or non-consecutive, in any twelve (12)-month period, as determined by an
independent medical doctor selected by Xionics' health or disability
insurance carrier and acceptable to Simone or his legal representative.
6.2 FOR CAUSE. For Cause, immediately upon written notice given to Simone by
Xionics. For purposes of this Section 6.2, "Cause" shall mean any of the
following:
(a) An act of personal dishonesty, including without limitation fraud,
embezzlement, or misappropriation, connected with Xionics or with Simone's
employment with Xionics;
(b) A willful act by Simone which constitutes gross misconduct and which
is injurious to Xionics;
(c) A breach of fiduciary duty committed by Simone against Xionics,
including but not limited to the offer, payment, solicitation or acceptance
of any unlawful bribe or kickback with respect to Xionics' business;
(d) Simone's conviction by a court of competent jurisdiction of any
felony;
(e) Simone's breach of any of the covenants, terms or provisions of the
Invention and Nondisclosure Agreement incorporated herein under Section 5.
above, including without limitation its provisions relating to
noncompetition;
(f) Simone's substantial failure to perform (whether because of inability,
unwillingness, negligence or any other reason) the duties and
responsibilities reasonably assigned to him by Xionics, which failure
continues for sixty (60) days after notice of such failure from the Board;
or
(g) Simone's refusal to obey any lawful direction from the Board which is
consistent with his duties and responsibilities hereunder, which refusal
continues for five (5) days after written notice to Simone specifying such
refusal in reasonable detail.
6.3 RIGHTS AND REMEDIES ON TERMINATION.
(a) If Xionics shall terminate Simone's employment hereunder other than as
provided in Sections 6.1 and 6.2 above, then Simone shall be entitled to
receive, as severance pay and in consideration of his ongoing obligations
under the Invention and Nondisclosure Agreement, in accordance with
Xionics' then-current payroll practices, payment of his Base Salary in
effect at the date of termination for a period of six (6) months after such
date, together with reimbursement of the cost of his group health and
dental plan coverage in effect at the date of termination for the same
six-month period; provided, however, that if Simone accepts other
employment during such six-month period, Xionics shall be entitled to
reduce the amount payable under this Section 6.3 by
3
<PAGE> 4
an amount equal to the income received by Simone pursuant to such new
employment during such period, and to cease reimbursing him for health and
dental coverage to the extent that comparable benefits are available
through his new employment. Simone shall not accept any new employment
during such six-month period in breach of the Invention and Nondisclosure
Agreement.
(b) For purposes of this Section 6.3, Simone's employment shall be deemed
terminated if, INTER ALIA, any one of the following occurs upon or within
eighteen (18) months after the closing or other completion of a merger,
consolidation, business combination or other reorganization involving
Xionics, an acquisition (whether by stock transfer or asset purchase) of
all or substantially all of Xionics' business, or a change of control
whereby more than fifty percent (50%) of the voting equity in Xionics
becomes beneficially owned by a single person, entity, or affiliated group
of persons or entities: (i) Simone's employment is actually terminated
(other than as provided in Sections 6.1 and 6.2); (ii) Simone is not, or he
ceases to be, the chief executive officer of the surviving entity, and/or
the surviving entity is not, or it ceases to be a publicly traded
corporation; or (iii) Simone's responsibilities, compensation or benefits
are materially reduced without his express consent. In addition, Simone's
employment may at his option be deemed terminated hereunder in the event
that Xionics fails to obtain the agreement of any acquiring entity to
assume its obligations under this Agreement. Xionics agrees to promptly
notify Simone of such failure.
(c) If Simone shall voluntarily terminate his employment hereunder after
June 30, 1998 but prior to the expiration of the Initial Term, he shall be
entitled to receive up to six (6) months' severance pay and benefits in the
amount and subject to the limitations set forth in subsection (a) above,
but only if Simone remains employed with Xionics and continues to devote
his full time, attention and energies to Xionics' affairs until such time
as a suitable successor, as determined by the Board in its sole discretion,
has been hired and has actually commenced work at Xionics.
7. LIMITATION ON PAYMENTS.
7.1 In the event that the severance and other benefits provided for in this
Agreement or otherwise payable to Simone (a) constitute "parachute
payments" within the meaning of Section 280G of the Internal Revenue Code
of 1986, as amended (the "Code") and (b) but for this Section 7. would be
subject to the excise tax imposed by Section 4999 of the Code, then
Simone's severance benefits under Section 6. shall be payable either (1) in
full, or (2) as to such lesser amount which would result in no portion of
such severance benefits being subject to excise tax under Section 4999 of
the Code, whichever of the foregoing amounts, taking into account the
applicable federal, state and local income taxes and the excise tax imposed
by Section 4999, results in the receipt by Simone on an after-tax basis of
the greatest amount of severance benefits under this Agreement,
notwithstanding that all or some portion of such severance benefits may be
taxable under Section 4999 of the Code.
7.2 If a reduction in the payments and benefits that would otherwise be paid or
provided to Simone under the terms of this Agreement is necessary to comply
with the provisions of Section 7.1 above, Simone shall be entitled to
select which payments or benefits will be reduced and the manner and method
of any such reduction of payments or benefits. Within thirty (30) days
after the amount of any required reduction in payments and benefits is
finally determined in accordance with Section 7.3 below, Simone shall
notify
4
<PAGE> 5
Xionics in writing regarding which payments or benefits are to be reduced.
If no notification is given by Simone, Xionics will determine which amounts
to reduce. If, as a result of any reduction required by Section 7.1,
amounts previously paid to Simone exceed the amount to which Simone is
entitled, Simone will promptly return the excess amount to Xionics.
7.3 Unless Xionics and Simone otherwise agree in writing, any determination
required under this Section 7. shall be made in writing by Xionics'
independent public accountants (the "Accountants"), whose determination
shall be conclusive and binding upon Simone and Xionics for all purposes.
For purposes of making the calculations required by this Section 7., the
Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of Sections 280G and 4999 of the Code. Xionics
and Simone shall furnish to the Accountants such information and documents
as the Accountants may reasonably request in order to make a determination
under this Section. Xionics shall bear all costs the Accountants may
reasonably incur in connection with any calculations contemplated by this
Section 7.
7.4 In the event it is determined by the Board, upon receipt of a written
opinion of the Accountants, that the enforcement of any provision of this
Agreement, including but not limited to Section 4.5, would preclude
accounting for any proposed business combination of Xionics with another
entity as a pooling of interests, and the Board otherwise desires to
approve such a proposed business combination which requires as a condition
to the closing of such transaction that it be accounted for as a pooling of
interests, then any such provision of this Agreement shall be null and
void, but only if the absence of such provision would preserve the pooling
treatment.
8. SUCCESSORS. Any successor, whether direct or indirect and whether by
purchase, lease, merger, consolidation, liquidation or otherwise, to all or
substantially all of Xionics' business and assets shall assume the
obligations of Xionics under this Agreement in the same manner and to the
same extent that Xionics would be required to perform such obligations in
the absence of a succession. For all purposes under this Agreement,
"Xionics" shall include any successor to Xionics' business and assets which
executes and delivers an assumption agreement as described in this Section
8. or which becomes bound by the terms of this Agreement by operation of
law.
9. GENERAL.
9.1 ENTIRE AGREEMENT. This Agreement and its Exhibit, which is incorporated
herein by reference, set forth the entire agreement and understanding of
the parties as to the subject matter hereof and supersede all prior and
contemporaneous written and/or oral agreements, arrangements,
communications and understandings relating to the subject matter hereof.
Neither party has entered into this Agreement by reason of or in reliance
on any representations of fact or opinion which are not expressly set forth
herein.
9.2 GOVERNING LAW. This Agreement shall be construed and governed in accordance
with the laws of the Commonwealth of Massachusetts, without giving effect
to principles of choice of laws.
9.3 ASSIGNMENT. This Agreement shall not be assignable by Simone, it being
understood and agreed that this is a contract for Simone's personal
services. This Agreement shall not
5
<PAGE> 6
be assignable by Xionics except to a subsidiary or affiliate of Xionics, or
in connection with a merger, acquisition, other business combination or
reorganization involving, or a sale or transfer of all or substantially all
of the assets and business of, Xionics.
9.4 NOTICE. Notices and all other communications contemplated by this Agreement
shall be in writing and shall be deemed given when personally delivered or
when mailed by U.S. registered or certified mail, return receipt requested.
Notices to Simone shall be addressed to his home address most recently
communicated to Xionics, and notices to Xionics shall be addressed to its
corporate headquarters, to the attention of the Secretary.
9.5 HEADINGS. Headings are inserted for convenience of reference only and do
not form a part of this Agreement.
9.6 COUNTERPARTS. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, and all of which are one
instrument. Any facsimile or other similar deliveries of signed copies of
this Agreement will be operative.
9.7 SEVERABILITY. If any provision of this Agreement is held to be
unenforceable, unlawful, or invalid by any court of competent jurisdiction,
it shall be deemed modified to eliminate the invalid portion(s) and, as so
modified, shall be deemed a part of this Agreement as though originally
included. The remaining provisions of this Agreement shall not be affected
by such modification(s) and shall remain in full force and effect.
9.8 AMENDMENT AND WAIVER. This Agreement may be amended only by a written
instrument executed by both parties hereto. Any delay or failure of a party
to require performance of any requirement hereof shall in no way affect its
rights at a later time to enforce the same or any other provision of this
Agreement.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties hereto
have caused this Agreement to be duly executed as of the date first written
above.
EMPLOYER: EMPLOYEE:
XIONICS DOCUMENT TECHNOLOGIES, INC.
By: /s/ CAROLYN E. RAMM /s/ PETER J. SIMONE
-------------------------------------- ------------------------------
Title: Secretary Peter J. Simone
By: /s/ PAUL R. LOW
--------------------------------------
Title: Chairman of the Board of Directors
6
<PAGE> 1
Exhibit 10.21
March 16, 1998
Dr. Paul R. Low
PRL Associates
11 Birchwood Drive
Greenwich, CT 06831
Dear Paul:
In view of the expanded responsibilities attendant on your recent appointment as
Chairman of the Board of Directors (the "Board") of Xionics Document
Technologies, Inc., I have been authorized by the Compensation Committee of the
Board to offer you the following compensation in addition to the standard
outside directors' compensation for which you are already eligible.
(1) Compensation for up to two days of on-site services per month at the rate
of $1,000.00 per day.
(2) A grant of 20,000 stock options, over and above those granted to you under
the Xionics Directors' Stock Option Plan, to be made effective upon your
acceptance of this letter. Such options will be issued under the 1996
Employee Stock Option Plan and will have an exercise price equal to the
closing price on NASDAQ of Xionics' stock on the date of grant; will vest
in 16 equal quarterly installments beginning on April 1, 1998; and will be
nonqualified stock options for purposes of the Internal Revenue Code.
(3) Reimbursement of your out-of-pocket travel expenses connected with your
performance of services for Xionics.
Paul, if the foregoing is acceptable, please so indicate by signing both copies
of this letter in the space provided below and return one to me, keeping the
other for your records. I look forward to continuing to work with you.
Sincerely,
XIONICS DOCUMENT TECHNOLOGIES,
INC.
/s/ PETER J. SIMONE
Peter J. Simone
President and Chief Executive Officer
Accepted:
/s/ PAUL R. LOW Date: March 16, 1998
- -------------------------------- --------------------------
Paul R. Low
<PAGE> 1
Exhibit 10.22
XIONICS DOCUMENT TECHNOLOGIES, INC.
STOCK OPTION AGREEMENT
(TIME VESTED)
AGREEMENT dated this <<Day>> of <<Month>>, <<Year>>, between Xionics
Document Technologies, Inc., a corporation organized under the laws of the State
of Delaware (the "Company"), and the individual identified below, residing at
the address there set out (the "Optionee").
1. GRANT OF OPTION. Pursuant to the Company's 1993 Stock Option Plan as
attached hereto as EXHIBIT A (the "Plan"), the Company grants to the Optionee an
option (the "Option") to purchase from the Company all or any part of a total of
<<Shares>> shares (the "Optioned Shares") of the Company's Common Stock, par
value $.01 per share (the "Stock"), at a price of __________________ cents per
share. This Option is granted as of the date hereof.
2. CHARACTER OF OPTION. This Option is intended to be treated as an
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended.
3. DURATION OF OPTION. This Option shall expire on the earlier of (a) the
tenth anniversary of the date of this Agreement, or (b) the ninetieth (90th) day
following the Optionee's termination of the employment or other association with
the Company and its Affiliates for any reason.
4. EXERCISE OF OPTION. Optioned Shares shall become available for
purchase under this Option in sixteen (16) equal installments of <<Option_A>>
Optioned Shares each, one such installment available from and after the first
day of each of the sixteen (16) consecutive calendar quarters beginning
subsequent to the date of this Agreement;
PROVIDED, HOWEVER, that after termination of the Optionee's employment or other
association with the Company no additional installments of the Optioned Shares
shall become available for purchase. Until its expiration, exercise of this
Option at any time may be for any number of Optioned Shares then available for
purchase under this Option and shall be effected in the manner specified in
Section 11 of the Plan.
5. TRANSFER OF OPTIONS. This Option may not be transferred except by will
or the laws of descent and distribution, and, during the lifetime of the
Optionee, may be exercised only by the Optionee.
<PAGE> 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:
----------------------------------------
Optionee: <<FirstName>> <<LastName>>
Title: Chief Executive Officer Optionee's Address:
---------------------------
----------------------------------------
----------------------------------------
----------------------------------------
2
<PAGE> 3
XIONICS DOCUMENT TECHNOLOGIES, INC.
STOCK OPTION AGREEMENT
(TIME VESTED)
AGREEMENT dated this <<Day>> of <<Month>>, <<Year>>, between Xionics
Document Technologies, Inc., a corporation organized under the laws of the State
of Delaware (the "Company"), and the individual identified below, residing at
the address there set out (the "Optionee").
1. GRANT OF OPTION. Pursuant to the Company's 1995 Stock Option Plan as
attached hereto as EXHIBIT A (the "Plan"), the Company grants to the Optionee an
option (the "Option") to purchase from the Company all or any part of a total of
<<Shares>> shares (the "Optioned Shares") of the Company's Common Stock, par
value $.01 per share (the "Stock"), at a price of __________________cents per
share. This Option is granted as of the date hereof.
2. CHARACTER OF OPTION. This Option is intended to be treated as an
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended.
3. DURATION OF OPTION. This Option shall expire on the earlier of (a) the
tenth anniversary of the date of this Agreement, or (b) the ninetieth (90th) day
following the Optionee's termination of the employment or other association with
the Company and its Affiliates for any reason.
4. EXERCISE OF OPTION. Optioned Shares shall become available for
purchase under this Option in sixteen (16) equal installments of <<Option_A>>
Optioned Shares each, one such installment available from and after the first
day of each of the sixteen (16) consecutive calendar quarters beginning
subsequent to the date of this Agreement;
PROVIDED, HOWEVER, that after termination of the Optionee's employment or other
association with the Company no additional installments of the Optioned Shares
shall become available for purchase. Until its expiration, exercise of this
Option at any time may be for any number of Optioned Shares then available for
purchase under this Option and shall be effected in the manner specified in
Section 11 of the Plan.
5. TRANSFER OF OPTIONS. This Option may not be transferred except by will
or the laws of descent and distribution, and, during the lifetime of the
Optionee, may be exercised only by the Optionee.
<PAGE> 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:
------------------------------------
Optionee: <<FirstName>> <<LastName>>
Title: Chief Executive Officer Optionee's Address:
-----------------------
------------------------------------
------------------------------------
------------------------------------
2
<PAGE> 5
XIONICS DOCUMENT TECHNOLOGIES, INC.
STOCK OPTION AGREEMENT
(TIME VESTED)
AGREEMENT dated this <<Day>> of <<Month>>, <<Year>>, between Xionics
Document Technologies, Inc., a corporation organized under the laws of the State
of Delaware (the "Company"), and the individual identified below, residing at
the address there set out (the "Optionee").
1. GRANT OF OPTION. Pursuant to the Company's 1996 Stock Option Plan as
attached hereto as EXHIBIT A (the "Plan"), the Company grants to the Optionee an
option (the "Option") to purchase from the Company all or any part of a total of
<<Shares>> shares (the "Optioned Shares") of the Company's Common Stock, par
value $.01 per share (the "Stock"), at a price of cents per share. This Option
is granted as of the date hereof.
2. CHARACTER OF OPTION. This Option is intended to be treated as an
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended.
3. DURATION OF OPTION. This Option shall expire on the earlier of (a) the
tenth anniversary of the date of this Agreement, or (b) the ninetieth (90th) day
following the Optionee's termination of the employment or other association with
the Company and its Affiliates for any reason.
4. EXERCISE OF OPTION. Optioned Shares shall become available for
purchase under this Option in sixteen (16) equal installments of <<Option_A>>
Optioned Shares each, one such installment available from and after the first
day of each of the sixteen (16) consecutive calendar quarters beginning
subsequent to the date of this Agreement;
PROVIDED, HOWEVER, that after termination of the Optionee's employment or other
association with the Company no additional installments of the Optioned Shares
shall become available for purchase. Until its expiration, exercise of this
Option at any time may be for any number of Optioned Shares then available for
purchase under this Option and shall be effected in the manner specified in
Section 11 of the Plan.
5. TRANSFER OF OPTIONS. This Option may not be transferred except by will
or the laws of descent and distribution, and, during the lifetime of the
Optionee, may be exercised only by the Optionee.
<PAGE> 6
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:
---------------------------------------
Optionee: <<FirstName>> <<LastName>>
Title: Chief Executive Officer Optionee's Address:
-----------------------
---------------------------------------
---------------------------------------
---------------------------------------
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, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
Net income (loss) applicable to common shares ......... ($16,251,533) $ 852,349 ($1,532,677)
Weighted average shares outstanding:
Common stock ................................. 11,830,541 9,948,607 1,517,674
Assumed conversion of stock options .......... -- 2,132,380 --
------------ ----------- -----------
Total shares ........................ 11,830,541 12,080,987 1,517,674
Net income (loss) per basic share ............ ($ 1.37) $ 0.09 ($ 1.01)
============ =========== ===========
Net income (loss) per diluted share .......... ($ 1.37) $ 0.07 ($ 1.01)
============ =========== ===========
</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
GCA Software Development GmbH Germany
Xionics Kabushiki Kaisha Japan
</TABLE>
<PAGE> 1
ARTHUR ANDERSEN
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports in this Form 10-K, into the Company's previously filed Registration
Statements on Form S-8 (file Nos. 333-15467, 333-30223 and 333-47437). It should
be noted that we have not audited any financial statements of the Company
subsequent to June 30, 1998.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
September 24, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1997
<PERIOD-START> JUL-01-1997 JUL-01-1996
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 15,243,438 20,843,911
<SECURITIES> 0 0
<RECEIVABLES> 4,009,722 4,407,611
<ALLOWANCES> 56,000 56,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 29,605,378 33,890,740
<PP&E> 5,895,214 4,174,022
<DEPRECIATION> 3,320,073 1,544,774
<TOTAL-ASSETS> 33,933,126 42,296,627
<CURRENT-LIABILITIES> 13,839,181 7,018,775
<BONDS> 575,000 0
0 0
0 0
<COMMON> 122,614 118,317
<OTHER-SE> 46,303,791 45,815,462
<TOTAL-LIABILITY-AND-EQUITY> 33,933,126 42,296,627
<SALES> 0 0
<TOTAL-REVENUES> 29,101,136 29,179,466
<CGS> 0 0
<TOTAL-COSTS> 11,254,991 3,649,188
<OTHER-EXPENSES> 29,230,234 25,972,521
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 843,365 852,939
<INCOME-PRETAX> (10,540,724) 410,696
<INCOME-TAX> 272,374 345,500
<INCOME-CONTINUING> (10,813,098) 65,196
<DISCONTINUED> (5,438,435) 787,153
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (16,251,533) 852,349
<EPS-PRIMARY> (1.37) 0.09
<EPS-DILUTED> (1.37) 0.07
</TABLE>
