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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 1, 1999
REGISTRATION NO. 333-88439
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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T/R SYSTEMS, INC.
(Exact name of registrant as specified in charter)
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<S> <C> <C>
GEORGIA 3577 58-1958870
(State or other jurisdiction of (Primary Standard Industrial (I. R. S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
1300 OAKBROOK DRIVE
NORCROSS, GEORGIA 30093
(770) 448-9008
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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MICHAEL E. KOHLSDORF
PRESIDENT AND CHIEF EXECUTIVE OFFICER
1300 OAKBROOK DRIVE
NORCROSS, GEORGIA 30093
(770) 448-9008
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:
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LISA A. STATER, ESQ. BRENT B. SILER, ESQ.
JONES, DAY, REAVIS & POGUE HALE AND DORR LLP
3500 SUNTRUST PLAZA 1455 PENNSYLVANIA AVENUE, NW
303 PEACHTREE STREET, N.E. WASHINGTON, D.C. 20004
ATLANTA, GEORGIA 30308 (202) 942-8400
(404) 521-3939
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is
not an offer to sell securities, and we are not soliciting offers to buy
these securities, in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED DECEMBER 1, 1999
TR SYSTEMS LOGO
3,000,000 SHARES
COMMON STOCK
T/R Systems, Inc. is offering 2,880,000 shares of its common stock and one
of our shareholders listed under "Principal and Selling Shareholders" on page 50
is selling an additional 120,000 shares. This is our initial public offering and
no public market currently exists for our shares. We have applied to have the
common stock approved for quotation on the Nasdaq National Market under the
symbol TRSI. We estimate that the initial public offering price will be between
$8.00 and $10.00 per share.
------------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 4.
------------------------------
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<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to T/R Systems..................................... $ $
Proceeds to the selling shareholder......................... $ $
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THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Some of our shareholders have granted the underwriters a 30-day option to
purchase up to 450,000 additional shares of common stock to cover
over-allotments.
------------------------------
ROBERTSON STEPHENS
U.S. BANCORP PIPER JAFFRAY
RAYMOND JAMES & ASSOCIATES, INC.
The date of this prospectus is , 1999
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Graphics on inside front cover:
Text "the MICROPRESS(R) is a scalable document production system that
accepts files from multiple print sources, processes them, and then outputs
black and white, color, and wide format documents across multiple print
devices." The text is accompanied by an illustration of work flow into the
MicroPress, from digital, Macintosh, personal computer or scanner input, and
each input has a corresponding icon. The illustrations show information
processed by the MicroPress, which is pictured, as output to either black and
white output, color output, wide format or digital, and each output format has a
corresponding icon. There is a line showing ten print devices connected to the
MicroPress picture and the word "MicroPress."
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Forward-Looking Statements.................................. 10
Use of Proceeds............................................. 11
Dividend Policy............................................. 11
Capitalization.............................................. 12
Dilution.................................................... 13
Selected Financial Data..................................... 14
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 16
Business.................................................... 28
Management.................................................. 40
Related Party Transactions.................................. 49
Principal and Selling Shareholders.......................... 50
Description of Capital Stock................................ 54
Shares Eligible for Future Sale............................. 60
Underwriting................................................ 62
Legal Matters............................................... 64
Experts..................................................... 65
Where You Can Find More Information......................... 65
Index to Financial Statements............................... F-1
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PROSPECTUS SUMMARY
You should read this summary together with the entire prospectus,
especially "Risk Factors" and the financial statements and related notes, before
deciding to invest in shares of our common stock.
Unless otherwise indicated, the information contained in this prospectus
assumes the underwriters do not exercise their over-allotment option and gives
effect to the conversion of all outstanding shares of our preferred stock into
common stock, which will occur before the closing of this offering. Our fiscal
year ends on January 31. References to fiscal 2000, fiscal 1999, fiscal 1998 and
fiscal 1997 each refer to the corresponding year ended January 31, 2000, 1999,
1998 and 1997. Information in this prospectus gives effect to a 1 for 1.65
reverse stock split which will occur before the closing of this offering.
T/R SYSTEMS, INC.
T/R Systems, Inc. designs, develops and markets digital document processing
and printing systems, consisting of proprietary software and hardware, for the
print-on-demand market. Our highly functional product, the MicroPress Cluster
Printing System, manages multiple digital print devices provided by us or by
third parties as an integrated printing system. The MicroPress is a server-based
software and hardware system built on industry-standard open-architecture
technologies. This system allows our customers to flexibly and economically
print desired quantities with minimum lead time. The MicroPress fills the
critical gap in the digital document production market by delivering a
high-quality solution to mid-range users at prices that are often significantly
lower than those of traditional high-end digital systems. Key features of the
MicroPress include consistent color quality across multiple print devices as
well as the capability to simultaneously support color and black and white
digital printing devices and digital input. Other features available with the
MicroPress include:
- Internet-based remote job submission, ticketing, proofing, monitoring and
managing;
- document merging, distribution and archiving;
- variable data printing;
- electronic collation; and
- imposition, a document layout tool used most commonly to produce booklets
and proof-reading sheets.
The emergence of digital printing technologies is driving significant
changes in all sectors of the printing and publishing industry. Among the
sectors that have experienced the most significant changes is the rapidly
growing print-on-demand market. CAP Ventures, Inc., a consulting and research
firm focused on this market, estimates that the U.S. market for print-on-demand
equipment, supplies and services will be approximately $6.1 billion in 1999 and
will grow to approximately $11.8 billion in 2003.
We distribute our products in North America and internationally through a
network of independent dealers and through our distribution relationship with
Minolta Co., Ltd. We also maintain a sales force consisting of regional managers
located throughout the United States, as well as one in each of Canada and the
United Kingdom.
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THE OFFERING
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Common stock offered by T/R Systems.................. 2,880,000 shares
Common stock offered by the selling shareholder...... 120,000 shares
Common stock to be outstanding after the offering.... 11,613,190 shares
Use of proceeds...................................... For general corporate purposes, including
working capital, research and
development, capital expenditures and
possible acquisitions of technology. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol............... TRSI
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The number of shares to be outstanding after the offering excludes:
- 1,497,151 shares issuable under outstanding options at a weighted average
exercise price of $2.11 per share; and
- 976,708 additional shares reserved for issuance under our stock plans,
after giving effect to the adoption of our 1999 stock option plan.
NOTES TO PROSPECTIVE INVESTORS
T/R Systems was incorporated in Georgia in September 1991. Our principal
executive office is located at 1300 Oakbrook Drive, Norcross, Georgia 30093, and
our telephone number at that office is (770) 448-9008. Our World Wide Web home
page is located at http://www.trsystems.com. Information contained on our
website does not constitute a part of this prospectus.
We own or have rights to the product names, trade names and trademarks that
we use in conjunction with the sale of our products, including T/R Systems(TM),
MicroPress(R), Cluster Printer(TM), and Cluster Printing System(TM).
PostScript(R) is a registered trademark of Adobe Systems Incorporated.
Harlequin(R) and ScriptWorks(R) are registered trademarks of Harlequin Group
plc. Microsoft(R), Microsoft Windows NT(R) and Visual Basic(R) are registered
trademarks of Microsoft Corporation. Macintosh(R) is a registered trademark of
Apple Computer, Inc. Intel(R) and Pentium(R) are registered trademarks of Intel
Corporation. This prospectus also contains product names, trade names and
trademarks that belong to other organizations.
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SUMMARY FINANCIAL DATA
The following table is a summary of the financial data for our business.
You should read this information together with our financial statements and the
related notes appearing at the end of this prospectus and the information under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The pro forma as adjusted balance sheet data give effect to:
- the conversion of all outstanding shares of our preferred stock into
6,068,913 shares of common stock before the closing of this offering; and
- the sale of 2,880,000 shares of common stock offered by T/R Systems at an
assumed initial public offering price of $9.00 per share, the mid-point
of the estimated offering price range, and our receipt of the net
proceeds of the sale of those shares, after deducting estimated
underwriting discounts and offering expenses payable by us.
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<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED JANUARY 31, ENDED OCTOBER 31,
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1995 1996 1997 1998 1999 1998 1999
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................ $ 94 $ 1,194 $ 4,036 $12,032 $15,847 $12,034 $15,704
Cost of sales...................... 27 1,013 3,387 6,107 6,579 5,041 6,662
Gross profit....................... 67 181 649 5,925 9,268 6,993 9,042
Total operating expenses........... 1,725 3,051 4,982 7,329 9,801 7,240 8,711
Operating income (loss)............ (1,658) (2,870) (4,333) (1,404) (533) (247) 331
Net income (loss).................. (1,657) (2,819) (4,120) (1,218) (623) (352) 412
Basic net income (loss) per
share............................ $ (1.14) $ (1.82) $ (2.43) $ (0.60) $ (0.26) $ (0.15) $ 0.16
Basic weighted average shares
outstanding...................... 1,460 1,555 1,702 2,052 2,444 2,429 2,532
Diluted net income (loss) per
share............................ $ (1.14) $ (1.82) $ (2.43) $ (0.60) $ (0.26) $ (0.15) $ 0.04
Diluted weighted average shares
outstanding...................... 1,460 1,555 1,702 2,052 2,444 2,429 9,700
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<CAPTION>
OCTOBER 31, 1999
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PRO FORMA
ACTUAL AS ADJUSTED
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(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 3,344 $26,437
Working capital............................................. 5,444 28,589
Total assets................................................ 10,067 33,160
Redeemable, convertible preferred stock..................... 15,059 --
Total shareholders' equity (deficit)........................ (8,781) 29,484
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RISK FACTORS
Any investment in shares of our common stock involves a high degree of
risk. You should carefully consider the following information about these risks,
together with the other information contained in this prospectus, before you
decide to buy our common stock. If any of the following risks actually occur,
our business, results of operations and financial condition would likely suffer.
In these circumstances, the market price of our common stock could decline, and
you may lose all or part of the money you paid to buy our common stock.
WE HAVE A HISTORY OF LOSSES, AND WE MAY NOT BE ABLE TO MAINTAIN PROFITABILITY
We have incurred net operating losses in each fiscal year since our
inception in 1991, including a loss of $623,000 in fiscal 1999. As a result, we
had an accumulated deficit of $10.9 million as of October 31, 1999. We may not
be profitable in the future. We are making significant investments in research
and development, sales and marketing and our operating infrastructure. We expect
our spending in these areas will increase in the future. If we do not increase
our revenue at an equal or greater rate than this spending, we may have
operating losses. If our revenue does not grow sufficiently, we would need time
to scale expenses back. If we are not able to react quickly enough to
unanticipated decreases in revenue, we will not be able to maintain
profitability.
OUR OPERATING RESULTS HAVE FLUCTUATED AND WE EXPECT THEM TO CONTINUE TO
FLUCTUATE, SO YOU SHOULD NOT RELY ON HISTORICAL OPERATING RESULTS AS AN
INDICATOR OF FUTURE PERFORMANCE
Our operating results have fluctuated from quarter to quarter and year to
year in the past and we expect them to continue to fluctuate in the future. As a
result, you should not rely on our historical operating results as an indicator
of future performance. For example, we reported operating income in the fourth
quarter of fiscal 1998 and the first quarter of fiscal 1999 followed by
operating losses in the last three quarters of fiscal 1999, followed by
operating income in the first three quarters of fiscal 2000. We may experience
further fluctuations in our operating results because of:
- competitive market conditions;
- the general level of sales of printer/copiers which connect to our
products;
- the cost and availability of components of our products; and
- variations in the proportion of hardware and software in systems we sell.
SINCE MANY OF OUR POTENTIAL END USERS ARE SMALL BUSINESSES, IF THEIR BUSINESSES
FAIL OR THEY CANNOT OBTAIN THIRD-PARTY FINANCING, OUR SALES WILL DECLINE
Many of our potential end-user customers are small businesses and run a
greater risk of business failure than large businesses. If their businesses
fail, we will lose potential sales and our revenue will not increase. Further,
if these customers are unable to obtain acceptable third party financing, they
may not purchase our products. Some of our competitors could use their
significant financial resources to offer more attractive financing terms than
the financing terms otherwise available to purchase our products. These factors
could limit or reduce our customer base, causing our sales to suffer.
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WE RELY ON SALES OF ONE PRODUCT LINE, AND WE WILL NOT HAVE AN ALTERNATE SOURCE
OF REVENUE IF DEMAND FOR THIS PRODUCT LINE DECLINES
We generate substantially all of our revenue from one product line, the
MicroPress. If potential customers prefer competing products, we would lose a
substantial amount of revenue. Additionally, this product line may not be
profitable for other reasons, including pricing pressures or manufacturing
difficulties. If this product line is not profitable, we will not be profitable.
WE DERIVE A LARGE PERCENTAGE OF OUR REVENUE FROM A FEW OEM CUSTOMERS; A LOSS OF
ANY OF THESE CUSTOMERS WOULD REDUCE OUR REVENUE AND OUR RESULTS OF OPERATIONS
WOULD SUFFER
Since fiscal 1998, our original equipment manufacturer customers, referred
to as OEM customers, have represented a significant portion of our revenues.
Minolta Co., Ltd. accounted for 39.1% of our revenue for the nine months ended
October 31, 1999. If we lose one of our OEM customers or they decrease orders of
our products, our revenue would decline and our results of operations would
suffer. For example, in June 1998, Mita Industrial Co., Ltd. of Japan
discontinued orders of our systems and subsequently entered into reorganization
proceedings. An OEM customer could decrease its orders for our products if
demand for its products declines. Alternatively, our OEMs could choose to
purchase a competitor's products, particularly if available in their region.
Also, since our current OEM customers are all Japanese companies, volatility in
the economies of Asian countries could impact their businesses, which could
result in decreased orders of our products.
WE RELY HEAVILY ON OUR DEALER NETWORK AND IF THEY DO NOT EFFECTIVELY MARKET OR
SELL OUR PRODUCTS, WE WILL LOSE REVENUE
The majority of our revenue has come from sales through our dealer network
and we generally do not sell our products directly to end users. However, we do
not control our dealers and cannot be certain that our dealers will continue to
effectively market or sell our products. If they do not, our sales will suffer.
In the future, if we do not add new dealers and increase business with our
existing dealers, our business will not grow.
BECAUSE OUR PRODUCTS DEPEND ON SOFTWARE LICENSED TO US BY THIRD PARTIES, ANY
LOSS OF THESE LICENSES WOULD RESULT IN INCREASED COSTS AND PRODUCTION DELAYS
Our products depend on software licensed to us on a non-exclusive basis by
third parties. If those parties fail to continue to license their software to us
or to support this software, we would incur costs and experience delays of at
least several months in integrating alternate software into our products. This
would result in diversion of our research and development resources, delay in
production and could result in lost revenue and harm to our reputation. In some
instances, there are a limited number of suppliers of specialized software and
we could have difficulty in obtaining an alternate supplier. This is true of
Harlequin ScriptWorks, a PostScript page description software for which there
are extremely limited alternatives.
NEW RELEASES BY OUR SOFTWARE SUPPLIERS OR THE DEVELOPMENT OF SUPERIOR SOFTWARE
BY THEIR COMPETITORS COULD RESULT IN DELAYS IN SHIPMENT OR LOSS OF REVENUE
We may be required to expend significant time and resources to make our
systems compatible with new releases by our software suppliers, which could
result in product shipment and revenue recognition delays. In addition, if the
competitors of our suppliers develop superior
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software, our products may not achieve market acceptance and we would lose
revenue unless we obtain a license for the superior software. We may not be able
to obtain new software licenses on commercially reasonable terms, or at all.
IF THIRD-PARTY SUPPLIERS OF EQUIPMENT FAIL TO DELIVER, WE COULD INCUR
SIGNIFICANT COSTS AND DELAYS IN PRODUCT SHIPMENT
We purchase hardware, such as print devices and scanners, from third-party
manufacturers and resell them under our brand as part of our systems. In
addition, we outsource the manufacturing of some of the hardware components of
our products. If those third party manufacturers fail to deliver these products
or components, we would have to find alternate suppliers, would incur
significant development costs and could experience delays in product shipments.
For example, our black and white print devices are purchased from a Japanese
manufacturer. It would take a significant amount of time and effort to find an
alternate black and white print device and develop the connectivity of that
device to the MicroPress. Failure to find alternative suppliers of other
components could affect our product availability and sales. Additionally, since
we purchase many parts and components from manufacturers in Asia, instability in
this region could impact the pricing or availability of these products.
OUR MARKET IS EXTREMELY COMPETITIVE AND MANY OF OUR COMPETITORS HAVE GREATER
MARKET PRESENCE AND RESOURCES THAN WE HAVE
The market for our product is extremely competitive and we expect
competition to increase. Many of our existing and potential competitors have
longer operating histories, significantly greater resources and greater name
recognition than we have. As a result, these competitors may have an advantage
over us in gaining market acceptance, may respond more effectively to changes in
the market and may devote greater resources to the development, promotion, sale
and support of their products. Increased competition could result in a loss of
revenue as a result of loss of market share and significant price reductions,
reducing our profits.
OUR INTERNATIONAL SALES ARE SUBJECT TO REGULATORY, POLITICAL AND CURRENCY
EXCHANGE RATE RISKS WHICH COULD REDUCE OUR REVENUE
Revenue from customers outside the United States represented 33.7% of our
revenue in fiscal 1999 and 47.9% of our revenue for the first nine months of
fiscal 2000. Our international sales could decrease if tariffs, duties or taxes
increase the cost of our products in foreign countries. Our foreign product
sales could be limited by the imposition of government controls or political and
economic instability, resulting in lower revenues. We may also experience delays
in receipt of revenue or increased difficulties in collecting accounts
receivable.
Additionally, our results of operations could be harmed by changes in
currency exchange rates. Currently, all our sales are denominated in U.S.
dollars. If the value of the U.S. dollar increases relative to a particular
foreign currency, our products could become relatively more expensive. This
could result in a reduction in our sales in a particular country.
OUR MARKET IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE, AND IF WE FAIL TO
DEVELOP AND MARKET NEW TECHNOLOGIES RAPIDLY, OUR RESULTS OF OPERATIONS WILL
SUFFER
Customers are demanding faster systems with more features and our
competitors are developing new technologies to meet these demands. If we do not
continually develop new technologies and improvements to our existing
technologies we will not remain competitive and our sales and our results of
operations will suffer.
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The product life cycle is shortening as new technologies are brought to
market, while development of new technologies requires an increasing amount of
time and money. We may experience delays in product development due to
technological constraints, which could result in lost sales. In addition, our
cost to develop the technologies may be so great that we cannot make a profit
selling products using these technologies. Finally, our competitors may develop
technologies that make our technologies obsolete or less attractive to potential
customers which would also harm our sales.
IF OUR PRODUCTS CONTAIN DEFECTS, OUR SALES COULD SUFFER AND WE COULD HAVE
INCREASED COSTS WHICH WOULD HURT OUR RESULTS OF OPERATIONS
Complex products like ours may contain defects or errors that can only be
detected when the product is in use. Despite extensive testing of our products,
we may release products into the market with undetected errors, which could
result in:
- the loss or delay of revenue;
- loss of market share;
- diversion of research and development resources; or
- increased service and warranty costs.
In addition, if our products are not reliable, we may lose credibility with
existing and potential customers, resulting in lost sales.
WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS,
WHICH COULD HARM OUR COMPETITIVE POSITION, RESULTING IN DECREASED REVENUE
Our success is based, in part, on our proprietary technology. If we cannot
protect our intellectual property and proprietary rights, we may not remain
competitive. Trade secret and copyright laws provide only limited protection of
our software, documentation and other written materials. We may not be able to
protect our rights if the patents for which we apply or have applied are not
granted or if our patents are challenged or invalidated. Further, because we
sell many of our products in foreign countries where intellectual property laws
are not well developed or are poorly enforced, we may not be able to protect our
proprietary technology in these countries.
A third party could reverse engineer our products, or bypass hardware
security devices and obtain access to our software, or independently develop
similar software or proprietary information and use it to compete with us.
INFRINGEMENT CLAIMS BY THIRD PARTIES COULD BE COSTLY AND CAUSE PRODUCT SHIPMENT
DELAYS
Third parties may file claims against us alleging infringement of their
patents, copyrights or other intellectual property rights. Regardless of its
merit, an infringement claim against us could:
- require significant management time and effort;
- result in costly litigation; or
- cause product shipment delays.
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Further, any claims may require us to enter into royalty or licensing agreements
which may not be obtainable on terms acceptable to us.
OUR FAILURE TO RETAIN AND ATTRACT PERSONNEL COULD HARM OUR BUSINESS, OPERATIONS
AND PRODUCT DEVELOPMENT EFFORTS
Our future success depends, in significant part, upon the continued service
of key personnel and our ability to attract, retain and motivate highly
qualified employees. In particular, the services of Michael E. Kohlsdorf, our
president and chief executive officer; E. Neal Tompkins, our executive vice
president and chief technology officer; and Michael W. Barry, our senior vice
president, development and engineering are critical to our business. If we lose
any of our key personnel, or fail to attract qualified new employees, our
business, operations and product development efforts would suffer. Although we
have employment agreements with Messrs. Kohlsdorf and Tompkins, these agreements
do not obligate them to remain in our employ. We do not have key man insurance
on any of our employees.
IF OUR SYSTEMS OR THE SYSTEMS OF OUR SUPPLIERS OR CUSTOMERS ARE NOT YEAR 2000
COMPLIANT, OUR BUSINESS COULD BE SEVERELY DISRUPTED
Although we have attempted to identify and address year 2000 issues related
to our business, we cannot be certain that all potential year 2000 issues have
been identified or corrected. Additionally, we cannot guarantee that the
third-party servers, printers, scanners and operating systems used in, or in
conjunction with, our products are year 2000 compliant. If our products, or
components used in our products, are not year 2000 compliant, we would have to
delay shipping our products until they are year 2000 compliant. Delays in
product shipments could result in lost revenue and harm to our reputation.
Additionally, we cannot assure you that our customers will not assert year 2000
related claims against us even if our products are year 2000 compliant, which
could require us to incur substantial costs and invest significant time
defending any claims.
As a result of year 2000 issues, customers may delay purchases of our
products. Any resulting changes in our customers' purchasing patterns could
result in decreased sales and revenue.
Further, if our internal systems or those of other third-party vendors,
such as utilities and telecommunications providers, are not year 2000 compliant,
our business could be materially disrupted.
OUR ARTICLES OF INCORPORATION AND BYLAWS AND PROVISIONS OF GEORGIA LAW COULD
MAKE IT MORE DIFFICULT FOR A THIRD PARTY TO ACQUIRE US EVEN IF DOING SO WOULD BE
IN YOUR INTEREST
Provisions of our articles of incorporation and bylaws as they will be
amended before closing could make it more difficult for a third party to acquire
us, even if doing so would be in the best interest of our shareholders. It could
be difficult to acquire us because:
- our directors serve for staggered terms;
- our directors may be removed only for cause by a supermajority vote of
our shareholders;
- our shareholders may act only at meetings, and not by written consent;
and
- we are subject to the fair-price and business combination provisions of
the Georgia corporate laws.
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Also, our board of directors can issue preferred stock and determine the price,
rights, and preferences of this preferred stock without shareholder approval.
This authority gives our board greater flexibility to take actions such as
making acquisitions. However, if we issue preferred stock, a third party may
find it more difficult to acquire control of us.
OUR OFFICERS AND DIRECTORS WILL HAVE SIGNIFICANT INFLUENCE OVER MATTERS
REQUIRING SHAREHOLDER APPROVAL, WHICH COULD DELAY OR PREVENT A CHANGE OF CONTROL
After this offering, our directors and officers and their affiliates will
own about 33.4% of our outstanding common stock. As a result, they will have
significant influence over all matters requiring shareholder approval, including
the election of directors and approval of significant corporate transactions.
This concentration of ownership may have the effect of delaying or preventing a
change in control of T/R Systems.
OUR STOCK PRICE MAY BE VOLATILE AND YOU MAY NOT BE ABLE TO RESELL YOUR SHARES AT
THE PRICE YOU PAID
There has been no public market for our common stock and we cannot assure
you that an active trading market will develop or that you will be able to
resell your shares at the price you paid.
Additionally, in recent years, the stock market in general, and the stock
prices of technology companies in particular, have experienced extreme price
fluctuations, sometimes unrelated to the operating performance of particular
companies. These market fluctuations may result in a material decline in the
market price of our common stock. The price of our common stock after this
offering is likely to fluctuate due to many factors, including:
- variations in actual, anticipated or estimated quarterly earnings;
- announcements by competitors; and
- future sales of significant amounts of our common stock.
See "Shares Eligible For Future Sale."
9
<PAGE> 14
FORWARD-LOOKING STATEMENTS
This prospectus, including the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business" sections, contains
forward-looking statements that involve risks and uncertainties. The statements
relate to future events or our future financial performance. In many cases, you
can identify forward-looking statements by the use of words such as may, will,
should, expects, plans, anticipates, believes, estimates, predicts, potential or
continue, or the negative of these terms or other comparable terminology. Our
actual results could be materially different from those anticipated in these
forward-looking statements as a result of a number of factors, including the
risks we face described above and elsewhere in this prospectus. Before you
decide to invest in our common stock, you should be aware that if any of the
events described in the "Risk Factors" section and elsewhere in this prospectus
occur, they could have an adverse affect on our business, financial condition
and results of operations. We are not obligated to update any forward-looking
statements.
10
<PAGE> 15
USE OF PROCEEDS
We estimate that the net proceeds we will receive from the sale of the
2,880,000 shares of common stock offered by us will be $23.2 million. Our
calculation of the net proceeds assumes an initial public offering price of
$9.00 per share, the mid-point of the initial public offering price range of
$8.00 to $10.00, and is net of the estimated underwriting discounts and
commissions and estimated offering expenses of $2.7 million payable by us. We
will not receive any proceeds from shares sold by the selling shareholder.
The principal purposes of this offering are to establish a public market
for our common stock, to facilitate future access by T/R Systems to the public
equity markets and to obtain additional working capital. We have not allocated
any portion of the proceeds for any particular purpose. We intend to use the
proceeds for general corporate purposes, including working capital, research and
development and capital expenditures. We may in the future use a portion of the
proceeds to acquire or invest in complementary products, technologies or
businesses. However, we have no present plans or commitments and are not
currently engaged in any negotiations for any of these types of transactions.
Pending our use of these proceeds, we will invest them in interest-bearing
deposit accounts, certificates of deposit, government securities or short-term
and investment-grade financial instruments of varying maturities. In addition,
we will not invest more than 10% of the proceeds in securities of any one
issuer, other than the U.S. government.
DIVIDEND POLICY
We have never paid cash dividends and do not anticipate paying cash
dividends in the future. We currently intend to retain any future earnings to
fund the development and growth of our business. Our revolving line of credit
does not allow us to declare or pay cash dividends.
11
<PAGE> 16
CAPITALIZATION
The following table presents T/R Systems' capitalization as of October 31,
1999 on an actual basis, on a pro forma basis and on a pro forma as adjusted
basis to reflect:
- the conversion of all outstanding preferred shares into 6,068,913 shares
of common stock, which will occur before the closing of this offering on
a pro forma and a pro forma as adjusted basis; and
- our sale of 2,880,000 shares of common stock in this offering at an
assumed initial offering price of $9.00 per share, the mid-point of the
initial public offering price range, and our receipt of the net proceeds
from that sale and the use of a portion of those proceeds to repay
long-term debt on a pro forma as adjusted basis.
You should read this table together with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our financial statements
and the related notes.
<TABLE>
<CAPTION>
OCTOBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt............................................ $ 61 $ 61 $ --
Redeemable, convertible preferred stock; 9,500,000 shares
designated:
Series A redeemable, convertible preferred stock;
5,000,000 shares designated; 4,799,999 shares issued
and outstanding, actual; none issued or outstanding,
pro forma and pro forma as adjusted................... 4,789 -- --
Series B redeemable, convertible preferred stock;
3,000,000 shares designated; 2,961,585 shares issued
and outstanding, actual; none issued or outstanding,
pro forma and pro forma as adjusted................... 7,538 -- --
Series C redeemable, convertible preferred stock;
1,500,000 shares designated; 1,215,500 shares issued
and outstanding, actual; none issued or outstanding,
pro forma and pro forma as adjusted................... 2,732 -- --
Shareholders' equity (deficit):
Preferred stock; 12,000,000 shares authorized; 9,500,000
shares designated as redeemable, convertible preferred
stock; 222,222 shares designated as convertible
preferred stock; 222,222 shares of series D
convertible preferred stock issued and outstanding,
actual; none issued or outstanding, pro forma and pro
forma as adjusted..................................... 2 -- --
Common stock; 88,000,000 shares authorized, actual and
pro forma as adjusted; 2,551,247 shares issued and
outstanding, actual; 8,620,160 shares issued and
outstanding, pro forma; 11,500,160 shares issued and
outstanding, pro forma as adjusted.................... 26 86 115
Additional paid-in capital.............................. 2,171 17,172 40,349
Deferred compensation................................... (68) (68) (68)
Accumulated deficit..................................... (10,912) (10,912) (10,912)
-------- -------- -------
Total shareholders' equity (deficit)............... (8,781) 6,278 29,484
-------- -------- -------
Total capitalization............................. $ 6,339 $ 6,339 $29,484
======== ======== =======
</TABLE>
The number of shares of common stock outstanding as of October 31, 1999
does not reflect:
- 1,610,181 shares issuable under options outstanding as of October 31,
1999 at a weighted average exercise price of $2.02 per share; or
- 976,708 additional shares reserved for issuance under our stock plans.
12
<PAGE> 17
DILUTION
Our pro forma net tangible book value as of October 31, 1999 was $6.3
million, or $0.73 per share of common stock. We have calculated this amount by:
- subtracting our total liabilities from our total tangible assets; and
- then dividing the difference by the total pro forma number of shares of
common stock outstanding, including the number of shares of common stock
that will be issued upon the conversion of our preferred stock before the
closing of this offering.
If we give effect to our sale of 2,880,000 shares of common stock in this
offering, our adjusted pro forma net tangible book value as of October 31, 1999
would have been $29.5 million, or $2.56 per share. This amount represents an
immediate increase in pro forma net tangible book value of $1.83 per share to
existing stockholders and an immediate dilution of $6.44 per share to new
investors. The following table illustrates this dilution of net tangible book
value per share:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $9.00
Pro forma net tangible book value per share
as of October 31, 1999................................. $0.73
Increase per share attributable to new investors.......... 1.83
-----
Pro forma net tangible book value per share after the
offering.................................................. 2.56
-----
Dilution per share to new investors......................... $6.44
=====
</TABLE>
The following table summarizes, on the pro forma basis discussed above, the
number of shares of common stock purchased from us, the total consideration paid
to us and the average price per share paid by existing shareholders and by the
investors purchasing shares of common stock in this offering, before deducting
estimated underwriting discounts and commissions and estimated offering expenses
payable by us. Shares to be sold by the selling shareholder are excluded from
the shares purchased by the new investors and included in shares purchased by
the existing shareholders in this table.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders............... 8,620,160 75.0% $17,136,000 39.8% $1.99
New investors....................... 2,880,000 25.0 25,920,000 60.2 9.00
---------- ----- ----------- -----
Totals.................... 11,500,160 100.0% $43,056,000 100.0%
========== ===== =========== =====
</TABLE>
Sales by the selling shareholder in this offering will have the following
effect:
- it will reduce the shares held by existing shareholders to 8,500,160
shares, or 73.9% of the total shares outstanding after this offering; and
- it will increase the shares held by new investors to 3,000,000, or 26.1%
of the total shares outstanding after this offering.
If the underwriters' over-allotment is exercised in full, the number of shares
held by new investors will increase to 3,450,000 shares, or 30.0% of the total
number of shares of common stock outstanding after this offering.
The above computations exclude 1,610,181 shares of common stock issuable
upon the exercise of options outstanding as of October 31, 1999 at a weighted
average exercise price of $2.02 per share. If any of those options are
exercised, new investors will incur further dilution.
13
<PAGE> 18
SELECTED FINANCIAL DATA
The following data were derived from our financial statements audited by
Deloitte & Touche LLP, independent auditors, presented elsewhere in this
prospectus:
- selected financial data for the fiscal years ended January 31, 1997, 1998
and 1999; and
- selected financial data as of January 31, 1998 and 1999.
The following data were derived from our financial statements audited by
Deloitte & Touche LLP, independent auditors, not included in this prospectus:
- selected financial data for the fiscal year ended January 31, 1996; and
- selected financial data as of January 31, 1996 and 1997.
The selected financial data as of and for the period ended January 31, 1995
were derived from our unaudited financial statements.
The selected financial data as of and for the nine months ended October 31,
1998 and 1999 were derived from our unaudited interim financial statements
presented elsewhere in this prospectus. The unaudited financial statements
include all adjustments, consisting solely of normal recurring accruals, that we
consider necessary for a fair presentation of our financial position and results
of operations for these periods. Results of operations for the nine months ended
October 31, 1999 are not necessarily indicative of the results to be expected
for the entire year.
You should read the following selected financial data together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the related notes.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
FISCAL YEAR ENDED JANUARY 31, OCTOBER 31,
----------------------------------------------- ------------------
1995 1996 1997 1998 1999 1998 1999
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue........................................ $ 94 $ 1,194 $ 4,036 $12,032 $15,847 $12,034 $15,704
Cost of sales.................................. 27 1,013 3,387 6,107 6,579 5,041 6,662
------- ------- ------- ------- ------- ------- -------
Gross profit................................... 67 181 649 5,925 9,268 6,993 9,042
Operating expenses:
Research and development..................... 1,610 1,732 1,786 2,164 3,202 2,423 2,555
Sales and marketing.......................... -- 590 2,185 3,542 4,891 3,532 4,668
General and administrative................... 115 729 1,011 1,623 1,708 1,285 1,488
------- ------- ------- ------- ------- ------- -------
Total operating expenses................... 1,725 3,051 4,982 7,329 9,801 7,240 8,711
------- ------- ------- ------- ------- ------- -------
Operating income (loss)........................ (1,658) (2,870) (4,333) (1,404) (533) (247) 331
Interest income, net........................... 1 51 213 186 150 135 81
Other expenses................................. -- -- -- -- (240) (240) --
------- ------- ------- ------- ------- ------- -------
Net income (loss).............................. $(1,657) $(2,819) $(4,120) $(1,218) $ (623) $ (352) $ 412
======= ======= ======= ======= ======= ======= =======
Basic net income (loss) per share.............. $ (1.14) $ (1.82) $ (2.43) $ (0.60) $ (0.26) $ (0.15) $ 0.16
======= ======= ======= ======= ======= ======= =======
Basic weighted average shares outstanding...... 1,460 1,555 1,702 2,052 2,444 2,429 2,532
======= ======= ======= ======= ======= ======= =======
Diluted net income (loss) per share............ $ (1.14) $ (1.82) $ (2.43) $ (0.60) $ (0.26) $ (0.15) $ 0.04
======= ======= ======= ======= ======= ======= =======
Diluted weighted average shares outstanding.... 1,460 1,555 1,702 2,052 2,444 2,429 9,700
======= ======= ======= ======= ======= ======= =======
Pro forma basic net income (loss) per share.... $ (0.07) $ 0.05
======= =======
Pro forma basic weighted average shares
outstanding.................................. 8,378 8,549
======= =======
Pro forma diluted net income (loss) per
share........................................ $ (0.07) $ 0.04
======= =======
Pro forma diluted weighted average shares
outstanding.................................. 8,378 9,700
======= =======
</TABLE>
14
<PAGE> 19
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
------------------------------------------------ -----------
1995 1996 1997 1998 1999 1999
------- ------- ------- ------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents... $ 685 $ 7,721 $ 2,826 $ 3,527 $ 1,966 $ 3,344
Working capital............. 526 8,251 3,820 5,117 3,892 5,444
Total assets................ 819 9,721 5,459 8,184 7,770 10,067
Redeemable, convertible
preferred stock........... 2,348 12,252 12,272 15,020 15,042 15,059
Total shareholders'
deficit................... (1,703) (4,510) (8,635) (9,759) (10,238) (8,781)
</TABLE>
15
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
T/R Systems was founded in 1991 as an engineering services company
providing consulting services to the printing, copying and multimedia markets.
In 1993, we began development of our own products and in 1995, we introduced the
MicroPress Cluster Printing System, our digital document processing and printing
system.
We derive our revenue primarily from the sale of digital document
processing and printing systems and related add-on software and hardware.
Additionally, we receive revenue from:
- the sale of consumable products, such as toner, and replacement parts
that support our systems;
- engineering services for the development of technology;
- customer service plans; and
- royalties for technology previously licensed.
As required by American Institute of Certified Public Accountants Statement
of Position 97-2 Software Revenue Recognition, we recognize revenue from
printing systems when persuasive evidence of an arrangement exists, the system
has been shipped, the fee is fixed or determinable and collectibility of the fee
is probable. Under multiple element arrangements, we allocate revenue to the
various elements based on vendor-specific objective evidence of fair value. Our
products do not require significant customization. Before the effective date of
this statement, we recognized revenue on printing systems upon shipment. The
adoption of this statement had no effect on our accounting for revenue. We
recognize revenue from the sale of consumables upon shipment.
We recognize revenue from customer service plans ratably over the terms of
each plan, typically one to three years. Engineering service fees are recognized
as the services are rendered. Nonrefundable prepaid royalties are recognized as
revenue over the term of the royalty agreement, based on the greater of actual
royalties earned or the straight-line method. Revenue from customer service
plans, engineering services and royalties have each been less than 10% of total
revenue in each of the last three fiscal years and the nine month periods ended
October 31, 1998 and 1999.
We distribute our products in North America and internationally through a
network of independent dealers and through our distribution relationship with
Minolta. We sold our first systems under the Minolta OEM agreement in February
1999. In fiscal 1998 and 1999, we sold systems under an OEM agreement with Mita
Industrial Co., Ltd. Mita, which sold our systems in Japan, discontinued orders
of our systems in June 1998 and subsequently entered into reorganization
proceedings. Since then, our sales to Mita have been negligible.
One factor that affects our gross margin is product configuration. Product
configuration, which is determined by the end user, typically affects gross
margin due to the relative amount of software and hardware in each system. The
relative amount of add-on software and hardware we sell also affects our gross
margin. The hardware in our systems typically includes two or more print devices
and, in some instances, a digital scanner. Because we purchase these hardware
devices from third parties for resale, we typically realize lower margins on
them than we realize on our software products.
16
<PAGE> 21
Sales to international customers were $5.3 million, or 33.7% of revenue, in
fiscal 1999 and $7.5 million, or 47.9% of revenue, in the first nine months of
fiscal 2000. Of the $7.5 million of sales to international customers in the
first nine months of fiscal 2000, $3.8 million, or 24.2% of revenue, was billed
to Minolta, a Japanese company, but the product was shipped to Minolta's United
States subsidiary for re-sale in the United States. We expect that international
sales will continue to represent a significant portion of our revenue over the
near term. Currently, all our sales are denominated in U.S. dollars. If the
value of the U.S. dollar increases relative to a particular foreign currency,
our products could become relatively more expensive, which could result in a
reduction in our sales in a particular country.
As of January 31, 1999, we had approximately $8.2 million in tax net
operating loss carryforwards which, if not utilized, expire at various dates
beginning in 2007. We must recognize taxable income in future periods to be able
to utilize these net operating loss carryforwards. We have not recognized any
benefit from the future use of these carryforwards because we are uncertain that
we will be able to utilize them. Further, under the ownership change limitations
of the Internal Revenue Code of 1986, our utilization of approximately $658,000
of these carryforwards is subject to an annual limitation of approximately
$330,000. If we use these carryforwards in future periods, we will incur
alternative minimum taxes in those periods. We expect that the completion of our
initial public offering will result in another change in ownership that may
result in additional limitations on the use of our net operating loss
carryforwards.
We record software development costs as required by Financial Accounting
Standards Board Statement No. 86. To date, we have expensed software development
costs as incurred due to the immaterial amount of costs incurred between the
establishment of technological feasibility and the time that the software is
generally available for sale.
RESULTS OF OPERATIONS
The following table presents operating data as a percentage of revenue.
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED ENDED
JANUARY 31, OCTOBER 31,
------------------------ --------------
1997 1998 1999 1998 1999
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenue................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.......................... 83.9 50.8 41.5 41.9 42.4
------ ----- ----- ----- -----
Gross profit........................... 16.1 49.2 58.5 58.1 57.6
Operating expenses:
Research and development............. 44.3 18.0 20.2 20.1 16.3
Sales and marketing.................. 54.1 29.4 30.9 29.4 29.7
General and administrative........... 25.0 13.5 10.8 10.7 9.5
------ ----- ----- ----- -----
Total operating expenses..... 123.4 60.9 61.9 60.2 55.5
------ ----- ----- ----- -----
Operating income (loss)................ (107.3) (11.7) (3.4) (2.1) 2.1
Interest income, net................... 5.3 1.5 0.9 1.1 0.5
Other expense.......................... -- -- (1.5) (2.0) --
------ ----- ----- ----- -----
Net income (loss)...................... (102.0)% (10.2)% (4.0)% (3.0)% 2.6%
====== ===== ===== ===== =====
</TABLE>
COMPARISON OF THE NINE MONTHS ENDED OCTOBER 31, 1999 AND 1998
Revenue. Revenue for the nine months ended October 31, 1999 was $15.7
million, representing an increase of 30.5% over revenue of $12.0 million for the
nine months ended
17
<PAGE> 22
October 31, 1998. This increase was primarily due to an increase in revenue from
our OEM relationship with Minolta. We began shipping systems under our OEM
agreement with Minolta in February 1999. This increase was partially offset by a
decrease in revenue from our OEM relationship with Mita. Revenue from Mita for
the nine months ended October 31, 1999 was negligible, and we do not currently
have any significant orders from Mita for future shipments.
Revenue from sales to customers outside the United States was $7.5 million
for the nine months ended October 31, 1999, representing 47.9% of revenue, and
$3.8 million for the nine months ended October 31, 1998, representing 31.7% of
revenue. Of the $7.5 million in sales to international customers for the nine
months ended October 31, 1999, $3.8 million, or 24.2% of revenue, was billed to
Minolta, but the product was shipped to Minolta's United States subsidiary for
re-sale in the United States. The balance of international revenue for the nine
months ended October 31, 1999 reflected sales primarily to Minolta and other
dealers in Europe and Canada. International sales for the nine months ended
October 31, 1998 represented sales primarily to Japan and, to a lesser extent,
sales in Europe.
Gross Profit. Gross profit, revenue less cost of sales, for the nine
months ended October 31, 1999 was $9.0 million, as compared to $7.0 million for
the nine months ended October 31, 1998. Cost of sales, which consists primarily
of third-party hardware, principally print devices, board components, finished
boards and consumables, and third-party software, as well as labor and overhead,
for the nine months ended October 31, 1999 was $6.7 million, as compared to $5.0
million for the nine months ended October 31, 1998. Gross margin, or gross
profit as a percentage of revenue, for the nine months ended October 31, 1999
was 57.6% as compared to 58.1% for the nine months ended October 31, 1999.
Research and Development. Research and development expenses consist
primarily of employee salaries and benefits, equipment depreciation, software
and hardware supplies used in product development and an allocation of overhead.
Research and development costs are expensed as incurred. These expenses
increased 5.4% to $2.6 million, or 16.3% of revenue, for the nine months ended
October 31, 1999, from $2.4 million, or 20.1% of revenue, for the nine months
ended October 31, 1998. The increase was primarily due to an increase in
employee salaries and benefits. We believe that research and development
spending, including spending for employee salaries and benefits, will increase
in the future as we add hardware connectivity and software functionality to the
MicroPress.
Sales and Marketing. Sales and marketing expenses consist primarily of
employee salaries and benefits, sales commissions, trade show costs,
advertising, technical support and travel-related expenses. Sales and marketing
expenses increased 32.2% to $4.7 million, or 29.7% of revenue, for the nine
months ended October 31, 1999, from $3.5 million, or 29.4% of revenue, for the
nine months ended October 31, 1998. The increase was primarily due to the growth
in our sales force and associated increases in salaries and benefits of $533,000
and travel-related expenses of $265,000, as well as an increase in sales
commissions of $220,000 due to an increase in sales. We believe that we will
need to continue to increase our sales and marketing efforts to address new
markets and support additional OEM customers in the future.
General and Administrative. General and administrative expenses include
employee salaries and benefits, professional service fees and employee
recruiting expenses. General and administrative expenses increased 15.8% to $1.5
million, or 9.5% of revenue, for the nine months ended October 31, 1999, from
$1.3 million, or 10.7% of revenue, for the nine months ended October 31, 1998.
This increase was due primarily to an increase in headcount resulting in a
$133,000 increase in salaries and benefits. Additionally, the provision for bad
debt increased $45,000 due to an increase in revenue and accounts receivable. We
believe our general and
18
<PAGE> 23
administrative expenses will continue to increase as we hire additional
administrative staff and incur additional expenses, including insurance, annual
and other public reporting costs and professional service fees.
Interest Income, Net. Interest income, net consists of income generated
from our cash, cash equivalents and short-term investments, net of interest
expense paid on our equipment line of credit. Interest income was $81,000 for
the nine months ended October 31, 1999 and $135,000 for the nine months ended
October 31, 1998. The decrease in interest income was the result of a decrease
in funds available for short-term investment due to the use of cash to fund
operations.
Other Expense. During the first nine months of fiscal 1999, we expensed
$240,000 for legal and audit services related to a then planned initial public
offering. In July 1998, we suspended our plans to go public, necessitating the
recognition of those expenses in fiscal 1999. No similar expenses were incurred
in the first nine months of fiscal 2000.
COMPARISON OF FISCAL YEARS ENDED JANUARY 31, 1999, 1998 AND 1997
Revenue. Revenue was $15.8 million for fiscal 1999, representing an
increase of 31.7% over revenue of $12.0 million for fiscal 1998. Revenue for
fiscal 1998 increased 198.1% over revenue of $4.0 million for fiscal 1997.
The increase from fiscal 1998 to fiscal 1999 was due in part to an increase
in sales of the MicroPress through both our independent dealer channel and our
OEM arrangement with Mita. Of the $3.8 million increase in revenue, $2.1 million
was due to an increase in sales of the MicroPress and related hardware and
software components. Adding to the year-over-year increase in revenue were:
- a $664,000 increase from engineering service fees;
- a $417,000 increase from royalties;
- a $402,000 increase from the sale of consumable products; and
- a $150,000 increase from customer support plans.
The increase from fiscal 1997 to fiscal 1998 was primarily the result of
increased sales of the MicroPress, including the systems sold under our OEM
agreement with Mita. This increase in the number of systems sold represented
$5.0 million of the $8.0 million increase in total revenue. Additionally, the
average price per system sold increased in fiscal 1998 over fiscal 1997
primarily due to the enriched content and additional connectivity of the systems
sold. Enhancements to the MicroPress, which increased the fiscal 1998 average
selling price, included the introduction of a scanner and additional devices and
software. This increase in the average selling price of systems sold represented
$1.8 million of the $8.0 million increase in total revenue. The fiscal 1998
increase in revenue was also partially attributable to a $769,000 increase in
sales of add-on hardware and software and a $302,000 increase in sales of
consumable products to support the MicroPress as a result of more systems being
in service.
During fiscal 1999, we derived $11.0 million, or 69.3% of our revenue, from
sales in the United States. This compares to $8.0 million, or 66.4% of revenue,
in fiscal 1998 and $2.3 million, or 55.8% of revenue, in fiscal 1997. The
remaining revenue in fiscal 1999 and fiscal 1998 was primarily generated by
sales in Asia through our OEM agreement with Mita, sales to Minolta for research
and development purposes and sales in Europe. The balance of revenue in fiscal
1997 reflected sales in Europe and royalty revenue from Asia. Domestic revenue
grew at a
19
<PAGE> 24
faster rate than international revenue during the three years ended January 31,
1999 because of a more established domestic distribution infrastructure and our
greater focus on the domestic market.
Gross Profit. Our gross profit was $9.3 million in fiscal 1999, $5.9
million in fiscal 1998, and $649,000 in fiscal 1997. Gross margin was 58.5% in
fiscal 1999, 49.2% in fiscal 1998 and 16.1% in fiscal 1997. The increase in
gross margin from fiscal 1998 to fiscal 1999 was primarily due to an improvement
in OEM gross margin reflecting the systems sold to Mita and Minolta, which
included more high-margin software and less hardware than the systems sold to
Mita in fiscal 1998. Additionally, our margin improved due to an increase in OEM
revenue as a percent of total revenue. We typically realize higher margins on
OEM revenue than we do through our independent dealer network as the OEM systems
typically include less hardware than systems sold through independent dealers.
The improvement in gross margin from fiscal 1997 to fiscal 1998 was due to
reductions in component costs, the allocation of fixed costs over a larger sales
volume and the introduction of relatively high margin software modules and our
PrintLinks in fiscal 1997 and fiscal 1998. PrintLinks are the MicroPress'
interface to supported digital printers and copiers not sold by us.
Research and Development. Research and development expenses were $3.2
million in fiscal 1999, $2.2 million in fiscal 1998, and $1.8 million in fiscal
1997. Research and development expenses represented 20.2% of revenue in fiscal
1999, 18.0% of revenue in fiscal 1998 and 44.3% of revenue in fiscal 1997.
Research and development expenses increased 48.0% from fiscal 1998 to fiscal
1999 and 21.2% from fiscal 1997 to fiscal 1998. $742,000 of the $1.0 million
increase from fiscal 1998 to fiscal 1999 was due to an increase in salaries and
benefits resulting from the hiring of additional research and development
personnel to assist in the further development of the MicroPress. The remaining
increase was due to an increase in spending on supplies, hardware and software
for project development and an increase in depreciation expense on equipment
purchased for development of the MicroPress' connectivity to additional devices.
The increase from fiscal 1997 to fiscal 1998 was also due primarily to an
increase in employee salaries and benefits as a result of hiring additional
personnel.
Sales and Marketing. Sales and marketing expenses were $4.9 million in
fiscal 1999, or 30.9% of revenue. These expenses were $3.5 million in fiscal
1998, or 29.4% of revenue, and $2.2 million in fiscal 1997, or 54.1% of revenue.
$773,000 of the increase of $1.3 million from fiscal 1998 to fiscal 1999 was due
to an increase in employee salaries and benefits due to an increase in our sales
force and marketing personnel during fiscal 1999 and the second half of fiscal
1998. The year-over-year increase was also due to an increase in travel expenses
of $244,000. The increase of $1.4 million, or 62.1%, from fiscal 1997 to fiscal
1998 was primarily due to a $589,000 increase in salaries and benefits as a
result of the addition of new sales personnel and the establishment of a
marketing department in the second half of fiscal 1997. Other costs that
contributed to the overall increase in sales and marketing expenses included a
$141,000 increase in travel expense, a $96,000 increase in payments for outside
consulting services and a $95,000 increase in trade show costs.
General and Administrative. General and administrative expenses were $1.7
million in fiscal 1999 compared to $1.6 million in fiscal 1998 and $1.0 million
in fiscal 1997. These expenses represented 10.8% of revenue in fiscal 1999,
13.5% of revenue in fiscal 1998 and 25.1% of revenue in fiscal 1997. These
expenses increased $85,000, or 5.2%, from fiscal 1998 to fiscal 1999 and
$612,000, or 60.5%, from fiscal 1997 to fiscal 1998. The increase from fiscal
1997 to fiscal 1998 was primarily due to the $180,000 charge in fiscal 1998
related to our plan to move our headquarters and to a $241,000 increase in
employee compensation for fiscal 1998 over fiscal 1997 resulting from the hiring
of additional administrative employees and improved
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<PAGE> 25
operating performance. Additionally, we incurred a $69,000 increase in the
provision for doubtful accounts, a $57,000 increase in professional service and
a $34,000 increase in travel-related expenses from fiscal 1997 to fiscal 1998.
Interest Income, Net. Interest income, net was $150,000 in fiscal 1999,
$186,000 in fiscal 1998 and $213,000 in fiscal 1997. The decrease in interest
income over the three year period was due to a decrease in funds available for
short-term investment during the period because we used cash to fund operations
and purchase property and equipment.
Other Expense. In fiscal 1999, we expensed $240,000 for legal and audit
services related to a then planned initial public offering. In July 1998, we
suspended our plans to go public, necessitating the recognition of those
expenses in fiscal 1999. No similar expenses were incurred in fiscal 1998 or
fiscal 1997.
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QUARTERLY RESULTS OF OPERATIONS
The following table presents unaudited quarterly statement of operations
data for the eleven quarters ended October 31, 1999. This data has been prepared
on a basis consistent with our audited financial statements included elsewhere
in this prospectus. This data includes all adjustments, consisting solely of
normal recurring adjustments, that we believe necessary for a fair presentation
of this information. The operating results for any quarter are not necessarily
indicative of results to be expected for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------------------
APR. 30, JUL. 31, OCT. 31, JAN. 31, APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30,
1997 1997 1997 1998 1998 1998 1998 1999 1999
-------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue.............. $1,713 $2,169 $3,151 $4,999 $4,842 $3,498 $3,694 $3,813 $4,656
Cost of sales........ 965 1,039 1,384 2,719 2,025 1,489 1,527 1,538 1,946
------ ------ ------ ------ ------ ------ ------ ------ ------
Gross profit......... 748 1,130 1,767 2,280 2,817 2,009 2,167 2,275 2,710
Total operating
expenses............ 1,384 1,639 1,864 2,442 2,409 2,374 2,457 2,561 2,651
------ ------ ------ ------ ------ ------ ------ ------ ------
Operating income
(loss).............. (636) (509) (97) (162) 408 (365) (290) (286) 59
Interest income,
net................. 45 52 49 40 44 52 39 15 16
Other expense........ -- -- -- -- -- (240) -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------
Net income (loss).... $ (591) $ (457) $ (48) $ (122) $ 452 $ (553) $ (251) $ (271) $ 75
====== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
THREE MONTHS ENDED
-------------------
JULY 31, OCT. 31,
1999 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revenue.............. $5,233 $5,815
Cost of sales........ 2,264 2,452
------ ------
Gross profit......... 2,969 3,363
Total operating
expenses............ 2,859 3,201
------ ------
Operating income
(loss).............. 110 162
Interest income,
net................. 26 39
Other expense........ -- --
------ ------
Net income (loss).... $ 136 $ 201
====== ======
</TABLE>
The following table presents the same data as a percentage of revenue.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------------------
APR. 30, JUL. 31, OCT. 31, JAN. 31, APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30,
1997 1997 1997 1998 1998 1998 1998 1999 1999
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue.............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........ 56.3 47.9 43.9 54.4 41.8 42.6 41.3 40.3 41.8
------ ------ ------ ------ ------ ------ ------ ------ ------
Gross profit......... 43.7 52.1 56.1 45.6 58.2 57.4 58.7 59.7 58.2
Total operating
expenses............ 80.8 75.6 59.2 48.9 49.7 67.9 66.5 67.2 56.9
------ ------ ------ ------ ------ ------ ------ ------ ------
Operating income
(loss).............. (37.1) (23.5) (3.1) (3.3) 8.5 (10.5) (7.8) (7.5) 1.3
Interest income,
net................. 2.6 2.4 1.6 0.8 0.9 1.5 1.1 0.4 0.3
Other expense........ -- -- -- -- -- (6.9) -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------
Net income (loss).... (34.5)% (21.1)% (1.5)% (2.5)% 9.4% (15.9)% (6.7)% (7.1)% 1.6%
====== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
THREE MONTHS ENDED
-------------------
JULY 31, OCT. 31,
1999 1999
-------- --------
<S> <C> <C>
Revenue.............. 100.0% 100.0%
Cost of sales........ 43.3 42.2
------ ------
Gross profit......... 56.7 57.8
Total operating
expenses............ 54.6 55.0
------ ------
Operating income
(loss).............. 2.1 2.8
Interest income,
net................. 0.5 0.7
Other expense........ -- --
------ ------
Net income (loss).... 2.6% 3.5%
====== ======
</TABLE>
Revenue for the fourth quarter of fiscal 1998 and first quarter of fiscal
1999 included sales under our OEM agreement with Mita. Sales to Mita represented
41.1% of revenue in the fourth quarter of fiscal 1998 and 33.9% in the first
quarter of fiscal 1999. Mita discontinued orders of our systems during the
second quarter of fiscal 1999 and subsequently entered reorganization
proceedings. Since then, our sales to Mita have been negligible. As a result of
the Mita reorganization, we reserved and subsequently wrote-off during fiscal
2000 $76,000 of accounts receivable. At October 31,1999, we had no amounts due
from Mita outstanding. Revenue increased about $843,000, or 22.1%, from the
fourth quarter of fiscal 1999 to the first quarter of fiscal 2000. This increase
was primarily due to an increase in revenue recognized under our OEM agreement
with Minolta. During the first quarter of fiscal 2000, we began shipping systems
to Minolta under their OEM agreement.
Gross margin decreased from 56.1% in the third quarter of fiscal 1998 to
45.6% in the fourth quarter of fiscal 1998. This decrease was primarily due to a
charge in cost of sales for the write-down in the value of some of our black and
white printers in the fourth quarter totaling $208,000. Additionally, this
decrease was due to fourth quarter fiscal 1998 results including systems sold to
Mita with a higher proportion of hardware than systems sold to Mita during the
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<PAGE> 27
third quarter. Systems sold to Mita in the first quarter of fiscal 1999 included
less hardware than those shipped in the fourth quarter of fiscal 1998, resulting
in improved margins from the fourth quarter of fiscal 1998 as compared to the
first quarter of fiscal 1999. We typically realize higher margins on software
than we do on the hardware we purchase from third-party manufacturers.
FLUCTUATIONS IN QUARTERLY RESULTS
T/R Systems' quarterly results of operations have fluctuated in the past
and we believe they will continue to do so in the future. Our future results of
operations will depend on many factors, including:
- changes in the average selling price of, and customer demand for, our
products;
- competitive market conditions, including price competition;
- the level of sales promotion activities, such as advertising, by us, our
OEM customers and our competitors;
- the general level of sales of printers and printer/copiers which connect
to our products;
- the cost and availability of components of our products;
- the mix of sales between our OEM customers and our dealer network;
- product configurations and the gross margin changes resulting from
variations in the proportion of hardware and software in systems sold;
- third-party funding of our development of technology to allow their print
devices to connect to our systems; and
- the pace of the shift to digital print technology.
Additionally, we anticipate that our operating expenses will continue to
increase. If our sales in any quarter do not also increase, our results of
operations for that quarter will be adversely affected. For these reasons, we
believe that quarter-to-quarter comparisons of our results of operations are not
necessarily meaningful and that you should not rely on our results of operations
in any particular quarter as necessarily indicative of future performance.
LIQUIDITY AND CAPITAL RESOURCES
From inception, we have funded our operations and investments in property
and equipment primarily through the private placement of preferred stock
totaling about $16.1 million. We have obtained additional funding through the
private placement of our common stock primarily with our founders, other
employees and private investors. To date, we have received $1.2 million through
the sale of common stock.
Net cash used in operating activities was $929,000 in fiscal 1999, $1.7
million in fiscal 1998 and $4.2 million in fiscal 1997. The decrease from fiscal
1998 to fiscal 1999 was primarily due to a decrease in the operating loss in
fiscal 1999. The decrease from fiscal 1997 to fiscal 1998 was also primarily due
to a decrease in the operating loss in fiscal 1998. However, the decrease in
fiscal 1998 was partially offset by an increase in accounts receivable due in
part to the timing of payments from Mita during the fourth quarter of fiscal
1998.
Net cash provided by operating activities was $681,000 for the nine months
ended October 31, 1999, as compared to net cash used in operating activities of
$483,000 for the nine
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<PAGE> 28
months ended October 31, 1998. The improvement in operating cash flow was
primarily due to our recording net income of $412,000 for the first nine months
of fiscal 2000 compared to a net loss of $352,000 for the first nine months of
fiscal 1999. Additionally, cash increased as a result of payments for customer
service plans and shipments to customers made during the nine months ended
October 31, 1999 for which the revenue recognition process was not complete. The
increase in cash due to increases in net income and deferred revenue were
partially offset by an increase in accounts receivable, due to an increase in
revenue, and a decrease in accounts payable, due to the timing of payments to
our vendors. At October 31, 1999, deferred revenue of $705,000 represented
amounts relating to the sale of printing systems and customer service plans for
which the revenue recognition process was not complete.
Net cash used for investing activities was $944,000 in fiscal 1999,
$619,000 in fiscal 1998 and $335,000 in fiscal 1997, reflecting purchases of
property and equipment. Cash spent on purchases of property and equipment was
$276,000 for the nine months ended October 31, 1999 and $791,000 for the nine
months ended October 31, 1998. Included in this fiscal 1999 total is spending on
equipment used in product development and for trade shows and demonstration
equipment for the MicroPress. The total for the nine months ended October 31,
1998 includes furniture and leasehold improvements purchased for our new office
space which we moved into during the first nine months of fiscal 1999. We
anticipate that we will spend about $400,000 for property and equipment
purchases during the fiscal year ending January 31, 2000.
In October 1997, we entered into a loan and security agreement with a
commercial bank. Under this agreement, we can borrow up to $3.0 million for
general working capital purposes under a revolving line of credit. The amount
available under this line is limited to the lesser of 80% of eligible accounts
receivable or $3.0 million less any letters of credit outstanding under the
agreement. At October 31, 1999, we had a $200,000 letter of credit outstanding
under the agreement and up to $1.6 million available under the line. Loans under
the line bear interest, payable monthly, at the bank's prime rate plus
three-quarters of one percent, 9.0% at October 31, 1999. The line expires in
October 2000. Additionally, in March 1998, the agreement was amended to provide
for an additional revolving line of credit of $250,000, which we had available
through December 1998 for the purchase of property and equipment. This
additional line bears interest at the bank's prime rate plus one and one-half
percent, 9.75% at October 31, 1999. At October 31, 1999, we had $113,000
outstanding under this additional line which is being repaid over 36 months. Our
assets, excluding intellectual property rights, are pledged as collateral under
both lines of credit. The agreement provides for covenants on the part of T/R
Systems, including the maintenance of a quick ratio, excluding deferred revenue,
of 1.5 to 1.0 and a minimum net worth, including preferred stock, of $4.5
million, as well as limitations on the incurrence of additional indebtedness and
the payment of cash dividends. As of October 31, 1999, we were in compliance
with all covenant requirements of the agreement.
Financing activities generated net cash of $312,000 in fiscal 1999 and $3.0
million in fiscal 1998 resulting primarily from the private placement of
preferred and common stock. Cash used in financing activities was $385,000 in
fiscal 1997. In fiscal 1997, we pledged $400,000 in cash as security on an
unused letter of credit. This restricted cash, which was reduced by $200,000 in
fiscal 1998, was held by us in a certificate of deposit. Financing activities
generated net cash of $973,000 million in the nine months ended October 31, 1999
as compared to $252,000 in the same period a year earlier. The increase was
primarily due to the private placement of 222,222 shares of series D preferred
stock at $4.50 per share in May 1999.
We believe that the net proceeds from the sale of our common stock in this
offering, together with our current cash and cash equivalents and cash generated
by operations, will be sufficient to meet our anticipated cash needs for working
capital, capital expenditures and
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<PAGE> 29
business expansion for at least the next twelve months. During or after this
period, if cash generated by operations is insufficient to satisfy our operating
requirements, we will be required to seek additional debt or equity financing.
There can be no assurance that we will be able to obtain any financing on terms
acceptable to us, if at all. If we sell additional equity securities, our
shareholders' holdings could be diluted.
Inflation has had no material impact on our operations to date.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two-digit entries in the date code field, and therefore these
systems may recognize a date ending in 00 as 1900 rather than the year 2000. As
a result, many companies' software and computer systems may need to be upgraded
or replaced to comply with year 2000 requirements. In assessing the effect of
the year 2000 issue on T/R Systems, we determined that we needed to evaluate
four general areas:
- supplier relationships;
- internal infrastructure;
- products sold to customers; and
- other third-party relationships.
Supplier Relationships. Our systems are built on the open architecture of
Microsoft Corporation's Windows NT, Intel Corporation microprocessors and
Harlequin's ScriptWorks. If these products are affected by the year 2000 issue,
our systems could be affected in ways which could seriously harm our business.
Additionally, we include in configurations of our systems print devices and
other hardware components purchased from third-party manufacturers. We purchase
our print devices primarily from one manufacturer. If this manufacturer is
affected by the year 2000 issue, our supply of these print devices could be
delayed or eliminated. We are relying on public statements from the suppliers of
software incorporated in our products and our supplier of print devices that
their operations and their products should not be significantly affected by the
year 2000 issue. If our manufacturers of other hardware components are affected
by the year 2000 issue, we believe that we could obtain these components from
other sources. However, we cannot assure you that our business will not be
disrupted if our hardware manufacturers do not provide products to us which are
year 2000 compliant.
Internal Infrastructure. The year 2000 issue could also affect our
internal systems. We have assessed our internal information technology systems,
including third-party software and hardware technology. We are relying on public
statements from the suppliers of these systems that their operations and their
products should not be significantly affected by the year 2000 issue. However,
we cannot assure you that our business will not be disrupted if these systems
are not year 2000 compliant. Additionally, we have rolled forward our internal
information technology systems to the year 2000 on a test basis. Based on the
results of these tests, we do not believe these systems will be affected by the
year 2000 issue. However, we may experience serious unanticipated problems and
costs caused by undetected errors and defects in the technology used in our
internal systems.
Products Sold to Customers. The software included in our systems does not
contain two digit date codes and therefore is generally unaffected by the year
2000 issue. However, our systems sold to OEMs, once shipped, are connected to
the OEM's print devices. If these
25
<PAGE> 30
devices are affected by the year 2000 issue, our sales to our OEM customers
could be harmed. We are relying on public statements from our OEM customers that
their operations and their print devices will not be significantly affected by
the year 2000 issue.
We do not currently have any information concerning the year 2000
compliance status of our customers. Our current or potential customers may incur
significant expenses to achieve year 2000 compliance. If our customers are not
year 2000 compliant, they may experience significant costs to remedy problems,
or they may face litigation costs. In either case, the year 2000 issue could
reduce or eliminate the budgets that current or potential customers could have
for purchases of our products and services. As a result, our sales could be
harmed.
Other Third-Party Relationships. We rely on outside vendors for utilities
and telecommunication services as well as other infrastructure services. We are
not capable of independently evaluating the year 2000 compliance of the systems
utilized to supply these services. We cannot assure you that these suppliers
will resolve any or all year 2000 issues with these systems before a material
disruption to our business occurs. Any failure of these parties to resolve year
2000 issues with their systems in a timely manner could harm our business.
We have not developed a contingency plan to address situations that may
result if we are unable to achieve year 2000 readiness of our critical
operations, and we do not plan to do so in the future. Any investigations we
have undertaken with respect to year 2000 issues have been funded from available
cash, and these costs have not be separately accounted for. To date, these costs
have not been significant.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, which is effective for all fiscal years beginning after
June 15, 2000. This statement establishes accounting and reporting standards for
derivative instruments, including derivative instruments embedded in other
contracts and for hedging activities. Under this statement, some contracts that
were not formerly considered derivatives may now meet the definition of a
derivative. We intend to adopt this statement effective January 1, 2001. We do
not expect the adoption of this statement to have a significant impact on our
financial position or results of operations because we do not have significant
derivative activity.
In December 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-9, Modification of Statement of Position 97-2,
Software Revenue Recognition, With Respect to Certain Transactions. This
statement requires recognition of revenue using the residual method when
vendor-specific objective evidence of fair value does not exist for one or more
of the delivered elements in an arrangement. Under the residual method, the
arrangement fee is recognized as follows:
- the total fair value of the undelivered elements, as indicated by
vendor-specific objective evidence, is deferred and subsequently
recognized based on the guidance in Statement of Position 97-2; and
- the difference between the total arrangement fee and the amount deferred
for the undelivered elements is recognized as revenue related to the
delivered elements.
We will adopt this statement in fiscal 2001 and do not expect its adoption to
have a material effect on revenue recognition.
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<PAGE> 31
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We believe our exposure to market rate fluctuations on our cash equivalents
are minor due to the short-term maturities of those investments, typically 90
days or less. We have market risk relating to borrowings under our credit
facility because the interest rates under the facility are variable. The fair
value of our borrowings at October 31, 1999 approximated $113,000. To date, we
have not entered any derivative instruments to manage interest rate exposure.
A significant portion of our revenue is derived from international
customers. However, all of our revenue is received in U.S. dollars. A
strengthening of the dollar could make our products less competitive in foreign
markets.
27
<PAGE> 32
BUSINESS
COMPANY OVERVIEW
T/R Systems designs, develops and markets digital document processing and
printing systems, consisting of proprietary software and hardware, for the
print-on-demand market. Our highly functional product, the MicroPress Cluster
Printing System, manages multiple digital print devices provided by us or by
third parties as an integrated printing system. This system allows our customers
to flexibly and economically print desired quantities with minimum lead time.
Key MicroPress features include consistent color quality across multiple print
devices as well as the capability to simultaneously support color and black and
white digital printing devices and digital input.
We are a leading provider of digital document processing and printing
systems in the mid-range print-on-demand market. We define the mid-range
print-on-demand market as users with monthly print volumes of 100,000 to
1,000,000 black and white pages or 10,000 to 100,000 color pages. We initially
focused our sales and marketing efforts on organizations that provide printing
and copying services, and have expanded our focus to include service bureaus,
in-house print shops and corporate customers.
INDUSTRY BACKGROUND
The emergence of digital printing technologies is driving significant
changes in all sectors of the printing and publishing industry. Increasingly,
traditional printers, printing presses and copiers are being integrated with
computer, networking and data processing technologies. Among the sectors that
have experienced the most significant changes is the rapidly growing print-on-
demand market in which key customer requirements include the ability to store,
retrieve, manage and print documents quickly and in desired quantities. CAP
Ventures, Inc., a consulting and research firm focused on the print-on-demand
market, estimates that the U.S. market for print-on-demand equipment, supplies
and services will be approximately $6.1 billion in 1999 and will grow to
approximately $11.8 billion in 2003. The print-on-demand market is characterized
by a large number of printing providers. CAP Ventures estimates that, at
December 1998, the market in the United States consisted of approximately 66,000
commercial printers and corporate print shops and approximately 64,000 secondary
market establishments, including advertising agencies and commercial graphic art
firms.
Typical users of print-on-demand solutions require systems that allow them
to produce a wide variety of print outputs, including books, manuals,
newsletters and direct marketing materials. Examples of print-on-demand users
include:
- print-for-pay organizations -- quick printers, printing service bureaus,
commercial printers and offset printers that provide printing and/or
copying services for outside entities;
- educational institutions -- primary, secondary and higher education
institutions including community colleges and universities;
- government entities -- local, city, state and federal agencies as well as
public utilities;
- corporate entities -- in-house print shops and marketing, finance and
training departments;
- facilities management -- service providers that manage print operations
for other entities; and
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<PAGE> 33
- book publishers -- organizations that provide publishing services,
including on-demand book publishing.
Historically, the print-on-demand market relied on costly stand-alone,
monochrome devices based on analog technology and dedicated to a single print,
copy or scan function. Since the advent of desktop publishing in the mid-1980s,
the printing industry continues to undergo a widespread transition from analog
systems and processes to digital technologies. With the proliferation of
personal computers, desktop publishing software, digital photography and network
computing, documents are increasingly managed in digital formats. Faster
processor speeds, expanded system memory and increased storage capacity have
combined with advanced software packages to enable complex image processing,
color graphics manipulation and the layout, design and production of digital
documents. Additionally, desktop publishing and general word processing software
allow text, line art and graphics to be digitally integrated in a single
software application. These new digital technologies have improved control over
the document creation process and have enabled documents to be produced more
quickly without the assistance of special trade shops and other outside
services. In addition, the new capabilities offered by digital tools and
processes have contributed to increased customer demand for improved products
and services, including the ability to reliably produce high quality color
documents more quickly and easily, and the ability to produce smaller quantities
economically.
The trend toward advanced digital printing technologies has resulted in new
generations of printers and printing systems. Traditionally, users of
print-on-demand systems have had to choose between two options when selecting
digital printing systems. At the low end are desktop oriented workgroup printers
that may be attached to a network or operate as stand-alone devices, and
typically cost between $3,000 and $15,000. While these devices are relatively
inexpensive, they are often characterized by relatively limited performance and
functionality and do not incorporate digital document management capabilities.
At the high end are high-performance, expensive systems that typically cost
$250,000 or more. Though these systems offer more complete document finishing
and heavy media-handling capabilities, they require large monthly printing
volumes, often in excess of 1,000,000 black and white pages per month to justify
the high cost of acquisition and the significant ongoing maintenance costs.
These traditional solutions fail to adequately address the needs of the
mid-range segment of the print-on-demand market. The low-end products do not
provide the functionality or flexibility needed to meet the diverse and dynamic
requirements of end users. The high-end systems require large capital outlays
that make the traditional systems too expensive for many smaller end users.
These smaller end users are unable to afford the functionality and performance
that their clients increasingly demand. A large gap exists between the low-end
and high-end offerings where limited viable solutions exist. For this reason,
end users in the mid-range segment must make difficult trade-offs among
performance, functionality and price. Even at the high-end, many existing
solutions offer limited performance, including low data transfer speeds for
large color graphics and lengthy print and work flow time requirements from
document creation to output. Additionally, both low-end and high-end solutions
often fail to offer the reliability required for mission-critical print jobs or
the flexibility to provide cost-effective printing in both black and white and
color.
T/R SYSTEMS' SOLUTION
T/R Systems addresses the needs of the mid-range print-on-demand market by
providing a cost-effective, high speed digital document production system
capable of producing complex, short-run, color and black and white text and
images. The core of our solution is the
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<PAGE> 34
MicroPress, a server-based software and hardware system built on
industry-standard open-architecture technologies. Our solution offers the
following primary benefits:
Highly Functional. The MicroPress' proprietary cluster printing
architecture provides a wide range of production printing capabilities and
performance levels for digital document processing and printing. By enabling as
many as twelve print devices to be managed by a single server, the MicroPress
can distribute a document among multiple printers and print at speeds several
times faster than a single device could produce independently, regardless of
page complexity or variability. For example, a system with twelve print devices
can sustain document printing speeds of up to 624 black and white pages per
minute, compared to 62 pages per minute for a single printer. Our calibration
utilities ensure that all print devices within the system will print with
consistent color quality. Additionally, we offer document management features
generally not available even on high-end systems, including Internet-based job
submission and ticketing, document archiving, variable data printing, document
merging, electronic collation and imposition.
Cost-Effective. The MicroPress offers an economical solution for mid-range
users. Our proprietary cluster printing architecture allows the MicroPress to
offer features that are typically available only in high-end solutions at prices
that are significantly lower than those of high-end offerings.
Scalable and Configurable. The MicroPress is scalable and configurable,
permitting users to add color, black and white and wide format printers to meet
their changing needs. Up to eight print devices can be supported through direct
connections to a single MicroPress ClusterServer, which is the server that runs
our printing systems. By adding network connections, a single MicroPress
ClusterServer can support up to twelve print devices. Additionally, our use of
industry-standard open-architecture technologies allows existing users to
upgrade their systems without having to replace existing equipment and losing
the value of their original investment.
Integrated Mixed-Mode Capability. We believe the MicroPress is the only
commercially available printing system that supports the production of documents
that are color, black and white, wide format or a combination of all three with
a single system.
Flexible and Reliable. The MicroPress allows users to print a large job
across multiple attached print devices as well as run multiple jobs
simultaneously on different devices. The MicroPress supports mission-critical
printing applications by recognizing available resources and automatically
rerouting print jobs if any of the print devices become inoperable.
Easy to Use. Our software applications are designed to increase the ease
of managing documents and work flow. We designed the MicroPress to require
minimal training. In addition, we provide user-friendly documentation, manuals
and online help.
OUR STRATEGY
T/R Systems' objective is to be the leading provider of digital document
processing and printing systems for the mid-range segment of the print-on-demand
market. To achieve this objective, our strategy includes the following key
elements:
Maintain and Expand Our Leadership Position in the Print-on-Demand
Market. We believe that we have established a market leading position in the
mid-range of the print-on-demand market. We will continue to leverage our sales
and marketing and product development efforts throughout the print-on-demand
segment, including other commercial printers, corporate
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<PAGE> 35
print shops and secondary print establishments. We believe many end users in
this segment are seeking digital document production solutions that have the low
cost and high performance characteristics of the MicroPress.
Expand Distribution. We pursue a dual distribution strategy. Our products
were distributed through 57 independent domestic and international dealers and
75 Minolta-owned or affiliated North American dealers as of October 31, 1999.
Minolta also sells our products in Europe, Australia and South Africa. We
believe there are a number of cities both inside and outside the United States
that are not yet adequately represented by a dealer or that can sustain more
than one dealer. As a result, we are currently seeking to recruit new,
high-quality dealers. In addition, we intend to further build our distribution
channel by continuing to develop OEM distribution relationships with
manufacturers of digital printers and copiers. We have established OEM
agreements with Hitachi Koki Imaging Solutions, Inc., Minolta, Mita and Ricoh
Corporation, and are actively pursuing additional OEM customers.
Develop New Applications and Features. The MicroPress currently supports
devices from Mita, Minolta and Hewlett-Packard, as well as print devices
purchased from third parties and resold under our private label. We intend to
continue to develop multi-device management solutions for print-on-demand
applications through additional investment in research and development. We have
recently introduced new features that optimize the ability of customers to use
the Internet in their day-to-day printing operations and expanded service
offerings to increase customer loyalty. Through upgrades, which historically
have occurred about twice a year, we continually enhance the software
capabilities of the MicroPress to provide customers with market leading
features. We believe that we have achieved technology leadership in the
mid-range print-on-demand market and that continued innovation will be important
for us to maintain a leadership role and to meet increasingly complex customer
demands.
Expand Internet Functionality. We intend to add additional Internet
capabilities to the MicroPress through our upgrades. The MicroPress currently
offers full electronic job submission and ticketing over the Internet and a
proofing mechanism that allows electronic delivery of processed images. A
recently added product feature allows MicroPress users to interactively manage
the MicroPress and its associated work flow functionality from any browser at
any location. This feature gives multiple remote users the ability to
simultaneously modify different print jobs using a browser with Internet access.
Focus on Core Technologies and Build on Industry-Standard Open-Architecture
Technologies. We expect, on an ongoing basis, to use industry-standard
technologies such as Microsoft Windows NT server software, the latest Intel
Pentium microprocessors and Harlequin's ScriptWorks. We believe that utilizing
standards-based open systems enables us to bring new product features to market
more quickly and to permit functionality with a wide variety of computer
networks, devices and complementary software. In addition, this approach allows
us to quickly upgrade to next generation computer hardware and software systems,
allowing us to focus on developing the core technologies that differentiate our
products.
Further Develop International Sales. In fiscal 1999, T/R Systems generated
33.7% of its revenue from sales outside the United States. While we have
historically focused most of our sales efforts on customers inside the United
States, we are presently expanding our dealer network and adding sales personnel
overseas to pursue international opportunities. In addition, we believe
relationships with OEMs will enhance international sales through the OEMs'
established global distribution infrastructures.
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<PAGE> 36
PRODUCTS
T/R Systems' primary product line is the MicroPress Cluster Printing
System. The MicroPress combines T/R Systems' proprietary software and hardware
with industry-standard third-party software and hardware resold by T/R Systems
to provide a complete digital document printing and processing system. The
software offered with the MicroPress consists of standard software modules, an
extensive family of software add-ons called PowerPacks, and software utilities.
The base hardware offered with the MicroPress consists of the ClusterServer and
print devices sold by us or PrintLinks that connect to third-party print
devices. The list prices of our typical systems generally range from about
$50,000 to $150,000, depending on system configuration.
SOFTWARE
There are three standard software modules included in the ClusterServer
used to provide functionality for the MicroPress:
- MicroPress Spool. MicroPress Spool is the product name for our open
prepress interface, referred to as an OPI, spooler that streamlines the
document production workflow by shifting the burden of printing and image
management tasks from individual workstations to a central server. The
MicroPress Spool supports both Macintosh and PC platforms, thus
eliminating the need for special workstation software.
- MicroPress RIP. A RIP, or raster image processor, is the software that
translates the instructions for page printing into the actual pattern of
dots needed by the printer to display the page. The MicroPress RIP is a
fast, versatile and powerful application that translates a document
described using either PostScript or page description format, referred to
as PDF, languages and produces output on any number of devices, including
printers, computer screens, or files on disk. The MicroPress RIP combines
Harlequin RIP software with plug-ins developed by T/R Systems.
- MicroPress PrintStation Manager. MicroPress PrintStation Manager is the
product name for our software application that manages most of the
document processing on the MicroPress. Through this application, users
can establish print queues that help organize printing workflow into a
manageable process. Additionally, the PrintStation Manager provides the
functionality of a virtual printer that enables multiple print devices to
process documents as a single high-speed device. The PrintStation Manager
also provides easy access to and control of the value-added software
options offered by T/R Systems.
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The following table summarizes the base software functionality available
with the MicroPress:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
INPUT DOCUMENT MANAGEMENT OUTPUT/STORAGE
- -------------------------------------------------------------------------------
<S> <C> <C>
- - publish - allow for remote job - print to a combination
network-accessible management through the of connected print
print clusters and Internet devices
queues
- preview post-RIP - automatically or
- - accept and RIP documents manually archive
PostScript-compatible documents
document files - modify pages for
continuous - move documents from one
- - create page thumbnails top-to-bottom layout print queue to
of various sizes another print queue
- manipulate the order of
- - create mirror or pages within a document - store documents in
reversed images of a network accessible or
document - automatically print removable storage
documents in duplex devices
- - batch RIP documents format
during off-peak - convert MicroPress
printing times - insert and delete pages formatted documents
from post-RIP documents into PDF
- - match document color
quality to industry - receive job status - connect to third-party
standard profiles notification through billing or
pager or e-mail authentication systems
- - compress color
documents up to 25 - adjust image brightness
times for storage and contrast levels
- merge multiple
documents created by
separate applications
- modify page or print
layout for optimum
performance, including
converting documents
into booklets
- apply discreet numbers
to pages based on the
user's direction
- apply variable data
elements to form
documents
- apply page- or
job-specific annotations
to a document for
searching
- -------------------------------------------------------------------------------
</TABLE>
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<PAGE> 38
In addition to the three standard modules, we offer the following software
options to increase functionality:
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------
SOFTWARE FUNCTION
- -----------------------------------------------------------------------------------
PowerPacks:
Color Control PowerPack - ensures consistent and accurate color document
output
Imaging PowerPack - provides post-RIP document manipulation
e-Ticket PowerPack - allows users to streamline the production process
through Internet job submission
Workflow Automation - enables users to automate complex, repetitive
PowerPack document production tasks
- -----------------------------------------------------------------------------------
Utilities:
OpenPrinter Connection - provides connection to networked printers
MicroPress RIP for PCL 5 - allows processing and preparation of black and
white printer control language, referred to as PCL,
files
TurboCharger - allows a job to be distributed to multiple
MicroPress RIPs on multiple servers for processing
- -----------------------------------------------------------------------------------
</TABLE>
PowerPacks
PowerPacks are document management and manipulation software add-ons which
can be installed with the MicroPress to optimize performance. The specific
PowerPacks offered are:
- Color Control PowerPack. This PowerPack ensures consistent color
quality. This option is required in configurations using color print
devices.
- Imaging PowerPack. This PowerPack provides a family of post-RIP document
manipulation features that enable users to alter a document's page
characteristics. These features include:
- image editing;
- text optical character recognition, referred to as OCR, which allows
users to save a document in any number of industry standard formats,
including hypertext markup language, referred to as HTML, and
Microsoft Word;
- conversion of tagged image file format files, referred to as TIFF
files, into the MicroPress post-RIP environment; and
- conversion of MicroPress post-RIP documents into TIFF files.
- e-Ticket PowerPack. This PowerPack enables MicroPress end users to
streamline the production process by receiving print jobs through the
Internet, email or removable media. Using this option, print buyers
submit jobs through a customized job ticket to a print provider using the
MicroPress. The job ticket includes all the specifications of the job as
well as all files for the job. This option allows the user to save a
RIPed job with any enhancements made on the MicroPress in a compressed
file format that can be easily sent back to a print buyer for on-screen
proofing before the job is printed.
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- Workflow Automation PowerPack. This PowerPack enables users to create
and run customized, document production scripts to fully automate complex
and repetitive document production tasks. Scripts are created using
industry-standard Microsoft Visual Basic scripting.
Utilities
Our software utilities provide users advanced control over document input,
output and storage. These utilities may be purchased individually with the
initial sale or after installation has occurred. Specific utilities available
include the following:
- OpenPrinter Connection. This utility provides an easy way for customers
to print to any 600 dots per inch black and white printer connected
through a standard network infrastructure. This is designed for use by
customers with investments in non-MicroPress supported print devices that
need the power of the MicroPress.
- MicroPress RIP for PCL 5. This utility allows the processing and
preparation of black and white PCL, a PostScript file format, files for
printing on any MicroPress ClusterServer or SatellitePress ClusterServer.
The MicroPress RIP for PCL 5 supports advanced batch or individual file
processing.
- TurboCharger. This powerful utility gives customers the ability to
direct a single job to multiple servers equipped with a MicroPress RIP to
simultaneously RIP distinct page ranges within the job and bring the job
back together in the MicroPress post-RIP application-independent
environment. This is designed for customers who need optimum RIP power,
such as those who produce lengthy direct mail.
HARDWARE
The following summarizes the server and other hardware available in various
configurations of the MicroPress:
Servers
- MicroPress ClusterServer. This is the core server for the MicroPress. It
is equipped to receive, RIP, manipulate, print and store files using our
proprietary standard software modules.
- SatellitePress ClusterServer. This server is designed for environments
requiring remote or distributed printing capabilities. It provides the
same functionality as the MicroPress ClusterServer except that it does
not have RIP capability. The SatellitePress ClusterServer is equipped to
receive, print and store all files already RIPed by a full MicroPress
ClusterServer or MultiRIP server. It can be upgraded to a full MicroPress
ClusterServer by adding MultiRIP software.
- MultiRIP Server. This server provides additional RIP capacity to
supplement a ClusterServer. The MultiRIP Server has the same computing
architecture and growth capabilities of a ClusterServer but is only
equipped to RIP files.
- MicroScan Server. This server has the same computing architecture and
growth capabilities of a ClusterServer but functions as a dedicated scan
server and is equipped to take the burden of scanning off a busy
ClusterServer.
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<PAGE> 40
Other Hardware
- PrintLinks. PrintLinks enable the MicroPress ClusterServer to interface
with supported digital printers and printer/copiers manufactured by third
parties. Our PrintLinks currently connect to the Minolta CF900, Minolta
CF910, Minolta CF911PE, Minolta Di520, Minolta Di620, Minolta Di620PE,
Mita Ci7500 and Mita Ci7600.
- PrintStations. We offer T/R Systems branded printers, known as
PrintStations, that can connect directly to the MicroPress ClusterServer.
PrintStations are high quality, durable devices that are ideal for
cluster printing environments. T/R Systems currently sells two 600 dots
per inch black and white PrintStations. The PrintStation 040 can print up
to 40 pages per minute using a bulk toner system. The PrintStation 024
can print up to 24 pages per minute utilizing a cartridge toner system.
- MicroScanner. The MicroScanner is a high-speed document scanner capable
of scanning up to 40 one-sided pages or 20 two-sided pages per minute.
The MicroScanner includes software that allows direct scanning and
printing of documents on a MicroPress or SatellitePress ClusterServer.
MANUFACTURING
We outsource the manufacturing of most of the hardware components of our
products. These components include the circuit boards incorporated in our
products, customized servers and PrintLinks. We then integrate hardware
components with our internally developed software to create the various
configurations of the MicroPress. We also purchase complete printing devices and
scanners from third-party manufacturers that we resell under our brand as part
of our systems. Before we ship products to customers, we test both the hardware
and software to assure successful integration.
SALES AND MARKETING
We distribute our products in North America and internationally through a
network of independent dealers and through our distribution relationship with
Minolta. We maintain a sales force consisting of regional managers whose
principal duties are to recruit high quality dealers in their territories and to
facilitate and help close sales through those dealers and through Minolta's
channel of dealers. As of October 31, 1999, we had eleven regional managers
throughout the United States, one in Canada and one in the United Kingdom.
Dealers sell our products to end users and service our products in a local
geographical area. In the United States, these dealers typically are:
- office products, computer and peripheral resellers;
- copier or graphic arts dealers; or
- independent service organizations providing customized software and
hardware solutions and specializing in providing services that cannot be
obtained through product manufacturers.
T/R Systems signed an OEM agreement with Mita in September 1997, allowing
Mita to resell the MicroPress in Japan. Mita discontinued orders of our systems
in June 1998 and subsequently entered into reorganization proceedings. Since
then, our sales to Mita have been negligible. In January 1999, we signed an OEM
agreement with Minolta, allowing Minolta to
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<PAGE> 41
resell the MicroPress worldwide through independent Minolta dealers as well as
through dealerships owned by Minolta. In April 1999, we executed a development
and distribution agreement with Hitachi. We are developing connectivity between
the MicroPress and Hitachi's print device and this agreement provides for
Hitachi's distribution of the finished product. We recently signed an agreement
with Ricoh Corporation to develop connectivity of Ricoh's print devices to our
MicroPress. This agreement will permit Ricoh to resell the MicroPress connected
to its print devices. We are also actively seeking to enter into distribution
agreements with other major print device manufacturers to access their dealer
networks both within the United States and internationally.
During fiscal 1997, Litho Development and Research accounted for 16.5% of
our revenue. During fiscal 1998 and 1999, Mita accounted for 19.0% and 14.1% of
our revenue. During the nine months ended October 31, 1999, Minolta accounted
for 39.1% of our revenue. No other customer accounted for more than 10% of our
revenue during any of those fiscal years or the nine month period.
Sales to international customers represented 44.2% of revenue in fiscal
1997, 33.6% of revenue in fiscal 1998 and 33.7% of revenue in fiscal 1999. Sales
to international customers in any region did not exceed 10% of revenue in any of
the last three fiscal years, except that sales to European customers represented
29.4% of revenue in fiscal 1997 and sales to Japanese customers represented
22.7% of revenue in fiscal 1998 and 33.7% of revenue in fiscal 1999.
As of October 31, 1999, T/R Systems maintained a marketing organization
consisting of ten people responsible for market research, branding, advertising,
public relations, events, strategic alliances, lead management and dealer
communications. We rely upon industry specific research and customer interaction
to assist in marketing planning. We create market awareness through advertising,
public relations and trade shows. In May 1999 we began to offer a cooperative
marketing program to independent dealers to create additional market awareness.
We believe that our strategic alliances, including OEM relationships, also
enhance market awareness. In addition, we intend to continue expanding market
awareness of our products through consistent promotion of our T/R Systems,
MicroPress, and Cluster Printing System brands in marketing events, advertising
and public relations activities. We have a telemarketing operation that
generates qualified leads for our dealers. Additionally, to improve dealer
effectiveness and loyalty, we conduct dealer training and other support
activities.
CUSTOMER SERVICE
We believe that providing quality customer support to end users, dealers
and OEM customers is critical to customer satisfaction. Dealers are considered
the primary support contact for end users, with T/R Systems performing secondary
support. We market a three-year service plan which entitles end users to call
our customer support organization for assistance. We also offer training for
MicroPress users at our offices and, for an additional fee, will provide
training at a user's location.
RESEARCH AND DEVELOPMENT
T/R Systems has devoted a significant amount of resources to research and
development. At October 31, 1999, over one-third of our employees were employed
in research and development. Research and development expenses were $2.6 million
for the nine months ended October 31, 1999 and $3.2 million for fiscal 1999,
$2.2 million for fiscal 1998 and $1.8 million for fiscal 1997.
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<PAGE> 42
We believe the markets for our products are characterized by rapid change
and that there are three factors critical to the success of our research and
development efforts:
- we must accelerate the rate of product line expansion in terms of device
connectivity and system features;
- we must continue to develop software applications and feature
enhancements that leverage performance gains realized through the release
of new generations of software and hardware; and
- we must attract and retain qualified technical professionals.
INTELLECTUAL PROPERTY
To be successful, we depend, in part, on proprietary technology in our
products. We rely on a combination of patent, copyright, trade secret and
trademark laws, nondisclosure and other contractual restrictions to protect our
proprietary rights. Trade secret and copyright laws provide only limited
protection of our software, documentation and other written materials. We hold
10 United States patents related to cluster printing and print engines and have
filed for additional patents. We have also taken the following measures to
protect our intellectual property and proprietary rights:
- we enter into confidentiality and nondisclosure agreements with our
employees, consultants and OEMs;
- we limit access to, and distribution of, our software and other
proprietary information; and
- we employ hardware security devices and unique key codes to limit
unauthorized use of our software.
Despite the efforts we take to protect of our intellectual property, we
cannot assure you that we will be able to protect it, and any failure to do so
could harm our business.
COMPETITION
T/R Systems' products compete with a variety of other digital document
production systems. Competition in the print-on-demand market is based primarily
on product performance and price as well as customer service. Some of our
competitors, such as Xerox Corporation, Canon, Inc. and International Business
Machines Corp., are substantially larger, with greater financial, technical,
marketing and other resources, more established sales channels, greater name
recognition and broader product lines than we have. Our present or future
competitors could introduce products with the same or greater capabilities than
ours. Further, these competitors have much greater financial resources than we
do that could enable them to price competing products at prices less than we
charge.
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<PAGE> 43
We categorize our competitors into the following four groups:
- the first group includes manufacturers such as Xerox and Canon,
which currently offer digital copiers that operate as printers
through the use of RIPs and controllers as well as host print
computers;
- the second group of competitors are the high-end electronic printing
system vendors, which are currently selling systems primarily to
commercial and large in-house printers;
- third, there are RIP and controller board providers, whose products
enable digital copiers to also function as printers. These companies
typically operate as OEMs to major, international printing equipment
companies; and
- the final group includes companies that have products with similar
features to our cluster printing system concept, including IBM.
We believe that none of our competitors are dominant in the industry.
Further, we do not believe that any of our competitors has a product that
currently offers all of the capabilities of the MicroPress and is competitively
priced. However, in the future, these or other competitors could develop similar
or more advanced products than ours.
EMPLOYEES
As of October 31, 1999, we had a total of 97 employees, substantially all
of whom are full-time. Of our employees, 35 were in research and development and
40 were in sales and marketing and technical support, with the remaining 22 in
operations, finance and administration. None of our employees is represented by
a labor union, and we have never experienced a work stoppage. We consider our
relations with our employees to be good.
FACILITIES
T/R Systems leases its principal facility, totaling approximately 52,000
square feet, in Norcross, Georgia under a lease expiring in March 2003. We also
lease office space in Brussels, Belgium and Hilversum, The Netherlands. We
anticipate that we will need additional space as our business expands and
believe that we will be able to obtain suitable space on commercially reasonable
terms as needed.
LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to claims
arising out of our operations in the normal course of business. We are not
currently engaged in any legal proceedings that we expect would have a material
adverse effect on our business, financial condition or results of operations.
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<PAGE> 44
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of T/R Systems, and their ages as of
October 31, 1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Michael E. Kohlsdorf.............. 44 President, Chief Executive Officer and Director
E. Neal Tompkins.................. 55 Executive Vice President, Chief Technology Officer
and Director
Lyle W. Newkirk................... 47 Vice President, Chief Financial Officer, Secretary
and Treasurer
Charles K. Thackston.............. 43 Senior Vice President, Sales and Marketing
Michael W. Barry.................. 42 Senior Vice President, Development and Engineering
E. James White.................... 55 Senior Vice President, Operations
Andrew Nathan..................... 45 Vice President, OEM Sales
Jack N. Bartholmae................ 48 Vice President, Engineering
R. Dean Nolley.................... 38 Vice President, North American Sales
Charles H. Phipps................. 72 Chairman of the Board
C. Harold Gaffin.................. 60 Director
Philip T. Gianos.................. 49 Director
Francis A. Rowe................... 75 Director
</TABLE>
Michael E. Kohlsdorf has served as our president, chief executive officer
and a director since September 1996. From 1993 to September 1996, Mr. Kohlsdorf
held a variety of positions at Brock Control Systems, Inc., a sales automation
software company, now known as FirstWave Technologies, Inc., most recently
serving as president, chief operating officer and chief financial officer.
E. Neal Tompkins is a co-founder of T/R Systems and has been a director and
executive since our founding in September 1991, most recently serving as our
executive vice president and chief technology officer.
Lyle W. Newkirk joined us in September 1997 and has served as our vice
president, chief financial officer, secretary and treasurer since November 1997.
From 1992 to September 1997, Mr. Newkirk held various positions with Peachtree
Software, Inc., a maker of accounting software, which became a subsidiary of
Automatic Data Processing, Inc., most recently serving as vice president and
chief financial officer.
Charles K. Thackston has served as our senior vice president, sales and
marketing since September 1998. From December 1996 to September 1998, Mr.
Thackston served as our vice president, marketing. From April 1995 to December
1996, Mr. Thackston served as vice president of marketing and director of sales
operations at Brock. From 1988 to April 1995, Mr. Thackston held various
positions with Datalogix International, Inc., a maker of process manufacturing
software, most recently serving as vice president.
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Michael W. Barry has served as our senior vice president, development and
engineering since August 1998. From July 1995 to August 1998, Mr. Barry served
as our vice president of systems development. Before that, he served as our
director of systems development from our founding in September 1991 until July
1995.
E. James White has served as our senior vice president, operations since
September 1999. From June 1995 to July 1999, Mr. White served as vice president,
operations at Checkmate Electronics, a manufacturer of payment automation
equipment. Before that, he was director of operations at Solectron Technology,
Inc., a manufacturer of printed circuit boards, from May >1993 to April 1995.
Andrew Nathan has served as our vice president, OEM sales since January
1999. From August 1997 to January 1999, Mr. Nathan served as our vice president,
sales. From 1994 until joining us, Mr. Nathan held various positions at First
Image Management, a data imaging, micrographics and electronic database
management company, which was a subsidiary of First Data Corporation, most
recently serving as senior vice president and general manager of the demand
publishing division.
Jack N. Bartholmae has served as our vice president, engineering since
November 1995 and as our director of engineering from April 1994 to November
1995. Before that, he served as our director of electrical engineering from our
founding in September 1991 until April 1994.
R. Dean Nolley has served as our vice president, North American sales since
January 1999. Before joining us, Mr. Nolley served as vice president of sales,
North America for Colorbus Inc., a maker of network print servers, from June
1997 until January 1999. From September 1996 until June 1997, Mr. Nolley owned
and operated Digital Imagination, a specialized sports imaging business. From
August 1983 to September 1996, Mr. Nolley held sales positions with Eastman
Kodak Company, a developer, manufacturer and marketer of imaging products.
Charles H. Phipps has served as chairman of the board and as a director
since 1994. Mr. Phipps has been a general partner of Sevin Rosen funds, a group
of venture capital funds, for twelve years.
C. Harold Gaffin has served as a director since 1994. Mr. Gaffin has been
the director, School of Printing Management and Sciences at the Rochester
Institute of Technology since 1994.
Philip T. Gianos has served as a director since February 1996. Since 1982,
Mr. Gianos has been a general partner of InterWest Partners, a group of venture
capital funds. Mr. Gianos currently serves as a director of Xilinx Inc. and Ramp
Networks, Inc.
Francis A. Rowe is a co-founder of T/R Systems and has served as a director
since our founding in September 1991 and as an executive from inception until
his retirement. Mr. Rowe served as our chief executive officer from our founding
in September 1991 until September 1996. Mr. Rowe retired in August 1997 from the
position of senior vice president.
Each director was elected under a shareholders' agreement among T/R Systems
and the holders of some series of our preferred stock. This agreement will not
continue in effect after this offering.
Officers are chosen by, and serve at the discretion of, the board of
directors. There are no family relationships among our directors and executive
officers.
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CLASSIFICATION OF DIRECTORS
Before the closing of this offering, we will amend our bylaws to provide
for a staggered board of directors. The six directors comprising T/R Systems'
board of directors will be divided into three classes:
- Messrs. Rowe and Phipps will be designated as class I directors whose
initial term will expire at the annual meeting of shareholders to be held
in 2000;
- Messrs. Tompkins and Gianos will be designated as class II directors
whose initial term will expire at the annual meeting of shareholders to
be held in 2001; and
- Messrs. Kohlsdorf and Gaffin will be designated as class III directors
whose initial term will expire at the annual meeting of shareholders to
be held in 2002.
After their initial term following this offering, directors in each class will
serve for a term of three years. After our board becomes staggered, our
directors may be removed during their term only for cause and only by a majority
of the other directors or by a vote of shareholders holding 80% of our voting
power.
BOARD COMMITTEES
Our audit committee reviews our internal accounting procedures and consults
with and reviews the services provided by our independent public accountants.
The audit committee currently consists of Messrs. Gaffin and Phipps.
Our compensation committee reviews and recommends to the board of directors
the compensation and benefits of our executive officers and, together with the
board of directors, administers some of our stock option plans. The compensation
committee currently consists of Messrs. Gaffin and Gianos.
DIRECTOR COMPENSATION
Directors currently do not receive any cash compensation for their services
as members of the board of directors. Mr. Gaffin is reimbursed for expenses
associated with attendance at meetings of the board of directors.
Following this offering, directors who are not executive officers of T/R
Systems will be paid $9,000 annually; additionally, directors who serve on any
committee will be paid another $3,000 annually. Directors will be reimbursed for
reasonable travel expenses. In addition, T/R Systems grants each outside
director an annual option to purchase up to 15,000 shares of our common stock,
which will vest over a three year term.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Neither of the members of our compensation committee was at any time during
fiscal 1999, or any other time, an officer or employee of T/R Systems. No member
of the compensation committee serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of our board of directors or compensation committee.
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EXECUTIVE COMPENSATION
The following table presents the compensation earned by our chief executive
officer and our other four most highly compensated executive officers whose
salary and bonus for the year ended January 31, 1999 were in excess of $100,000,
referred to as the named executive officers. All other compensation consists of
matching contributions to our 401(k) plan.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
- --------------------------- ---- --------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Michael E. Kohlsdorf............ 1999 $200,000 $33,333 -- $ 242
President and Chief Executive
Officer
E. Neal Tompkins................ 1999 150,000 25,000 -- 2,482
Executive Vice President and
Chief Technology Officer
Charles K. Thackston............ 1999 137,417 15,667 15,152 2,618
Senior Vice President, Sales
and Marketing
Michael W. Barry................ 1999 141,558 15,000 15,152 2,326
Senior Vice President,
Development and Engineering
Andrew Nathan................... 1999 120,000 36,000 -- --
Vice President, OEM Sales
</TABLE>
43
<PAGE> 48
OPTION GRANTS IN LAST FISCAL YEAR
The following table presents each grant of stock options made to each of
the named executive officers during the fiscal year ended January 31, 1999.
These options vest ratably over four years commencing on the first anniversary
of the date of grant and the exercise price per share of each option was equal
to the fair market value of the common stock on the date of grant, as determined
by our board of directors.
Potential realizable value is calculated assuming that the stock price on
the date of grant appreciates at the indicated rate compounded annually until
the option is exercised and sold on the last day of its term for the appreciated
stock price. The 5% and 10% assumed rates of appreciation are required by the
rules of the Securities and Exchange Commission and do not represent our
estimate or projection of the future common stock price. Based on an assumed
initial offering price of $9.00 per share, the actual appreciation exceeds these
values.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF EXERCISE ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS OR PRICE APPRECIATION FOR
UNDERLYING GRANTED TO BASE OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ---- ---------- ------------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael E. Kohlsdorf....... -- -- -- -- -- --
E. Neal Tompkins........... -- -- -- -- -- --
Charles K. Thackston....... 15,152 9.4% $4.95 9/10/08 $47,169 $119,535
Michael W. Barry........... 15,152 9.4 4.95 11/17/08 47,169 119,535
Andrew Nathan.............. -- -- -- -- -- --
</TABLE>
OPTION EXERCISES AND YEAR END OPTION VALUES
The following table presents option exercises and the value realized from
those exercises during fiscal 1999, as well as unexercised options that were
held at the end of fiscal 1999 by each named executive officer. The value
realized represents the aggregate market value of the underlying securities on
the exercise date, as determined by the board of directors, minus the aggregate
exercise price paid for those shares. Also presented is the value of
in-the-money options, which represents the aggregate market value of the
underlying securities at fiscal year-end January 31, 1999, $4.95 per share, as
determined by the board of directors, minus the aggregate exercise price payable
for those shares.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES VALUE OPTIONS AT FY-END(#) AT FY-END($)
ACQUIRED ON REALIZED ----------------------------- ---------------------------
NAME EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael E.
Kohlsdorf.......... -- -- 222,273 303,182 $915,765 $1,249,110
E. Neal Tompkins..... -- -- 107,878 28,485 444,457 117,358
Charles K.
Thackston.......... -- -- 45,454 72,728 187,270 237,213
Michael W. Barry..... 24,242 $105,877 81,362 54,396 360,005 162,443
Andrew Nathan........ -- -- 18,181 54,546 74,906 224,730
</TABLE>
44
<PAGE> 49
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with Michael E. Kohlsdorf and E.
Neal Tompkins.
Under our agreement with Mr. Kohlsdorf, he is entitled to receive a base
salary and an annual bonus of up to 50% of his base salary dependent upon T/R
Systems achieving objectives approved by the board of directors. Mr. Kohlsdorf's
base salary is currently $225,000. Under his employment agreement, we granted
Mr. Kohlsdorf an option to purchase 363,636 shares of common stock at an
exercise price of $0.83 per share in September 1996. In November 1997, we
granted Mr. Kohlsdorf an option to purchase an additional 161,819 shares of
common stock also at an exercise price of $0.83 per share. If we terminate Mr.
Kohlsdorf's employment, all unvested options held by Mr. Kohlsdorf will continue
to vest for one year following his termination and he will be paid his base
salary for one year from the date of his termination.
Under Mr. Tompkins' employment agreement, he is entitled to receive a base
salary and an annual bonus which is determined based on our operating results,
and is entitled to participate in all of our benefit plans. Mr. Tompkins'
employment agreement had an initial term of five years, and is renewed annually
unless otherwise terminated. Under this employment agreement, Mr. Tompkins is
prohibited from competing, directly or indirectly, with the business of T/R
Systems in the United States, Europe and Japan. He is also generally prohibited
from soliciting employees or customers of T/R Systems during the term of the
agreement and for one year following the termination of the agreement. If we
terminate Mr. Tompkins' employment for breaches of the agreement, fraud or
misappropriation of our assets, we will pay his base salary through the last day
of the calendar month in which the termination occurs. In that case, Mr.
Tompkins is entitled to receive his performance-based bonus earned to date, but
all unvested stock options are forfeited. If we otherwise terminate Mr.
Tompkins' employment, all his options to purchase shares of our common stock
immediately vest.
STOCK OPTION PLANS
1992 Stock Option Plan, 1994 Stock Option Plan and 1995 Stock Option Plan
Our 1992 stock option plan was adopted by the board of directors in March
1992 and provides for issuance of 833,939 shares of common stock. Our 1994 stock
option plan was adopted by the board of directors in March 1994 and provides for
issuance of 378,182 shares of common stock. Our 1995 stock option plan was
adopted by the board of directors in January 1996. The board of directors
originally authorized 1,000,000 shares of common stock for issuance under the
1995 plan. In December 1997, the board of directors authorized an additional
606,061 shares, bringing the aggregate number of shares issuable under the 1995
plan to 1,606,061.
These plans provide for the grant of incentive stock options under Section
422 of the Internal Revenue Code and for the grant of nonqualified stock options
to officers and key employees of T/R Systems. Each plan provides that it will be
governed by a committee appointed by the board of directors consisting of three
or more members, or if no committee is appointed, by the board of directors.
Presently, the plans are administered by the compensation committee of the board
of directors.
The terms of the stock options granted under the plans may not exceed ten
years. The exercise price of options granted under the plans is determined by
the board of directors. The exercise price of incentive stock options granted
under the plans may not be less than the fair
45
<PAGE> 50
market value on the date the option is granted. The exercise price of
nonqualified stock options may not be less than 85% of the fair market value on
the date the option is granted.
Options granted under these plans vest at the rate specified in each option
agreement, which historically have specified vesting ratably over four years. No
stock option may be transferred by the participant other than by will or the
laws of descent and distribution. A participant whose relationship with T/R
Systems ceases for any reason other than discharge for cause, or for any reason
under the 1995 plan, may exercise options in the period determined to be
appropriate by the board of directors. Options may be exercised up to one year
from the date of a participant's termination as a result of disability.
The fair market value of the common stock at the date of the grant of
incentive stock options under any of these plans and options granted under any
other stock option plan may not exceed $100,000 in the first year that those
options can be exercised.
In the case of incentive stock options granted to a person who holds more
than 10% of the voting power of our stock, the exercise price of those options
cannot be lower than 110% of the fair market value of our common stock on the
date of grant. The term of incentive stock options granted to these shareholders
cannot exceed five years.
If any option issued under the plans lapses or terminates due to its terms,
due to an employee termination or as a result of repurchase by us, the shares
subject to that option will be available for future grant.
If a change of control of T/R Systems occurs, and the board of directors
does not determine before that change of control that acceleration of options
should not occur, each option granted under these plans more than six months
before the change of control will be immediately exercisable.
If a participant under the 1994 plan becomes employed by an entity in
direct competition with us, we have the right to purchase, at the current fair
market value, all shares of stock that the participant may have acquired under
the 1994 plan. We must exercise this right within ten days of learning of that
participant's subsequent employment.
As of October 31, 1999, options to purchase 1,610,181 shares of common
stock were outstanding under these plans and 59,739 shares of common stock
remained available for future grant. Assuming the closing of this offering, T/R
Systems does not intend to grant any additional options under these plans.
1999 Stock Option Plan
Our 1999 stock option plan was adopted by the board of directors on
September 23, 1999 and provides for issuance of 909,091 shares of common stock.
No options have been granted under this plan.
This plan provides for the grant of incentive stock options under Section
422 of the Internal Revenue Code, and for the grant of nonqualified stock
options to key employees and directors of T/R Systems. The plan provides that it
will be administered by the board of directors or a committee consisting of not
less than two of its members.
The terms of the stock options granted under the plan may not exceed ten
years, or five years in the case of incentive stock options granted to an
employee who owns more than 10% of the voting power of our stock. The exercise
price of options granted under the plan is
46
<PAGE> 51
determined by the board of directors. The exercise price of options granted
under the plan may not be less than the fair market value on the date the option
is granted.
Each grant will specify the periods of continuous service by the
participant that is necessary before the option or installments will become
exercisable and may provide for earlier exercise including, in the event of a
change of control of T/R Systems or similar event. Except as otherwise
determined by the board of directors, no option may be transferred by the
participant other than by will or the laws of descent and distribution.
To qualify as incentive stock options under the Internal Revenue Code, the
fair market value of the common stock that may be acquired from the exercise of
incentive stock options granted under the plan and options granted under any
other stock option plan during any calendar year may not exceed $100,000 in the
first year that those options can be exercised. In the case of incentive stock
options granted to a person who holds more than 10% of the voting power of our
stock, the exercise price of those options cannot be lower than 110% of the fair
market value of our common stock on the date of grant.
If any option issued under the plan expires or is canceled or terminates,
the shares subject to that option will be available for future grant. No
participant may be granted options for more than 303,030 shares in any calendar
year.
Options may be exercised by payment in cash or other consideration
acceptable to T/R Systems, by transfer of shares owned by the participant for at
least six months or a combination of those methods.
The plan provides that the board of directors may adjust the option price
and number of shares covered by outstanding options as a result of stock splits,
recapitalizations, mergers and similar events. In addition, the board of
directors may amend the plan from time to time, but if required by Nasdaq, any
amendment will be subject to shareholder approval. In no event will any
amendment which would impair the rights of a participant be made without the
participant's approval, nor will an amendment to increase the number of shares
available under the plan be made without shareholder approval. No options may be
granted under this plan after September 23, 2009, but awards granted before that
date may extend beyond it.
1994 Associates Stock Option Plan
Our 1994 associates stock option plan, referred to as the associates plan,
was adopted by the board of directors in October 1994. The board of directors
has authorized an aggregate of 30,303 shares of common stock for issuance under
the associates plan.
The associates plan provides for the grant of non-qualified stock options
to key associates of T/R Systems, including non-employee members of the board of
directors. The associates plan provides that it will be governed by the board of
directors.
The terms of the stock options granted under the associates plan may not
exceed ten years. The exercise price of options granted under the associates
plan is determined by the board of directors.
Options granted under the associates plan vest at the rate specified in
each participant's option agreement. No stock option may be transferred by the
participant other than by will or the laws of descent and distribution. A
participant whose relationship with T/R Systems ceases for any reason other than
death may exercise options within three months of the termination of
47
<PAGE> 52
the participant's relationship with T/R Systems. Options may be exercised up to
one year from the date of a participant's termination by T/R Systems as a result
of death.
If any option issued under the associates plan lapses or terminates due to
its terms, due to termination or as a result of repurchase of that option, the
shares subject to that option shall be available for future grant.
As of October 31, 1999, we had granted options to purchase 22,425 shares of
common stock under the associates plan and an additional 7,878 remained
available for future grant. Of the options granted, options to purchase 11,061
shares of common stock were outstanding and options to purchase 11,364 shares of
common stock had been exercised. The associates plan will terminate in October
2004 unless the board of directors takes action to terminate it sooner.
48
<PAGE> 53
RELATED PARTY TRANSACTIONS
Mr. Gaffin, one of our directors, received options to purchase 6,061 shares
of common stock at $.083 per share under the associates plan on December 4,
1997.
In connection with Mr. Rowe's retirement as an officer on August 31, 1997,
we accelerated vesting and extended the exercisability of options to purchase
113,939 shares of our common stock with an exercise price of $0.83 per share.
Mr. Rowe exercised these options in March 1998.
In connection with the sale of our series B preferred stock in January
1996, the purchasers were furnished with a business plan that contained some
assumptions of future performance which later proved to be inaccurate. In
consideration of the release of any potential claims by the purchasers, T/R
Systems amended the terms of the series B preferred stock so that it would
convert into common stock on the basis of 0.773 shares of common stock for each
share of series B preferred stock instead of on a 0.606-for-one basis. The
following directors and greater than 5% shareholders are beneficial owners of
our series B preferred stock:
- David J. Bellet and entities affiliated with Crown Advisors, Ltd., a
principal shareholder of T/R Systems, beneficially own 508,200 shares of
series B preferred stock.
- Entities affiliated with InterWest Management Partners V, L.P., a
principal shareholder of T/R Systems, beneficially own 1,176,475 shares
of Series B preferred stock. Philip T. Gianos, a director of T/R Systems,
is a general partner of the InterWest funds.
- Entities affiliated with Sevin Rosen Funds IV L.P., a principal
shareholder of T/R Systems, beneficially own 380,395 shares of series B
preferred stock. Charles H. Phipps, a director of T/R Systems, is a
general partner of Sevin Rosen Funds IV L.P.
- Noro-Moseley Partners II, L.P., a principal shareholder of T/R Systems,
beneficially owns 380,395 shares of series B preferred stock.
- Aperture Associates, L.P., a principal shareholder of T/R Systems,
beneficially owns 380,395 shares of series B preferred stock.
49
<PAGE> 54
PRINCIPAL AND SELLING SHAREHOLDERS
The following tables present information about the beneficial ownership of
our common stock as of October 31, 1999, as adjusted to reflect the sale of
shares of common stock in this offering, by:
- each of our directors;
- each named executive officer;
- all of our directors and executive officers as a group;
- each other person or group of affiliated persons, known to us to be the
beneficial owner of more than 5% of our common stock; and
- the selling shareholder.
Percentage of beneficial ownership is based on:
- 8,620,160 shares outstanding as of October 31, 1999; and
- 11,500,160 shares outstanding after completion of this offering.
All options exercisable within 60 days of October 31, 1999 are reported as
currently exercisable. The shares issuable under these options are treated as if
outstanding for computing the percentage ownership of the person holding these
options but are not treated as if outstanding for the purposes of computing the
percentage ownership of any other person.
This table assumes that the underwriters do not exercise their
over-allotment option. If the underwriters exercise the over-allotment option in
full, some of our shareholders will sell an additional 450,000 shares of common
stock. Information about these shareholders, their holdings and the number of
shares they would sell under these circumstances is included in the over-
allotment selling shareholder table below.
Except as otherwise indicated, the shareholders listed in the tables have
sole voting and investment powers over the common stock owned by them.
Beneficial ownership is determined under the rules of the Securities and
Exchange Commission. Unless otherwise specified, the address of each of the
individuals or entities named below is: c/o T/R Systems, Inc., 1300 Oakbrook
Drive, Norcross, Georgia 30093.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OWNED AFTER
THE OFFERING NUMBER OF THE OFFERING
------------------- SHARES -------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT BEING OFFERED NUMBER PERCENT
- ------------------------ --------- ------- ------------- --------- -------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Charles H. Phipps(1)................ 1,551,380 18.0% -- 1,551,380 13.5%
Philip T. Gianos(2)................. 1,026,869 11.9 -- 1,026,869 8.9
Francis A. Rowe(3).................. 689,400 8.0 120,000 569,400 5.0
E. Neal Tompkins(4)................. 529,441 6.1 -- 529,441 4.6
Michael E. Kohlsdorf(5)............. 372,624 4.2 -- 372,629 3.1
Michael W. Barry(6)................. 160,451 1.8 -- 160,451 1.4
Charles K. Thackston(7)............. 75,000 0.9 -- 75,000 0.6
Andrew Nathan(8).................... 36,363 0.4 -- 36,363 0.3
C. Harold Gaffin(9)................. 18,179 0.2 -- 18,179 0.2
Directors and executive officers as
a group (13 persons)(10).......... 4,580,157 49.2 120,000 4,460,157 36.6
</TABLE>
50
<PAGE> 55
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OWNED AFTER
THE OFFERING NUMBER OF THE OFFERING
------------------- SHARES -------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT BEING OFFERED NUMBER PERCENT
- ------------------------ --------- ------- ------------- --------- -------
<S> <C> <C> <C> <C> <C>
OTHER 5% SHAREHOLDERS
Entities affiliated with Sevin Rosen
Funds IV L.P.(1).................. 1,551,380 18.0% -- 1,551,380 13.5%
Noro-Moseley Partners II,
L.P.(11).......................... 1,393,537 16.2 -- 1,393,537 12.1
Aperture Associates, L.P.(12)....... 1,153,536 13.4 -- 1,153,536 10.0
Entities affiliated with InterWest
Management Partners V, L.P.(2).... 1,026,869 11.9 -- 1,026,869 8.9
Entities affiliated with Crown
Advisors, Ltd.(13)................ 620,503 7.2 -- 620,503 5.4
</TABLE>
- -------------------------
(1) Includes:
- 3,030 shares held by Sevin Rosen Bayless Management Co., of which Mr.
Phipps is a vice president and principal shareholder. Mr. Phipps
disclaims beneficial ownership of these shares; and
- 1,548,350 shares held by Sevin Rosen Funds IV L.P., of which Mr. Phipps
is a general partner. As a general partner, Mr. Phipps has shared voting
and dispositive power over these shares. Mr. Phipps disclaims beneficial
ownership of these shares except to the extent of his pecuniary interest.
The address of Mr. Phipps and the Sevin Rosen funds is Two Galleria Tower,
13455 Noel Road, Suite 1670, Dallas, Texas 75240.
(2) Consists of:
- 1,020,448 shares held by InterWest Partners V, L.P.; and
- 6,421 shares held by InterWest Investors V, L.P.
Mr. Gianos is a general partner of InterWest Management Partners V, L.P.,
the general partner of the above funds. As a general partner, Mr. Gianos
has shared voting and dispositive power over the shares held by these
funds. Mr. Gianos disclaims beneficial ownership of these shares except to
the extent of his pecuniary interest. The address of Mr. Gianos and the
InterWest funds is 3000 Sand Hill Road, No. 3-255, Menlo Park, California
94025.
(3) Includes 659,097 shares held by Mr. Rowe and his wife as joint tenants. Mr.
Rowe has shared voting and dispositive power over these shares.
(4) Includes:
- 107,878 shares issuable upon exercise of options exercisable within 60
days of October 31, 1999;
- 9,090 shares held by Mr. Tompkins and his wife as joint tenants;
- 170,049 shares held by Mr. Tompkins' wife; and
- 30,303 shares held by Mr. Tompkins' daughter.
(5) Includes 334,242 shares of common stock issuable upon exercise of options
exercisable within 60 days of October 31, 1999.
(6) Includes 99,241 shares of common stock issuable upon exercise of options
exercisable within 60 days of October 31, 1999.
(7) Consists of 75,000 shares of common stock issuable upon exercise of options
exercisable within 60 days of October 31, 1999.
(8) Consists of 36,363 shares of common stock issuable upon exercise of options
exercisable within 60 days of October 31, 1999.
(9) Includes 6,818 shares of common stock issuable upon exercise of options
exercisable within 60 days of October 31, 1999.
(10) Includes 692,432 shares of common stock issuable upon exercise of options
exercisable within 60 days of October 31, 1999. See also footnotes (1)
through (9) above.
(11) The address of Noro-Moseley is 9 North Parkway Square, 4200 Northside
Parkway, N.W., Atlanta, Georgia 30327.
(12) The address of Aperture Associates, L.P. is 505 Montgomery Street, 21st
Floor, San Francisco, California 94111.
(13) Includes:
- 151,913 shares held by Crown Trust and 48,484 shares held by Parson
Finance Limited. These funds are administered by Crown Advisors Ltd. and
Crown Advisors International Ltd., their corresponding investment
managers, of which David F. Bellet is chairman. Mr. Bellet has shared
voting power over these shares, and disclaims beneficial ownership except
to the extent of his pecuniary interest;
51
<PAGE> 56
- 197,171 shares held by Crown Associates III, L.P., 94,000 shares held by
Crown Glynn Associates, L.P. and 72,727 shares held by Crown Growth
Partners, L.P. Mr. Bellet is a general partner of the corresponding
general partners of these entities. As a general partner, Mr. Bellet has
shared voting and dispositive power over these shares, and disclaims
beneficial ownership except to the extent of his pecuniary interest;
- 6,060 shares held by Roundtable Associates, L.L.C., of which Mr. Bellet
is a managing member. As a managing member, Mr. Bellet has shared voting
and dispositive power over these shares. He disclaims beneficial
ownership of these shares; and
- 50,148 shares held by Mr. Bellet.
The address of each of Mr. Bellet and the Crown entities is The Lincoln
Building, Suite 3405, 60 East 42nd Street, New York, New York 10165.
The following over-allotment selling shareholder table assumes that the
underwriters exercise their over-allotment option in full. If that happens, the
shareholders named below will be obligated to sell the number of shares
indicated below to the underwriters, and after the offering will beneficially
own the number of shares indicated below. We cannot assure you that the
underwriters will exercise this option.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OWNED AFTER
THE OFFERING NUMBER OF THE OFFERING
------------------- SHARES -------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT BEING OFFERED NUMBER PERCENT
- ------------------------ --------- ------- ------------- --------- -------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
E. Neal Tompkins(1)................. 529,441 6.1% 27,081 502,360 4.3%
Michael E. Kohlsdorf(2)............. 372,624 4.2 27,081 345,543 2.9
Michael W. Barry(3)................. 160,451 1.8 8,124 152,327 1.3
Charles K. Thackston(4)............. 75,000 0.9 10,832 64,168 0.6
Jack N. Bartholmae(5)............... 96,967 1.1 5,416 91,551 0.8
OTHER 5% SHAREHOLDERS
Noro-Moseley Partners II, L.P.(6)... 1,393,537 16.2 216,647 1,176,890 10.2
OTHER SHAREHOLDERS
Family Investments, LLC............. 133,240 1.5 119,073 14,167 0.1
Donald F. Greene.................... 61,473 0.7 18,415 43,058 0.4
Keith J. Bradley.................... 58,179 0.7 5,416 52,763 0.5
James Bessen........................ 6,060 0.1 5,416 644 0.0
Gregory A. Chatham(7)............... 8,726 0.4 2,166 6,560 0.2
James W. O'Brien(8)................. 30,302 0.4 1,354 28,948 0.3
Ricky L. Berry(9)................... 2,424 0.2 271 2,153 0.1
Daniel Slayton(10).................. 136,866 1.6 2,708 134,158 1.2
--------
Total..................... 450,000
</TABLE>
- -------------------------
(1) Includes:
- 107,878 shares issuable upon exercise of options exercisable within 60
days of October 31, 1999;
- 9,090 shares held by Mr. Tompkins and his wife as joint tenants;
- 170,049 shares held by Mr. Tompkins' wife; and
- 30,303 shares held by Mr. Tompkins' daughter.
(2) Includes 334,242 shares of common stock issuable upon exercise of options
exercisable within 60 days of October 31, 1999.
52
<PAGE> 57
(3) Includes 99,241 shares of common stock issuable upon exercise of options
exercisable within 60 days of October 31, 1999.
(4) Consists of 75,000 shares of common stock issuable upon exercise of
options exercisable within 60 days of October 31, 1999.
(5) Includes 18,181 shares of common stock issuable upon exercise of options
within 60 days of October 31, 1999.
(6) The address of Noro-Moseley is 9 North Parkway Square, 4200 Northside
Parkway, N.W., Atlanta, Georgia 30327.
(7) Includes 21,576 shares of common stock issuable upon exercise of options
exercisable within 60 days of October 31, 1999.
(8) Includes 1,969 shares of common stock issuable upon exercise of options
exercisable within 60 days of October 31, 1999.
(9) Includes 11,061 shares of common stock issuable upon exercise of options
exercisable within 60 days of October 31, 1999.
(10) Includes 109,745 shares held by Slayton & Associates, of which Mr. Slayton
is the sole shareholder.
53
<PAGE> 58
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of T/R Systems currently consists of
88,000,000 shares of common stock, and 12,000,000 shares of preferred stock
consisting of:
- 5,000,000 shares of series A preferred stock, 4,799,999 of which are
outstanding;
- 3,000,000 shares of series B preferred stock, 2,961,585 of which are
outstanding;
- 1,500,000 shares of series C preferred stock, 1,215,500 of which are
outstanding;
- 222,222 shares of series D preferred stock, all of which are outstanding;
and
- 2,277,778 shares of undesignated preferred stock.
Our stock was held of record by 118 shareholders on October 31, 1999.
Before the closing of this offering, our articles of incorporation and
bylaws will be amended and all of our outstanding shares of preferred stock will
be converted into common stock. The remainder of this section describes the
provisions of our articles of incorporation and bylaws as they will be amended
before closing, after giving effect to the conversion of our preferred stock
into common stock.
Upon the closing of the offering, the authorized capital stock of T/R
Systems will consist of:
- 88,000,000 shares of common stock; and
- 12,000,000 shares of preferred stock, of which 2,277,778 shares are
undesignated and remain available for issuance.
After giving effect to this offering and a proposed 1 for 1.65 reverse
stock split, and based upon our outstanding stock at October 31, 1999, there
will be 11,500,160 shares of common stock outstanding, excluding shares of
common stock reserved for issuance upon the exercise of options granted under
our stock option plans. All of these shares will be fully paid and
nonassessable. No shares of preferred stock will be outstanding at the closing
of this offering.
COMMON STOCK
Holders of common stock are entitled to one vote per share in all matters
to be voted upon by shareholders and do not have cumulative voting rights.
Subject to rights of any outstanding preferred stock, holders of common stock
are entitled to receive ratably any dividends that may be declared by the board
of directors out of legally available funds. Upon a liquidation, dissolution or
winding up of T/R Systems, holders of common stock are entitled to share ratably
in all assets remaining after payment of our debts and other liabilities and any
preference payments on any outstanding preferred stock.
Holders of common stock have no preemptive rights or other subscription
rights and no rights to convert their common stock into any other securities.
There are no redemption or sinking fund provisions applicable to the common
stock. All of the outstanding shares of common stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any series of
preferred stock which T/R Systems may issue in the future.
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<PAGE> 59
PREFERRED STOCK
Our board of directors is authorized, without any further vote or action by
the shareholders, to issue up to 2,277,778 shares of preferred stock in one or
more series and to fix, before issuance, the number of shares to be included in
any series. The board of directors can also designate the relative powers,
preferences and rights and qualifications, limitations or restrictions of all
shares of any series.
Our board of directors has the authority to determine any of the following
for each series:
- the number of shares of that series and the designation to distinguish
the shares of that series from any other series;
- the voting powers, and whether the voting powers are limited in series;
- the redemption provisions applicable to that series, including the
redemption price or prices to be paid;
- whether or not any dividends will be cumulative, the dividend rate of
that series, and the dates and preferences of dividends on that series;
- the rights of that series upon our voluntary or involuntary dissolution,
or upon any distribution of our assets;
- any provisions permitting the shares of that series to be converted into,
or exchanged for, shares of any other class or any other series of the
same or any other class of stock, or any other security, of T/R Systems
or any other corporation, and the prices or the applicable rates of
exchange;
- any right to subscribe for or to purchase any of our securities or those
of any other corporation;
- any provisions of a sinking fund applicable to that series; and
- any other relative, participating, optional or other special powers,
preferences, rights, qualifications, limitations or restrictions.
The issuance of preferred stock could adversely affect the rights of
holders of common stock. For example, the issuance of preferred stock could
decrease the amount of earnings and assets available for distribution to holders
of common stock. In addition, any issuance could have the effect of delaying or
preventing a change in control of T/R Systems and could make the removal of our
present management more difficult. Upon the closing of this offering, there will
be no shares of preferred stock outstanding and we have no present plans to
issue shares of preferred stock.
ANTITAKEOVER EFFECTS OF GEORGIA LAW PROVISIONS
Fair Price Provisions
T/R Systems has elected in its bylaws to be subject to the fair price
provisions of the Georgia Business Corporation Code, referred to as the GBCC.
These provisions require that some business combinations between a Georgia
corporation and an interested shareholder or its affiliates be:
- unanimously approved by continuing directors who must constitute at least
three members of the board of directors at the time of the approval; or
55
<PAGE> 60
- recommended by at least two-thirds of the continuing directors and
approved by a majority of the votes entitled to be cast by holders of
voting shares, other than voting shares beneficially owned by the
interested shareholder, unless fair price criteria are met.
For the purposes of these provisions, a business combination includes:
- any merger of T/R Systems or our subsidiaries;
- any share exchange;
- any sale, lease, transfer or other disposition of assets by us or any of
our subsidiaries in a transaction or series of transactions occurring
within a twelve-month period and having an aggregate book value equal to
10% or more of our net assets;
- the issuance or transfer by us or any of our subsidiaries of any equity
securities of T/R Systems or any subsidiary in a transaction or series of
transactions occurring within a twelve-month period and having an
aggregate market value of five percent or more of the total market value
of our outstanding stock, except through the exercise of warrants or
rights offered pro rata to all holders of our voting securities;
- the adoption of any plan or proposal for our liquidation or dissolution
in which anything other than cash will be received by an interested
shareholder or its affiliates; and
- any transaction or series of transactions occurring within a twelve-month
period which has the effect of increasing by 5% or more the proportionate
amount of shares of any class or series of equity securities of T/R
Systems or any of our subsidiaries that is beneficially owned by an
interested shareholder or its affiliates.
An interested shareholder is defined by the GBCC to include:
- any person that, with its affiliates, beneficially owns or has the right
to own 10% or more of the outstanding voting power of a corporation; or
- any person that is an affiliate of the corporation and has, at any time
within the preceding two-year period, been the beneficial owner of 10% or
more of the voting power of the corporation.
A continuing director includes:
- any director who is not an affiliate or associate of an interested
shareholder or its affiliates and who was a director before the
shareholder becoming an interested shareholder; and
- any successor of that director who is not an affiliate or associate of an
interested shareholder or its affiliates and who is recommended or
elected by a majority of continuing directors.
The fair price provisions do not restrict a business combination if:
- the aggregate amount of the cash, and fair market value of any non-cash
property, to be received per share by the shareholders in the business
combination is at least equal to the highest of:
- the highest per share price, including brokerage commissions, transfer
taxes and soliciting dealers' fees, paid by the interested shareholder
for any shares of the same class or series acquired by it within two
years before the public announcement of the
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<PAGE> 61
business combination, referred to as the announcement date, or in the
transaction in which it became an interested shareholder;
- the higher of the fair market value per share as determined on the
announcement date or the date on which the interested shareholder
first became an interested shareholder; or
- in the case of shares other than common shares, the highest amount per
share to which preferred shareholders are entitled in the event of
liquidation, dissolution or winding up of the corporation, but only if
the interested shareholder acquired the preferred shares within the
two-year period immediately before the announcement date; and
- shareholders receive cash or the form of consideration used in the past
by the interested shareholder to purchase the largest number of shares of
the same class or series.
In addition, during the period after the shareholder became an interested
shareholder and before the consummation of the business combination, without the
approval of a majority of the continuing directors, there generally may not have
been:
- a failure to declare and pay full dividends on the corporation's
outstanding preferred shares;
- a reduction in the annual rate of dividends paid on common shares, except
to reflect any subdivision of the shares;
- an increase in the annual rate of dividends to reflect any
reclassification of shares which has the effect of reducing the number of
outstanding shares; and
- more than a 1% increase in the interested shareholder's ownership of any
class or series of the corporation's shares in any twelve-month period.
An interested shareholder generally may not have received a direct or
indirect benefit, except proportionately as a shareholder, of any loans,
advances, guarantees, pledges or other financial assistance or any tax credits
or other tax advantages provided by the corporation or its subsidiaries. The
fair price provisions do not apply if a shareholder has been an interested
shareholder for three years and has not increased its percentage interest in any
class or series of shares by more than 1% in any twelve-month period.
Business Combination Provisions
We have also elected in our bylaws to be subject to the business
combination provisions of the GBCC. These provisions generally prohibit business
combinations between a Georgia corporation with at least 100 beneficial owners
in Georgia and that meets other criteria, and an interested shareholder or its
affiliates for a period of five years after the shareholder becomes an
interested shareholder of the corporation. During that five-year period, these
provisions prohibit any business combination with an interested shareholder
unless:
- before the shareholder became an interested shareholder, the board of
directors approved either the business combination or the transaction by
which the shareholder became an interested shareholder;
- in the transaction that resulted in the shareholder becoming an
interested shareholder, the interested shareholder became the beneficial
owner of at least 90% of the outstanding
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<PAGE> 62
voting stock of the corporation which was not held by directors,
officers, their affiliates, subsidiaries or specified employee stock
plans of the corporation; or
- after becoming an interested shareholder, that shareholder acquired
additional shares resulting in that shareholder owning at least 90% of
the outstanding voting stock of the corporation, excluding specified
shares, and the business combination is approved by a majority of voting
stock not held by the interested shareholder, directors, officers, their
affiliates, subsidiaries or specified employee stock plans of the
corporation.
For the purposes of these provisions, a business combination includes:
- any merger or consolidation of T/R Systems or any of our subsidiaries;
- any sale, lease, transfer or other disposition of our assets or those of
any of our subsidiaries in a transaction or series of transactions having
an aggregate book value of 10% or more of our net assets;
- the issuance or transfer by us or any of our subsidiaries of any of our
or their equity securities in a transaction or series of transactions
having an aggregate market value of 5% or more of the total market value
of our outstanding stock, except through the exercise of warrants or
rights offered pro rata to all holders of voting securities, or the
exercise or conversion of securities outstanding before the shareholder
became an interested shareholder;
- the adoption of any plan or proposal for our liquidation or dissolution;
- any transaction which has the effect of increasing by 5% or more the
proportionate amount of shares of any class or series of our equity
securities which is beneficially owned by the interested shareholder or
its affiliates;
- other than in the ordinary course of business, the receipt by an
interested shareholder, except proportionally as a shareholder, of any
benefit from any loan, advance, guarantee, pledge, financial benefit, tax
credit or tax advantage from us; and
- any share exchange.
The restrictions on business combinations do not apply to:
- any person who was an interested shareholder before the adoption of the
bylaw which made the provisions applicable to the corporation; or
- any person who becomes an interested shareholder inadvertently,
subsequently divests sufficient shares so that the shareholder ceases to
be an interested shareholder and would not, at any time within the
five-year period immediately before a business combination involving the
shareholder, have been an interested shareholder but for the inadvertent
acquisition.
ANTITAKEOVER EFFECTS OF PROVISIONS OF OUR CHARTER AND BYLAWS
Our charter and bylaws contain a number of provisions relating to corporate
governance and the rights of shareholders that could have a potential
anti-takeover effect. These provisions may delay or prevent a change of control
of T/R Systems. These provisions include:
- the classification of our board of directors into three classes, each
class serving for a staggered three-year term;
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<PAGE> 63
- the requirement that shareholders may remove directors only for cause and
only by the affirmative vote of at least 80% of our voting stock;
- the authority of our board of directors to issue series of preferred
stock with voting rights and other provisions as the board of directors
may determine;
- the requirement that shareholder action can be taken only at an annual or
special meeting of shareholders and prohibiting shareholder action by
written consent in lieu of a meeting;
- an advance notice procedure for shareholders to make nominations of
candidates for election as directors;
- the requirement that a special shareholders' meeting may only be called
by the chairman of the board or at the direction of the majority of the
board of directors, and not by shareholders; and
- a requirement that a vote of at least 80% of our voting stock is required
to amend provisions of the charter and bylaws relating to:
- the classification of the board of directors and removal of
directors;
- special meetings of shareholders and the order of business of
shareholder meetings;
- nominations of directors to fill vacancies or newly created
directorships; or
- the election to be subject to the fair price and business
combination provisions of the Georgia corporate laws.
These provisions have some anti-takeover effects and may discourage
proposals that could be viewed as favorable to shareholders. The description
above is intended as a summary only and is qualified by reference to our
restated articles and bylaws, the form of which have been filed as exhibits to
the registration statement filed in connection with this offering.
INDEMNIFICATION PROVISIONS
Our restated articles of incorporation will provide that a director will
not be liable to T/R Systems or our shareholders for claims arising from his
actions or inactions as a director, except to the extent otherwise required by
the GBCC.
Our articles of incorporation and bylaws will provide that we shall
indemnify our directors and officers to the fullest extent permitted by Georgia
law, and that this indemnification will not limit the availability of any other
remedies to these persons.
TRANSFER AGENT AND REGISTRAR
The name and address of the transfer agent and registrar of the common
stock is Equiserve L.P., 150 Royall Street, Canton, Massachusetts 02021. Its
telephone number is (781) 575-3400.
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<PAGE> 64
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no market for our common stock. Future
sales of substantial amounts of common stock in the public market could
adversely affect the prevailing market price of our common stock and impair our
ability to raise equity capital in the future.
Upon the closing of this offering, we will have 11,613,190 outstanding
shares of common stock. Of these shares, the 3,000,000 shares sold in the
offering, plus any shares issued upon exercise of the underwriters'
over-allotment option, will be freely tradable without restriction under the
Securities Act, unless purchased by our affiliates. The term affiliate is
defined in Rule 144 under the Securities Act. In general, affiliates include
officers, directors or 10% shareholders.
The remaining 8,613,190 shares outstanding are restricted securities within
the meaning of Rule 144. Restricted securities may be sold in the public market
only if registered or if they qualify for an exemption from registration under
Rules 144, 144(k) or 701 under the Securities Act, which are summarized below.
Sales of restricted securities in the public market, or the availability of
these shares for sale, could adversely affect the market price of the common
stock.
Holders of 97.2% of the remaining 8,613,190 shares outstanding, including
all of our officers and directors, have entered into lock-up agreements which
generally provide that they will not offer, sell, contract to sell or grant any
option to purchase or transfer or dispose of our common stock or any securities
exercisable for or convertible into our common stock owned by them for a period
of 180 days after the date of this prospectus without the prior written consent
of BancBoston Robertson Stephens Inc.
Notwithstanding possible earlier eligibility for sale under the Securities
Act, shares subject to lock-up agreements will not be salable until these
agreements expire or are waived by BancBoston Robertson Stephens Inc. Taking
into account the lock-up agreements, and assuming BancBoston Robertson Stephens
Inc. does not release shareholders from these agreements, the following
restricted shares will be eligible for sale in the public market at the
following times:
- beginning on the date of this prospectus, approximately 208,550 shares
will be immediately available for sale in the public market;
- beginning 90 days after the date of this prospectus, approximately 35,906
shares will be eligible for sale, subject to volume, manner of sale and
other limitations under Rule 144;
- beginning 180 days after the date of this prospectus, approximately
8,105,268 shares will be eligible for sale, approximately 6,832,746 of
which will be subject to volume, manner of sale and other limitations
under Rule 144; and
- the remaining 263,466 shares will become eligible for sale under Rule 144
from time to time.
In general, under Rule 144 a person who has beneficially owned restricted
securities for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately 116,000 shares immediately after the offering; or
- the average weekly trading volume of the common stock during the four
calendar weeks immediately before the sale.
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<PAGE> 65
Sales under Rule 144 are also subject to manner of sale and notice
requirements and to the availability of current public information about T/R
Systems.
Under Rule 144(k), a person who is not considered to have been our
affiliate at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years, is
entitled to sell shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Our employees, officers, directors or consultants who purchased shares
under a written compensatory plan or contract may be entitled to resell these
shares in reliance upon Rule 701. Rule 701 provides that affiliates may sell
their Rule 701 shares under Rule 144 without complying with the holding period
requirement and that non-affiliates may sell their shares in reliance on Rule
144 without complying with the holding period, public information, volume
limitation or notice provisions of Rule 144. All holders of Rule 701 shares are
required to wait until 90 days after the date of this prospectus before selling
those shares.
In addition, we intend to file registration statements under the Securities
Act as promptly as possible after the effective date of this prospectus to
register shares to be issued under our employee benefit plans. As a result, any
options or rights exercised under any of our existing stock option plans after
the effectiveness of the registration statements will also be freely tradable in
the public market. However, shares held by affiliates will still be subject to
the volume limitation, manner of sale, notice and public information
requirements of Rule 144 unless otherwise exempt under Rule 701. As of October
31, 1999 there were outstanding options for the purchase of 1,610,181 shares of
common stock, and options to purchase 816,948 of these shares were exercisable.
REGISTRATION RIGHTS
When we sold some of the series of our preferred stock, we entered into a
registration rights agreement granting some of our shareholders the right to
require us to file registration statements on up to eight occasions. The parties
to that agreement, who will hold an aggregate of 7,613,763 shares of our common
stock upon completion of this offering, are entitled to include their shares in
any of those registrations, subject to possible underwriter cutbacks. If we
propose to register any of our securities under the Securities Act at any time,
the holders of those shares are entitled to include their shares in our
registration, also subject to possible underwriter cutbacks.
In addition, under additional registration rights agreements with some of
our shareholders, if any of those holders hold more than 1% of our outstanding
common stock, they could also include shares in any registration, subject to
possible underwriter cutbacks. Giving effect to the closing of this offering,
under these additional registration agreements, a holder of 134,680 shares will
have these rights. We are generally required to bear the expenses of all
registrations, except underwriting discounts and commissions.
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<PAGE> 66
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., U.S. Bancorp Piper Jaffray Inc. and Raymond
James & Associates, Inc., have agreed with us and the selling shareholder,
subject to conditions in the underwriting agreement, to purchase from us and the
selling shareholder the number of shares of common stock listed opposite their
names below. The underwriters are committed to purchase and pay for all shares
if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
BancBoston Robertson Stephens Inc. .........................
U.S. Bancorp Piper Jaffray Inc. ............................
Raymond James & Associates, Inc. ...........................
---------
Total............................................. 3,000,000
=========
</TABLE>
The representatives have advised us and the selling shareholders that the
underwriters propose to offer the shares of common stock to the public at the
public offering price on the cover page of this prospectus. The underwriters may
sell shares to dealers at that price less a concession of not in excess of
$ per share, of which $ may be reallowed to other dealers.
After this offering, the public offering price, concession and reallowance to
dealers may be reduced by the representatives, but any reduction will not change
the amount of proceeds to be received by us or the selling shareholders. The
common stock is offered by the underwriters on the terms discussed in this
prospectus, subject to receipt and acceptance by them, and subject to their
right to reject any order.
Before this offering, there has been no public market for our common stock.
Consequently, the public offering price for the common stock offered by this
prospectus will be determined through negotiations among the representatives and
us. Among the factors considered in these negotiations will be prevailing market
conditions, our financial information, market valuations of other companies that
we and the representatives believe to be comparable to us, estimates of our
business potential and the present state of our development.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.
Over-Allotment Option
The shareholders identified in "Principal and Selling Shareholders" have
granted the underwriters an option, exercisable during the 30-day period after
the date of this prospectus, to purchase up to 450,000 additional shares of
common stock solely to cover any over-allotments, at the public offering price
less the underwriting discount on the cover page of this prospectus. If the
underwriters exercise their over-allotment option to purchase any of the
additional 450,000 shares of common stock, they have agreed, subject to
specified conditions, to purchase approximately the same percentage of these
additional shares as the number of shares to be purchased by each of them bears
to the total number of shares of common stock in this
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<PAGE> 67
offering. If purchased, these additional shares will be sold by the underwriters
on the same terms as those on which the shares offered in this offering are
being sold. The selling shareholders will be obligated to sell shares to the
underwriters to the extent the over-allotment option is exercised.
The following table summarizes the compensation to be paid to the
underwriters by T/R Systems and the selling shareholders:
<TABLE>
<CAPTION>
TOTAL
---------------------
WITHOUT WITH
OVER- OVER-
PER SHARE ALLOTMENT ALLOTMENT
--------- --------- ---------
<S> <C> <C> <C>
Underwriting discounts and commissions payable by T/R
Systems............................................... $ $ $
Underwriting discounts and commissions payable by the
selling shareholders................................
</TABLE>
We estimate the expenses payable by us in connection with this offering,
other than the underwriting discounts and commissions referred to above, will be
approximately $ .
Indemnity
The underwriting agreement contains covenants of indemnity among the
underwriters, us and the selling shareholders against civil liabilities,
including liabilities under the Securities Act.
Lock-Up Agreements
Holders of 97.2% of our outstanding stock, including all of our officers
and directors, have signed lock up agreements with the underwriters. Under these
agreements, these parties have agreed, during the period of 180 days after the
date of this prospectus and subject to various exceptions, not to offer to sell,
contract to sell, or transfer any shares of common stock they own or later
acquire, other than shares purchased in the public markets. These agreements
contain similar terms regarding options or warrants to purchase any shares of
common stock, or any securities convertible into or exchangeable for shares of
common stock. However, BancBoston Robertson Stephens Inc. may, in its sole
discretion and at any time without notice, release any portion of the securities
subject to lock-up agreements. There are no existing agreements between the
representatives and any of our shareholders who have executed a lock-up
agreement providing consent to the sale of shares before the expiration of the
lock-up period.
In addition, we have agreed that during the lock-up period we will not,
without the prior written consent of BancBoston Robertson Stephens Inc., consent
to the disposition of any shares held by stockholders subject to lock-up
agreements before the expiration of the lock-up period, or issue, sell, contract
to sell, or otherwise dispose of, any shares of common stock, any options or
warrants to purchase any shares of common stock or any securities convertible
into, exercisable for or exchangeable for shares of common stock. However, the
following are examples of exceptions to this agreement:
- our sale of shares in this offering;
- the issuance of our common stock upon the exercise of outstanding options
or warrants; and
- the issuance of options under existing stock option and incentive plans,
provided that those options do not vest before the expiration of the
lock-up period.
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Listing
We have applied to have the common stock approved for quotation on the
Nasdaq National Market under the symbol TRSI.
Stabilization
The representatives have advised us that, under Regulation M of the
Exchange Act, some persons participating in the offering may engage in any of
the following transactions:
- stabilizing bids, which are bids for the purchase of common stock on
behalf of the underwriters that are intended to fix or maintain the price
of the common stock;
- syndicate covering transactions, which are bids for the purchase of
common stock on behalf of the underwriters to reduce a short position; a
short position results when an underwriter sells more shares than it has
committed to purchase; and
- penalty bids, which are arrangements that permit the representatives to
reclaim the selling concession otherwise accruing to an underwriter or
syndicate member in connection with the offering if the common stock
originally sold by the underwriter or syndicate member is purchased by
the representatives in a syndicate covering transaction, and has not been
effectively placed by this underwriter or syndicate member.
These transactions may be effected on the Nasdaq National Market and, if
commenced, may be discontinued at any time.
Directed Share Program
At our request, the underwriters have reserved up to 180,000 shares of
common stock to be issued by us and offered for sale, at the initial public
offering price, to directors, officers, employees, business associates and
related persons of T/R Systems. The number of shares of common stock available
for sale to the general public will be reduced to the extent that these
individuals purchase all or a portion of these reserved shares. Any reserved
shares which are not purchased will be offered by the underwriters to the
general public on the same terms as the shares of common stock offered in this
offering.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for T/R Systems by Jones, Day, Reavis & Pogue, Atlanta, Georgia. Hale and
Dorr LLP, Washington, D.C., is serving as legal counsel to the underwriters for
this offering.
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<PAGE> 69
EXPERTS
The financial statements as of January 31, 1998 and 1999 and for each of
the three years in the period ended January 31, 1999, included in this
prospectus and the related financial statement schedule included elsewhere in
the registration statement have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing in this prospectus
and elsewhere in the registration statement, and have been so included in
reliance upon the reports of the firm given upon their authority as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act to offer shares of our common
stock. This prospectus is only a part of the registration statement and does not
contain all of the information included in the registration statement. Further
information about T/R Systems and our common stock can be found in the
registration statement. The rules and regulations of the SEC allow us to omit
various information from the prospectus that is included in the registration
statement. Statements made in this prospectus about the contents of any
contract, agreement or other document are summaries. If we filed any of those
documents as exhibits to the registration statement, you may read the document
itself for a complete description of its terms.
The registration statement and the related exhibits and schedules filed by
us with the SEC can be inspected and copies obtained at prescribed rates from
the public reference facilities maintained by the SEC at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549.
You may obtain information on the operation of the public reference room by
calling the SEC at 1-800-SEC-0330.
The SEC also maintains a website that contains reports, proxy and
information statements and other information about registrants that file
electronically with the SEC, like T/R Systems, at http://www.sec.gov.
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<PAGE> 70
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Balance Sheets as of January 31, 1998 and 1999 and
(Unaudited) October 31, 1999.............................. F-3
Statements of Operations for the Years Ended January 31,
1997, 1998 and 1999 and (Unaudited) for the nine months
ended October 31, 1998 and 1999........................... F-4
Statements of Shareholders' Deficit for the Years Ended
January 31, 1997, 1998 and 1999 and (Unaudited) for the
nine months ended October 31, 1999........................ F-5
Statements of Cash Flows for the Years Ended January 31,
1997, 1998 and 1999 and (Unaudited) for the nine months
ended October 31, 1998 and 1999........................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 71
The financial statements included herein have been adjusted to give effect
to the anticipated 1:1.65 reverse stock split as described in Note 14 to the
financial statements. We expect to be in a position to render the following
audit report upon the effectiveness of such event assuming that from November 9,
1999, to the effective date of such event, no other events will have occurred
that would affect the accompanying financial statements or notes thereto.
Deloitte & Touche LLP
Atlanta, Georgia
November 29, 1999
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders of T/R Systems, Inc.:
We have audited the accompanying balance sheets of T/R Systems, Inc. (the
"Company") as of January 31, 1998 and 1999 and the related statements of
operations, shareholders' deficit, and cash flows for each of the three years in
the period ended January 31, 1999. 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, such financial statements present fairly, in all material
respects, the financial position of the Company at January 31, 1998 and 1999 and
the results of its operations and its cash flows for each of the three years in
the period ended January 31, 1999 in conformity with generally accepted
accounting principles.
Atlanta, Georgia
March 26, 1999
(May 17, 1999 as to the first paragraph of Note 9 and , 1999 as to
Note 14)
F-2
<PAGE> 72
T/R SYSTEMS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
------------------ --------------------
1999
1998 1999 1999 PRO FORMA
------- -------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 3,527 $ 1,966 $ 3,344 $ 3,344
Restricted cash........................................... 200 200 200 200
Receivables, net of allowance of $175, $200, and $82,
respectively............................................ 2,369 2,592 2,972 2,972
Inventories, net.......................................... 1,116 1,810 2,361 2,361
Prepaid expenses and other................................ 203 191 295 295
------- -------- -------- --------
Total current assets................................ 7,415 6,759 9,172 9,172
Property and equipment, net................................. 769 1,011 895 895
------- -------- -------- --------
$ 8,184 $ 7,770 $ 10,067 $ 10,067
======= ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable.......................................... $ 1,511 $ 1,681 $ 1,576 $ 1,576
Deferred revenue.......................................... 65 159 705 705
Accrued salaries and wages................................ 344 574 850 850
Borrowing under line of credit............................ -- 27 -- --
Other liabilities......................................... 378 374 545 545
Current portion of long-term debt......................... -- 52 52 52
------- -------- -------- --------
Total current liabilities........................... 2,298 2,867 3,728 3,728
Deferred royalty revenue.................................... 625 -- -- --
Long-term debt, less current portion........................ -- 99 61 61
Commitments (Note 10)
Redeemable, convertible preferred stock:
$0.01 par value, 9,500,000 shares designated:
Series A redeemable, convertible preferred stock,
5,000,000 shares designated, 4,799,999 shares issued and
outstanding, liquidation preference of $4,800
(historical), none issued and outstanding (pro forma)... 4,773 4,782 4,789 --
Series B redeemable, convertible preferred stock,
3,000,000 shares designated, 2,961,585 shares issued and
outstanding, liquidation preference of $7,552
(historical), none issued and outstanding (pro forma)... 7,519 7,530 7,538 --
Series C redeemable, convertible preferred stock,
1,500,000 shares designated, 1,215,500 shares issued and
outstanding, liquidation preference of $2,735
(historical), none issued and outstanding (pro forma)... 2,728 2,730 2,732 --
Shareholders' Equity (Deficit):
Preferred stock, $0.01 par value, 12,000,000 shares
authorized, 9,500,000 shares designated as redeemable,
convertible preferred stock, 222,222 shares series D
convertible preferred stock designated, issued and
outstanding at July 31, 1999, liquidation preference of
$1,000 (historical), none issued and outstanding (pro
forma).................................................. -- -- 2 --
Common stock, $0.01 par value, 88,000,000 shares
authorized, 2,277,473, 2,496,920 and 2,551,247 shares
issued and outstanding (historical), 8,620,160 issued
and outstanding (pro forma)............................. 23 25 26 86
Additional paid-in capital................................ 1,044 1,154 2,171 17,172
Deferred compensation..................................... (125) (93) (68) (68)
Accumulated deficit....................................... (10,701) (11,324) (10,912) (10,912)
------- -------- -------- --------
Total shareholders' equity (deficit)................ (9,759) (10,238) (8,781) 6,278
------- -------- -------- --------
$ 8,184 $ 7,770 $ 10,067 $ 10,067
======= ======== ======== ========
</TABLE>
See notes to financial statements
F-3
<PAGE> 73
T/R SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JANUARY 31, OCTOBER 31,
--------------------------- -----------------
1997 1998 1999 1998 1999
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue...................................... $ 4,036 $12,032 $15,847 $12,034 $15,704
Cost of sales................................ 3,387 6,107 6,579 5,041 6,662
------- ------- ------- ------- -------
Gross profit................................. 649 5,925 9,268 6,993 9,042
Operating Expenses:
Research and development................... 1,786 2,164 3,202 2,423 2,555
Sales and marketing........................ 2,185 3,542 4,891 3,532 4,668
General and administrative................. 1,011 1,623 1,708 1,285 1,488
------- ------- ------- ------- -------
Total operating expenses........... 4,982 7,329 9,801 7,240 8,711
------- ------- ------- ------- -------
Operating income (loss)...................... (4,333) (1,404) (533) (247) 331
Interest income, net......................... 213 186 150 135 81
Other expenses............................... -- -- (240) (240) --
------- ------- ------- ------- -------
Net income (loss)............................ $(4,120) $(1,218) $ (623) $ (352) $ 412
======= ======= ======= ======= =======
Net income (loss) per common share --Basic... $ (2.43) $ (0.60) $ (0.26) $ (0.15) $ 0.16
======= ======= ======= ======= =======
Net income (loss) per common
share -- Diluted........................... $ (2.43) $ (0.60) $ (0.26) $ (0.15) $ 0.04
======= ======= ======= ======= =======
Pro forma net income (loss) per common
share -- Basic (unaudited)................. $ (0.07) $ 0.05
======= =======
Pro forma net income (loss) per common
share -- Diluted (unaudited)............... $ (0.07) $ 0.04
======= =======
</TABLE>
See notes to financial statements
F-4
<PAGE> 74
T/R SYSTEMS, INC.
STATEMENTS OF SHAREHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SERIES D
PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------- --------------- PAID-IN DEFERRED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT TOTAL
------ ------ ------ ------ ---------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance -- January 31,
1996........................ 1,635 $16 $ 837 $ (5,363) $ (4,510)
Stock option exercises.... 189 2 13 15
Accretion of redeemable
convertible preferred
stock................... (20) (20)
Net loss.................. (4,120) (4,120)
----- --- ------ -------- --------
Balance -- January 31,
1997...................... 1,824 18 830 (9,483) (8,635)
Stock option exercises.... 453 5 106 111
Deferred compensation
related to stock
options................. 130 $(130) --
Amortization of deferred
compensation............ 5 5
Accretion of redeemable
convertible preferred
stock................... (22) (22)
Net loss.................. (1,218) (1,218)
----- --- ------ ----- -------- --------
Balance -- January 31,
1998...................... 2,277 23 1,044 (125) (10,701) (9,759)
Stock option exercises.... 220 2 132 134
Amortization of deferred
compensation............ 32 32
Accretion of redeemable
convertible preferred
stock................... (22) (22)
Net loss.................. (623) (623)
----- --- ------ ----- -------- --------
Balance -- January 31,
1999...................... 2,497 25 1,154 (93) (11,324) (10,238)
Issuance of series D
preferred stock at $4.50
per share, net of
issuance costs of $5.... 222 $2 993 995
Stock option exercises
(unaudited)............. 54 1 41 42
Amortization of deferred
compensation
(unaudited)............. 25 25
Accretion of redeemable
convertible preferred
stock (unaudited)....... (17) (17)
Net income (unaudited).... 412 412
--- -- ----- --- ------ ----- -------- --------
Balance -- October 31, 1999
(unaudited)............... 222 $2 2,551 $26 $2,171 $ (68) $(10,912) $ (8,781)
=== == ===== === ====== ===== ======== ========
</TABLE>
See notes to financial statements
F-5
<PAGE> 75
T/R SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED JANUARY 31, OCTOBER 31,
--------------------------- ----------------
1997 1998 1999 1998 1999
------- ------- ------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income (loss).................................... $(4,120) $(1,218) $ (623) $ (352) $ 412
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation....................................... 251 537 702 536 392
Deferred compensation expense...................... -- 5 32 24 24
Changes in assets and liabilities:
Decrease (increase) in receivables.............. (82) (1,720) (223) 320 (379)
Decrease (increase) in inventories.............. 14 (420) (694) (695) (551)
Decrease (increase) in prepaid expenses and
other......................................... (81) (1) 12 (165) (104)
Increase (decrease) in accounts payable......... (160) 1,116 170 46 (104)
Increase (decrease) in deferred revenue......... -- 65 94 (319) 546
Increase in accrued salaries and wages.......... 65 209 230 53 276
Increase (decrease) in other liabilities........ 181 (43) (4) 56 169
Decrease in deferred royalty revenue............ (243) (246) (625) (625) --
------- ------- ------- ------- ------
Net cash provided by (used in) operating
activities.................................. (4,175) (1,716) (929) (483) 681
Investing Activities:
Purchases of property and equipment.................. (335) (619) (944) (791) (276)
Financing Activities:
Restricted cash...................................... (400) 200 -- -- --
Credit facility borrowings........................... -- -- 27 27 (27)
Proceeds on issuance of long term debt............... -- -- 156 97 --
Principal repayments on long term debt............... -- -- (5) -- (38)
Proceeds from sale of common stock................... 15 96 134 128 38
Proceeds from sale of series C preferred stock....... -- 2,741 -- -- --
Proceeds from sale of series D preferred stock....... -- -- -- -- 1,000
------- ------- ------- ------- ------
Net cash provided by (used in) financing
activities.................................. (385) 3,037 312 252 973
------- ------- ------- ------- ------
Net increase (decrease) in cash and cash equivalents... (4,895) 702 (1,561) (1,022) 1,378
Cash and Cash Equivalents:
Beginning of period.................................. 7,720 2,825 3,527 3,527 1,966
------- ------- ------- ------- ------
End of period........................................ $ 2,825 $ 3,527 $ 1,966 $ 2,505 $3,344
======= ======= ======= ======= ======
Cash paid for interest................................. $ -- $ -- $ 17 $ 5 $ 11
======= ======= ======= ======= ======
Supplemental Disclosure of Noncash Financing
Activities:
During the year ended January 31, 1998, T/R Systems
issued 24,242 shares of common stock in exchange
for 7,000 shares of series C preferred stock.
</TABLE>
See notes to financial statements
F-6
<PAGE> 76
T/R SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF OCTOBER 31, 1999 AND FOR THE NINE MONTHS ENDED OCTOBER 31,
1998 AND 1999 IS UNAUDITED)
1. NATURE OF BUSINESS
T/R Systems, Inc. was incorporated in Georgia in September 1991. We design,
develop, and market digital document processing and printing systems for the
print-on-demand market. We distribute our products in North America and
internationally through a network of independent dealers and through our
distribution relationship with Minolta Co., Ltd.
2. SIGNIFICANT ACCOUNTING POLICIES
Unaudited Pro Forma Balance Sheet -- Upon the closing of our initial public
offering, all outstanding shares of series A, series B, series C, and series D
convertible preferred stock will convert automatically into shares of our common
stock. The unaudited pro forma balance sheet as of October 31, 1999 gives effect
to this conversion as if it had occurred on October 31, 1999.
Cash and Cash Equivalents -- Cash equivalents are stated at cost, which
approximates market value, and include investments in a money market account and
commercial paper with original maturities of three months or less.
Revenue Recognition -- Printing system revenues are recognized based on the
guidance in American Institute of Certified Public Accountants Statement of
Position 97-2, Software Revenue Recognition. We recognize revenue from printing
systems when persuasive evidence of an arrangement exists, the system has been
shipped, the fee is fixed or determinable and collectibility of the fee is
probable. Under multiple element arrangements, we allocate revenue to the
various elements based on vendor-specific objective evidence of fair value. Our
products do not require significant customization. Before the February 1, 1998
effective date of SOP 97-2, we recognized revenue on printing systems upon
shipment. The adoption of SOP 97-2 had no effect on our accounting for revenue.
We recognize revenue from the sale of printing consumables upon shipment.
We recognize revenue from customer service plans ratably over their
respective terms of one to three years. Engineering service fees are recognized
as the services are rendered. Nonrefundable prepaid royalties are recognized as
revenue over the term of the royalty agreement based on the greater of actual
royalties earned or the straight-line method. Revenue from customer service
plans, engineering services and royalties individually have been less than 10%
of total revenues in all years and the nine months ended October 31, 1998 and
1999.
Research and Development Costs -- Research and development costs are
charged to expense when incurred. Software development costs are expensed as
incurred until technological feasibility is determined. To date, we have
expensed all software development costs.
Inventory -- Inventory is valued at the lower of cost or market. Cost is
determined on the first-in, first-out basis.
Property and Equipment -- Property and equipment is stated at cost.
Depreciation is computed on a straight-line basis over the estimated lives of
the assets, generally one and one-half to seven years.
F-7
<PAGE> 77
T/R SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Product Warranty -- We provide for estimated future warranty costs as
products are sold.
Income Taxes -- Deferred tax assets and liabilities are determined for
differences between the financial reporting basis and income tax basis of the
assets and liabilities that will result in taxable or deductible amounts in the
future, based on enacted tax rates applicable to the periods that the
differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Impairment of Long-Lived Assets -- Effective February 1, 1996, we adopted
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
This statement requires that long-lived assets be reviewed for impairment when
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Any impairment losses are reported in the period that
the recognition criteria are first applied, based on the fair value of the
asset. Long-lived assets to be disposed of are reported at the lower of carrying
amount or fair value less cost to sell. There was no impact on our financial
statements upon adoption of SFAS No. 121.
Stock-Based Compensation -- We account for compensation cost related to
employee stock options based on the guidance in Accounting Principles Board
Opinion 25, Accounting for Stock Issued to Employees. In fiscal 1997, we adopted
the disclosure requirements of SFAS No. 123, Accounting for Stock-Based
Compensation. This statement established a fair-value based method of accounting
for compensation cost related to stock options and other forms of stock-based
compensation plans. The adoption of the recognition provisions related to
employee arrangements under SFAS No. 123 is optional; however, the pro forma
effects on operations had these recognition provisions been elected are required
to be disclosed in financial statements.
Net Income or Loss Per Common Share -- Net income or loss per common share
is computed based on the guidance in SFAS No. 128, Earnings Per Share. Basic net
income or loss per common share is computed by dividing net income or loss
available to common shareholders by the weighted average common shares
outstanding. Diluted net income or loss per common share is computed by dividing
net income or loss available to common shareholders by the weighted average
common shares outstanding plus the dilutive effect of stock options and
convertible preferred stock; see Note 13.
Use of 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.
Comprehensive Income -- Effective February 1, 1998, we adopted SFAS No.
130, Reporting Comprehensive Income. This statement establishes standards for
reporting and display of comprehensive income and its components, including
revenues, expenses, gains, and losses in a full set of general purpose financial
statements. Because we have no components of other comprehensive income, the
adoption of this statement had no effect on our financial statements.
F-8
<PAGE> 78
T/R SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Fair Value of Financial Instruments -- The carrying value of our cash and
cash equivalents, accounts receivable, accounts payable, accrued liabilities and
notes payable approximate their fair values.
Unaudited Interim Financial Information -- The accompanying interim
financial statements are unaudited. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included.
These adjustments consist only of normal recurring entries. Operating results
for the nine months ended October 31, 1999 are not necessarily indicative of the
results that may be expected for the entire fiscal year or any other interim
period.
New Accounting Pronouncements -- In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, which is effective for all fiscal years beginning after June
15, 2000. This statement establishes accounting and reporting standards for
derivative instruments, including some derivative instruments embedded in other
contracts and for hedging activities. Under SFAS No. 133, some contracts that
were not formerly considered derivatives may now meet the definition of a
derivative. We intend to adopt SFAS No. 133 effective February 1, 2001. Because
we hold no derivative financial instruments, the adoption of SFAS No. 133 is not
expected to have a significant impact on our financial position or results of
operations.
In December 1998, the AICPA issued SOP 98-9, Modification of SOP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions. SOP 98-9
requires recognition of revenue using the residual method when vendor-specific
objective evidence of fair value does not exist for one or more of the delivered
elements in an arrangement. Under the residual method, the arrangement fee is
recognized as follows:
- the total fair value of the undelivered elements, as indicated by
vendor-specific objective evidence, is deferred and subsequently
recognized based on the guidance in the relevant sections of SOP 97-2;
and
- the difference between the total arrangement fee and the amount deferred
for the undelivered elements is recognized as revenue related to the
delivered elements.
We will adopt SOP 98-9 in fiscal 2001 and do not expect the adoption of SOP
98-9 to have a material effect on revenue recognition.
3. INVENTORIES
Inventories at January 31, 1998 and 1999 and October 31, 1999 consisted of
the following:
<TABLE>
<CAPTION>
JANUARY 31,
--------------- OCTOBER 31,
1998 1999 1999
------ ------ -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Components and supplies.......................... $1,393 $1,817 $1,994
Finished goods................................... 393 566 767
------ ------ ------
1,786 2,383 2,761
Less reserve for potential losses................ 670 573 400
------ ------ ------
$1,116 $1,810 $2,361
====== ====== ======
</TABLE>
F-9
<PAGE> 79
T/R SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment at January 31, 1998 and 1999 and October 31, 1999
consisted of the following:
<TABLE>
<CAPTION>
JANUARY 31,
--------------- OCTOBER 31,
1998 1999 1999
------ ------ -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Furniture and fixtures........................... $ 59 $ 564 $ 625
Machinery and equipment.......................... 1,420 1,557 1,786
Leasehold improvements........................... 234 68 71
------ ------ ------
1,713 2,189 2,482
Less accumulated depreciation.................... 944 1,178 1,587
------ ------ ------
Property and equipment, net............ $ 769 $1,011 $ 895
====== ====== ======
</TABLE>
Depreciation expense was $251,000 in fiscal 1997, $537,000 in fiscal 1998,
$702,000 in fiscal 1999, $536,000 for the nine months ended October 31, 1998 and
$392,000 for the nine months ended October 31, 1999.
5. OTHER LIABILITIES
Other liabilities at January 31, 1998 and 1999 and October 31, 1999
consisted of the following:
<TABLE>
<CAPTION>
JANUARY 31,
----------- OCTOBER 31,
1998 1999 1999
---- ---- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Professional services fees.......................... $ 78 $ 85 $ 62
Accrued sales and property taxes.................... 56 59 64
Accrued travel costs................................ 55 48 50
Accrued marketing programs.......................... -- -- 63
Accrued warranty.................................... 24 75 75
Other............................................... 165 107 231
---- ---- ----
$378 $374 $545
==== ==== ====
</TABLE>
F-10
<PAGE> 80
T/R SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
Our deferred tax assets at January 31, 1998 and 1999 are summarized below:
<TABLE>
<CAPTION>
JANUARY 31,
-----------------
1998 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................ $ 2,899 $ 3,141
Accounts receivable..................................... 66 79
Inventory............................................... 199 252
Property and equipment.................................. 391 162
Other assets............................................ 389 188
Accrued liabilities..................................... 92 146
Deferred revenue........................................ 237 5
Deferred rent........................................... 5 7
------- -------
4,278 3,980
Valuation allowance....................................... (4,278) (3,980)
------- -------
Net deferred taxes.............................. $ -- $ --
======= =======
</TABLE>
At January 31, 1998 and 1999, net deferred tax assets are fully offset by a
valuation allowance. In estimating the realizability of our deferred tax assets,
we consider both positive and negative evidence and give greater weight to
evidence that is objectively verifiable. Due to our cumulative losses, we
currently believe that the future realization of our deferred tax assets is
uncertain. The valuation allowance increased by $2,050,000 in fiscal 1997 and
$507,000 in fiscal 1998, and decreased by $298,000 in fiscal 1999.
As of January 31, 1999, we had about $8.2 million in tax net operating loss
carryforwards which, if not utilized, expire from 2007 through 2019. The
utilization of these net operating loss carryforwards and realization of tax
benefits in future years depends mainly upon the recognition of taxable income.
The utilization of $658,000 of these carryforwards is subject to annual
limitations of about $330,000 per year as a result of the change in ownership
provisions of the Internal Revenue Code. The limitation does not reduce the
total amount of net operating losses which we may take, but rather limits the
amount which we may use during a particular year. We expect that the completion
of our initial public offering will result in another change in ownership that
may result in additional limitations on the use of our net operating loss
carryforwards.
7. CREDIT FACILITY
We have a $3,000,000 secured revolving line of credit from a bank which
expires on October 14, 2000. At January 31, 1998, there were no borrowings
against this line of credit and at January 31, 1999 there were borrowings of
$27,000 against this line of credit. All borrowings under the line of credit
bear interest at prime plus 0.75%, which was 8.50% at January 31, 1999, and are
secured by our assets. This agreement requires the maintenance of various
covenants, including a restriction on paying dividends. We were in compliance
with these covenants at January 31, 1999 and October 31, 1999. The agreement
also provides for up to $200,000 in
F-11
<PAGE> 81
T/R SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
letters of credit. Any letters of credit issued reduce the amount available for
borrowing under the line. In April 1998, we issued a $250,000 letter of credit
under this facility in connection with an operating lease obligation. This
letter of credit is reduced annually by $50,000.
On March 31, 1998, we amended the credit agreement with the bank to provide
an additional line of credit in the amount of $250,000 for the purchase of
property and equipment. This line bears interest at the bank's prime rate plus
one and one-half percent, which was 9.00% at January 31, 1999. Borrowings under
this line are repayable over 36 months. At January 31, 1999, the outstanding
balance on this line was $151,000 of which $52,000 was classified as short-term.
Our ability to draw against this line expired in December 1998.
At January 31, 1999, we had an unused $200,000 letter of credit from a bank
under an additional credit facility which expires on January 11, 2000. As
security for the letter of credit, we are required to maintain a certificate of
deposit for $200,000. The certificate of deposit is classified as restricted
cash.
8. REDEEMABLE, CONVERTIBLE PREFERRED STOCK
We are authorized to issue up to 12,000,000 shares of preferred stock. We
have designated 5,000,000 shares as series A redeemable, convertible preferred
stock, 3,000,000 shares as series B redeemable, convertible preferred stock, and
1,500,000 shares as series C redeemable, convertible preferred stock. Through
August 1995, we issued 4,799,999 shares of series A preferred stock at $1.00 per
share. In January 1996, we issued 2,961,585 shares of series B preferred stock
at $2.55 per share. During March and June 1997, we issued a total of 1,222,222
shares of series C preferred stock at $2.25 per share.
Dividends on common shares require the approval of the holders of a
majority of the shares of each series of preferred stock and are payable only
after any preferred stock dividend requirements are satisfied.
The preferred shares are convertible into shares of common stock at any
time at the option of the holder. Conversion of the preferred shares into shares
of common stock is automatic upon approval of the holders of a majority of the
shares of each series of preferred stock or upon the closing of our initial
public offering. Subject to adjustment to prevent dilution, each share of series
A preferred stock converts into .606 shares of common stock, each share of
series B preferred stock converts into .773 shares of common stock, and each
share of series C preferred stock converts into .606 shares of common stock. In
the event of conversion, any accrued but unpaid dividends are payable in cash or
shares of common stock. Each share of preferred stock has voting rights on an
as-converted basis.
Series A, series B, and series C shares each have liquidation preferences
equal to $1.00, $2.55, and $2.25 per share. After payment of the preferred stock
liquidation preference, preferred shares participate with common shares based on
voting rights.
F-12
<PAGE> 82
T/R SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Upon the approval of the holders of two-thirds of the shares of each series
of preferred stock, series A, series B, and series C shares of preferred stock
are subject to mandatory redemption in two equal installments in 2001 and 2002.
The redemption price of each series A, series B, and series C share will be
equal to the greater of cost or appraised value. The preferred shares are not
recorded at redemption value due to the uncertainty of redemption at amounts
greater than their carrying value. Upon the closing of our initial public
offering, all shares of our preferred stock will automatically convert into
shares of our common stock.
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
----------------- --------------- ---------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT TOTAL
-------- ------ ------ ------ ------ ------ -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance -- January 31, 1996.............. 4,800 $4,755 2,962 $7,497 -- $ -- $12,252
Preferred stock accretion.............. -- 9 -- 11 -- -- 20
----- ------ ----- ------ ----- ------ -------
Balance January 31, 1997................. 4,800 4,764 2,962 7,508 -- -- 12,272
Issuance of series C preferred stock at
$2.25 per share in March and June
1997 for cash net of issuance
costs of $9.......................... -- -- -- -- 1,222 2,741 2,741
Redemption of series C shares.......... -- -- -- -- (7) (15) (15)
Preferred stock accretion.............. -- 9 -- 11 -- 2 22
----- ------ ----- ------ ----- ------ -------
Balance January 31, 1998................. 4,800 4,773 2,962 7,519 1,215 2,728 15,020
Preferred stock accretion.............. -- 9 -- 11 -- 2 22
----- ------ ----- ------ ----- ------ -------
Balance January 31, 1999................. 4,800 4,782 2,962 7,530 1,215 2,730 15,042
Preferred stock accretion
(unaudited).......................... -- 7 -- 8 -- 2 17
----- ------ ----- ------ ----- ------ -------
Balance -- October 31, 1999
(unaudited)............................ 4,800 $4,789 2,962 $7,538 1,215 $2,732 $15,059
===== ====== ===== ====== ===== ====== =======
</TABLE>
We netted the costs associated with the issuance of redeemable preferred
stock against the gross proceeds received and are accreting the carrying amount
of each series of preferred stock through a charge to additional paid-in
capital.
9. SHAREHOLDERS' DEFICIT
Preferred Stock -- We are authorized to issue up to 12,000,000 shares of
$0.01 par value preferred stock. We have designated 9,500,000 shares into three
series of redeemable, convertible preferred stock, as described in Note 8, and
222,222 shares as series D convertible preferred stock. On May 17, 1999, we
issued for cash 222,222 shares of series D preferred stock at $4.50 per share.
The series D shares do not have voting rights, are convertible at any time into
.606 shares of common stock and will automatically convert into common shares
upon the closing of our initial public offering. The series D shares do not have
mandatory redemption rights, but have a liquidation preference of $4.50 per
share. The liquidation preference is junior to our other series of preferred
stock.
Common Stock -- We are authorized to issue up to 17,000,000 shares of $0.01
par value voting common stock. On September 28, 1999, we increased the number of
authorized common shares to 88,000,000 shares. The financial statements reflect
this change on a retroactive basis.
Stock Option Plans -- We have stock option plans that provide for the
granting of stock options to officers, employees, and key persons to purchase up
to 3,727,273 shares of our common stock. The plans allow for the grant of both
incentive and nonqualified stock options.
F-13
<PAGE> 83
T/R SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The exercise price of the incentive stock options may not be less than fair
market value of the stock on the date of grant. Generally, these options are
exercisable ratably over four years and expire after ten years.
In October 1994, we established the 1994 associates stock option plan.
Under this plan, we may issue, to nonemployees who act in a role of a director,
consultant, or advisor, nonqualified options to purchase up to 30,303 shares of
our common stock. These options are exercisable immediately upon grant and
expire at the earlier of three months after the nonemployee ceases to be
associated with T/R Systems or ten years from the date of grant.
The following table presents the activity in the above plans:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
------------------------------------------------------------
1997 1998 1999
------------------ ------------------ ------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ --------- ------ --------- ------ ---------
(SHARES IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Options outstanding as of
February 1....................... 1,412 $0.42 1,675 $0.58 1,591 $0.76
Granted.......................... 511 0.83 437 0.91 162 4.93
Exercised........................ (221) 0.19 (454) 0.25 (219) 0.61
Forfeited........................ (27) 0.53 (67) 0.47 (24) 5.41
----- ----- -----
Options outstanding as of
January 31..................... 1,675 0.58 1,591 0.76 1,510 1.16
===== ===== =====
Options exercisable as of
January 31..................... 749 0.40 564 0.66 703 0.72
===== ===== =====
Weighted-average fair value of
options granted during the
year........................... $0.14 $0.40 $0.44
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 31, 1999
----------------------
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
------ ---------
(SHARES IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Options outstanding as of February 1.................... 1,510 $1.16
Granted................................................. 184 8.81
Exercised............................................... (54) 0.80
Forfeited............................................... (29) 2.53
-----
Options outstanding as of October 31.................... 1,610 2.02
=====
Options exercisable as of October 31.................... 817 0.80
=====
Weighted-average fair value of options granted during
the period............................................ $1.09
=====
</TABLE>
F-14
<PAGE> 84
T/R SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
We have estimated the fair value of options at date of grant using the
Black-Scholes option pricing model using the following weighted-average
assumptions:
<TABLE>
<CAPTION>
NINE
YEAR ENDED MONTHS
JANUARY 31, ENDED
------------------ OCTOBER 31,
1997 1998 1999 1999
---- ---- ---- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Expected life (years).......................... 3.4 2.5 2.5 2.5
Interest rate.................................. 5.8% 5.6% 4.8% 5.4%
Volatility..................................... 0.0 0.0 0.0 0.0
Dividend yield................................. 0.0 0.0 0.0 0.0
</TABLE>
Had compensation for our stock option grants in fiscal 1997, 1998, and 1999
been determined based on grant-date fair value based on the guidance in SFAS No.
123, T/R Systems' net loss would have been $4,175,000 in fiscal 1997, $1,334,000
in fiscal 1998 and $696,000 in fiscal 1999. Net income would have been $338,000
for the nine months ended October 31, 1999. Basic and diluted net loss per share
would have been $2.46 in fiscal 1997, $0.66 in fiscal 1998, and $0.30 in fiscal
1999. Basic net income per share would have been $0.13 and diluted net income
per share would have been $0.03 for the nine months ended October 31, 1999.
Because SFAS No. 123 has not been applied to options granted before January 31,
1995, the resulting pro forma compensation cost may not be representative of
that expected in future years.
The following table summarizes information about stock options outstanding
at January 31, 1999:
<TABLE>
<CAPTION>
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
RANGE OF JANUARY 31, CONTRACTUAL EXERCISE JANUARY 31, EXERCISE
EXERCISE PRICES 1999 LIFE (YEARS) PRICE 1999 PRICE
- --------------- -------------- ------------ --------- -------------- ---------
(SHARES IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$0.17 to $0.33....... 163 5.0 $0.28 145 $0.28
0.83................ 1,188 7.7 0.83 555 0.83
3.30................ 38 9.1 3.30 3 3.30
4.54 to 4.95........ 121 9.8 4.92 -- --
----- -----
0.17 to 4.95........ 1,510 7.6 1.16 703 0.72
===== =====
</TABLE>
During the year ended January 31, 1998, we recorded $130,000 in deferred
compensation representing the excess of the estimated market value of our common
stock over the exercise price of stock options granted at date of grant.
Deferred compensation is amortized over the vesting period of the stock options,
four years. Compensation expense related to stock options was $5,000 for fiscal
1998, $32,000 for fiscal 1999, and $24,000 for the nine months ended October 31,
1999.
In connection with the retirement of a director as an officer in August
1997, we accelerated the vesting and extended the exercise date of options to
purchase 113,939 shares of common stock. These options were granted in January
1996 with an exercise price of $0.83 per share. The acceleration of the options
did not result in additional compensation expense because the
F-15
<PAGE> 85
T/R SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
exercise price of the options was not less than the estimated market value of
our common stock at the time the options were modified.
10. COMMITMENTS
We lease existing office facilities and equipment under operating lease
agreements which expire through 2004. We have the option to renew the facility
lease for one five-year term at the expiration of the original term. The future
noncancelable minimum rent schedule for these leases is as follows:
<TABLE>
<CAPTION>
YEAR ENDING JANUARY 31, (IN THOUSANDS)
<S> <C>
2000........................................................ $ 356
2001........................................................ 367
2002........................................................ 377
2003........................................................ 348
2004 and thereafter......................................... 56
------
Total............................................. $1,504
======
</TABLE>
Rent expense was $112,000 for fiscal 1997, $143,000 for fiscal 1998, and
$364,000 for fiscal 1999. Rent expense was $236,000 for the nine months ended
October 31, 1998 and $290,000 for the nine months ended October 31, 1999.
During fiscal 1998, we adopted a plan to relocate our headquarters and
entered into negotiations to lease a new office facility. We entered into the
new lease in February 1998. We recorded a $180,000 charge in our fiscal 1998
financial statements for expected losses to be incurred under our existing
lease.
11. SEGMENT INFORMATION
We operate in one reportable segment, the print-on-demand market, and
assess performance based on operating income. Revenue is summarized below:
<TABLE>
<CAPTION>
NINE
MONTHS
YEAR ENDED JANUARY 31, ENDED
-------------------------- OCTOBER 31,
1997 1998 1999 1999
------ ------- ------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Printing systems........................ $3,764 $11,627 $14,094 $14,839
Other................................... 272 405 1,753 865
------ ------- ------- -------
Total................................... $4,036 $12,032 $15,847 $15,704
====== ======= ======= =======
</TABLE>
Other revenue includes revenue from customer service plans, engineering services
and royalties.
F-16
<PAGE> 86
T/R SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Revenue by geographic area is summarized below:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED JANUARY 31, ENDED
-------------------------- OCTOBER 31,
1997 1998 1999 1999
------ ------- ------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
United States.......................... $2,251 $ 7,990 $10,978 $11,980
Asia................................... 327 2,735 3,395 664
Europe................................. 1,185 702 1,047 1,497
Other foreign countries................ 273 605 427 1,563
------ ------- ------- -------
Total.................................. $4,036 $12,032 $15,847 $15,704
====== ======= ======= =======
</TABLE>
Revenue by geographic area is based on where we ship our products.
Substantially all of our long-lived assets are located in the United States.
One customer in each period accounted for 16.5%, 19.0%, 14.1%, and 39.1% of
revenue for each corresponding year ended January 31, 1997, 1998 and 1999, and
the nine month period ended October 31, 1999. One customer in each corresponding
period accounted for 46.3%, 6.9%, and 12.7% of total receivables at January 31,
1998 and 1999, and October 31, 1999.
12. EMPLOYEE RETIREMENT SAVING PLAN
We have a pretax saving plan under Section 401(k) of the Internal Revenue
Code for all eligible U.S. employees. Under the plan, eligible employees are
able to contribute up to 15% of their compensation, not to exceed the maximum
IRS deferral amount. Our discretionary contribution is determined by our board
of directors. Currently, we match 50% of each participant's contribution, up to
6% of the participant's compensation. Our contributions vest with each employee
ratably over four years beginning after the employee's first full year of
service. We contributed to the plan $7,000 during fiscal 1998, $69,000 during
fiscal 1999, and $79,000 during the nine months ended October 31, 1999.
F-17
<PAGE> 87
T/R SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
13. NET INCOME OR LOSS PER COMMON SHARE
The following table summarizes the computation of basic and diluted net
income or loss per common share:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED JANUARY 31, ENDED OCTOBER 31,
-------------------------------------- ----------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
-------------------------- --------- ---------------- ---------
1997 1998 1999 1999 1998 1999 1999
------- ------- ------ --------- ------ ------- ---------
(UNAUDITED)
----------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Numerator:
Net income (loss)..................... $(4,120) $(1,218) $ (623) $ (623) $ (352) $ 412 $ 412
Accretion on redeemable preferred
stock............................... (20) (22) (22) -- (17) (17) --
------- ------- ------ ------- ------ ------- -------
Net income (loss) applicable to common
shareholders -- Basic............... (4,140) (1,240) (645) (623) (369) 395 412
Add back accretion on redeemable
preferred stock..................... -- -- -- -- -- 17 --
------- ------- ------ ------- ------ ------- -------
Net income (loss) applicable to common
shareholders -- Diluted............. $(4,140) $(1,240) $ (645) $ (623) $ (369) $ 412 $ 412
======= ======= ====== ======= ====== ======= =======
Denominator:
Weighted average shares outstanding... 1,702 2,052 2,444 2,444 2,429 2,532 2,532
Conversion of preferred stock......... -- -- -- 5,934 -- -- 6,017
------- ------- ------ ------- ------ ------- -------
Total -- Basic........................ 1,702 2,052 2,444 8,378 2,429 2,532 8,549
Conversion of preferred stock......... -- -- -- -- -- 6,017 --
Effect of outstanding stock options... -- -- -- -- -- 1,151 1,151
------- ------- ------ ------- ------ ------- -------
Total -- Diluted...................... 1,702 2,052 2,444 8,378 2,429 9,700 9,700
======= ======= ====== ======= ====== ======= =======
Net income (loss) per common share --
Basic................................. $ (2.43) $ (0.60) $(0.26) $ (0.07) $(0.15) $ 0.16 $ 0.05
======= ======= ====== ======= ====== ======= =======
Net income (loss) per common share --
Diluted............................... $ (2.43) $ (0.60) $(0.26) $ (0.07) $(0.15) $ 0.04 $ 0.04
======= ======= ====== ======= ====== ======= =======
</TABLE>
The pro forma share amounts assume the conversion of all outstanding shares
of convertible preferred stock, which will take place upon completion of our
initial public offering, as if the conversion had occurred at the beginning of
the periods presented or the date of issuance if later.
For the years ended January 31, 1997, 1998, and 1999 and the nine month
period ended October 31, 1998 and 1999, the historical diluted computations
exclude the effects of all stock options and shares of convertible preferred
stock which were antidilutive. At each corresponding period ended January 31,
1997, 1998 and 1999, and October 31, 1998 and 1999, common shares issuable under
these arrangements were 6,872,000, 7,525,000, 7,444,000, 7,363,000 and 159,691.
14. REVERSE STOCK SPLIT
On , we completed a 1 for 1.65 reverse split of our
common shares. All common share and per share information included in these
financial statements has been retroactively adjusted to give effect to the
reverse stock split.
F-18
<PAGE> 88
[GRAPHICS]
Graphics on inside back cover -- text "the MicroPress(R) offers a complete
family of software applications that streamline document processing and
manipulation activities for print-on-demand applications." Representation of a
MicroPress ClusterServer and console with sample screen shots. There is a line
showing ten print devices connected to the ClusterServer picture and the word
"MicroPress."
TR SYSTEMS LOGO
UNTIL , 2000, WHICH IS 25 DAYS AFTER THE DATE OF THIS
PROSPECTUS, ALL DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WHEN SELLING THEIR PREVIOUSLY UNSOLD ALLOTMENTS
OR SUBSCRIPTIONS.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE THESE OFFERS AND SALES
ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS
OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
<PAGE> 89
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The fees and expenses in connection with the issuance and distribution of
the Common Stock to be registered are as follows:
<TABLE>
<CAPTION>
ITEM AMOUNT
- ---- ------
<S> <C>
SEC registration fee........................................ $11,510
NASD fee.................................................... 4,640
Blue sky fees and expenses.................................. *
Printing expenses........................................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Transfer agent fees......................................... *
Miscellaneous............................................... *
-------
Total............................................. $ *
=======
</TABLE>
- ------------------------
* To be supplied by amendment.
The foregoing items, except the SEC registration fee and NASD fee, are
estimated. All such fees and expenses will be paid by the Company.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article VI of the Company's Articles of Incorporation provides that to the
extent allowable pursuant to Sections 14-2-202(b)(4) and (b)(5) of the Georgia
Business Corporation Code (the "Georgia Code"), as such provisions exist from
time to time, no directors of the Company shall be personally liable to the
Company or its shareholders for any breach of duty of care or other duty as a
director. The Company's Articles of Incorporation further provide that in
discharging the duties of their respective positions and in determining what is
believed to be in the best interests of the Company, the Board of Directors,
committees of the Board of Directors, and individual directors, in addition to
considering the effects of any action on the Company or its shareholders, may
consider the interests of the employees, customers, suppliers, and creditors of
the Company and its subsidiaries, the communities in which offices or other
establishments of the Company and its subsidiaries are located, and all other
factors such directors consider pertinent, provided, however, that this
provision shall be deemed solely to grant discretionary authority to the
directors and shall not be deemed to provide to any constituency any right to be
considered.
Article XV, Section 1 of the Company's Bylaws provides that the Company
shall indemnify each person who was or is a party or is threatened to be made a
party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Company or is or was
serving at the request of the Company as a director, officer, employee or agent
of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action or inaction in an official
capacity or in any other capacity while serving as a director, officer, employee
or agent, shall be
II-1
<PAGE> 90
indemnified and held harmless by the Company to the fullest extent permitted by
the laws of Georgia, as the same exist from time to time, against all costs,
charges, expenses, liabilities and losses (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in connection
therewith, and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators; provided, however, that, except
as otherwise provided, the Company shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the Company. The right to indemnification conferred by
Article XV of the Company's Bylaws is a contract right and includes the right to
be paid by the Company the expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that, if the Georgia Code
requires, the payment of such expenses incurred by a director or officer in his
or her capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the Company of an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified.
The Georgia Code provides that a company may indemnify an individual who
was or is a party to a proceeding because he is or was a director or officer
against liability incurred in the proceeding if he acted in a manner he believed
in good faith to be in or not opposed to the best interests of the company, and,
in the case of any criminal proceeding, he had no reasonable cause to believe
his conduct unlawful. The termination of a proceeding by judgment, order,
settlement, conviction, or a plea of nolo contendere or its equivalent is not,
of itself, determinative that the director or officer did not meet the standard
of conduct set forth in the Georgia Code. However, no indemnification shall be
made of an officer or director in connection with a proceeding by or in the
right of the company in which the director or officer was adjudged liable to the
company or in connection with any other proceeding in which he was adjudged
liable on the basis that personal benefit was improperly received by him.
Indemnification in connection with a proceeding by or in the right of the
company is limited to reasonable expenses incurred in connection with the
proceeding.
The Georgia Code further provides that a company shall not indemnify an
officer or director unless authorized in the specific case upon a determination
that indemnification of the director or officer is permissible in the
circumstances because he has met the applicable standard of conduct set forth
above and prescribes the persons who may make such determination.
To the extent that a director or officer has been successful, on the merits
or otherwise, in defense of any proceeding to which he was a party or in defense
of any claim, issue or matter therein, he shall be indemnified against
reasonable expenses (including attorneys' fees) incurred by him in connection
therewith. The Company shall pay for the reasonable expenses incurred by a
director or officer who is a party to a proceeding in advance of the final
disposition of the proceeding if the director or officer furnishes the Company
notice as required under that director's or officer's indemnification agreement,
if one exists, a written affirmation of his good faith belief that he has met
the standard of conduct set forth above, and the director or officer furnishes
the Company a written undertaking, executed personally or on his behalf, to
repay any advances if it is ultimately determined that he is not entitled to
indemnification by the Company as authorized in Article XV of the Company's
Bylaws.
II-2
<PAGE> 91
The Company has entered into agreements dated March 4, 1994 with E. Neal
Tompkins, Charles H. Phipps and Francis A. Rowe, directors of the Company, which
obligate the Company to indemnify each such director to the fullest extent
permitted by Georgia law if such director acted in a manner he believed in good
faith to be in or not opposed to the best interests of the Company, or in any
criminal action, if such director had no reasonable cause to believe his conduct
giving rise to such action was unlawful (the "Indemnification Agreements"). The
right to indemnification under the Indemnification Agreements is in addition to,
and not in lieu of, any other rights to indemnification such directors may have.
Pursuant to the terms of the Indemnification Agreements, for the purposes of
pursuing his rights to indemnification, the director must submit a sworn
statement of a request for indemnification to the Company and shall present to
the Company reasonable evidence of all expenses for which payment is requested.
Pursuant to Article XV, Section 4 of the Company's Bylaws, the Company may
maintain insurance, at its expense, to protect itself and any director, officer,
employee or agent of the Company or another corporation, partnership, joint
venture, trust or other enterprise, against any expense, liability or loss,
whether or not the Company would have the power to indemnify such person against
such expense, liability or loss under the Georgia Code. The Company maintains
insurance for its directors and officers of $5,000,000.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
We have sold the securities listed below without registration under the Act
since September 1, 1996.
(a) On March 31, 1997, we sold an aggregate of 1,111,111 shares of our
Series C Preferred Stock for an aggregate purchase price of $2,500,000.
Such stock was sold to 14 investors who were believed to be "accredited
investors" as defined in Regulation D promulgated under the Securities Act
based upon their representations.
(b) On June 20, 1997, we sold 111,111 shares of our Series C Preferred
Stock to a corporation for a purchase price of $250,000. Such corporation
was believed to be an "accredited investor" as defined in Regulation D
promulgated under the Securities Act based upon its representations.
(c) On May 17, 1999, we sold 222,222 shares of our Series D Preferred
Stock to a corporation for a purchase price of $999,999. Such corporation
was believed to be an "accredited investor" as defined in Regulation D
promulgated under the Securities Act based upon its representations.
(d) An aggregate of 1,170,687 shares of common stock have been
acquired upon exercise of stock options granted under our option plans for
purchase prices ranging from $0.17 to $4.54 per share.
No underwriter was involved in any of the above sales of securities. All of
the above securities were issued in reliance on the private offering exemption
set forth in Section 4(2) of the Securities Act and Regulation D, except for the
securities identified in item (d), which were issued in reliance on Rule 701
promulgated under the Securities Act.
II-3
<PAGE> 92
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement
3.1** -- Articles of Incorporation of T/R Systems, Inc.
3.2** -- Amended and Restated Bylaws of T/R Systems, Inc.
4.1** -- Second Amended and Restated Registration Rights Agreement
dated March 31, 1997 among the Company and the shareholders
named therein, as amended by First Amendment to Stock
Purchase Agreement, Second Amended and Restated
Shareholders' Agreement and Second Amended and Restated
Registration Rights Agreement, dated June 20, 1997 among the
Company and the Shareholders named therein
4.2** -- Registration Rights Agreement dated June 29, 1998 among the
Company and the Shareholders named therein
4.3** -- 1999 Registration Rights Agreement, dated September 10,
1999, by and among the Company and the Shareholders named
therein
5.1* -- Form of Opinion of Jones, Day, Reavis & Pogue re: legality
10.1** -- T/R Systems, Inc. 1992 Stock Option Plan
10.2** -- T/R Systems, Inc. 1994 Stock Option Plan
10.3** -- T/R Systems, Inc. 1994 Associates Stock Option Plan
10.4** -- T/R Systems, Inc. 1995 Stock Option Plan
10.5** -- T/R Systems, Inc. 1999 Stock Option Plan
10.6 -- Loan and Security Agreement, dated as of October 17, 1997 by
and between Silicon Valley Bank and T/R Systems, Inc., as
amended by Loan Modification Agreement, dated as of March
31, 1998 by and between T/R Systems, Inc. and Silicon Valley
Bank, as further amended by Second Loan Modification
Agreement, dated as of October 16, 1998 by and between T/R
Systems, Inc. and Silicon Valley Bank, as further amended by
Third Loan Modification Agreement, dated as of January 18,
1999 by and between T/R Systems, Inc. and Silicon Valley
Bank, and as further amended by Letter Agreement, dated as
of February 2, 1999
10.7** -- Letter Agreement with Mike Kohlsdorf, dated September 6,
1996, as amended by Letter Agreement with Mike Kohlsdorf,
dated December 17, 1997
10.8** -- Employment Agreement, dated as of September 1, 1992 by and
between T/R Systems, Inc. and E. Neal Tompkins
10.9** -- Indemnification Agreement, dated as of March 4, 1994, by and
between T/R Systems, Inc. and E. Neal Tompkins
10.10** -- Indemnification Agreement, dated as of March 4, 1994, by and
between T/R Systems, Inc. and Francis A. Rowe
10.11** -- Indemnification Agreement, dated as of March 4, 1994, by and
between T/R Systems, Inc. and Charles H. Phipps
</TABLE>
II-4
<PAGE> 93
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
10.12+ -- Reseller Agreement, dated as of September 18, 1997, by and
between T/R Systems, Inc. and Mita Industrial Co., Ltd., as
amended by First Addendum to Reseller Agreement, dated as of
September 17, 1998, by and between T/R Systems, Inc. and
Mita Industrial Co., Ltd.
10.13+ -- Supply Agreement, dated as of January 28, 1999, by and
between Minolta Co., Ltd. and T/R Systems, Inc.
10.14+ -- Agreement, dated as of April 1, 1999, by and between Hitachi
Koki Imaging Solutions, Inc. and T/R Systems, Inc.
10.15+ -- Agreement, dated as of September 1, 1999, by and between
Ricoh Corporation and T/R Systems, Inc.
10.16** -- Fourth Loan Modification Agreement, dated as of October 15,
1999, by and between T/R Systems, Inc. and Silicon Valley
Bank
23.1 -- Consent of Jones, Day, Reavis & Pogue (included in Exhibit
5.1)
23.2 -- Consent and Report of Deloitte & Touche LLP
24.1** -- Power of Attorney
27.1** -- Financial Data Schedule (for SEC use only)
27.2** -- Financial Data Schedule (for SEC use only)
27.3** -- Financial Data Schedule (for SEC use only)
27.4** -- Financial Data Schedule (for SEC use only)
27.5** -- Financial Data Schedule (for SEC use only)
</TABLE>
- ---------------
* To be filed by amendment
** Previously filed
+ Confidential treatment has been requested with respect to portions of this
exhibit
(b) Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such
II-5
<PAGE> 94
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 95
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to its registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on November 30, 1999.
T/R SYSTEMS, INC.
By: /s/ Michael E. Kohlsdorf
--------------------------------------
Michael E. Kohlsdorf
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Michael E. Kohlsdorf President and Chief Executive November 30, 1999
- --------------------------------------------- Officer (Principal Executive
Michael E. Kohlsdorf Officer)
/s/ Lyle W. Newkirk Vice President, Chief November 30, 1999
- --------------------------------------------- Financial Officer, Secretary
Lyle W. Newkirk and Treasurer (Principal
Financial Officer and
Principal Accounting
Officer)
* Director
- ---------------------------------------------
Charles H. Phipps
* Director
- ---------------------------------------------
C. Harold Gaffin
* Director
- ---------------------------------------------
Philip T. Gianos
* Director
- ---------------------------------------------
Francis A. Rowe
* Director
- ---------------------------------------------
E. Neal Tompkins
*By: /s/ Michael E. Kohlsdorf November 30, 1999
--------------------------------------
Michael E. Kohlsdorf
As Attorney-in-Fact
*By: /s/ Lyle W. Newkirk November 30, 1999
--------------------------------------
Lyle W. Newkirk
As Attorney-in-Fact
</TABLE>
II-7
<PAGE> 96
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement
3.1** -- Articles of Incorporation of T/R Systems, Inc.
3.2** -- Amended and Restated Bylaws of T/R Systems, Inc.
4.1** -- Second Amended and Restated Registration Rights Agreement,
dated March 31, 1997 among the Company and the shareholders
named therein, as amended by First Amendment to Stock
Purchase Agreement, Second Amended and Restated
Shareholders' Agreement and Second Amended and Restated
Registration Rights Agreement, dated June 20, 1997 among the
Company and the Shareholders named therein
4.2** -- Registration Rights Agreement dated June 29, 1998 among the
Company and the shareholders named therein
4.3** -- 1999 Registration Rights Agreement dated September 10, 1999,
by and among the Company and the Shareholders named therein
5.1* -- Form of Opinion of Jones, Day, Reavis & Pogue re: legality
10.1** -- T/R Systems, Inc. 1992 Stock Option Plan
10.2** -- T/R Systems, Inc. 1994 Stock Option Plan
10.3** -- T/R Systems, Inc. 1994 Associates Stock Option Plan
10.4** -- T/R Systems, Inc. 1995 Stock Option Plan
10.5** -- T/R Systems, Inc. 1999 Stock Option Plan
10.6 -- Loan and Security Agreement, dated as of October 17, 1997 by
and between Silicon Valley Bank and T/R Systems, Inc., as
amended by Loan Modification Agreement, dated as of March
31, 1998 by and between T/R Systems, Inc. and Silicon Valley
Bank, as further amended by Second Loan Modification
Agreement, dated as of October 16, 1998 by and between T/R
Systems, Inc. and Silicon Valley Bank, as further amended by
Third Loan Modification Agreement, dated as of January 18,
1999 by and between T/R Systems, Inc. and Silicon Valley
Bank, and as further amended by Letter Agreement, dated as
of February 2, 1999
10.7** -- Letter Agreement with Mike Kohlsdorf, dated September 6,
1996, as amended by Letter Agreement with Mike Kohlsdorf,
dated December 17, 1997
10.8** -- Employment Agreement, dated as of September 1, 1992 by and
between T/R Systems, Inc. and E. Neal Tompkins
10.9** -- Indemnification Agreement, dated as of March 4, 1994, by and
between T/R Systems, Inc. and E. Neal Tompkins
10.10** -- Indemnification Agreement, dated as of March 4, 1994, by and
between T/R Systems, Inc. and Francis A. Rowe
10.11** -- Indemnification Agreement, dated as of March 4, 1994, by and
between T/R Systems, Inc. and Charles H. Phipps
10.12+ -- Reseller Agreement, dated as of September 18, 1997, by and
between T/R Systems, Inc. and Mita Industrial Co., Ltd., as
amended by First Addendum to Reseller Agreement, dated as of
September 17, 1998, by and between T/R Systems, Inc. and
Mita Industrial Co., Ltd.
10.13+ -- Supply Agreement, dated as of January 28, 1999, by and
between Minolta Co., Ltd. and T/R Systems, Inc.
</TABLE>
<PAGE> 97
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
10.14+ -- Agreement, dated as of April 1, 1999, by and between Hitachi
Koki Imaging Solutions, Inc. and T/R Systems, Inc.
10.15+ -- Agreement, dated as of September 1, 1999, by and between
Ricoh Corporation and T/R Systems, Inc.
10.16** -- Fourth Loan Modification Agreement, dated as of October 15,
1999, by and between T/R Systems, Inc. and Silicon Valley
Bank.
23.1 -- Consent of Jones, Day, Reavis & Pogue (included in Exhibit
5.1)
23.2 -- Consent and Report of Deloitte & Touche LLP
24.1** -- Power of Attorney
27.1** -- Financial Data Schedule (for SEC use only)
27.2** -- Financial Data Schedule (for SEC use only)
27.3** -- Financial Data Schedule (for SEC use only)
27.4** -- Financial Data Schedule (for SEC use only)
27.5** -- Financial Data Schedule (for SEC use only)
</TABLE>
- ---------------
+ Confidential treatment has been requested with respect to portions of this
exhibit
* To be filed by amendment
** Previously filed
<PAGE> 98
SCHEDULE II
T/R SYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND CHARGED TO END OF
DESCRIPTION OF PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS(1) PERIOD
- -------------------------------------- ---------- ---------- -------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Year ended January 31, 1999 allowance $175 $ 25 -- $ -- $200
for doubtful accounts
Year ended January 31, 1998 allowance 82 175 -- (82) 175
for doubtful accounts
Year ended January 31, 1997 allowance -- 106 -- (24) 82
for doubtful accounts
Year ended January 31, 1999 allowance 670 132 -- (229) 573
for inventory obsolescence
Year ended January 31, 1998 allowance 336 504 -- (170) 670
for inventory obsolescence
Year ended January 31, 1997 allowance -- 336 -- -- 336
for inventory obsolescence
</TABLE>
- ---------------
(1) Deductions represent write-offs to the respective reserve accounts.
S-1
<PAGE> 1
EXHIBIT 1.1
UNDERWRITING AGREEMENT
December [__], 1999
BancBoston Robertson Stephens Inc.
U.S. Bancorp Piper Jaffray Inc.
Raymond James & Associates, Inc.
(As Representatives of the Several Underwriters)
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, CA 94104
Ladies and Gentlemen:
INTRODUCTORY. T/R Systems, Inc., a Georgia corporation (the
"Company"), proposes to issue and sell to the several underwriters named in
Schedule A (the "Underwriters") an aggregate of 2,880,000 shares of its Common
Stock, par value $0.01 per share (the "Common Shares"); and the shareholder of
the Company named in Schedule B (the "Primary Selling Shareholder") proposes to
sell to the Underwriters an aggregate of 120,000 Common Shares. The 2,880,000
Common Shares to be sold by the Company and the 120,000 Common Shares to be
sold by the Primary Selling Shareholder are collectively called the "Firm
Shares". In addition, the other shareholders of the Company named in Schedule B
(the "Secondary Selling Shareholders" and, together with the Primary Selling
Shareholder, the "Selling Shareholders") have severally granted to the
Underwriters an option to purchase up to an additional 450,000 Common Shares,
each Secondary Selling Shareholder selling up to the amount set forth opposite
such Secondary Selling Shareholder's name in Schedule B, all as provided in
Section 2. The additional 450,000 Common Shares to be sold by the Secondary
Selling Shareholders pursuant to such option are collectively called the
"Option Shares". The Firm Shares and, if and to the extent such option is
exercised, the Option Shares are collectively called the "Shares". BancBoston
Robertson Stephens Inc., U.S. Bancorp Piper Jaffray Inc. and Raymond James &
Associates, Inc. have agreed to act as representatives of the several
Underwriters (in such capacity, the "Representatives") in connection with the
offering and sale of the Common Shares.
<PAGE> 2
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File No.
333-88439), which contains a form of prospectus to be used in connection with
the public offering and sale of the Shares. Such registration statement, as
amended, including the financial statements, exhibits and schedules thereto, in
the form in which it was declared effective by the Commission under the
Securities Act of 1933 and the rules and regulations promulgated thereunder
(collectively, the "Securities Act"), including any information deemed to be a
part thereof at the time of effectiveness pursuant to Rule 430A or Rule 434
under the Securities Act, is called the "Registration Statement". Any
registration statement filed by the Company pursuant to Rule 462(b) under the
Securities Act is called the "Rule 462(b) Registration Statement, and from and
after the date and time of filing of the Rule 462(b) Registration Statement the
term "Registration Statement" shall include the Rule 462(b) Registration
Statement. Such prospectus, in the form first used by the Underwriters to
confirm sales of the Shares, is called the "Prospectus"; provided, however, if
the Company has, with the consent of BancBoston Robertson Stephens Inc.,
elected to rely upon Rule 434 under the Securities Act, the term "Prospectus"
shall mean the Company's prospectus subject to completion (a "preliminary
prospectus") dated [___] (such preliminary prospectus is called the "Rule 434
preliminary prospectus"), together with the applicable term sheet (the 'Term
Sheet") prepared and filed by the Company with the Commission under Rules 434
and 424(b) under the Securities Act and all references in this Agreement to the
date of the Prospectus shall mean the date of the Term Sheet. All references in
this Agreement to the Registration Statement, the Rule 462(b) Registration
Statement, a preliminary prospectus, the Prospectus or the Term Sheet, or any
amendments or supplements to any of the foregoing, shall include any copy
thereof filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval System ("EDGAR").
The Company and each of the Selling Shareholders hereby confirm their
respective agreements with the Underwriters as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES.
A. Representations and Warranties of the Company. The Company
hereby represents, warrants and covenants to each Underwriter as follows:
(a) Compliance with Registration Requirements. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has complied
to the Commission's satisfaction with all requests of the Commission for
additional or supplemental information. No stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement is in effect and no proceedings for such purpose have been instituted
or are pending or, to the best knowledge of the Company, are contemplated or
threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed complied in
all
2
<PAGE> 3
material respects with the Securities Act and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by Regulation S-T
under the Securities Act), was identical to the copy thereof delivered to the
Underwriters for use in connection with the offer and sale of the Shares. Each
of the Registration Statement, any Rule 462(b) Registration Statement and any
post-effective amendment thereto, at the time it became effective or will
become effective, complied and will comply in all material respects with the
Securities Act and did not and will not contain, at any subsequent time while
required by law to be delivered, any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading. The Prospectus, as amended or
supplemented, as of its date and as of the Closing Date or the Second Closing
Date, did not and will not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The representations and warranties set forth in the two immediately
preceding sentences do not apply to statements in or omissions from the
Registration Statement, any Rule 462(b) Registration Statement, or any
post-effective amendment thereto, or the Prospectus, or any amendments or
supplements thereto, made in reliance upon and in conformity with information
relating to any Underwriter furnished to the Company in writing by the
Representatives expressly for use therein. There are no contracts or other
documents required to be described in the Prospectus or to be filed as exhibits
to the Registration Statement which have not been described or filed as
required.
(b) Offering Materials Furnished to Underwriters. The Company has
delivered to the Representatives three complete conformed copies of the
Registration Statement and of each consent and certificate of experts filed as
a part thereof, and conformed copies of the Registration Statement (without
exhibits) and preliminary prospectuses and the Prospectus, as amended or
supplemented, in such quantities and at such places as the Representatives have
reasonably requested for each of the Underwriters.
(c) Distribution of Offering Material By the Company. The Company
has not distributed and will not distribute, prior to the later of the Second
Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than a preliminary prospectus, the
Prospectus or the Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement of,
the Company, enforceable in accordance with its terms, except as rights to
indemnification or contribution hereunder may be limited by applicable law and
except as the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights and remedies of creditors or by general equitable principles.
3
<PAGE> 4
(e) Authorization of the Shares To Be Sold by the Company. The
Shares to be purchased by the Underwriters from the Company have been duly
authorized for issuance and sale pursuant to this Agreement and, when issued
and delivered by the Company against payment therefor pursuant to this
Agreement, will be validly issued, fully paid and non-assessable.
(f) Authorization of the Shares To Be Sold by the Selling
Shareholders. The Common Shares to be purchased by the Underwriters from the
Selling Shareholders are validly issued, fully paid and nonassessable.
(g) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by this Agreement, other than the Selling
Shareholders with respect to the Shares included in the Registration Statement,
except for such rights which have not been exercised in accordance with their
terms or which have otherwise been duly waived.
(h) No Material Adverse Change. Subsequent to the respective dates
as of which information is given in the Prospectus: (i) there has been no
material adverse change, or any development that could reasonably be expected
to result in a material adverse change, in the condition, financial or
otherwise, or in the earnings, business, operations or prospects, whether or
not arising from transactions in the ordinary course of business, of the
Company (any such change or effect, where the context so requires, is called a
"Material Adverse Change" or a "Material Adverse Effect"); (ii) the Company has
not incurred any material liability or obligation, indirect, direct or
contingent, not in the ordinary course of business nor entered into any
material transaction or agreement not in the ordinary course of business; and
(iii) there has been no dividend or distribution of any kind declared, paid or
made by the Company on any class of capital stock or repurchase or redemption
by the Company of any class of capital stock of the Company except as
contemplated in the Prospectus.
(i) Independent Accountants. Deloitte & Touche LLP, who have
expressed their opinion with respect to the financial statements (which term as
used in this Agreement includes the related notes thereto) and supporting
schedules filed with the Commission as a part of the Registration Statement and
included in the Prospectus, are independent public or certified public
accountants as required by the Securities Act.
(j) Preparation of the Financial Statements. The financial
statements filed with the Commission as a part of the Registration Statement
and included in the Prospectus present fairly the financial position of the
Company as of and at the dates indicated and the results of its operations and
cash flows for the periods specified. The supporting schedules included in the
Registration Statement present fairly the information required to be stated
therein. Such financial statements and supporting schedules have been prepared
in conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved, except as may
4
<PAGE> 5
be expressly stated in the related notes thereto. No other financial statements
or supporting schedules are required to be included in the Registration
Statement. The financial data set forth in the Prospectus under the captions
"Prospectus Summary--Summary Selected Financial Data", "Selected Financial
Data" and "Capitalization" fairly present the information set forth therein on
a basis consistent with that of the audited financial statements contained in
the Registration Statement.
(k) Company's Accounting System. The Company maintains a system of
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access
to assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(l) Subsidiaries of the Company. The Company does not own or
control, directly or indirectly, any corporation, association or other entity.
(m) Incorporation and Good Standing of the Company. The Company has
been duly incorporated and is validly existing as a corporation in good
standing under the laws of Georgia with full corporate power and authority to
own its properties and conduct its business as described in the Prospectus, and
is duly qualified to do business as a foreign corporation and is in good
standing under the laws of each jurisdiction which requires such qualification,
except where the failure to be so qualified or in good standing could not
reasonably be expected to have a Material Adverse Effect.
(n) Capitalization and Other Capital Stock Matters. The authorized
and issued and outstanding capital stock of the Company (i) is as set forth in
the Prospectus under the caption "Capitalization" under "Actual" and (ii) will
be as set forth in the Prospectus under the caption "Capitalization" under "Pro
Forma As Adjusted" upon the Closing (in either case, other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectus or upon exercise of outstanding options described in the
Prospectus). The Common Shares (including the Shares) conform in all material
respects to the description thereof contained in the Prospectus. All of the
issued and outstanding Common Shares have been duly authorized and validly
issued, are fully paid and nonassessable and have been issued in compliance
with federal and state securities laws. None of the outstanding Common Shares
were issued in violation of any preemptive rights, rights of first refusal or
other similar rights to subscribe for or purchase securities of the Company.
There are no authorized or outstanding options, warrants, preemptive rights,
rights of first refusal or other rights to purchase, or equity or debt
securities convertible into or exchangeable or exercisable for, any capital
stock of the Company other than those accurately described in the
5
<PAGE> 6
Prospectus (or, if the Registration Statement has not become effective, which
will terminate immediately prior to the effectiveness of the Registration
Statement). The description of the Company's stock option, stock bonus and
other stock plans or arrangements, and the options or other rights granted
thereunder, set forth in the Prospectus accurately and fairly presents in all
material respects the information required to be shown with respect to such
plans, arrangements, options and rights.
(o) Stock Exchange Listing. The Shares have been approved for
listing on the Nasdaq National Market, subject only to official notice of
issuance.
(p) No Consents, Approvals or Authorizations Required. No consent,
approval, authorization, filing with or order of any court or governmental
agency or regulatory body having jurisdiction over the Company is required in
connection with the transactions contemplated herein, except such as have been
obtained or made under the Securities Act and such as may be required (i) under
the blue sky laws of any jurisdiction in connection with the purchase and
distribution of the Shares by the Underwriters in the manner contemplated here
and in the Prospectus, (ii) by the National Association of Securities Dealers,
LLC and (iii) by the federal and provincial laws of Canada.
(q) Non-Contravention of Existing Instruments Agreements. Neither
the issue and sale of the Shares by the Company nor the consummation of any
other of the transactions herein contemplated to be performed by the Company
nor the fulfillment by the Company of the terms hereof will conflict with,
result in a breach or violation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company pursuant to, (i) the
charter or by-laws of the Company, (ii) the terms of any material indenture,
contract, lease, mortgage, deed of trust, note agreement, loan agreement or
other agreement, obligation, condition, covenant or instrument to which the
Company is a party or bound or to which its property is subject or (iii) any
statute, law, rule, regulation, judgment, order or decree applicable to the
Company of any court, regulatory body, administrative agency, governmental
body, arbitrator or other authority having jurisdiction over the Company or any
of its properties.
(r) No Defaults or Violations. The Company is not in violation or
default of (i) any provision of its charter or by-laws, (ii) the terms of any
indenture, contract, lease, mortgage, deed of trust, note agreement, loan
agreement or other agreement or instrument to which it is a party or bound or
to which its property is subject or (iii) any statute, law, rule, regulation,
judgment, order or decree of any court, regulatory body, administrative agency,
governmental body, arbitrator or other authority having jurisdiction over the
Company or any of its properties, except any such violations or defaults which
would not, singly or in the aggregate, result in a Material Adverse Change
except as otherwise disclosed in the Prospectus.
(s) No Actions, Suits or Proceedings. No action, suit or proceeding
by or before any court or governmental agency, authority or body or any
arbitrator involving
6
<PAGE> 7
the Company or its property is pending or, to the best knowledge of the
Company, threatened that (i) could reasonably be expected to have a Material
Adverse Effect on the performance by the Company of this Agreement or the
consummation of any of the transactions contemplated hereby or (ii) could
reasonably be expected to result in a Material Adverse Effect.
(t) All Necessary Permits, Etc. The Company possesses such valid and
current certificates, authorizations or permits issued by the appropriate
state, federal or foreign regulatory agencies or bodies necessary to conduct
its business, except where the failure to possess such certificates,
authorizations or permits could not reasonably be expected to have a Material
Adverse Effect, and the Company has not received any notice of proceedings
relating to the revocation or modification of, or non-compliance with, any such
certificate, authorization or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, could result in a
Material Adverse Change.
(u) Title to Properties. The Company has good and marketable title
to all the properties and assets reflected as owned in the financial statements
referred to in Section 1(A)(i) above (or elsewhere in the Prospectus), in each
case free and clear of any security interests, mortgages, liens, encumbrances,
equities, claims and other defects of title, except such as could not
reasonably be expected to have a Material Adverse Effect. The real property,
improvements, equipment and personal property held under lease by the Company
is held under valid and enforceable leases, with such exceptions as are not
material and do not materially interfere with the use made or proposed to be
made of such real property, improvements, equipment or personal property by the
Company and except as enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws or
affecting creditors' rights generally or by general equitable principles.
(v) Tax Law Compliance. The Company has filed all necessary federal
and Georgia, and all material, state and foreign income and franchise tax
returns and has paid all taxes shown thereon as due and, if due and payable,
any related or similar assessment, fine or penalty levied against it (unless
being contested in good faith by the Company). The Company has made adequate
charges, accruals and reserves in the applicable financial statements referred
to in Section 1(A)(i) above in respect of all federal, state and foreign income
and franchise taxes for all periods as to which the tax liability of the
Company has not been finally determined. The Company is not aware of any tax
deficiency that has been or might be asserted or threatened against the Company
that could result in a Material Adverse Change.
(w) Intellectual Property Rights. The Company owns or possesses
adequate rights to use all patents, patent rights or licenses, inventions,
collaborative research agreements, trade secrets, know-how, trademarks, service
marks, trade names and copyrights which are necessary to conduct its businesses
as described in the Registration Statement and Prospectus; the expiration of
any patents, patent rights,
7
<PAGE> 8
trade secrets, trademarks, service marks, trade names or copyrights would not
result in a Material Adverse Change that is not otherwise disclosed in the
Prospectus; the Company has not received any notice of, and has no knowledge
of, any infringement of or conflict with asserted rights of the Company by
others with respect to any patent, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, trade names or copyrights, except such as
could not reasonably be expected to have a Material Adverse Effect; and the
Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of others with respect to any
patent, patent rights, inventions, trade secrets, know-how, trademarks, service
marks, trade names or copyrights which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, might have a Material
Adverse Effect. To the best of the Company's knowledge, there is no claim being
made against the Company regarding patents, patent rights or licenses,
inventions, collaborative research, trade secrets, know-how, trademarks,
service marks, trade names or copyrights. The Company does not in the conduct
of its business as now or proposed to be conducted as described in the
Prospectus infringe or conflict with any right or patent of any third party, or
any discovery, invention, product or process which is the subject of a patent
application filed by any third party, known to the Company, which infringement
or conflict is reasonably likely to result in a Material Adverse Effect.
(x) Year 2000 Preparedness. There are no issues related to the
Company's preparedness for the Year 2000 that (i) are of a character required
to be described or referred to in the Registration Statement or Prospectus by
the Securities Act which have not been accurately described in the Registration
Statement or Prospectus or (ii) except as described in the Registration
Statement, might reasonably be expected to result in any Material Adverse
Effect. Except as described in the Registration Statement, all internal
computer systems and each Constituent Component (as defined below) of those
systems and all computer-related products and each Constituent Component (as
defined below) of those products of the Company fully comply with Year 2000
Qualification Requirements. "Year 2000 Qualifications Requirements" means that
the internal computer systems and each Constituent Component (as defined below)
of those systems and all computer-related products and each Constituent
Component (as defined below) of those products of the Company (i) have been
reviewed to confirm that they store, process (including sorting and performing
mathematical operations, calculations and computations), input and output data
containing date and information correctly regardless of whether the date
contains dates and times before, on or after January 1, 2000, (ii) have been
designated to ensure date and time entry recognition and calculations, and date
data interface values that reflect the century, (iii) accurately manage and
manipulate data involving dates and times, including single century formulas
and multi-century formulas, and will not cause an abnormal ending scenario
within the application or generate incorrect values or invalid results
involving such dates, (iv) accurately process any date rollover, and (v) accept
and respond to two-digit year date input in a manner that resolves any
ambiguities as to the century. "Constituent Component" means all software
(including operating systems, programs, packages and utilities), firmware,
hardware, networking
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components, and peripherals provided as part of the configuration. The Company
has inquired of material vendors as to their preparedness for the Year 2000 and
has disclosed in the Registration Statement or Prospectus any issues that might
reasonably be expected to result in any Material Adverse Change.
(y) No Transfer Taxes or Other Fees. There are no transfer taxes or
other similar fees or charges under Federal law or the laws of any state, or
any political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance and sale by the
Company of the Shares to be sold by it.
(z) Company Not an Investment Company. The Company has been advised
of the rules and requirements under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Company is not, and after receipt
of payment for the Shares to be sold by the Company will not be, an "investment
company" within the meaning of the Investment Company Act and will conduct its
business in a manner so that it will not become subject to the Investment
Company Act.
(aa) Insurance. The Company is insured by recognized, financially
sound and reputable institutions with policies in such amounts and with such
deductibles and covering such risks as are generally deemed adequate and
customary for its business. The Company has no reason to believe that it will
not be able (i) to renew its existing insurance coverage as and when such
policies expire or (ii) to obtain comparable coverage from similar institutions
as may be necessary or appropriate to conduct its business as now conducted and
at a cost that would not result in a Material Adverse Change.
(bb) Labor Matters. To the best of Company's knowledge, no labor
disturbance by the employees of the Company exists or is imminent; and the
Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers, subassemblers, value added
resellers, subcontractors, original equipment manufacturers, authorized dealers
or international distributors that might be expected to result in a Material
Adverse Change.
(cc) No Price Stabilization or Manipulation. The Company has not
taken and will not take, directly or indirectly, any action designed to or that
might be reasonably expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the Shares.
(dd) Lock-Up Agreements. The Company has provided to counsel for the
Underwriters a complete and accurate list of all securityholders of the Company
and the number and type of securities held by each securityholder. The Company
has provided to counsel for the Underwriters true, accurate and complete copies
of all of the agreements substantially in the form attached hereto as Exhibit A
(the "Lock-up Agreements") it has received. The Company hereby represents and
warrants that it will not release any of its officers, directors or other
shareholders from any Lock-up
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<PAGE> 10
Agreements between the Company and any of its security holders currently
existing or hereafter effected without the prior written consent of BancBoston
Robertson Stephens Inc.
(ee) Related Party Transactions. There are no business relationships
or related-party transactions involving the Company or any other person
required to be described in the Prospectus which have not been described as
required.
(ff) ERISA Compliance. The Company and any "employee benefit plan"
(as defined under the Employee Retirement Income Security Act of 1974, as
amended, and the regulations and published interpretations thereunder
(collectively, "ERISA")) established or maintained by the Company or its "ERISA
Affiliates" (as defined below) are in compliance in all material respects with
ERISA. "ERISA Affiliate" means, with respect to the Company, any member of any
group of organizations described in Sections 414(b),(c),(m) or (o) of the
Internal Revenue Code of 1986, as amended, and the regulations and published
interpretations thereunder (the "Code") of which the Company is a member. No
"reportable event" (as defined under ERISA) has occurred or is reasonably
expected to occur with respect to any "employee benefit plan" established or
maintained by the Company or any of its ERISA Affiliates. No "employee benefit
plan" established or maintained by the Company or any of its ERISA Affiliates,
if such "employee benefit plan" were terminated, would have any "amount of
unfunded benefit liabilities" (as defined under ERISA). Neither the Company nor
any of its ERISA Affiliates has incurred or reasonably expects to incur any
liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "employee benefit plan" or (ii) Sections 412, 4971, 4975
or 4980B of the Code. Each "employee benefit plan" established or maintained by
the Company or any of its ERISA Affiliates that is intended to be qualified
under Section 401(a) of the Code is so qualified and nothing has occurred,
whether by action or failure to act, which would cause the loss of such
qualification.
Any certificate signed by an officer of the Company and delivered to
the Representatives or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the
matters set forth therein.
B. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS. Each
Selling Shareholder severally and not jointly represents, warrants and
covenants to each Underwriter and the Company as follows:
(a) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by or on behalf of such Selling Shareholder
and is a valid and binding agreement of such Selling Shareholder, enforceable
in accordance with its terms, except as rights to indemnification or
contribution hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the
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<PAGE> 11
rights and remedies of creditors or by general equitable principles.
(b) The Custody Agreement and Power of Attorney. Each of the (i)
Custody Agreement signed by such Selling Shareholder and the transfer agent, as
custodian (the "Custodian"), relating to the deposit of the Shares to be sold
by such Selling Shareholder (the "Custody Agreement") and (ii) Power of
Attorney appointing certain individuals named therein as such Selling
Shareholder's attorneys-in-fact (each, an "Attorney-in-Fact") to the extent set
forth therein relating to the transactions contemplated hereby and by the
Prospectus (the "Power of Attorney"), of such Selling Shareholder has been duly
authorized, executed and delivered by such Selling Shareholder and is a valid
and binding agreement of such Selling Shareholder, enforceable in accordance
with its terms, except as rights to indemnification or contribution thereunder
may be limited by applicable law and except as the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting the rights and remedies of creditors or by
general equitable principles. Each Selling Shareholder agrees that the Shares
to be sold by such Selling Shareholder on deposit with the Custodian is subject
to the interests of the Underwriters, that the arrangements made for such
custody are to that extent irrevocable, and that the obligations of such
Selling Shareholder hereunder shall not be terminated, except as provided in
this Agreement or in the Custody Agreement, by any act of the Selling
Shareholder, by operation of law, by death or incapacity of such Selling
Shareholder or by the occurrence of any other event. If such Selling
Shareholder should die or become incapacitated, or in any other event should
occur, before the delivery of the Shares to be sold by such Selling Shareholder
hereunder, the documents evidencing the Shares to be sold by such Selling
Shareholder then on deposit with the Custodian shall be delivered by the
Custodian in accordance with the terms and conditions of this Agreement as if
such death, incapacity or other event had not occurred, regardless of whether
or not the Custodian shall have received notice thereof.
(c) Title to Shares to be Sold. Such Selling Shareholder is the
legal owner of the Shares to be sold by such Selling Shareholder hereunder and
upon sale and delivery of, and payment for, such Shares, as provided herein,
such Selling Shareholder will convey valid and marketable title to such Shares,
free and clear of all liens, encumbrances, equities and claims whatsoever.
(d) All Authorizations Obtained. Such Selling Shareholder has, and
on the First Closing Date and the Second Closing Date (as defined below) will
have, good and valid title to all of the Company Shares which may be sold by
such Selling Shareholder pursuant to this Agreement on such date and the legal
right and power, and all authorizations and approvals required by law and under
its charter or by-laws, partnership agreement, trust agreement or other
organizational documents, as the case may be, to enter into this Agreement and
its Custody Agreement and Power of Attorney, to sell, transfer and deliver all
of the Shares which may be sold by such Selling Shareholder pursuant to this
Agreement and to comply with its other obligations
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<PAGE> 12
hereunder and thereunder.
(e) No Further Consents, Authorization or Approvals. No consent,
approval, authorization or order of any court or governmental agency or body is
required for the consummation by such Selling Shareholder of the transactions
contemplated herein, except such as may have been obtained under the Securities
Act and such as may be required under the federal and provincial securities
laws of Canada or the blue sky laws of any jurisdiction in connection with the
purchase and distribution of the Shares by the Underwriters and such other
approvals as have been obtained.
(f) Non-Contravention. Neither the sale of the Shares being sold by
such Selling Shareholder nor the consummation of any other of the transactions
herein contemplated by such Selling Shareholder or the fulfillment of the terms
hereof by such Selling Shareholder will conflict with, result in a breach or
violation of, or constitute a default under any law or the terms of any
indenture or other agreement or instrument to which such Selling Shareholder is
party or bound, any judgment, order or decree applicable to such Selling
Shareholder of any court or regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over such Selling
Shareholder.
(g) No Registration or Other Similar Rights. Such Selling
Shareholder does not have any registration or other similar rights to have any
equity or debt securities registered for sale by the Company under the
Registration Statement or included in the offering contemplated by this
Agreement, except for such rights as are described in the Prospectus under
"Shares Eligible for Future Sale".
(h) No Preemptive, Co-sale or Other Rights. Such Selling Shareholder
does not have, or has waived prior to the date hereof, any preemptive right,
co-sale right or right of first refusal or other similar right to purchase any
of the Shares that are to be sold by the Company or any of the other Selling
Shareholders to the Underwriters pursuant to this Agreement.
(i) Disclosure Made by Such Selling Shareholder in the Prospectus.
All information furnished by or on behalf of such Selling Shareholder in
writing expressly for use in the Registration Statement and Prospectus is, and
on the First Closing Date and the Second Closing Date (as defined below) will
be, true, correct, and complete in all material respects, and does not, and on
the First Closing Date and the Second Closing Date will not, contain any untrue
statement of a material fact or omit to state any material fact necessary to
make such information not misleading.
(j) No Price Stabilization or Manipulation. Such Selling Shareholder
has not taken and will not take, directly or indirectly, any action designed to
or that might be reasonably expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the Shares.
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<PAGE> 13
(k) No Transfer Taxes or Other Fees. There are no transfer taxes or
other similar fees or charges under Federal law or the laws of any state, or
any political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the sale by such Selling
Shareholder of the Shares to be sold by such Selling Shareholder.
(l) Distribution of Offering Materials by the Selling Shareholders.
Such Selling Shareholder has not distributed and will not distribute, prior to
the later of the Second Closing Date (as defined below) and the completion of
the Underwriters' distribution of the Shares, any offering material in
connection with the offering and sale of the Shares by such Selling Shareholder
other than a preliminary prospectus, the Prospectus or the Registration
Statement.
(m) Disclosure of Such Selling Shareholder. Such Selling Shareholder
has no knowledge of any material fact, condition or information not disclosed
in the Registration Statement or the Prospectus which has had or may result in
a Material Adverse Change on the condition, financial or otherwise, or on the
earnings, business, operation or prospects, whether or not arising from
transactions in the ordinary course of business of the Company and is not
prompted to sell the Shares to be sold by such Selling Shareholder by any
information concerning the Company which is not set forth in the Registration
Statement and the Prospectus.
C. REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL SELLING
SHAREHOLDERS. In addition to the representations and warranties contained in
Section 1(B) hereof, each of Francis A. Rowe, E. Neal Tompkins, Michael E.
Kohlsdorf, Michael W. Barry, Charles K. Thackston and Jack N. Bartholmae (the
"Principal Selling Shareholders") severally represents, warrants and covenants
to each Underwriter as follows:
(a) Confirmation of Company Representations and Warranties. Such
Principal Selling Shareholder has no reason to believe that the representations
and warranties of the Company contained in Section 1(A) hereof are not true and
correct.
Any certificate signed by or on behalf of any Selling Shareholder and
delivered to the Company, the Representatives or to counsel for the
Underwriters shall be deemed to be a representation and warranty by such
Selling Shareholder to the Company and each Underwriter as to the matters
covered thereby.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE SHARES.
(a) The Firm Shares. Upon the terms herein set forth, (i) the
Company agrees to issue and sell to the several Underwriters an aggregate of
2,880,000 Firm Shares and (ii) the Primary Selling Shareholder agrees to sell
to the several Underwriters an aggregate of 120,000 Firm Shares. On the basis
of the representations, warranties and agreements herein contained, and upon
the terms but
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<PAGE> 14
subject to the conditions herein set forth, the Underwriters agree, severally
and not jointly, to purchase from the Company and the Primary Selling
Shareholder the respective number of Firm Shares set forth opposite their names
on Schedule A. The purchase price per Firm Share to be paid by the several
Underwriters to the Company and the Selling Shareholders shall be $[____] per
share.
(b) The First Closing Date. Delivery of the Firm Shares to be
purchased by the Underwriters and payment therefor shall be made by the Company
and the Representatives at 6:00 a.m. San Francisco time, at the offices of
Jones, Day, Reavis & Pogue, 3500 Sun Trust Plaza, 303 Peachtree Street,
Atlanta, GA 30308 (or at such other place as may be agreed upon among the
Representatives and the Company), (i) on the third (3) full business day
following the first day that Shares are traded, (ii) if this Agreement is
executed and delivered after 1:30 P.M., San Francisco time, the fourth (4th)
full business day following the day that this Agreement is executed and
delivered or (iii) at such other time and date not later that seven (7) full
business days following the first day that Shares are traded as the
Representatives and the Company may determine (or at such time and date to
which payment and delivery shall have been postponed pursuant to Section 8
hereof), such time and date of payment and delivery being herein called the
"Closing Date;" provided, however, that if the Company has not made available
to the Representatives copies of the Prospectus within the time provided in
Section 3(A)(d) hereof, the Representatives may, in their sole discretion,
postpone the Closing Date until no later that two (2) full business days
following delivery of copies of the Prospectus to the Representatives.
(c) The Option Shares; the Second Closing Date. In addition, on the
basis of the representations, warranties and agreements herein contained, and
upon the terms but subject to the conditions herein set forth, the Secondary
Selling Shareholders hereby grant an option to the several Underwriters to
purchase, severally and not jointly, up to an aggregate of 450,000 Option
Shares from the Secondary Selling Shareholders at the purchase price per share
to be paid by the Underwriters for the Firm Shares. The option granted
hereunder is for use by the Underwriters solely in covering any over-allotments
in connection with the sale and distribution of the Firm Shares. The option
granted hereunder may be exercised at any time upon notice by the
Representatives to the Company and the Secondary Selling Shareholders, which
notice may be given at any time within 30 days from the date of this Agreement.
The time and date of delivery of the Option Shares, if subsequent to the First
Closing Date, is called the "Second Closing Date" and shall be determined by
the Representatives and shall not be earlier than three nor later than five
full business days after delivery of such notice of exercise. If any Option
Shares are to be purchased, (i) each Underwriter agrees, severally and not
jointly, to purchase the number of Option Shares (subject to such adjustments
to eliminate fractional shares as the Representatives may determine) that bears
the same proportion to the total number of Option Shares to be purchased as the
number of Firm Shares set forth on Schedule A opposite the name of such
Underwriter bears to the total number of Firm Shares and (ii) each Selling
Shareholder agrees, severally and not jointly, to sell the number of Option
Shares (subject to such
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<PAGE> 15
adjustments to eliminate fractional shares as the Representatives may
determine) that bears the same proportion to the total number of Option Shares
to be sold as the number of Option Shares set forth in Schedule B opposite the
name of such Selling Shareholder bears to the total number of Option Shares.
The Representatives may cancel the option at any time prior to its expiration
by giving written notice of such cancellation to the Company and the Secondary
Selling Shareholders.
(d) Public Offering of the Shares. The Representatives hereby advise
the Company and the Selling Shareholders that the Underwriters intend to offer
for sale to the public, as described in the Prospectus, their respective
portions of the Shares as soon after this Agreement has been executed and the
Registration Statement has been declared effective as the Representatives, in
their sole judgment, have determined is advisable and practicable.
(e) Payment for the Shares. Payment for the Shares to be sold by the
Company shall be made at the First Closing Date by wire transfer of immediately
available funds to the order of the Company. Payment for the Shares to be sold
by the Selling Shareholders shall be made at the First Closing Date (and, if
applicable, at the Second Closing Date) by wire transfer of immediately
available funds to the order of the Custodian.
It is understood that the Representatives have been authorized, for
their own accounts and the accounts of the several Underwriters, to accept
delivery of and receipt for, and make payment of the purchase price for, the
Firm Shares and any Option Shares the Underwriters have agreed to purchase.
BancBoston Robertson Stephens Inc., individually and not as a Representative of
the Underwriters, may (but shall not be obligated to) make payment for any
Shares to be purchased by any Underwriter whose funds shall not have been
received by the Representatives by the First Closing Date or the Second Closing
Date, as the case may be, for the account of such Underwriter, but any such
payment shall not relieve such Underwriter from any of its obligations under
this Agreement.
Each Selling Shareholder hereby agrees that (i) it will pay all stock
transfer taxes, stamp duties and other similar taxes, if any, payable upon the
sale or delivery of the Shares to be sold by such Selling Shareholder to the
several Underwriters, or otherwise in connection with the performance of such
Selling Shareholder's obligations hereunder and (ii) the Custodian is
authorized to deduct for such payment any such amounts from the proceeds to
such Selling Shareholder hereunder and to hold such amounts for the account of
such Selling Shareholder with the Custodian under the Custody Agreement.
(f) Delivery of the Shares. The Company and the Primary Selling
Shareholder shall deliver, or cause to be delivered, a credit representing the
Firm Shares to an account or accounts at The Depository Trust Company as
designated by the Representatives for the accounts of the Representatives and
the several
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<PAGE> 16
Underwriters at the First Closing Date, against the irrevocable release of a
wire transfer of immediately available funds for the amount of the purchase
price therefor. The Secondary Selling Shareholders shall also deliver, or cause
to be delivered, a credit representing the Option Shares to an account or
accounts at The Depository Trust Company as designated by the Representatives
for the accounts of the Representatives and the several Underwriters, at the
First Closing Date or the Second Closing Date, as the case may be, against the
irrevocable release of a wire transfer of immediately available funds for the
amount of the purchase price therefor. Time shall be of the essence, and
delivery at the time and place specified in this Agreement is a further
condition to the obligations of the Underwriters.
(g) Delivery of Prospectus to the Underwriters. Not later than 12:00
noon on the second business day following the date the Shares are released by
the Underwriters for sale to the public, the Company shall deliver or cause to
be delivered copies of the Prospectus in such quantities and at such places as
the Representatives shall request.
SECTION 3. COVENANTS OF THE COMPANY AND THE SELLING SHAREHOLDERS.
A. COVENANTS OF THE COMPANY. The Company further covenants and
agrees with each Underwriter as follows:
(a) Registration Statement Matters. The Company will (i) use its
best efforts to cause a registration statement on Form 8-A (the "Form 8-A
Registration Statement") as required by the Securities Exchange Act of 1934
(the "Exchange Act") to become effective simultaneously with the Registration
Statement, (ii) use its best efforts to cause the Registration Statement to
become effective or, if the procedure in Rule 430A of the Securities Act is
followed, to prepare and timely file with the Commission under Rule 424(b)
under the Securities Act a Prospectus in a form approved by the
Representatives, which approval shall not be unreasonably withheld, containing
information previously omitted at the time of effectiveness of the Registration
Statement in reliance on Rule 430A of the Securities Act and (iii) not file any
amendment to the Registration Statement or supplement to the Prospectus of
which the Representatives shall not previously have been advised and furnished
with a copy or to which the Representatives shall have reasonably objected in
writing or which is not in compliance with the Securities Act. If the Company
elects to rely on Rule 462(b) under the Securities Act, the Company shall file
a Rule 462(b) Registration Statement with the Commission in compliance with
Rule 462(b) under the Securities Act prior to the time confirmations are sent
or given, as specified by Rule 462(b)(2) under the Securities Act, and shall
pay the applicable fees in accordance with Rule 111 under the Securities Act.
(b) Securities Act Compliance. The Company will advise the
Representatives promptly (i) when the Registration Statement or any
post-effective amendment thereto shall have become effective, (ii) of receipt
of any comments from the Commission, (iii)
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<PAGE> 17
of any request of the Commission for amendment of the Registration Statement or
for supplement to the Prospectus or for any additional information and (iv) of
the issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement or the use of the Prospectus or of the
institution of any proceedings for that purpose. The Company will use its best
efforts to prevent the issuance of any such stop order preventing or suspending
the use of the Prospectus and to obtain as soon as possible the lifting
thereof, if issued.
(c) Blue Sky Compliance. The Company will cooperate with the
Representatives and counsel for the Underwriters in endeavoring to qualify the
Shares for sale under the securities laws of such jurisdictions (both national
and foreign) as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the
Company shall not be required to qualify as a foreign corporation or to file a
general consent to service of process in any jurisdiction where it is not now
so qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(d) Amendments and Supplements to the Prospectus and Other
Securities Act Matters. The Company will comply with the Securities Act and the
Exchange Act, and the rules and regulations of the Commission thereunder, so as
to permit the completion of the distribution of the Shares as contemplated in
this Agreement and the Prospectus. If during the period in which a prospectus
is required by law to be delivered by an Underwriter or dealer, any event shall
occur as a result of which, in the judgment of the Company or in the reasonable
opinion of the Representatives or counsel for the Underwriters, it becomes
necessary to amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances existing at the time the Prospectus
is delivered to a purchaser, not misleading, or, if it is necessary at any time
to amend or supplement the Prospectus to comply with any law, the Company
promptly will prepare and file with the Commission, and furnish at its own
expense to the Underwriters and, to the extent required by law, to dealers, an
appropriate amendment to the Registration Statement or supplement to the
Prospectus so that the Prospectus as so amended or supplemented will not, in
the light of the circumstances when it is so delivered, be misleading, or so
that the Prospectus will comply with the law.
(e) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish the Representatives, without charge, during the
period beginning on the date hereof and ending on the later of the First
Closing Date or such date, as in the opinion of counsel for the Underwriters,
the Prospectus is no longer required by law to be delivered in connection with
sales by an Underwriter or dealer (the "Prospectus Delivery Period"), as many
copies of the Prospectus and any amendments and supplements thereto as the
Representatives may request.
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(f) Insurance. The Company shall obtain Directors and Officers
liability insurance in the minimum amount of $10 million which shall apply to
the offering contemplated hereby.
(g) Notice of Subsequent Events. If at any time during the ninety
(90) day period after the Registration Statement becomes effective, any rumor,
publication or event relating to or affecting the Company shall occur as a
result of which in your opinion the market price of the Company Shares has been
or is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after written notice from you advising the
Company to the effect set forth above, forthwith consult with you concerning
the substance of and advisability of disseminating a press release or other
public statement responding to or commenting on such rumor, publication or
event.
(h) Use of Proceeds. The Company shall apply the net proceeds from
the sale of the Shares sold by it in the manner described under the caption
"Use of Proceeds" in the Prospectus.
(i) Transfer Agent. The Company shall engage and maintain, at its
expense, a transfer agent for the Company Shares.
(j) Earnings Statement. As soon as practicable, the Company will
make generally available to its security holders and to the Representatives an
earnings statement (which need not be audited) covering the twelve-month period
ending January 31, 2001 that satisfies the provisions of Section 11(a) of the
Securities Act.
(k) Periodic Reporting Obligations. During the Prospectus Delivery
Period the Company shall file, on a timely basis, with the Commission and the
Nasdaq National Market all reports and documents required to be filed under the
Exchange Act.
(l) Agreement Not to Offer or Sell Additional Securities. The
Company will not, without the prior written consent of BancBoston Robertson
Stephens Inc., for a period of 180 days following the date of the Prospectus,
offer, sell or contract to sell, or otherwise dispose of or enter into any
transaction which is designed to, or could be expected to, result in the
disposition (whether by actual disposition or effective economic disposition
due to cash settlement or otherwise by the Company or any affiliate of the
Company or any person in privity with the Company or any affiliate of the
Company) directly or indirectly, or announce the offering of, any other Common
Shares or any securities convertible into, or exchangeable for, Common Shares;
provided, however, that the Company may (i) issue and sell Common Shares
pursuant to any director or employee stock option plan, stock ownership plan or
dividend reinvestment plan of the Company in effect at the date of the
Prospectus and described in the Prospectus and (ii) the Company may issue
Common Shares issuable upon the conversion of securities or the exercise of
warrants outstanding at the date of the
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Prospectus and described in the Prospectus.
(m) Future Reports to the Representatives. During the period of five
years hereafter the Company will furnish to the Representatives (i) as soon as
practicable after the end of each fiscal year, copies of the Annual Report of
the Company containing the balance sheet of the Company as of the close of such
fiscal year and statements of income, shareholders' equity and cash flows for
the year then ended and the opinion thereon of the Company's independent public
or certified public accountants; (ii) as soon as practicable after the filing
thereof, copies of each proxy statement, Annual Report on Form 10-K, Quarterly
Report on Form 10-Q, Current Report on Form 8-K or other report filed by the
Company with the Commission, the National Association of Securities Dealers,
LLC or any securities exchange; and (iii) as soon as available, copies of any
report or communication of the Company mailed generally to holders of its
capital stock, provided, however, that the Company shall not be required to
furnish any of the foregoing to the extent available through EDGAR.
B. COVENANTS OF THE SELLING SHAREHOLDERS. Each Selling Shareholder
further covenants and agrees with each Underwriter to deliver to the
Representatives prior
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to the First Closing Date a properly completed and executed United States
Treasury Department Form W-8 (if the Selling Shareholder is a non-United States
person) or Form W-9 (if the Selling Shareholder is a United States Person).
C. COVENANTS OF PRINCIPAL SELLING SHAREHOLDERS. If, at any time
prior to the date on which the distribution of the Common Shares as
contemplated herein and in the Prospectus has been completed, as determined by
the Representatives, any Principal Selling Shareholder has knowledge of the
occurrence of any event as a result of which the Prospectus or the Registration
Statement, in each case as then amended or supplemented, would include an
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, such Principal Selling Shareholder will
promptly notify the Company and the Representatives.
SECTION 4. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Shares as
provided herein on the First Closing Date and, with respect to the Option
Shares, the Second Closing Date, shall be subject to the accuracy of the
representations and warranties on the part of the Company and the Selling
Shareholders set forth in Sections 1(A), 1(B) and 1(C) hereof as of the date
hereof and as of the First Closing Date as though then made and, with respect
to the Option Shares, as of the Second Closing Date (except that, in the case
of the Second Closing Date, if applicable, only the representations and
warranties of the Company and the Secondary Selling Shareholders need be
accurate) as though then made, to the timely performance by the Company and the
Selling Shareholders of their respective covenants and other obligations
hereunder, and to each of the following additional conditions:
(a) Compliance with Registration Requirements; No Stop Order; No
Objection from the National Association of Securities Dealers, LLC. The
Registration Statement shall have become effective prior to the execution of
this Agreement, or at such later date as shall be consented to by you; and no
stop order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the Company, any Selling Shareholder or any Underwriter, threatened by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the satisfaction of Underwriters' Counsel; and the
National Association of Securities Dealers, LLC shall have raised no objection
to the fairness and reasonableness of the underwriting terms and arrangements.
(b) Corporate Proceedings. Underwriters' Counsel shall have been
furnished with such papers and information as they may reasonably have
requested to enable them to pass upon the matters referred to in this Section.
(c) No Material Adverse Change. Subsequent to the execution and
delivery
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of this Agreement and prior to the First Closing Date, or the Second Closing
Date, as the case may be, (i) there shall not have been any Material Adverse
Change in the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company from that set forth in the
Registration Statement or Prospectus, which, in your sole judgment, is material
and adverse and that makes it, in your sole judgment, impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated
by the Prospectus.
(d) Opinion of Counsel for the Company. You shall have received on
the First Closing Date, or the Second Closing Date, as the case may be, an
opinion of Jones, Day, Reavis & Pogue, counsel for the Company, substantially
in the form of Exhibit B attached hereto, dated the First Closing Date, or the
Second Closing Date, addressed to the Underwriters and with reproduced copies
or signed counterparts thereof for each of the Representatives.
Counsel rendering the opinion contained in Exhibit B may rely as to
questions of law not involving the laws of the United States or the State of
Georgia upon opinions of local counsel, and as to questions of fact upon
representations or certificates of officers of the Company, the Selling
Shareholders or officers of the Selling Shareholders (when the Selling
Shareholder is not a natural person), and of government officials, in which
case their opinion is to state that they are so relying and that they have no
knowledge of any material misstatement or inaccuracy in any such opinion,
representation or certificate. Copies of any opinion, representation or
certificate so relied upon shall be delivered to you, as Representatives of the
Underwriters, and to Underwriters' Counsel.
(e) Opinion of Patent Counsel for the Company. You shall have
received on the First Closing Date, or the Second Closing Date, as the case may
be, an opinion of Thompson & Howison, L.L.P., patent counsel for the Company
substantially in the form of Exhibit C attached hereto.
(f) Opinion of Counsel for the Underwriters. You shall have received
on the First Closing Date or the Second Closing Date, as the case may be, an
opinion of Hale and Dorr LLP, substantially in the form of Exhibit D hereto.
The Company shall have furnished to such counsel such documents as they may
have reasonably requested for the purpose of enabling them to pass upon such
matters.
(g) Accountants' Comfort Letter. You shall have received on the
First Closing Date and on the Second Closing Date, as the case may be, a letter
from Deloitte & Touche LLP, addressed to the Underwriters, dated the First
Closing Date or the Second Closing Date, as the case may be, confirming that
they are independent certified public accountants with respect to the Company
within the meaning of the Act and the applicable published Rules and
Regulations and based upon the procedures described in such letter delivered to
you concurrently with the execution of this Agreement (herein called the
"Original Letter"), but carried out to a date not more than four (4) business
days prior to the First Closing Date or the Second Closing Date, as
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the case may be, (i) confirming, to the extent true, that the statements and
conclusions set forth in the Original Letter are accurate as of the First
Closing Date or the Second Closing Date, as the case may be, and (ii) setting
forth any revisions and additions to the statements and conclusions set forth
in the Original Letter which are necessary to reflect any changes in the facts
described in the Original Letter since the date of such letter, or to reflect
the availability of more recent financial statements, data or information. The
letter shall not disclose any change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company from that
set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus. The Original Letter from Deloitte & Touche
LLP, shall be addressed to or for the use of the Underwriters in form and
substance satisfactory to the Underwriters. In addition, you shall have
received from Deloitte & Touche LLP, a letter addressed to the Company and made
available to you for the use of the Underwriters stating that their review of
the Company's system of internal accounting controls, to the extent they deemed
necessary in establishing the scope of their examination of the Company's
consolidated financial statements as of January 31, 1999, did not disclose any
weaknesses in internal controls that they considered to be material weaknesses.
(h) Officers' Certificate. You shall have received on the First
Closing Date and the Second Closing Date, as the case may be, a certificate of
the Company, dated the First Closing Date or the Second Closing Date, as the
case may be, signed by the Chief Executive Officer and Chief Financial Officer
of the Company, to the effect that, and you shall be reasonably satisfied that:
(i) The representations and warranties of the Company in
this Agreement are true and correct, as if made on and as of
the First Closing Date or the Second Closing Date, as the
case may be, and the Company has complied with all the
agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to the First Closing Date
or the Second Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for
that purpose have been instituted or are pending or
threatened under the Act;
(iii) When the Registration Statement became effective and
at all times subsequent thereto up to the delivery of such
certificate, the Registration Statement and the Prospectus,
and any amendments or supplements thereto, contained all
material information required to be included therein by the
Securities Act and in all material respects conformed to the
requirements of the Securities Act, the Registration
Statement and the Prospectus, and any amendments or
supplements thereto, did not and does not include any untrue
statement of a material fact or omit to state a
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material fact required to be stated therein or necessary to
make the statements therein not misleading; and, since the
effective date of the Registration Statement, there has
occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been so set forth; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and
Prospectus, there has not been (a) any material adverse
change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company,
(b) any transaction that is material to the Company, except
transactions entered into in the ordinary course of business,
(c) any obligation, direct or contingent, that is material to
the Company incurred by the Company, except obligations
incurred in the ordinary course of business, (d) any change
in the capital stock or outstanding indebtedness of the
Company that is material to the Company, (e) any dividend or
distribution of any kind declared, paid or made on the
capital stock of the Company, or (f) any loss or damage
(whether or not insured) to the property of the Company which
has been sustained or will have been sustained which has a
material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business
prospectus of the Company.
(i) Lock-Up Agreement from Shareholders of the Company. The
Company shall have delivered to you the original agreements substantially in
the form of Exhibit A attached hereto that it has received from each officer
and director of the Company, each Selling Shareholder and any other shareholder
of the Company.
(j) Opinion of Counsel for the Selling Shareholders. You shall
have received on the First Closing Date and the Second Closing Date, as the
case may be, the opinion of Jones, Day, Reavis & Pogue, counsel for the Selling
Shareholders, substantially in the form of Exhibit E attached hereto, dated as
of such Closing Date, addressed to the Underwriters and with signed
counterparts thereof for each of the Representatives.
In rendering such opinion, such counsel may rely as to questions of
law not involving the laws of the United States or the State of Georgia upon
opinions of local counsel and as to questions of fact upon representations or
certificates of the Selling Shareholders or officers of the Selling
Shareholders (when the Selling Shareholder is not a natural person), and of
governmental officials, in which case their opinion is to state that they are
so relying and that they have no knowledge of any material misstatement or
inaccuracy of any material misstatement or inaccuracy in any such opinion,
representation or certificate so relied upon shall be delivered to you, as
Representatives of the Underwriters, and to Underwriters' Counsel.
(k) Selling Shareholders' Certificate. On each of the First
Closing Date and
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the Second Closing Date, as the case may be, the Representatives shall have
received a written certificate executed by the Attorney-in-Fact of each
Selling Shareholder, dated as of such Closing Date, to the effect that:
(i) the representations, warranties and covenants of such
Selling Shareholder set forth in Section 1(B) of this
Agreement are true and correct with the same force and effect
as though expressly made by such Selling Shareholder on and
as of such Closing Date; and
(ii) such Selling Shareholder has complied with all the
agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to such Closing Date.
(l) Stock Exchange Listing. The Shares shall have been approved
for listing on the Nasdaq National Market, subject only to official notice of
issuance.
(m) Compliance with Prospectus Delivery Requirements. The Company
shall have complied with the provisions of Sections 2(g) and 3(e) hereof with
respect to the furnishing of Prospectuses.
(n) Additional Documents. On or before each of the First Closing
Date and the Second Closing Date, as the case may be, the Representatives and
counsel for the Underwriters shall have received such information, documents
and opinions as they may reasonably require for the purposes of enabling them
to pass upon the issuance and sale of the Shares as contemplated herein, or in
order to evidence the accuracy of any of the representations and warranties, or
the satisfaction of any of the conditions or agreements, herein contained.
If any condition specified in this Section 4 is not satisfied when and
as required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company and the Selling Shareholders at any
time on or prior to the First Closing Date and, with respect to the Option
Shares, at any time prior to the Second Closing Date, which termination shall
be without liability on the part of any party to any other party, except that
Section 5 (Payment of Expenses), Section 6 (Reimbursement of Underwriters'
Expenses), Section 7 (Indemnification and Contribution) and Section 10
(Representations and Indemnities to Survive Delivery) shall at all times be
effective and shall survive such termination.
SECTION 5. PAYMENT OF EXPENSES. The Company agrees to pay all costs,
fees and expenses incurred in connection with the performance of its
obligations hereunder and in connection with the transactions contemplated
hereby, including without limitation (i) all expenses incident to the issuance
and delivery of the Common Shares (including all printing and engraving costs),
(ii) all fees and expenses of the registrar and transfer agent of the Common
Stock, (iii) all necessary issue, transfer and other stamp taxes in connection
with the issuance and sale by the Company of the Common
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Shares to the Underwriters, (iv) all fees and expenses of the Company's
counsel, independent public or certified public accountants and other advisors,
(v) all costs and expenses incurred in connection with the preparation,
printing, filing, shipping and distribution of the Registration Statement
(including financial statements, exhibits, schedules, consents and certificates
of experts), each preliminary prospectus and the Prospectus, and all amendments
and supplements thereto, and this Agreement, (vi) all filing fees, attorneys'
fees and expenses incurred by the Company or the Underwriters in connection
with qualifying or registering (or obtaining exemptions from the qualification
or registration of) all or any part of the Shares for offer and sale under the
state securities or blue sky laws or the provincial securities laws of Canada
or any other country, and, if requested by the Representatives, preparing and
printing a "Blue Sky Survey", an "International Blue Sky Survey" or other
memorandum, and any supplements thereto, advising the Underwriters of such
qualifications, registrations and exemptions, (vii) the filing fees incident
to, and the reasonable fees and expenses of counsel for the Underwriters in
connection with, the National Association of Securities Dealers, LLC ("NASD")
review and approval of the Underwriters' participation in the offering and
distribution of the Common Shares, (viii) the fees and expenses associated with
listing the Common Stock on the Nasdaq National Market, (ix) all costs and
expenses incident to the preparation and undertaking of "road show"
preparations to be made to prospective investors, and (x) all other fees, costs
and expenses referred to in Item 13 of Part II of the Registration Statement.
Except as provided in this Section 5, Section 6, and Section 7 hereof, the
Underwriters shall pay their own expenses, including the fees and disbursements
of their counsel.
The Selling Shareholders, severally and not jointly, further agree
with each Underwriter to pay (directly or by reimbursement) all fees and
expenses incident to the performance of their obligations under this Agreement
which are not otherwise specifically provided for herein, including but not
limited to (i) fees and expenses of counsel and other advisors for such Selling
Shareholders, (ii) fees and expenses of the Custodian and (iii) expenses and
taxes incident to the sale and delivery of the Common Shares to be sold by such
Selling Shareholders to the Underwriters hereunder (which taxes, if any, may be
deducted by the Custodian under the provisions of Section 2 of this Agreement).
This Section 5 shall not affect or modify any separate, valid
agreement relating to the allocation of payment of expenses between the
Company, on the one hand, and the Selling Shareholders, on the other hand.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement
is terminated by the Representatives pursuant to Section 4, subsections (i),
(iv) or (v) of Section 9 or Section 15, or if the sale to the Underwriters of
the Shares on the First Closing Date is not consummated because of any refusal,
inability or failure on the part of the Company or the Selling Shareholders to
perform any agreement herein or to comply with any provision hereof, the
Company agrees to reimburse the Representatives and the other Underwriters,
severally, upon demand for all reasonable
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out-of-pocket expenses that shall have been reasonably incurred by the
Representatives and the Underwriters in connection with the proposed purchase
and the offering and sale of the Shares, including but not limited to fees and
disbursements of counsel, printing expenses, travel expenses, postage,
facsimile and telephone charges.
SECTION 7. INDEMNIFICATION AND CONTRIBUTION.
(a) Indemnification of the Underwriters.
(1) The Company agrees to indemnify and hold harmless each
Underwriter, its officers and employees, and each person, if any, who controls
any Underwriter within the meaning of the Securities Act and the Exchange Act
against any loss, claim, damage, liability or expense to which such Underwriter
or such controlling person may become subject, under the Securities Act, the
Exchange Act or other federal or state statutory law or regulation, or at
common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of the Company, which consent
shall not be unreasonably withheld), insofar as such loss, claim, damage,
liability or expense (or actions in respect thereof as contemplated below)
arises out of or is based (i) upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement, or any
amendment thereto, including any information deemed to be a part thereof
pursuant to Rule 430A or Rule 434 under the Securities Act, or the omission or
alleged omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading; or (ii) upon any
untrue statement or alleged untrue statement of a material fact contained in
any preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; or (iii) in whole or
in part upon any inaccuracy in the representations and warranties of the
Company contained herein; or (iv) in whole or in part upon any failure of the
Company to perform its obligations hereunder or under law; or (v) any act or
failure to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Shares or the offering
contemplated hereby, and which is included as part of or referred to in any
loss, claim, damage, liability or action arising out of or based upon any
matter covered by clause (i), (ii), (iii) or (iv) above, provided that the
Company shall not be liable under this clause (v) to the extent that a court of
competent jurisdiction shall have determined by a final judgment that such
loss, claim, damage, liability or action resulted directly from any such acts
or failures to act undertaken or omitted to be taken by such Underwriter
through its bad faith or willful misconduct; and to reimburse each Underwriter
and each such controlling person for any and all expenses (including the fees
and disbursements of counsel chosen by BancBoston Robertson Stephens Inc.) as
such expenses are reasonably incurred by such Underwriter or such controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action; provided,
however, that the
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foregoing indemnity agreement shall not apply to any loss, claim, damage,
liability or expense to the extent, but only to the extent, arising out of or
based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company by the Representatives expressly for use
in the Registration Statement, any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto); and provided, further, that with respect
to any preliminary prospectus, the foregoing indemnity agreement shall not
inure to the benefit of any Underwriter from whom the person asserting any
loss, claim, damage, liability or expense purchased Shares, or any person
controlling such Underwriter, if copies of the Prospectus were timely delivered
to the Underwriter pursuant to Section 2 and a copy of the Prospectus (as then
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such Underwriter
to such person, if required by law so to have been delivered, at or prior to
the written confirmation of the sale of the Shares to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage, liability or expense. The indemnity agreement
set forth in this Section 7(a) shall be in addition to any liabilities that the
Company may otherwise have.
(2) Each of the Selling Shareholders severally agrees to
indemnify and hold harmless each Underwriter, its officers and employees, and
each person, if any, who controls any Underwriter within the meaning of the
Securities Act and the Exchange Act against any loss, claim, damage, liability
or expense, as incurred, to which such Underwriter or such controlling person
may become subject, under the Securities Act, the Exchange Act or other federal
or state statutory law or regulation, or at common law or otherwise (including
in settlement of any litigation, if such settlement is effected with the
written consent of the Company, which consent shall not be unreasonably
withheld), insofar as such loss, claim, damage, liability or expense (or
actions in respect thereof as contemplated below) arises out of or is based (i)
upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, or any amendment thereto, including
any information deemed to be a part thereof pursuant to Rule 430A or Rule 434
under the Securities Act, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein not misleading; or (ii) upon any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto), or the omission or alleged
omission therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; or (iii) in whole or in part upon any inaccuracy in the
representations and warranties of such Selling Shareholder contained herein; or
(iv) in whole or in part upon any failure of such Selling Shareholder to
perform its obligations hereunder or under law; or (v) any act or failure to
act or any alleged act or failure to act by any Underwriter in connection with,
or relating in any manner to, the Shares or the offering contemplated hereby,
and which is included as part of or referred to in any loss, claim, damage,
liability or action arising out of or based upon any matter covered by clause
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(i), (ii), (iii) or (iv) above, provided that no Selling Shareholder shall be
liable under this clause (v) to the extent that a court of competent
jurisdiction shall have determined by a final judgment that such loss, claim,
damage, liability or action resulted directly from any such acts or failures to
act undertaken or omitted to be taken by such Underwriter through its bad faith
or willful misconduct; and to reimburse each Underwriter and each such
controlling person for any and all expenses (including the fees and
disbursements of counsel chosen by BancBoston Robertson Stephens Inc.) as such
expenses are reasonably incurred by such Underwriter or such controlling person
in connection with investigating, defending, settling, compromising or paying
any such loss, claim, damage, liability, expense or action; provided, however,
that in the case of a Selling Shareholder who is not a Primary Selling
Shareholder, the foregoing indemnity agreement shall apply in the case of
clauses (i) and (ii) of this Section 7(a)(2) to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company or such Underwriter by such Selling
Shareholder, directly or through such Selling Shareholder's representatives,
specifically for use in the preparation thereof; provided, further, that the
foregoing indemnity agreement shall not apply to any loss, claim, damage,
liability or expense to the extent, but only to the extent, arising out of or
based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to such Selling Shareholder by the Representatives
expressly for use in the Registration Statement, any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto); provided, further,
that with respect to any preliminary prospectus, the foregoing indemnity
agreement shall not inure to the benefit of any Underwriter from whom the
person asserting any loss, claim, damage, liability or expense purchased
Shares, or any person controlling such Underwriter, if copies of the Prospectus
were timely delivered to the Underwriter pursuant to Section 2 and a copy of
the Prospectus (as then amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) was not sent or given by or on
behalf of such Underwriter to such person, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of the Shares to
such person, and if the Prospectus (as so amended or supplemented) would have
cured the defect giving rise to such loss, claim, damage, liability or expense;
and provided, further, that the liability of each Selling Shareholder under the
foregoing indemnity agreement shall be limited to an amount equal to the
initial public offering price of the Shares sold by such Selling Shareholder,
less the underwriting discount, as set forth on the front cover page of the
Prospectus. The indemnity agreement set forth in this Section 7(a) shall be in
addition to any liabilities that the other Selling Shareholders may otherwise
have.
(b) Indemnification of the Company, its Directors and Officers and
the Selling Shareholders. Each Underwriter agrees, severally and not jointly,
to indemnity and hold harmless the Company, each of its directors, each of its
officers who signed the Registration Statement, the Selling Shareholders and
each person, if any, who controls the Company or any Selling Shareholder within
the meaning of the Securities Act or the Exchange Act, against any loss, claim,
damage, liability or expense to which the
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Company, or any such director, officer, Selling Shareholder or controlling
person may become subject, under the Securities Act, the Exchange Act, or other
federal or state statutory law or regulation, or at common law or otherwise
(including in settlement of any litigation, if such settlement is effected with
the written consent of such Underwriter, which consent shall not be
unreasonably withheld), insofar as such loss, claim, damage, liability or
expense (or actions in respect thereof as contemplated below) arises out of or
is based (i) upon any untrue or alleged untrue statement of a material fact
contained in the Registration Statement or any amendment thereto, including any
information deemed to be a part thereof pursuant to Rule 430A or Rule 434 under
the Securities Act, or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or (ii) upon any untrue statement or alleged untrue statement
of material fact contained in any preliminary prospectus or the Prospectus (or
amendment or supplement thereto), or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in the
Registration Statement, any preliminary prospectus, the Prospectus (or any
amendment or supplement thereto), in reliance upon and in conformity with
written information furnished to the Company and the Selling Shareholders by
the Representatives expressly for use therein; and to reimburse the Company, or
any such director, officer, Selling Shareholder or controlling person for any
and all expenses (including the fees and disbursements of counsel chosen by the
Company and the Selling Shareholders) as such expenses are reasonably incurred
by the Company, or any such director, officer, Selling Shareholder or
controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action. The indemnity agreement set forth in this Section 7(b) shall be in
addition to any liabilities that each Underwriter may otherwise have.
(c) Information Provided by the Underwriters. The Company and each
of the Selling Shareholders, hereby acknowledge that the only information that
the Underwriters have furnished to the Company and the Selling Shareholders
expressly for use in the Registration Statement, any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto) are the statements set
forth in the table in the first paragraph and the second paragraph under the
caption "Underwriting" in the Prospectus; and the Underwriters confirm that
such statements are correct.
(d) Notifications and other Indemnification Procedures. Promptly
after receipt by an indemnified party under this Section 7 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 7,
notify the indemnifying party in writing of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party for contribution or
otherwise than under the indemnity agreement contained in this Section 7 or to
the extent it is not prejudiced as a proximate result of such failure. In case
any such action
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is brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense thereof
with counsel reasonably satisfactory to such indemnified party; provided,
however, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have
reasonably concluded that a conflict may arise between the positions of the
indemnifying party and the indemnified party in conducting the defense of any
such action or that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available
to the indemnifying party, the indemnified party or parties shall have the
right to select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party
or parties. Upon receipt of notice from the indemnifying party to such
indemnified party of such indemnifying party's election so to assume the
defense of such action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under this
Section 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with local counsel), approved by the indemnifying
party (BancBoston Robertson Stephens Inc. in the case of Section 7(b) and
Section 8), representing the indemnified parties who are parties to such
action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action, or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party, in each of which cases the fees
and expenses of counsel shall be at the expense of the indemnifying party.
(e) Settlements. The indemnifying party under this Section 7 shall
not be liable for any settlement of any proceeding effected without its written
consent, which consent shall not be unreasonably withheld, but if settled with
such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party against any loss,
claim, damage, liability or expense by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by Section 7(d) hereof, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such indemnifying party of the
aforesaid request and (ii) such indemnifying party shall not have reimbursed
the indemnified party in accordance with such request prior to the date of such
settlement. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any
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<PAGE> 31
settlement, compromise or consent to the entry of judgment in any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity was or could have been sought
hereunder by such indemnified party, unless such settlement, compromise or
consent includes (i) an unconditional release of such indemnified party from
all liability on claims that are the subject matter of such action, suit or
proceeding and (ii) does not include a statement as to or an admission of
fault, culpability or a failure to act by or on behalf of any indemnified
party.
(f) Contribution. If the indemnification provided for in this
Section 7 is unavailable to or insufficient to hold harmless an indemnified
party under Section 7(a) or (b) above in respect of any losses, claims, damages
or liabilities (or actions or proceedings in respect thereof) then each
indemnifying party shall contribute to the aggregate amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Shareholders on the
one hand and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company and the Selling Shareholders on the one hand and the
Underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, (or actions or
proceedings in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Shareholders on the one hand and the Underwriter on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and the Selling
Shareholders bears to the total underwriting discounts and commissions received
by the Underwriters, in each case as set forth in the table on the cover page
of the Prospectus. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company and the Selling Shareholders on
the one hand or the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 7(f) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section 7(f). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) referred
to above in this Section 7(f) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of
31
<PAGE> 32
this subsection (f), (i) no Underwriter shall be required to contribute any
amount in excess of the underwriting discounts and commissions applicable to
the Shares purchased by such Underwriter, (ii) no Selling Shareholder shall be
required to contribute an amount in excess of the initial public offering price
of the Shares sold by such Selling Shareholder, less the underwriting discount
and (iii) no person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations in this Section 7(f) to contribute are several in
proportion to their respective underwriting obligations and not joint.
(g) Timing of Any Payments of Indemnification. Any losses, claims,
damages, liabilities or expenses for which an indemnified party is entitled to
indemnification or contribution under this Section 7 shall be paid by the
indemnifying party to the indemnified party as such losses, claims, damages,
liabilities or expenses are incurred, but in all cases, no later than thirty
(30) days of receipt of the invoice to the indemnifying party.
(h) Acknowledgments of Parties. The Company and the Underwriters
hereby acknowledge that they are sophisticated business persons who were
represented by counsel during the negotiations regarding the provisions hereof
including, without limitation, the provisions of this Section 7, and are fully
informed regarding said provisions. The parties to this Agreement acknowledge
that the provisions of this Section 7 fairly allocate the risks in light of the
ability of the parties to investigate the Company and its business in order to
assure that adequate disclosure is made in the Registration Statement and
Prospectus as required by the Securities Act and the Exchange Act.
(i) [Indemnification of a Qualified Independent Underwriter.] [To
be added, if applicable.]
SECTION 8. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If, on
the First Closing Date or the Second Closing Date, as the case may be, any one
or more of the several Underwriters shall fail or refuse to purchase Shares
that it or they have agreed to purchase hereunder on such date, and the
aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase does not exceed 10% of
the aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated, severally, in the proportions that the number
of Firm Common Shares set forth opposite their respective names on Schedule A
bears to the aggregate number of Firm Shares set forth opposite the names of
all such non-defaulting Underwriters, or in such other proportions as may be
specified by the Representatives with the consent of the non-defaulting
Underwriters, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the Underwriters shall fail or refuse to purchase Shares and the
aggregate number of
32
<PAGE> 33
Shares with respect to which such default occurs exceeds 10% of the aggregate
number of Shares to be purchased on such date, and arrangements satisfactory to
the Representatives and the Company for the purchase of such Shares are not
made within 48 hours after such default, this Agreement shall terminate without
liability of any party to any other party except that the provisions of Section
7 shall at all times be effective and shall survive such termination. In any
such case either the Representatives or the Company shall have the right to
postpone the First Closing Date or the Second Closing Date, as the case may be,
but in no event for longer than seven days in order that the required changes,
if any, to the Registration Statement and the Prospectus or any other documents
or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be
deemed to include any person substituted for a defaulting Underwriter under
this Section 8. Any action taken under this Section 8 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
SECTION 9. TERMINATION OF THIS AGREEMENT. Prior to the First Closing
Date, this Agreement may be terminated by the Representatives by notice given
to the Company and the Selling Shareholders if at any time (i) trading or
quotation in any of the Company's securities shall have been suspended or
limited by the Commission or by the Nasdaq Stock Market, or trading in
securities generally on either the Nasdaq Stock Market or the New York Stock
Exchange shall have been suspended or limited, or minimum or maximum prices
shall have been generally established on any of such stock exchanges by the
Commission or the National Association of Securities Dealers, LLC; (ii) a
general banking moratorium shall have been declared by any of federal, New
York, Georgia or California authorities; (iii) there shall have occurred any
outbreak or escalation of national or international hostilities or any crisis
or calamity, or any change in the United States or international financial
markets, or any substantial change or development involving a prospective
change in United States' or international political, financial or economic
conditions, as in the judgment of the Representatives is material and adverse
and makes it impracticable or inadvisable to market the Common Shares in the
manner and on the terms described in the Prospectus or to enforce contracts for
the sale of securities; (iv) in the judgment of the Representatives there shall
have occurred any Material Adverse Change; or (v) the Company shall have
sustained a loss by strike, fire, flood, earthquake, accident or other calamity
of such character as in the judgment of the Representatives may interfere
materially with the conduct of the business and operations of the Company
regardless of whether or not such loss shall have been insured. Any termination
pursuant to this Section 9 shall be without liability on the part of (a) the
Company or the Selling Shareholders to any Underwriter, except that the Company
and the Selling Shareholders shall be obligated to reimburse the expenses of
the Representatives and the Underwriters pursuant to Sections 5 and 6 hereof,
(b) any Underwriter to the Company or the Selling Shareholders, or (c) of any
party hereto to any other party except that the provisions of Section 7 shall
at all times be effective and shall survive such termination.
33
<PAGE> 34
SECTION 10. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, of the Selling Shareholders and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person, or the Selling Shareholders, as
the case may be, and will survive delivery of and payment for the Shares sold
hereunder and any termination of this Agreement.
SECTION 11. NOTICES. All communications hereunder shall be in writing
and shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Representatives:
BANCBOSTON ROBERTSON STEPHENS INC.
555 California Street
San Francisco, California 94104
Facsimile: (415) 676-2696
Attention: General Counsel
with a copy to:
Hale and Dorr LLP
1455 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Facsimile: (202) 942-8484
Attention: Brent B. Siler
If to the Company:
T/R Systems, Inc.
1300 Oakbrook Drive
Norcross, GA 30093
Facsimile: 770-448-3202
Attention: Michael E. Kohlsdorf
with a copy to:
Jones, Day, Reavis & Pogue
3500 Sun Trust Plaza
303 Peachtree Street, N.E.
Atlanta, GA 30308-3242
Facsimile: (404) 581-8330
Attention: Lisa A. Stater
34
<PAGE> 35
If to the Selling Shareholders:
[Custodian]
[address]
Facsimile: [____]
Attention: [____]
with a copy to:
Jones, Day, Reavis & Pogue
3500 Sun Trust Plaza
303 Peachtree Street, N.E.
Atlanta, GA 30308-3242
Facsimile: (404) 581-8330
Attention: Lisa A. Stater
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 12. SUCCESSORS. This Agreement will inure to the benefit of and
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 9 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 7, and to their
respective successors, and personal representatives, and no other person will
have any right or obligation hereunder. The term "successors" shall not include
any purchaser of the Shares as such from any of the Underwriters merely by
reason of such purchase.
SECTION 13. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 14. GOVERNING LAW PROVISIONS.
(a) Governing Law. This agreement shall be governed by and construed in
accordance with the internal laws of the state of New York applicable to
agreements made and to be performed in such state.
(b) Consent to Jurisdiction. Any legal suit, action or proceeding
arising out of or based upon this Agreement or the transactions contemplated
hereby ("Related Proceedings") may be instituted in the federal courts of the
United States of America
35
<PAGE> 36
located in the City and County of San Francisco or the courts of the State of
California in each case located in the City and County of San Francisco
(collectively, the "Specified Courts"), and each party irrevocably submits to
the exclusive jurisdiction (except for proceedings instituted in regard to the
enforcement of a judgment of any such court (a "Related Judgment"), as to which
such jurisdiction is non-exclusive) of such courts in any such suit, action or
proceeding. Service of any process, summons, notice or document by mail to such
party's address set forth above shall be effective service of process for any
suit, action or other proceeding brought in any such court. The parties
irrevocably and unconditionally waive any objection to the laying of venue of
any suit, action or other proceeding in the Specified Courts and irrevocably and
unconditionally waive and agree not to plead or claim in any such court that any
such suit, action or other proceeding brought in any such court has been brought
in an inconvenient forum. Each party not located in the United States
irrevocably appoints CT Corporation System, which currently maintains a San
Francisco office at 49 Stevenson Street, San Francisco, California 94105, United
States of America, as its agent to receive service of process or other legal
summons for purposes of any such suit, action or proceeding that may be
instituted in any state or federal court in the City and County of San
Francisco.
SECTION 15. FAILURE OF ONE OR MORE OF THE SELLING SHAREHOLDERS TO SELL
AND DELIVER COMMON SHARES. If the Primary Selling Shareholder shall fail to sell
and deliver to the Underwriters the Shares to be sold and delivered by such
Selling Shareholder at the First Closing Date pursuant to this Agreement, then
the Underwriters may at their option, by written notice from the Representatives
to the Company and the Primary Selling Shareholder, either (i) terminate this
Agreement without any liability on the part of any Underwriter or, except as
provided in Sections 5, 6, and 7 hereof, the Company or the Selling
Shareholders, or (ii) purchase the shares which the Company has agreed to sell
and deliver in accordance with the terms hereof. If one or more of the Selling
Shareholders shall fail to sell and deliver to the Underwriters the Shares to be
sold and delivered by such Selling Shareholders pursuant to this Agreement at
the First Closing Date or the Second Closing Date, then the Underwriters shall
have the right, by written notice from the Representatives to the Company and
the Selling Shareholders, to postpone the First Closing Date or the Second
Closing Date, as the case may be, but in no event for longer than seven days in
order that the required changes, if any, to the Registration Statement and the
Prospectus or any other documents or arrangements may be effected.
SECTION 16. GENERAL PROVISIONS. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in two
or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each
36
<PAGE> 37
party whom the condition is meant to benefit. The Table of Contents and the
Section headings herein are for the convenience of the parties only and shall
not affect the construction or interpretation of this Agreement.
[The remainder of this page has been intentionally left blank.]
37
<PAGE> 38
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company and the Custodian the enclosed
copies hereof, whereupon this instrument, along with all counterparts hereof,
shall become a binding agreement in accordance with its terms.
Very truly yours,
T/R SYSTEMS, INC.
By:
SELLING SHAREHOLDERS
By:
Attorney-in-fact for the Selling
Shareholders named in Schedule B hereto
The foregoing Underwriting Agreement is hereby confirmed and accepted
by the Representatives as of the date first above written.
BANCBOSTON ROBERTSON STEPHENS INC.
U.S. BANCORP PIPER JAFFRAY INC.
RAYMOND JAMES & ASSOCIATES, INC.
On their behalf and on behalf of each of the several underwriters named in
Schedule A hereto.
BY BANCBOSTON ROBERTSON STEPHENS INC.
By:______________________________
Authorized Signatory
38
<PAGE> 39
SCHEDULE A
Underwriters Number of Firm
Common Shares To be
Purchased
BANCBOSTON ROBERTSON STEPHENS INC. [AND
BANC BOSTON ROBERTSON STEPHENS
INTERNATIONAL LIMITED].................................... [_____]
U.S. BANCORP PIPER JAFFRAY INC............................ [_____]
RAYMOND JAMES & ASSOCIATES, INC........................... [_____]
[_____]................................................... [_____]
[_____]................................................... [_____]
[_____]................................................... [_____]
39
<PAGE> 40
SCHEDULE B
PRIMARY SELLING SHAREHOLDER: Number of
Firm Shares to
be Sold
Selling Shareholder #1............................. 120,000
[address]
Attention: Francis A. Rowe
Total..................................... 120,000
SECONDARY SELLING SHAREHOLDERS: Maximum
Number of
Option Shares
to be Sold
Selling Shareholder #1............................. 27,081
[address]
Attention: E. Neal Tompkins
Selling Shareholder #2............................. 27,081
[address]
Attention: Michael E. Kohlsdorf
Selling Shareholder #3
[address]
Attention: Michael W. Barry........................ 8,124
Selling Shareholder #4............................. 10,832
[address]
Attention: Charles K. Thackston
Selling Shareholder #5............................. 5,416
[address]
Attention: Jack N. Bartholmae
Selling Shareholder #6............................. 216,647
[address]
Attention: Noro-Moseley Partners
Selling Shareholder #7............................. 119,073
[address]
Attention: Family Investments LLC
Selling Shareholder #8............................. 18,415
[address]
Attention: Donald F. Greene
Selling Shareholder #9............................. 5,416
[address]
Attention: Keith J. Bradley
40
<PAGE> 41
Selling Shareholder #10............................ 5,416
[address]
Attention: James Bessen
Selling Shareholder #11............................ 2,166
[address]
Attention: Gregory Chatham
Selling Shareholder #12............................ 1,354
[address]
Attention: James W. O'Brien
Selling Shareholder #13............................ 271
[address]
Attention: Ricky L. Berry
Selling Shareholder #14............................ 2,708
[address]
Attention: Daniel Slayton
Total..................................... 450,000
41
<PAGE> 42
EXHIBIT A
LOCK-UP AGREEMENT
BancBoston Robertson Stephens Inc.
Piper Jaffray Inc.
Raymond James & Associates, Inc.
As Representatives of the Several Underwriters
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, California 94104
RE: T/R Systems, Inc. (the "Company")
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain shares
of Common Stock of the Company ("Common Stock") or securities convertible into
or exchangeable or exercisable for Common Stock. The Company proposes to carry
out a public offering of Common Stock (the "Offering") for which you will act as
the representatives (the "Representatives") of the underwriters. The undersigned
recognizes that the Offering will be of benefit to the undersigned and will
benefit the Company by, among other things, raising additional capital for its
operations. The undersigned acknowledges that you and the other underwriters are
relying on the representations and agreements of the undersigned contained in
this letter in carrying out the Offering and in entering into underwriting
arrangements with the Company with respect to the Offering.
In consideration of the foregoing, the undersigned hereby agrees that
the undersigned will not offer to sell, contract to sell, or otherwise sell,
dispose of, loan, pledge or grant any rights with respect to (collectively, a
"Disposition") any shares of Common Stock, any options or warrants to purchase
any shares of Common Stock or any securities convertible into or exchangeable
for shares of Common Stock (collectively, "Securities") now owned or hereafter
acquired directly by such person or with respect to which such person has or
hereafter acquires the power of disposition, otherwise than (i) as a bona fide
gift or gifts, provided the donee or donees thereof agree in writing to be bound
by this restriction, (ii) as a distribution to partners or shareholders of such
person, provided that the distributees thereof agree in writing to be bound by
the terms of this restriction, (iii) with respect to dispositions of Common
Shares acquired on the open market or (iv) with the prior written consent of
BancBoston Robertson Stephens Inc., for a period commencing on the date hereof
and continuing to a date 180 days after the Registration Statement is declared
effective by the Securities and Exchange Commission (the "Lock-up Period.") The
foregoing
<PAGE> 43
restriction has been expressly agreed to preclude the holder of the Securities
from engaging in any hedging or other transaction which is designed to or
reasonably expected to lead to or result in a Disposition of Securities during
the Lock-up Period, even if such Securities would be disposed of by someone
other than such holder. Such prohibited hedging or other transactions would
include, without limitation, any short sale (whether or not against the box) or
any purchase, sale or grant of any right (including, without limitation, any put
or call option) with respect to any Securities or with respect to any security
(other than a broad-based market basket or index) that includes, relates to or
derives any significant part of its value from Securities. The undersigned also
agrees and consents to the entry of stop transfer instructions with the
Company's transfer agent and registrar against the transfer of shares of Common
Stock or Securities held by the undersigned except in compliance with the
foregoing restrictions. BancBoston Robertson Stephens Inc., acting alone and in
its sole discretion, may waive any provisions of this Lock-Up Agreement without
notice to any third party.
This agreement is irrevocable and will be binding on the undersigned
and the respective successors, heirs, personal representatives, and assigns of
the undersigned. In the event that the Registration Statement shall not have
been declared effective on or before April 30, 2000, this Lock-Up Agreement
shall be of no further force or effect.
Dated:
Printed Name of Holder
By:
Signature
Printed Name of Person Signing (and indicate
capacity of person signing if signing as
custodian, trustee, or on behalf
of an entity)
2
<PAGE> 44
EXHIBIT B
MATTERS TO BE COVERED IN THE OPINION OF COMPANY COUNSEL
<PAGE> 45
EXHIBIT C
MATTERS TO BE COVERED IN THE OPINION OF
PATENT COUNSEL FOR THE COMPANY
Such counsel are familiar with the technology used by the Company in
its business and the manner of its use thereof and have read the Registration
Statement and the Prospectus, including particularly the portions of the
Registration Statement and the Prospectus referring to patents, trade secrets,
trademarks, service marks or other proprietary information or materials and:
(i) The Company is listed in the records of the United States Patent
and Trademark Office as the holder of record of the patents listed on a
schedule to such opinion (the "Patents") and each of the applications
listed on a schedule to such opinion (the "Applications"). To the
knowledge of such counsel, there are no claims of third parties to any
ownership interest or lien with respect to any of the Patents or
Applications. Such counsel is not aware of any material defect in form
in the preparation or filing of the Applications on behalf of the
Company. To the knowledge of such counsel, the Applications are being
pursued by the Company. To the knowledge of such counsel, the Company
owns as its sole property the Patents and pending Applications;
(ii) The Company is listed in the records of the appropriate foreign
offices as the sole holder of record of the foreign patents listed on a
schedule to such opinion (the "Foreign Patents") and each of the
applications listed on a schedule to such opinion (the "Foreign
Applications"). Such counsel knows of no claims of third parties to any
ownership interest or lien with respect to the Foreign Patents or
Foreign Applications. Such counsel is not aware of any material defect
of form in the preparation or filing of the Foreign Applications on
behalf of the Company. To the knowledge of such counsel, the Foreign
Applications are being pursued by the Company. To the knowledge of such
counsel, the Company owns as its sole property the Foreign Patents and
pending Foreign Applications;
(iii) Such counsel knows of no reason why the Patents or Foreign
Patents are not valid as issued. Such counsel has no knowledge of any
reason why any patent to be issued as a result of any Application or
Foreign Application would not be valid or would not afford the Company
useful patent protection with respect thereto;
(iv) As to the statements under the captions ["Risk Factors --
Dependence on Patents and Proprietary Rights"] and ["Business --
Patents and Proprietary Rights"], nothing has come to the attention of
such counsel which caused them to believe that the above-mentioned
sections of the Registration Statement, at
<PAGE> 46
the time the Registration Statement became effective and at all times
subsequent thereto up to and on the Closing Date and on any later date
on which Option Stock are to be purchased the Registration Statement
and any amendment or supplement thereto made available and reviewed by
such counsel contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or at the
Closing Date or any later date on which the Option Stock are to be
purchased, as the case may be, the above-mentioned sections of the
Registration Statement, Prospectus and any amendment or supplement
thereto made available and reviewed by such counsel contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; and
(v) Such counsel knows of no material action, suit, claim or proceeding
relating to patents, patent rights or licenses, trademarks or trademark
rights, copyrights, collaborative research, licenses or royalty
arrangements or agreements or trade secrets, know-how or proprietary
techniques, including processes and substances, owned by or affecting
the business or operations of the Company which are pending or
threatened against the Company or any of its officers or directors.
2
<PAGE> 47
EXHIBIT D
MATTERS TO BE COVERED IN THE OPINION OF UNDERWRITERS' COUNSEL
(i) The Shares to be issued by the Company have been duly authorized
and, upon issuance and delivery and payment therefor in accordance with
the terms of the Underwriting Agreement, will be validly issued, fully
paid and non-assessable.
(ii) The Registration Statement complied as to form in all material
respects with the requirements of the Act; the Registration Statement
has become effective under the Act and, to such counsel's knowledge, no
stop order proceedings with respect thereto have been instituted or
threatened or are pending under the Act.
(iii) The 8-A Registration Statement complied as to form in all
material respects with the requirements of the Exchange Act; the 8-A
Registration Statement has become effective under the Exchange Act; and
the Firm Shares or the Option Shares have been validly registered under
the Securities Act and the Rules and Regulations of the Exchange Act
and the applicable rules and regulations of the Commission thereunder;
(iv) The Underwriting Agreement has been duly authorized, executed and
delivered by the Company.
(v) The Underwriting Agreement has been duly authorized, executed and
delivered by the Selling Shareholders.
Such counsel shall state that such counsel has reviewed the opinions
addressed to the Representatives from Jones, Day, Reavis & Pogue and [patent
counsel], each dated the date hereof, and furnished to you in accordance with
the provisions of the Underwriting Agreement. Such opinions appear on their face
to be appropriately responsive to the requirements of the Underwriting
Agreement.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads them to believe
that, at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the First Closing Date or Second Closing Date,
as the case may be, the Registration Statement and any amendment or supplement
thereto (other than the financial statements
<PAGE> 48
including supporting schedules and other financial and statistical information
derived therefrom, as to which such counsel need express no comment) contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or at the First Closing Date or the Second Closing Date, as the case
may be, the Registration Statement, the Prospectus and any amendment or
supplement thereto (except as aforesaid) contained any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
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<PAGE> 49
EXHIBIT E
MATTERS TO BE COVERED IN THE OPINION OF SELLING SHAREHOLDERS COUNSEL
<PAGE> 1
Exhibit 10.6
LOAN AND SECURITY AGREEMENT
$1,000,000 WORKING CAPITAL LINE
PROVIDED BY
SILICON VALLEY BANK
TO
T/R SYSTEMS, INC.
OCTOBER 17,1997
<PAGE> 2
This LOAN AND SECURITY AGREEMENT is entered into as of OCTOBER
17,1997, by and between SILICON VALLEY BANK, a California-chartered bank with
its principal place of business at 3003 Tasman Drive, Santa Clara, CA 95054 and
with a loan production office located at Wellesley Office Park, 40 William
Street, Suite 350, Wellesley, MA 02181, doing business under the name Silicon
Valley East ("Bank"), and T/R SYSTEMS, INC., a Georgia corporation with its
principal place of business at 5985 Financial Drive, Norcross, Georgia 30071
("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. As used in this Agreement, the following
terms shall have the following definitions:
"Accounts" means all presently existing and hereafter
arising accounts, contract rights, and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods (including, without
limitation, the licensing of software and other technology) or the rendering of
services by Borrower, whether or not earned by performance, and any and all
credit insurance, guaranties, and other security therefor, as well as all
merchandise returned to or reclaimed by Borrower and Borrower's Books relating
to any of the foregoing.
"Advance" or "Advances" means a loan advance under
the Committed Revolving Line.
"Affiliate" means, with respect to any Person, any
Person that owns or controls directly or indirectly such Person, any Person
that controls or is controlled by or is under common control with such Person,
and each of such Person's senior executive officers, directors, partners and,
for any Person that is a limited liability company, such Persons, managers and
members.
"Bank Expenses" means all reasonable costs or
expenses (including reasonable attorneys' fees and expenses) incurred in
connection with the preparation, negotiation, administration, and enforcement
of the Loan Documents; and Bank's reasonable attorneys' fees and expenses
incurred in amending, enforcing or defending the Loan Documents, (including
fees and expenses of appeal or review, or those incurred in any Insolvency
Proceeding) whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and
records including, without limitation: ledgers; records concerning Borrower's
assets or liabilities, the Collateral, business operations or financial
condition; and all computer programs, or tape files, and the equipment,
containing such information.
"Borrowing Base" means an amount equal to EIGHTY
percent (80%) of Eligible Accounts, as determined by Bank with reference to the
most recent Borrowing Base Certificate delivered by Borrower.
"Business Day" means any day that is not a Saturday,
Sunday, or other day on which banks in the State of California are authorized
or required to close.
"Closing Date" means the date of this Agreement.
"Code" means the Massachusetts Uniform Commercial
Code.
<PAGE> 3
"Collateral" means the property described on Exhibit
A attached hereto.
"Committed Revolving Line" means a credit extension
of up to ONE MILLION AND NO/100THS Dollars ($1,000,000).
"Contingent Obligation" means, as applied to any
Person, any direct or indirect liability, contingent or otherwise, of that
Person with respect to (i) any indebtedness, lease, dividend, letter of credit
or other obligation of another, including, without limitation, any such
obligation directly or indirectly guaranteed, endorsed, co-made or discounted
or sold with recourse by that Person, or in respect of which that Person is
otherwise directly or indirectly liable; (ii) any obligations with respect to
undrawn letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or
other agreement or arrangement designated to protect a Person against
fluctuation in interest rates, currency exchange rates or commodity prices;
provided, however, that the term "Contingent Obligation" shall not include
endorsements for collection or deposit in the ordinary course of business. The
amount of any Contingent Obligation shall be deemed to be an amount equal to
the stated or determined amount of the primary obligation in respect of which
such Contingent Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof as determined by
such Person in good faith; provided, however, that such amount shall not in any
event exceed the maximum amount of the obligations under the guarantee or other
support arrangement.
"Copyrights" means any and all copyright rights,
copyright applications, copyright registrations and like protections in each
work or authorship and derivative work thereof, whether published or
unpublished and whether or not the same also constitutes a trade secret, now or
hereafter existing, created, acquired or held.
"Credit Extension" means each Advance, Letter of
Credit, or any other extension of credit by Bank for the benefit of Borrower
hereunder.
"Current Assets" means, as of any applicable date,
all amounts that should, in accordance with GAAP, be included as current assets
on the consolidated balance sheet of Borrower and its Subsidiaries as at such
date.
"Current Liabilities" means, as of any applicable
date, all amounts that should, in accordance with GAAP be included as current
liabilities on the consolidated balance sheet of Borrower and its Subsidiaries,
as at such date, plus, to the extent not already included therein, all
outstanding Credit Extensions made under this Agreement and all Indebtedness
that is payable upon demand or within one year from the date of determination
thereof unless such Indebtedness is renewable or extendable at the option of
Borrower or any Subsidiary to a date more than one year from the date of
determination, but excluding Subordinated Debt.
"Eligible Accounts" means those Accounts that arise
in the ordinary course of Borrower's business that comply with all of Borrower's
representations and warranties to Bank set forth in Section 5.4; provided, that
standards of eligibility may be fixed and revised from time to time by Bank in
Bank's reasonable judgment and upon thirty (30) days prior notification thereof
to Borrower in accordance with the provisions hereof. Unless otherwise agreed
to by Bank in writing, Eligible Accounts shall not include the following:
(a) Accounts that the account debtor has failed
to pay within ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor,
fifty percent (50%) of whose Accounts the account debtor has failed to pay
within ninety (90) days of invoice date;
(c) Accounts with respect to an account debtor,
including Affiliates, whose total obligations to Borrower exceed twenty-five
percent (25%) of all Accounts, to the extent such obligations exceed the
aforementioned percentage, except as approved in writing by Bank;
2
<PAGE> 4
\
(d) Accounts with respect to which the account
debtor does not have its principal place of business in the United States;
(e) Accounts with respect to which the account
debtor is a federal, state, or local governmental entity or any department,
agency, or instrumentality thereof,
(f) Accounts with respect to which Borrower is
liable to the account debtor, but only to the extent of any amounts owing to
the account debtor (sometimes referred to as "contra" accounts, e.g. accounts
payable, customer deposits, credit accounts etc.);
(g) Accounts generated by demonstration or
promotional equipment, or with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and hold,
or other terms by reason of which the payment by the account debtor may be
conditional;
(h) Accounts with respect to which the account
debtor is an Affiliate, officer, employee, or agent of Borrower;
(i) Accounts with respect to which the account
debtor disputes liability or makes any claim with respect thereto as to which
Bank believes, in its sole discretion, that there may be a basis for dispute
(but only to the extent of the amount subject to such dispute or claim), or is
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business; and
(j) Accounts the collection of which Bank
reasonably determines to be doubtful.
"Eligible Foreign Accounts" means Accounts with
respect to which the account debtor does not have its principal place of
business in the United States and that are: (1) covered by credit insurance in
form and amount, and by an insurer satisfactory to Bank less the amount of any
deductible(s) which may be or become owing thereon; or (2) supported by one or
more letters of credit either advised or negotiated through Bank or in favor of
Bank as beneficiary, in an amount and of a tenor, and issued by a financial
institution, acceptable to Bank; or (3) that Bank approves on a case-by-case
basis.
"Eligible Inventory" means that portion of Borrower's
Inventory that is located at Borrower's principal place of business or such
other locations as are permitted under Section 7.10 and that complies with the
representations and warranties set forth in Section 5.5, but shall in any event
exclude used, returned or obsolete Inventory.
"Equipment" means all present and future machinery,
equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and
attachments in which Borrower has any interest.
"ERISA" means the Employment Retirement Income
Security Act of 1974, as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles
as in effect in the United States from time to time.
"Indebtedness" means (a) all indebtedness for
borrowed money or the deferred purchase price of property or services,
including without limitation reimbursement and other obligations with respect
to surety bonds and letters of credit, (b) all obligations evidenced by notes,
bonds, debentures or similar instruments, (c) all capital lease obligations and
(d) all Contingent Obligations.
"Insolvency Proceeding" means any proceeding
commenced by or against any person or entity under any provision of the United
States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency
law, including assignments for the benefit of creditors, formal or informal
moratoria, compositions, extension generally with its creditors, or proceedings
seeking reorganization, arrangement, or other relief.
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<PAGE> 5
"Inventory" means all present and future inventory in
which Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and
any documents of title representing any of the above.
"Investment" means any beneficial ownership of
(including stock, partnership interest or other securities) any Person, or any
loan, advance or capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as
amended, and the regulations thereunder.
"Letter of Credit" means a letter of credit or
similar undertaking issued by Bank pursuant to Section 2.1.2.
"Letter of Credit Reserve" has the meaning set forth
in Section 2.1.2.
"Lien" means any mortgage, lien, deed of trust,
charge, pledge, security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement,
any note or notes executed by Borrower, and any other present or future
agreement entered into between Borrower and/or for the benefit of Bank in
connection with this Agreement, all as amended, extended or restated from time
to time.
"Mask Works" means all mask work or similar rights
available for the protection of semiconductor chips, now owned or hereafter
acquired;
"Material Adverse Effect" means a material adverse
effect on (i) the business operations or condition (financial or otherwise) of
Borrower and its Subsidiaries taken as a whole or (ii) the ability of Borrower
to repay the Obligations or otherwise perform its obligations under the Loan
Documents.
"Maturity Date" means the Revolving Maturity Date.
"Negotiable Collateral" means all of Borrower's
present and future letters of credit of which it is a beneficiary, notes,
drafts, instruments, securities, documents of title, and chattel paper.
"Obligations" means all debt, principal, interest,
Bank Expenses and other amounts owed to Bank by Borrower pursuant to this
Agreement or any other agreement, whether absolute or contingent, due or to
become due, now existing or hereafter arising, including any interest that
accrues after the commencement of an Insolvency Proceeding and including any
debt, liability, or obligation owing from Borrower to others that Bank may have
obtained by assignment or otherwise.
"Patents" means all patents, patent applications and
like protections including without limitation improvements, divisions,
continuations, renewals, reissues, extensions and continuations-in-part of the
same.
"Payment Date" means the SIXTEENTH (16th) calendar
day of each month commencing on the first such date after the Closing Date and
ending on the Revolving Maturity Date.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank
arising under this Agreement or any other Loan Document;
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<PAGE> 6
(b) Indebtedness existing on the Closing Date and
disclosed in the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the
ordinary course of business; and
(e) Indebtedness secured by Permitted Liens.
"Permitted Investment" means:
(a) Investments existing on the Closing Date
disclosed in the Schedule; and
(b) (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency or any
State thereof maturing within one (1) year from the date of acquisition
thereof, (ii) commercial paper maturing no more than one (1) year from the date
of creation thereof and currently having the highest rating obtainable from
either Standard & Poor's Corporation or Moody's Investors Service, Inc., and
(iii) certificates of deposit maturing no more than one (1) year from the date
of investment therein issued by Bank.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and
disclosed in the Schedule or arising under this Agreement or the other Loan
Documents;
(b) Liens for taxes, fees, assessments or other
governmental charges or levies, either not delinquent or being contested in
good faith by appropriate proceedings and as to which adequate reserves are
maintained on Borrower's Books in accordance with GAAP, provided the same have
no priority over any of Bank's security interests;
(c) Liens (i) upon or in any Equipment acquired or
held by Borrower or any of its Subsidiaries to secure the purchase price of
such Equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such Equipment, or (ii) existing on such equipment at the time
of its acquisition, provided that the Lien is confined solely to the property
so acquired and improvements thereon, and the proceeds of such equipment;
(d) Liens on Equipment leased by Borrower or any
Subsidiary pursuant to an operating lease in the ordinary course of business
(including proceeds thereof and accessions thereto) incurred solely for the
purpose of financing the lease of such Equipment (including Liens pursuant to
leases permitted pursuant to Section 7.1 and Liens arising from UCC financing
statements regarding leases permitted by this Agreement).
(e) Liens incurred in connection with the
extension, renewal or refinancing of the indebtedness secured by Liens of the
type described in clauses (a) through (d) above, provided that any extension,
renewal or replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase.
"Person" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit
corporation, firm, joint stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per
annum, most recently announced by Bank, as its "prime rate," whether or not
such announced rate is the lowest rate available from Bank.
"Quick Assets" means, as of any applicable date, the
consolidated cash, cash equivalents, accounts receivable and investments with
maturities of fewer than 90 days of Borrower determined in accordance with
GAAP.
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<PAGE> 7
"Responsible Officer" means each of the Chief
Executive Officer, the President, the Chief Financial Officer and the
Controller of Borrower.
"Revolving Maturity Date" means OCTOBER 16, 1998.
"Schedule" means the schedule of exceptions attached
hereto, if any.
"Subordinated Debt" means any debt incurred by
Borrower that is subordinated to the debt owing by Borrower to Bank on terms
acceptable to Bank (and identified as being such by Borrower and Bank).
"Subsidiary" means with respect to any Person,
corporation, partnership, company association, joint venture, or any other
business entity of which more than fifty percent (50%) of the voting stock or
other equity interests is owned or controlled, directly or indirectly, by such
Person or one or more Affiliates of such Person.
"Tangible Net Worth" means as of any applicable date,
the consolidated total assets of Borrower and its Subsidiaries minus, without
duplication, (i) the sum of any amounts attributable to (a) goodwill, (b)
intangible items such as unamortized debt discount and expense, patents, trade
and service marks and names, copyrights and research and development expenses
except prepaid expenses, and (c) all reserves not already deducted from assets,
and (ii) Total Liabilities.
"Total Liabilities" means as of any applicable date,
any date as of which the amount thereof shall be determined, all obligations
that should, in accordance with GAAP be classified as liabilities on the
consolidated balance sheet of Borrower, including in any event all
Indebtedness, but specifically excluding Subordinated Debt.
"Trademarks" means any trademark and service mark
rights, whether registered or not, applications to register and registrations
of the same and like protections, and the entire goodwill of the business of
Assignor connected with and symbolized by such trademarks.
1.2 Accounting and Other Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP and all
calculations and determinations made hereunder shall be made in accordance with
GAAP. When used herein, the term "financial statements" shall include the notes
and schedules thereto. The terms "including"/ "includes" shall always be read
as meaning "including (or includes) without limitation", when used herein or in
any other Loan Document.
2. LOAN AND TERMS OF PAYMENT
2.1 Credit Extensions. Borrower promises to pay to the
order of Bank, in lawful money of the United States of America, the aggregate
unpaid principal amount of all Credit Extensions made by Bank to Borrower
hereunder. Borrower shall also pay interest on the unpaid principal amount of
such Credit Extensions at rates in accordance with the terms hereof.
2.1.1 Revolving Advances.
(a) Subject to and upon the terms and
conditions of this Agreement, Bank agrees to make Advances to Borrower in an
aggregate outstanding amount not to exceed (i) the Committed Revolving Line or
the Borrowing Base, whichever is less, minus (ii) the face amount of all
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit). Subject to the terms and conditions of this Agreement, amounts
borrowed pursuant to this Section 2.1 may be repaid and reborrowed at any time
during the term of this Agreement.
(b) Whenever Borrower desires an Advance,
Borrower will notify Bank by facsimile transmission or telephone no later than
3:00 p.m. Pacific time, on the Business Day that the Advance is to be made.
Each such notification shall be promptly confirmed by a Payment/Advance Form in
substantially the
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<PAGE> 8
form of Exhibit B hereto. Bank is authorized to make Advances under this
Agreement, based upon instructions received from a Responsible Officer or a
designee of a Responsible Officer, or without instructions if in Bank's
discretion such Advances are necessary to meet Obligations which have become
due and remain unpaid. Bank shall be entitled to rely on any telephonic notice
given by a person who Bank reasonably believes to be a Responsible Officer or a
designee thereof, and Borrower shall indemnify and hold Bank harmless for any
damages or loss suffered by Bank as a result of such reliance. Bank will credit
the amount of Advances made under this Section 2.1 to Borrower's deposit
account.
(c) The Committed Revolving Line shall
terminate on the Revolving Maturity Date, at which time all Advances under this
Section 2.1 and other amounts due under this Agreement (except as otherwise
expressly specified herein) shall be immediately due and payable.
2.1.2 Letters of Credit.
(a) Subject to the terms and conditions of
this Agreement, Bank agrees to issue or cause to be issued Letters of Credit
for the account of Borrower in an aggregate outstanding face amount not to
exceed (i) the lesser of the Committed Revolving Line or the Borrowing Base,
whichever is less, minus (ii) the then outstanding principal balance of the
Advances; provided that the face amount of outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit and any Letter of Credit
Reserve) shall not in any case exceed FIVE HUNDRED THOUSAND AND NO/100THS
Dollars ($500,000). Each Letter of Credit shall have an expiry date no later
than one hundred eighty (180) days after the Revolving Maturity Date provided
that Borrower's Letter of Credit reimbursement obligation shall be secured by
cash on terms acceptable to Bank at any time after the Revolving Maturity Date
if the term of this Agreement is not extended by Bank. All Letters of Credit
shall be in form and substance acceptable to Bank in its sole discretion and
shall be subject to the terms and conditions of Bank's form of standard
Application and Letter of Credit Agreement.
(b) The obligation of Borrower to
immediately reimburse Bank for drawings made under Letters of Credit shall be
absolute, unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement and such Letters of Credit, under
all circumstances whatsoever. Borrower shall indemnify, defend, protect and
hold Bank harmless from any loss, cost, expense or liability, including,
without limitation, reasonable attorneys' fees, arising out of or in connection
with any Letters of Credit.
(c) Borrower may request that Bank issue a
Letter of Credit payable in a currency other than United States Dollars. If a
demand for payment is made under any such Letter of Credit, Bank shall treat
such demand as an Advance to Borrower of the equivalent of the amount thereof
(plus cable charges) in United States currency at the then prevailing rate of
exchange in San Francisco, California, for sales of that other currency for
cable transfer to the country of which it is the currency.
(d) Upon the issuance of any Letter of
Credit payable in a currency other than United States Dollars, Bank shall
create a reserve under the Committed Revolving Line for Letters of Credit
against fluctuations in currency exchange rates, in an amount equal to ten
percent (10%) of the face amount of such Letter of Credit. The amount of such
reserve may be amended by Bank from time to time to account for fluctuations in
the exchange rate. The availability of funds under the Committed Revolving Line
shall be reduced by the amount of such reserve for so long as such Letter of
Credit remains outstanding.
2.2 Overadvances. If, at any time or for any reason, the
amount of Obligations owed by Borrower to Bank pursuant to Section 2.1.1 and
2.1.2 of this Agreement is greater than the lesser of (i) the Committed
Revolving Line or (ii) the Borrowing Base, Borrower shall immediately pay to
Bank, in cash, the amount of such excess.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rate. Except as set forth in Section
2.3(b), any Credit Extensions shall bear interest, on the average daily balance
thereof, at a per annum rate equal to ONE (1.0) percentage point above the
Prime Rate.
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<PAGE> 9
(b) Default Rate. All Obligations shall bear
interest, from and after the occurrence of an Event of Default, at a rate equal
to five (5) percentage points above the interest rate applicable immediately
prior to the occurrence of the Event of Default.
(c) Payments. Interest hereunder shall be due and
payable on each Payment Date. Borrower hereby authorizes Bank to debit any
accounts with Bank, including, without limitation, Account Number
___________________ for payments of principal and interest due on the
Obligations and any other amounts owing by Borrower to Bank. Bank will notify
Borrower of all debits which Bank has made against Borrower's accounts. Any
such debits against Borrowers accounts in no way shall be deemed a set-off. Any
interest not paid when due shall be compounded by becoming a part of the
Obligations, and such interest shall thereafter accrue interest at the rate
then applicable hereunder.
(d) Computation. In the event the Prime Rate is
changed from time to time hereafter, the applicable rate of interest hereunder
shall be increased or decreased effective as of 12:01 a.m. on the day the Prime
Rate is changed, by an amount equal to such change in the Prime Rate. All
interest chargeable under the Loan Documents shall be computed on the basis of
a three hundred sixty (360) day year for the actual number of days elapsed.
2.4 Crediting Payments. Prior to the occurrence of an
Event of Default, Bank shall credit a wire transfer of funds, check or other
item of payment to such deposit account or Obligation as Borrower specifies.
After the occurrence of an Event of Default, the receipt by Bank of any wire
transfer of funds, check, or other item of payment, whether directed to
Borrower's deposit account with Bank or to the Obligations or otherwise, shall
be immediately applied to conditionally reduce Obligations, but shall not be
considered a payment in respect of the Obligations unless such payment is of
immediately available federal funds or unless and until such check or other
item of payment is honored when presented for payment. Notwithstanding anything
to the contrary contained herein, any wire transfer or payment received by Bank
after 12:00 noon Pacific time shall be deemed to have been received by Bank as
of the opening of business on the immediately following Business Day. Whenever
any payment to Bank under the Loan Documents would otherwise be due (except by
reason of acceleration) on a date that is not a Business Day, such payment
shall instead be due on the next Business Day, and additional fees or interest,
as the case may be, shall accrue and be payable for the period of such
extension.
2.5 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. A Facility Fee equal to FIVE
THOUSAND Dollars ($5,000), which fee shall be due on the Closing Date and shall
be fully earned and non-refundable;
(b) Financial Examination and Appraisal Fees.
Bank's customary fees and out-of-pocket expenses for Bank's audits of Borrowers
Accounts, and for each appraisal of Collateral and financial analysis and
examination of Borrower performed from time to time by Bank or its agents, in
accordance with Section 6.3(ii);
(c) Bank Expenses. Upon demand from Bank,
including, without limitation, upon the date hereof, all Bank Expenses incurred
through the date hereof, including reasonable attorneys' fees and expenses not
in excess of $2,500, and, after the date hereof, all Bank Expenses, including
reasonable attorneys' fees and expenses, as and when they become due.
2.6 Additional Costs. In case any law, regulation, treaty
or official directive or the interpretation or application thereof by any court
or any governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law):
(a) subjects Bank to any tax with respect to
payments of principal or interest or any other amounts payable hereunder by
Borrower or otherwise with respect to the transactions contemplated hereby
(except for taxes on the overall net income of Bank imposed by the United
States of America or any political subdivision thereof);
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(b) imposes, modifies or deems applicable any
deposit insurance, reserve, special deposit or similar requirement against
assets held by, or deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with
respect to its performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to,
among other loans, the Obligations, Bank shall notify Borrower thereof.
Borrower agrees to pay to Bank the amount of such increase in cost, reduction
in income or additional expense as and when such cost, reduction or expense is
incurred or determined, upon presentation by Bank of a statement of the amount
and setting forth Bank's calculation thereof, all in reasonable detail, which
statement shall be deemed true and correct absent manifest error.
2.7 Term. Except as otherwise set forth herein, this
Agreement shall become effective on the Closing Date and, subject to Section
12.7, shall continue in full force and effect for a term ending on the
Revolving Maturity Date. Notwithstanding the foregoing, Bank shall have the
right to terminate its obligation to make Credit Extensions under this
Agreement immediately and without notice upon the occurrence and during the
continuance of an Event of Default. Notwithstanding termination of this
Agreement, Bank's lien on the Collateral shall remain in effect for so long as
any Obligations are outstanding.
3. CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Credit Extension. The
obligation of Bank to make the initial Credit Extension is subject to the
condition precedent that Bank shall have received, in form and substance
satisfactory to Bank, the following:
(a) this Agreement and the Revolving Promissory
Note each duly executed by Borrower;
(b) a certificate of the Secretary of Borrower with
respect to charter, bylaws, incumbency and resolutions authorizing the
execution and delivery of this Agreement;
(c) financing statements (Forms UCC-1);
(d) insurance certificate;
(e) payment of the fees and Bank Expenses then due
specified in Section 2.5 hereof,
(f) completion of Bank's first audit of Borrower's
Accounts; and
(g) such other documents, and completion of such
other matters, as Bank may reasonably deem necessary or appropriate, but not
including an opinion of Borrower's counsel.
3.2 Conditions Precedent to all Credit Extensions. The
obligation of Bank to make each Credit Extension, including the initial Credit
Extension, is further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance
Form as provided in Section 2.1; and
(b) the representations and warranties contained in
Section 5 shall be true and correct in all material respects on and as of the
date of such Payment/Advance Form and on the effective date of each Credit
Extension as though made at and as of each such date, and no Event of Default
shall have occurred and be continuing, or would result from such Credit
Extension. The making of each Credit Extension shall be deemed to be a
representation and warranty by Borrower on the date of such Credit Extension as
to the accuracy of the facts referred to in this Section 3.2(b).
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4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower grants and
pledges to Bank a continuing security interest in all presently existing and
hereafter acquired or arising Collateral in order to secure prompt payment of
any and all Obligations and in order to secure prompt performance by Borrower
of each of its covenants and duties under the Loan Documents. Except as set
forth in the Schedule, such security interest constitutes a valid, first
priority security interest in the presently existing Collateral, and will
constitute a valid, first priority security interest in Collateral acquired
after the date hereof. Borrower acknowledges that Bank may place a "hold" on
any Deposit Account pledged as Collateral to secure the Obligations.
Notwithstanding termination of this Agreement, Bank's Lien on the Collateral
shall remain in effect for so long as any Obligations are outstanding.
4.2 Delivery of Additional Documentation Required.
Borrower shall from time to time execute and deliver to Bank, at the request of
Bank, all Negotiable Collateral, all financing statements and other documents
that Bank may reasonably request, in form satisfactory to Bank, to perfect and
continue perfected Bank's security interests in the Collateral and in order to
fully consummate all of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers,
employees, or agents) shall have the right, upon reasonable prior notice, from
time to time during Borrower's usual business hours, to inspect Borrower's
Books and to make copies thereof and to check, test, and appraise the
Collateral in order to verify Borrower's financial condition or the amount,
condition of, or any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each
Subsidiary is a corporation duly existing and in good standing under the laws
of its state of incorporation and qualified and licensed to do business in, and
is in good standing in, any state in which the conduct of its business or its
ownership of property requires that it be so qualified.
5.2 Due Authorization: No Conflict. The execution,
delivery, and performance of the Loan Documents are within Borrower's powers,
have been duly authorized, and are not in conflict with nor constitute a breach
of any provision contained in Borrower's Articles/Certificate of Incorporation
or Bylaws, nor will they constitute an event of default under any material
agreement to which Borrower is a party or by which Borrower is bound. Borrower
is not in default under any agreement to which it is a party or by which it is
bound, which default could have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and
indefeasible title to the Collateral, free and clear of Liens, except for
Permitted Liens.
5.4 Bona Fide Eligible Accounts. The Eligible Accounts
are bona fide existing obligations. The service or property giving rise to such
Eligible Accounts has been performed or delivered to the account debtor or to
the account debtor's agent for immediate shipment to and unconditional
acceptance by the account debtor. Borrower has not received notice of actual or
imminent Insolvency Proceeding of any account debtor whose accounts are
included in any Borrowing Base Certificate as an Eligible Account.
5.5 Merchantable Inventory. All Inventory is in all
material respects of good and marketable quality, free from all material
defects.
5.6 Name: Location of Chief Executive Office. Except as
disclosed in the Schedule, Borrower has not done business and will not without
at least thirty (30) days prior written notice to Bank do business under any
name other than that specified on the signature page hereof. The chief
executive office of Borrower is located at the address indicated in Section 10
hereof.
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5.7 Litigation. Except as set forth in the Schedule,
there are no actions or proceedings pending, or, to Borrower's knowledge,
threatened by or against Borrower or any Subsidiary before any court or
administrative agency in which an adverse decision could have a Material
Adverse Effect or a material adverse effect on Borrower's interest or Bank's
security interest in the Collateral.
5.8 No Material Adverse Change in Financial Statements.
All consolidated financial statements related to Borrower and any Subsidiary
that have been delivered by Borrower to Bank fairly present in all material
respects Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has not been a material adverse change in the consolidated financial condition
of Borrower since the date of the most recent of such financial statements
submitted to Bank on or about the Closing Date.
5.9 Solvency. The fair saleable value of Borrower's
assets (including goodwill minus disposition costs) exceeds the fair value of
its liabilities; the Borrower is not left with unreasonably small capital after
the transactions contemplated by this Agreement; and Borrower is able to pay
its debts (including trade debts) as they mature.
5.10 Regulatory Compliance. Borrower and each Subsidiary
has met the minimum funding requirements of ERISA with respect to any employee
benefit plans subject to ERISA. No event has occurred resulting from Borrower's
failure to comply with ERISA that is reasonably likely to result in Borrower's
incurring any liability that could have a Material Adverse Effect. Borrower is
not an "investment company" or a company controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940. Borrower is
not engaged principally, or as one of its important activities, in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulations G, T and U of the Board of Governors of the
Federal Reserve System). Borrower has complied with all the provisions of the
Federal Fair Labor Standards Act. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it; violation of which could have a Material
Adverse Effect.
5.11 Environmental Condition. None of Borrower's or any
Subsidiary's properties or assets has ever been used by Borrower or any
Subsidiary or, to the best of Borrower's knowledge, by previous owners or
operators, in the disposal of, or to produce, store, handle, treat, release, or
transport, any hazardous waste or hazardous substance other than in accordance
with applicable law; to the best of Borrower's knowledge, none of Borrower's
properties or assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a hazardous waste or
hazardous substance disposal site, or a candidate for closure pursuant to any
environmental protection statute; no lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by Borrower or any Subsidiary: and neither Borrower nor any
Subsidiary has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal, state or other
governmental agency concerning any action or omission by Borrower or any
Subsidiary resulting in the release, or other disposition of hazardous waste or
hazardous substances into the environment.
5.12 Taxes. Borrower and each Subsidiary has filed or
caused to be filed all tax returns required to be filed on a timely basis, and
has paid, or has made adequate provision for the payment of, all taxes
reflected therein
5.13 Subsidiaries. Borrower does not own any stock,
partnership interest or other equity securities of any Person, except for
Permitted Investments.
5.14 Government Consents. Borrower and each Subsidiary has
obtained all consents, approvals and authorizations of, made all declarations
or filings with, and given all notices to, all governmental authorities that
are necessary for the continued operation of Borrower's business as currently
conducted.
5.15 Full Disclosure. No representation, warranty or other
statement made by Borrower in any certificate or written statement furnished to
Bank contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained in such
certificates or statements not misleading.
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6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of
all outstanding Obligations, and for so long as Bank may have any commitment to
make a Credit Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each
of its Subsidiaries' corporate existence and good standing in its jurisdiction
of incorporation and maintain qualification in each jurisdiction in which 'the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrowers business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall
cause each Subsidiary to meet, the minimum funding requirements of ERISA with
respect to any employee benefit plans subject to ERISA. Borrower shall comply,
and shall cause each Subsidiary to comply, with all statutes, laws, ordinances
and government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
6.3 Financial Statements, Reports, Certificates. (i)
Borrower shall deliver to Bank:
(a) as soon as available, but in any event within
twenty five (25) days after the end of each month, a company prepared
consolidated balance sheet and income statement covering Borrower's
consolidated operations during such period, in a form and certified by an
officer of Borrower reasonably acceptable to Bank;
(b) as soon as available, but in any event within
one hundred twenty (120) days after the end of Borrower's fiscal year, audited
consolidated financial statements of Borrower prepared in accordance with GAAP,
consistently applied, together with an unqualified opinion on such financial
statements of an independent certified public accounting firm reasonably
acceptable to Bank;
(c) within five (5) days of filing, copies of all
statements, reports and notices sent or made available generally by Borrower to
its security holders or to any holders of Subordinated Debt and all reports on
Form 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission;
(d) promptly upon receipt of notice thereof, a
report of any legal actions pending or threatened against Borrower or any
Subsidiary that could result in damages or costs to Borrower or any Subsidiary
of One Hundred Thousand Dollars ($100,000) or more;
(e) such budgets, sales projections, operating
plans or other financial information as Bank may reasonably request from time
to time.
(f) within fifteen (15) days after the last day of
each month quarter, a Borrowing Base Certificate signed by a Responsible
Officer in substantially the form of Exhibit C hereto, together with aged
listings of accounts receivable.
(g) within twenty five (25) days after the last day
of each month quarter, with the monthly quarterly financial statements, a
Compliance Certificate signed by a Responsible Officer in substantially the
form of Exhibit D hereto.
(ii) Bank shall have a right from time to time hereafter
to audit Borrower's Accounts at Borrower's expense, provided that such audits
will be conducted no more often than every twelve (12) months unless an Event
of Default has occurred and is continuing.
6.4 Inventory: Returns. Borrower shall keep all Inventory
in good and marketable condition. free from all material defects. Returns and
allowances, if any, as between Borrower and its account debtors shall be on the
same basis and in accordance with the usual customary practices of Borrower, as
they exist at
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the time of the execution and delivery of this Agreement. Borrower shall
promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than One
Hundred Thousand Dollars ($100,000).
6.5 Taxes. Borrower shall make, and shall cause each
Subsidiary to make, due and timely payment or deposit of all material federal,
state, and local taxes, assessments, or contributions required of it by law,
and will execute and deliver to Bank, on demand, appropriate certificates
attesting to the payment or deposit thereof; and Borrower will make, and will
cause each Subsidiary to make, timely payment or deposit of all material tax
payments and withholding taxes required of it by applicable laws, including,
but not limited to, those laws concerning F.I.C.A., F.U.T.A., state disability,
and local, state, and federal income taxes, and will, upon request, furnish
Bank with proof satisfactory to Bank indicating that Borrower or a Subsidiary
has made such payments or deposits; provided that Borrower or a Subsidiary need
not make any payment if the amount or validity of such payment is (i) contested
in good faith by appropriate proceedings , (ii) is reserved against (to the
extent required by GAAP) by Borrower and (iii) no lien other than a Permitted
Lien results.
6.6 Insurance.
(a) Borrower, at its expense, shall keep the
Collateral insured against loss or damage by fire, theft, explosion,
sprinklers, and all other hazards and risks, and in such amounts, as ordinarily
insured against by other owners in similar businesses conducted in the
locations where Borrower's business is conducted on the date hereof. Borrower
shall also maintain insurance relating to Borrower's ownership and use of the
Collateral in amounts and of a type that are customary to businesses similar to
Borrower's.
(b) All such policies of insurance shall be in such
form, with such companies, and in such amounts as are reasonably satisfactory
to Bank. All such policies of property insurance shall contain a lender's loss
payable endorsement, in a form satisfactory to Bank, showing Bank as an
additional loss payee thereof and all liability insurance policies shall show
the Bank as an additional insured, and shall specify that the insurer must give
at least twenty (20) days notice to Bank before canceling its policy for any
reason. At Bank's request, Borrower shall deliver to Bank certified copies of
such policies of insurance and evidence of the payments of all premiums
therefor. All proceeds payable under any such policy shall, at the option of
Bank, be payable to Bank to be applied on account of the Obligations.
6.7 Principal Depository. Borrower shall maintain its
principal depository and operating accounts with Bank.
6.8 Quick Ratio. Borrower shall maintain, as of the last
day of each calendar month, a ratio of Quick Assets to Current Liabilities less
deferred revenues of at least 2.0 to 1.0.
6.9 Tangible Net Worth. Borrower shall maintain, as of
the last day of each calendar month, a Tangible Net Worth of not less than FOUR
MILLION SIX HUNDRED THOUSAND AND NO/100THS Dollars ($4,600,000).
6.10 Further Assurances. At any time and from time to time
Borrower shall execute and deliver such further instruments and take such
further action as may reasonably be requested by Bank to effect the purposes of
this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Credit
Extension hereunder shall be available and until payment in full of the
outstanding Obligations or for so long as Bank may have any commitment to make
any Advances, Borrower will not do any of the following without Bank's prior
written consent, which consent may be given or withheld in Bank's sole
discretion:
7.1 Dispositions. Convey, sell, lease, transfer or
otherwise dispose of (collectively, a "Transfer"), or permit any of its
Subsidiaries to Transfer, all or any part of its business or property, other
than Transfers: (i) of inventory in the ordinary course of business, (ii) of
non-exclusive licenses and similar
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arrangements for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business, (iii) that constitute payment of normal and usual
operating expenses in the ordinary course of business, or (iv) of worn-out or
obsolete Equipment.
7.2 Changes in Business. Ownership, or Management,
Business Locations. Engage in any business, or permit any of its Subsidiaries
to engage in any business, other than the businesses currently engaged in by
Borrower and any business substantially similar or related thereto (or
incidental thereto), or suffer a change in Borrower's ownership, other than a
public offering of the capital stock of Borrower, or management. Borrower will
not, without at least thirty (30) days prior written notification to Bank,
relocate its chief executive office. Borrower will notify Bank within sixty
(60) after Borrower has added any new offices or business locations.
7.3 Mergers or Acquisitions. Merge or consolidate, or
permit any of its Subsidiaries to merge or consolidate, with or into any other
business organization, or acquire, or permit any of its Subsidiaries to
acquire, all or substantially all of the capital stock or property of another
Person.
7.4 Indebtedness. Create, incur, assume or be or remain
liable with respect to any Indebtedness, or permit any Subsidiary so to do,
other than Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to
exist any Lien with respect to any of its property, or assign or otherwise
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other
distribution or payment on account of or in redemption, retirement or purchase
of any capital stock other than dividends payable solely in capital stock of
Borrower.
7.7 Investments. Directly or indirectly acquire or own,
or make any Investment in or to any Person, or permit any of its Subsidiaries
so to do, other than Permitted Investments.
7.8 Transactions with Affiliates. Directly or indirectly
enter into or permit to exist any material transaction with any Affiliate of
Borrower except for transactions that are in the ordinary course of Borrower's
business, upon fair and reasonable terms that are no less favorable to Borrower
than would be obtained in an arm's length transaction with a non-affiliated
Person.
7.9 Subordinated Debt. Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent.
7.10 Inventory. Store the Inventory with a bailee,
warehouseman, or similar party unless Bank has received a pledge of any
warehouse receipt covering such Inventory. Except for Inventory sold in the
ordinary course of business and except for such other locations as Bank may
approve in writing, Borrower shall keep the Inventory only at the location set
forth in Section 10 hereof and such other locations of which Borrower gives
Bank prior written notice and as to which Borrower signs and files a financing
statement where needed to perfect Bank's security interest.
7.11 Compliance. Become an "investment company" or a
company controlled by an "investment company," within the meaning of the
Investment Company Act of 1940, or become principally engaged in, or undertake
as one of its important activities, the business of extending credit for the
purpose of purchasing or carrying margin stock, or use the proceeds of any
Advance for such purpose; fail to meet the minimum funding requirements of
ERISA; permit a Reportable Event or Prohibited Transaction, as defined in
ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or
violate any other law or regulation, which violation could have a Material
Adverse Effect or a material adverse effect on the Collateral or the priority
of Bank's Lien on the Collateral; or permit any of its Subsidiaries to do any
of the foregoing.
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7.12. Negative Pledge of Intellectual Property. Borrower
shall not, without Bank's prior written consent which consent shall not be
unreasonably withheld, sell, transfer, assign, mortgage, pledge, lease, grant a
security interest in, or encumber any of Borrowers intellectual property,
including, without limitation, the following:
(a) Any and all copyright rights, copyright
applications, copyright registrations and the like protections in each work of
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held;
(b) Any and all trade secrets, and any and all
intellectual property rights in computer software and computer software
products now or hereafter existing, created, acquired or held;
(c) Any and all design rights which may be
available to Borrower now or hereafter existing, created, acquired or held;
(d) All patents, patent applications and like
protections including, without limitation, improvements, divisions,
continuations, renewals, reissues, extensions and continuations-in-part of the
same, including without limitation the patents and patent applications;
(e) Any trademark and service mark rights, whether
registered or not, applications to register and registrations of the same and
like protections, and the entire good will of the business of Borrower
connected with and symbolized by such trademarks;
(f) Any and all claims for damages by way of past,
present and future infringements of any of the rights included above, with the
right, but not the obligation, to sue for and collect such damages for said use
or infringement of the intellectual property rights identified above;
(g) All licenses or other right to use any of the
Copyrights, Patents or Trademarks, and all license fees and royalties arising
from such use to the extent permitted by such license or rights;
(h) All amendments, extensions, renewals and
extensions of any of the Copyrights, Trademarks or Patents; and
(i) All proceeds and products of the foregoing,
including without limitation all payments under insurance or any indemnity or
warranty payable in respect of any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an
Event of Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay, when due,
any of the Obligations.
8.2 Covenant Default.
(a) If Borrower fails to perform any obligation
under Sections 6.3, 6.6, 6.7, 6.8 or 6.9 or violates any of the covenants
contained in Article 7 of this Agreement, or
(b) If Borrower falls or neglects to perform, keep,
or observe any other material term, provision, condition, covenant, or
agreement contained in this Agreement, in any of the Loan Documents, or in any
other present or future agreement between Borrower and Bank and as to any
default under such other term, provision, condition, covenant or agreement that
can be cured, has failed to cure such default within ten (10) days after the
occurrence thereof provided, however, that if the default cannot by its nature
be cured within the ten (10) day period or cannot after diligent attempts by
Borrower be cured within such ten (10) day period, and such default is likely
to be cured within a reasonable time, then Borrower shall have an additional
reasonable period (which shall not in any case exceed thirty (30) days) to
attempt to cure such default, and within such
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reasonable time period the failure to have cured such default shall not be
deemed an Event of Default (provided that no Advances will be required to be
made during such cure period);
8.3 Material Adverse Change. If there (i) occurs an event
having a Material Adverse Effect or (ii) is a material impairment of the value
of the Collateral which is not covered by adequate insurance or the perfection
or priority of Bank's security interests in the Collateral;
8.4 Attachment. If any material portion of Borrower's
assets is attached, seized, subjected to a writ or distress warrant, or is
levied upon, or comes into the possession of any trustee, receiver or person
acting in a similar capacity and such attachment, seizure, writ or distress
warrant or levy has not been removed, discharged or rescinded within ten (10)
days, or if Borrower is enjoined, restrained, or in any way prevented by court
order from continuing to conduct all or any material part of its business
affairs, or if a judgment or other claim becomes a lien or encumbrance upon any
material portion of Borrower's assets, or if a notice of lien, levy, or
assessment is filed of record with respect to any of Borrower's assets by the
United States Government, or any department, agency, or instrumentality
thereof, or by any state, county, municipal, or governmental agency, and the
same is not paid within ten (10) days after Borrower receives notice thereof,
provided that none of the foregoing shall constitute an Event of Default where
such action or event is stayed or an adequate bond has been posted pending a
good faith contest by Borrower (provided that no Credit Extensions will be
required to be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an
Insolvency Proceeding is commenced by Borrower, or if an Insolvency Proceeding
is commenced against Borrower and is not dismissed or stayed within 45 days
(provided that no Advances will be made prior to the dismissal of such
Insolvency Proceeding);
8.6 Other Agreements. If there is a default in any
agreement to which Borrower is a party with a third party or parties resulting
in a right by such third party or parties, whether or not exercised, to
accelerate the maturity of any Indebtedness in an amount in excess of One
Hundred Thousand Dollars ($100,000) or that could have a Material Adverse
Effect:
8.7 Subordinated Debt. If Borrower makes any payment on
account of Subordinated Debt, except to the extent such payment is allowed
under any subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment
of money in an amount, individually or in the aggregate, of at least Fifty
Thousand Dollars ($50,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of twenty (20) days (provided that no
Credit Extensions will be made prior to the satisfaction or stay of such
judgment); or
8.9 Misrepresentations. If any material misrepresentation
or material misstatement exists now or hereafter in any warranty or
representation set forth herein or in any certificate or writing delivered to
Bank by Borrower or any Person acting on Borrower's behalf pursuant to this
Agreement or to induce Bank to enter into this Agreement or any other Loan
Document.
9. BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies. Upon the occurrence and during
the continuance of an Event of Default, Bank may, at its election, without
notice of its election and without demand, do any one or more of the following,
all of which are authorized by Borrower
(a) Declare all Obligations, whether evidenced by
this Agreement, by any of the other Loan Documents, or otherwise, immediately
due and payable (provided that upon the occurrence of an Event of Default
described in Section 8.5 all Obligations shall become immediately due and
payable without any action by Bank);
(b) Cease advancing money or extending credit to or
for the benefit of Borrower under this Agreement or under any other agreement
between Borrower and Bank;
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(c) Demand that Borrower (i) deposit cash with Bank
in an amount equal to the amount of any Letters of Credit remaining undrawn, as
collateral security for the repayment of any future drawings under such Letters
of Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii)
pay in advance all Letters of Credit fees scheduled to be paid or payable over
the remaining term of the Letters of Credit;
(d) Settle or adjust disputes and claims directly
with account debtors for amounts, upon terms and in whatever order that Bank
reasonably considers advisable;
(e) Without notice to or demand upon Borrower, make
such payments and do such acts as Bank considers necessary or reasonable to
protect its security interest in the Collateral. Borrower agrees to assemble
the Collateral if Bank so requires, and to make the Collateral available to
Bank as Bank may designate. Borrower authorizes Bank to enter the premises
where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise any
encumbrance, charge, or lien which in Bank's determination appears to be prior
or superior to its security interest and to pay all expenses incurred in
connection therewith. With respect to any of Borrower's premises, Borrower
hereby grants Bank a license to enter such premises and to occupy the same,
without charge in order to exercise any of Bank's rights or remedies provided
herein, at law, in equity, or otherwise;
(f) Without notice to Borrower set off and apply to
the Obligations any and all (i) balances and deposits of Borrower held by Bank,
or (ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(g) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Collateral. Bank is hereby granted a non-exclusive,
royalty-free license or other right, solely pursuant to the provisions of this
Section 9.1, to use, without charge, Borrower's labels, patents, copyrights,
mask works, rights of use of any name, trade secrets, trade names, trademarks,
service marks, and advertising matter, or any property of a similar nature, as
it pertains to the Collateral, in completing production of, advertising for
sale, and selling any Collateral and, in connection with Bank's exercise of its
rights under this Section 9.1, Borrower's rights under all licenses and all
franchise agreements shall inure to Bank's benefit;
(h) Sell the Collateral at either a public or
private sale, or both, by way of one or more contracts or transactions, for
cash or on terms, in such manner and at such places (including Borrower's
premises) as Bank determines is commercially reasonable, and apply the proceeds
thereof to the Obligations in whatever manner or order it deems appropriate;
(i) Bank may credit bid and purchase at any public
sale, or at any private sale as permitted by law; and
(j) Any deficiency that exists after disposition of
the Collateral as provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence
and during the continuance of an Event of Default, Borrower hereby irrevocably
appoints Bank (and any of Bank's designated officers, or employees) as
Borrower's true and lawful attorney to: (a) send requests for verification of
Accounts or notify account debtors of Bank's security interest in the Accounts;
(b) endorse Borrower's name on any checks or other forms of payment or security
that may come into Bank's possession; (c) sign Borrower's name on any invoice or
bill of lading relating to any Account, drafts against account debtors,
schedules and assignments of Accounts, verifications of Accounts, and notices
to account debtors; (d) make, settle, and adjust all claims under and decisions
with respect to Borrower's policies of insurance; and (e) settle and adjust
disputes and claims respecting the accounts directly with account debtors, for
amounts and upon terms which Bank determines to be reasonable; (f) to file, in
its sole discretion, one or more financing or continuation statements and
amendments thereto, relative to any of the Collateral without the signature of
Borrower where permitted by law; provided Bank may exercise such power of
attorney to sign the name of Borrower on any of the documents described in
Section 4.2 regardless of whether an Event of Default has occurred. The
appointment of Bank as Borrower's
17
<PAGE> 19
attorney in fact, and each and every one of Bank's rights and powers, being
coupled with an interest, is irrevocable until all of the Obligations have been
fully repaid and performed and Bank's obligation to provide advances hereunder
is terminated.
9.3 Accounts Collection. Upon the occurrence and during
the continuance of an Event of Default, Bank may notify any Person owing funds
to Borrower of Bank's security interest in such funds and verify the amount of
such Account. Borrower shall collect all amounts owing to Borrower for Bank,
receive in trust all payments as Bank's trustee, and if requested or required
by Bank, immediately deliver such payments to Bank in their original form as
received from the account debtor, with proper endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts
or furnish any required proof of payment due to third persons or entities, as
required under the terms of this Agreement, then Bank may do any or all of the
following: (a) make payment of the same or any part thereof, (b) set up such
reserves under the Committed Revolving Line as Bank deems necessary to protect
Bank from the exposure created by such failure; or (c) obtain and maintain
insurance policies of the type discussed in Section 6.6 of this Agreement, and
take any action with respect to such policies as Bank deems prudent. Any
amounts so paid or deposited by Bank shall constitute Bank Expenses, shall be
immediately due and payable, and shall bear interest at the then applicable
rate hereinabove provided, and shall be secured by the Collateral. Any payments
made by Bank shall not constitute an agreement by Bank to make similar payments
in the future or a waiver by Bank of any Event of Default under this Agreement.
9.5 Bank's Liability for Collateral. So long as Bank
complies with reasonable banking practices, Bank shall not in any way or manner
be liable or responsible for: (a) the safekeeping of the Collateral; (b) any
loss or damage thereto occurring or arising in any manner or fashion from any
cause; (c) any diminution in the value thereof; or (d) any act or default of
any carrier, warehouseman, bailee, forwarding agency, or other person
whomsoever. All risk of loss, damage or destruction of the Collateral shall be
borne by Borrower.
9.6 Remedies Cumulative. Bank's rights and remedies under
this Agreement, the Loan Documents, and all other agreements shall be
cumulative. Bank shall have all other rights and remedies not expressly set
forth herein as provided under the Code, by law, or in equity. No exercise by
Bank of one right or remedy shall be deemed an election, and no waiver by Bank
of any Event of Default on Borrower's part shall be deemed a continuing waiver.
No delay by Bank shall constitute a waiver, election, or acquiescence by it. No
waiver by Bank shall be effective unless made in a written document signed on
behalf of Bank and then shall be effective only in the specific instance and
for the specific purpose for which it was given.
9.7 Demand: Protest. Borrower waives demand, protest,
notice of protest, notice of default or dishonor, notice of payment and
nonpayment, notice of any default, nonpayment at maturity, release, compromise,
settlement, extension, or renewal of accounts, documents, instruments, chattel
paper, and guarantees at any time held by Bank on which Borrower may in any way
be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other agreement entered
into in connection herewith shall be in writing and (except for financial
statements and other informational documents which may be sent by first-class
mail, postage prepaid) shall be personally delivered or sent by a recognized
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to Borrower or to Bank, as the case may be, at
its addresses set forth below:
If to Borrower T/R Systems, Inc.
5985 Financial Drive
Norcross, GA 30071
Attn: Lyle Newkirk, CFO
FAX: (770) 448-3202
18
<PAGE> 20
12.6 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties on separate counterparts, each
of which, when executed and delivered, shall be deemed to be an original, and
all of which, when taken together, shall constitute but one and the same
Agreement.
12.7 Survival. All covenants, representations and
warranties made in this Agreement shall continue in full force and effect so
long as any Obligations remain outstanding. The obligations of Borrower to
indemnify Bank with respect to the expenses, damages, losses, costs and
liabilities described in Section 12.2 shall survive until all applicable
statute of limitations periods with respect to actions that may be brought
against Bank have run.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as a sealed instrument as of the date first set forth above.
<TABLE>
<S> <C>
"Borrower" "Bank"
T/R SYSTEMS, INC. SILICON VALLEY BANK, doing business
as SILICON VALLEY EAST
By: /s/ Michael E. Kohlsdorf By: /s/ Gerard F. Benson
------------------------------------ ------------------------------------------
Michael E. Kohlsdorf, President, CEO Gerard F. Benson
By: /s/ Lyle Newkirk SILICON VALLEY BANK
------------------------------------
Lyle Newkirk, CFO By: /s/
---------------------------------------
Title: AVP
------------------------------------
(Signed in Santa Clara County, California)
</TABLE>
19
<PAGE> 21
EXHIBIT A
The Collateral shall consist of all right, title and interest of
Borrower in and to the following:
(a) All goods and equipment now owned or hereafter acquired,
including, without limitation, all machinery, fixtures, vehicles (including
motor vehicles and trailers), and any interest in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including,
without limitation, all merchandise, raw materials, parts, supplies, packing
and shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any of
the foregoing and any documents of title representing any of the above, and
Borrower's Books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or
hereafter acquired, including, without limitation, goodwill, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, claims, literature, reports, catalogs, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract
rights, royalties, license rights and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods, the licensing of technology
or the rendering of services by Borrower, whether or not earned by performance,
and any and all credit insurance, guaranties, and other security therefor, as
well as all merchandise returned to or reclaimed by Borrower and Borrower's
Books relating to any of the foregoing;
(e) All documents, cash, deposit accounts, securities, letters of
credit, certificates of deposit, instruments and chattel paper now owned or
hereafter acquired and Borrower's Books relating to the foregoing; and
(f) Any and all claims, rights and interests in any of the above
and all substitutions for, additions and accessions to and proceeds thereof.
Notwithstanding the foregoing, the Collateral shall not be deemed to
include any copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; any patents,
trademarks, servicemarks and applications therefor; any trade secret rights,
including any rights to unpatented inventions, know-how, operating manuals,
license rights and agreements and confidential information, now owned or
hereafter acquired; or any claims for damages by way of any past, present and
future infringement of any of the foregoing.
<PAGE> 22
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE: _______________________
FAX #: (408) __________________ TIME: _____________________
FROM: __________________________________________________________________________
BORROWER'S NAME
FROM: __________________________________________________________________________
AUTHORIZED SIGNER'S NAME
________________________________________________________________________________
AUTHORIZED SIGNATURE
PHONE: _________________________________________________________________________
FROM ACCOUNT # _________________________ TO ACCOUNT # __________________________
<TABLE>
<CAPTION>
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
- -------------------------- ---------------------
<S> <C>
PRINCIPAL INCREASE (ADVANCE) $
--------------------------------------
PRINCIPAL PAYMENT (ONLY) $
--------------------------------------
INTEREST PAYMENT (ONLY) $
--------------------------------------
PRINCIPAL AND INTEREST (PAYMENT) $
--------------------------------------
OTHER INSTRUCTIONS: ____________________________________________________________
</TABLE>
All representations and warranties of Borrower stated in the Loan and Security
Agreement dated as of October 17, 1997 are true, correct and complete in all
material respects as of the date of the telephone request for and Advance
confirmed by this Advance Request; provided, however, that those representations
and warranties expressly referring to another date shall be true, correct and
complete in all material respects as of such date.
BANK USE ONLY:
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
- ---------------------------------------------
Authorized Requester
-----------------------------------------
Authorized Signature (Bank)
Phone # _________________________________
<PAGE> 23
EXHIBIT C
BORROWING BASE CERTIFICATE
<TABLE>
<S> <C> <C> <C> <C> <C>
Borrower: T/R Systems, Inc. Lender: Silicon Valley Bank
5985 Financial Drive 3003 Tasman Drive
Norcross, GA 30071 Santa Clara, CA 95054
Commitment Amount: $1,000,000
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of ___________________ $__________
2. Additions (please explain on reverse) $__________
3. TOTAL ACCOUNTS RECEIVABLE $__________
ACCOUNTS RECEIVABLE DEDUCTIONS
4. Amounts over 90 days due $__________
5. Balance of 50% over 90 day accounts $__________
6. Concentration Limits $__________
7. Ineligible Foreign Accounts $__________
8. Governmental Accounts $___________
9. Contra Accounts $___________
10. Promotion or Demo Accounts $__________
11. Intercompany/Employee Accounts $__________
12. Other (please explain on reverse) $___________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $___________
14. Eligible Accounts (#3 - #13) $___________
15. LOAN VALUE OF ACCOUNTS (80% of #14) $___________
BALANCES
16. Maximum Loan Amount $ 1,000,000
17. Total Funds Available (Lesser of #16 or #15) $___________
18. Present balance owing on Line of Credit $___________
19. Outstanding under Sublimits (L/C $500,000) $__________
20. RESERVE POSITIVE (#17 minus #18 and #19) $___________
</TABLE>
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement dated as of October 17, 1997, as may be amended from time to
time, between the undersigned and Silicon Valley Bank.
COMMENTS:
<PAGE> 24
-----------------------------
BANK USE ONLY
Rec'd By:___________________
Date: ______________________
Reviewed By: _______________
Compliance Status: Yes/No
-----------------------------
- -------------------------
By:
----------------------
Authorized Signer
2
<PAGE> 25
EXHIBIT D
COMPLIANCE CERTIFICATE
Borrower: T/R Systems, Inc. Lender: Silicon Valley Bank
5985 Financial Drive 3003 Tasman Drive
Norcross, GA 30071 Santa Clara, CA 95054
The undersigned authorized officer of T/R Systems, Inc. hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement dated as of October 17, 1997 between Borrower and Bank (the
"Agreement"), (i) Borrower is in complete compliance for the period ending
_____________ of all required conditions and terms except as noted below and
(ii) all representations and warranties of Borrower stated in the Agreement are
true, accurate and complete in all material respects as of the date hereof.
Attached herewith are the required documents supporting the above certification.
The Officer further certifies that these are prepared in accordance with
Generally Accepted Accounting Principals (GAAP) and are consistent from one
period to the next except as explained in an accompanying letter or footnotes.
The Officer further expressly acknowledges Borrower may not request any
borrowings at any time or date of determination that Borrower is not in
compliance with any of the terms of the Agreement, and that such compliance is
determined not just at the date this certificate is delivered.
Please indicate compliance status by circling Yes/No under "Complies"
column
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Reporting Covenant Required Complies
------------------ -------- --------
<S> <C> <C>
Monthly financial statements Monthly within 25 days Yes No
- -------------------------------------------------------------------------------------------------------------------------
Annual (CPA Audited) FYE within 120 days Yes No
- -------------------------------------------------------------------------------------------------------------------------
A/R Agings Monthly within 15 days Yes No
- -------------------------------------------------------------------------------------------------------------------------
A/R Audit Initial and Annual Yes No
- -------------------------------------------------------------------------------------------------------------------------
Financial Covenants Required Actual Complies
- -------------------------------------------------------------------------------------------------------------------------
Maintain on a Monthly Basis:
Minimum Quick Ratio 2.0:1.0 ___________:1.0 Yes No
- -------------------------------------------------------------------------------------------------------------------------
Minimum TNW $4,600,000 $_______________ Yes No
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Comments Regarding Exceptions:
<PAGE> 26
-------------------------------------
BANK USE ONLY
Received by: ________________________
Date: _______________________________
Reviewed by: ________________________
Compliance Status: Yes NO
-------------------------------------
Sincerely,
- ----------------------------
Signature
- ----------------------------
TITLE
- ----------------------------
DATE
2
<PAGE> 27
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of March 31, 1998,
by and between T/R Systems, Inc., a Georgia corporation ("Borrower") whose
address is 5985 Financial Drive, Norcross, Georgia 30071, and Silicon Valley
Bank, a California-chartered bank ("Bank") with its principal place of business
at 3003 Tasman Drive, Santa Clara, California 95054 and with a loan production
office located at 3343 Peachtree Road, N.E., Suite 312, Atlanta, Georgia 30326.
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which
may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to,
among other documents, a Loan and Security Agreement, dated October 17, 1997,
as may be further amended from time to time (the "Loan Agreement"). The Loan
Agreement provides for, among other things, a Committed Revolving Line in the
original principal amount of One Million Dollars ($1,000,000) (the "Committed
Revolving Line"). Defined terms used herein without definition shall have the
same meaning ascribed thereto in the Loan Agreement. The purpose of this Loan
Modification Agreement is to create a Committed Equipment Line in the original
principal amount of Two Hundred Fifty Thousand and No/100 Dollars ($250,000)
(the "Committed Equipment Line"), upon the terms and conditions set forth
herein.
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Committed
Revolving Line and Committed Equipment Line is secured by the Collateral as
described in the Loan Agreement. Hereinafter, the above-described security
documents, together with all other documents securing repayment of the
Committed Revolving Line and Committed Equipment Line shall be referred to as
the "Security Documents". Hereinafter, the Loan Agreement, the Security
Documents, together with all other documents evidencing or securing the
Committed Revolving Line, shall be referred to as the "Existing Loan
Documents".
3. DESCRIPTION OF CHANGE IN TERMS
A. Modification to Revolving Facility.
1. In accordance with the modifications to the Loan
Agreement set forth below, the Bank shall establish
the Committed Revolving Line on behalf of Borrower.
B. Modifications to Loan Agreement.
1. The following definitions shall be added in the
appropriate place, based upon alphabetical order, to
Section 1 "Definitions and Construction" of the Loan
Agreement:
"Committed Equipment Line" means a Credit Extension of up to
Two Hundred Fifty Thousand and No/100 Dollars ($250,000) for
the purchase of equipment.
<PAGE> 28
"Equipment Advance" has the meaning set forth in
Section 2.1.3.
"Equipment Availability End Date" has the meaning
set forth in Section 2.1.3.
"Equipment Maturity Date" means the maturity date
for the repayment by monthly amortization of the
Committed Equipment Line, which shall be August 31,
2001."
2. The definition of "Credit Extension" in Section 1,
"Definitions and Construction" of the Loan Agreement
is deleted in its entirety and replaced with the
following:
"Credit Extension" means each Advance, Equipment
Advance, Letter of Credit, or other extension of
credit by Bank for the benefit of Borrower
hereunder."
3. The definition of "Payment Date" in Section 1,
"Definitions and Construction" of the Loan Agreement
is deleted in its entirety and replaced with the
following:
"Payment Date" means the SIXTEENTH (16th) calendar
day of each month commencing on the first such date
after the Closing Date and ending on the Revolving
Maturity Date as to the Committed Revolving Line and
the Equipment Maturity Date as to the Committed
Equipment Line."
4. Section 2.1, "Credit Extensions" of the Loan
Agreement is amended by adding the following Section
2.1.3 thereto:
"2.1.3 Equipment Advances.
(a) Subject to and upon the terms and
conditions of this Agreement, at any time from the date
hereof through September 30, 1998 (the "Equipment
Availability End Date"), Bank agrees to make advances (each
an "Equipment Advance" and collectively, the "Equipment
Advances") to Borrower in an aggregate outstanding amount not
to exceed the Committed Equipment Line. To evidence the
Equipment Advance or Equipment Advances, Borrower shall
deliver to Bank, at the time of each Equipment Advance
request, an invoice for the equipment to be purchased. The
Equipment Advances shall be used only to purchase equipment
purchased on or after January 1, 1998 and shall not exceed
One-Hundred Percent (100%) of the invoice amount of such
equipment approved from time to time by Bank, excluding
taxes, shipping, warranty charges, freight discounts and
installation expense. Software may, however, constitute up to
twenty-five percent (25%) of the aggregate of all Equipment
Advances.
2
<PAGE> 29
(b) Interest shall accrue from the date of
each Equipment Advance at the per annum rate equal to one and
one-half (1.5) percentage points above the Prime Rate and
shall be payable monthly for each month through the month in
which the Equipment Availability End Date falls. Any
Equipment Advances that are outstanding on the Equipment
Availability End Date will be payable in thirty-six (36)
equal monthly installments of principal and interest,
beginning on the Payment Date of the month following the
Equipment Availability End Date and ending on the Equipment
Maturity Date, at which time all unpaid Equipment Advances,
interest accrued thereon and all other charges, shall be due
and payable in full. Equipment Advances, once repaid, may not
be reborrowed.
(c) When Borrower desires to obtain an
Equipment Advance, Borrower shall notify Bank (which notice
shall be irrevocable) by facsimile transmission to be
received no later than 3:00 p.m. Eastern time one (1)
Business Day before the day on which the Equipment Advance is
to be made. Such notice shall be substantially in the form of
Exhibit B. The notice shall be signed by a Responsible
Officer or its designee and include a copy of the invoice for
the equipment to be financed.
(d) In addition to the facility fee set forth
in Section 2.5(a) hereof, Borrower shall pay a facility fee
for the Committed Equipment Line equal to Two Thousand Five
Hundred and No/100 Dollars ($2,500.00), which fee shall be
due on the date of the Loan Modification Agreement and shall
be fully earned and non-refundable."
5. Section 2.3(a) of the Loan Agreement is amended by
deleting the reference to "Credit Extensions"
therein and replacing it with the term "Advances."
6. The first sentence of Section 2.7 of the Loan
Agreement is deleted in its entirety and replaced
with the following:
"Except as otherwise set forth herein, this
Agreement shall become effective on the Closing Date
and, subject to 12.7, shall continue in full force
and effect until all Obligations are paid in full."
7. Section 6.3(f) of the Loan Agreement is amended by
deleting the reference to "fifteen (15) days"
therein and replacing it with "twenty (20) days."
8. Section 10 of the Loan Agreement is hereby amended
by deleting the current address for notice to the
Bank and inserting the following:
3
<PAGE> 30
<TABLE>
<S> <C>
"If to Bank: Silicon Valley Bank
3343 Peachtree Road, N.E.
Suite 312
Atlanta, Georgia 30326
Attn: Gerry Benson
Fax: (404) 261-2202"
</TABLE>
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described above.
5. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrants
to Bank as follows:
(a) Borrower has adequate corporate power and authority to execute
and deliver this Loan Modification Agreement and the other documents executed
and/or delivered in connection herewith (collectively, the "Modification
Documents") and to perform its respective obligations hereunder and thereunder,
and under the Existing Loan Documents, as amended hereby. Each of this Loan
Modification Agreement and the other Modification Documents has been duly
authorized, executed and delivered by Borrower, and does not contravene any
law, rule or regulation applicable to Borrower or any of the terms of its
Certificate of Incorporation or bylaws, or any other indenture, agreement or
undertaking to which Borrower is a party. This Loan Modification Agreement and
the other Modification Documents effectively amend the Existing Loan Documents
in accordance with the terms hereof and thereof. Borrower's obligations
hereunder and under the other Modification Documents, and under the Loan
Agreement and the other Existing Loan Documents, each as amended hereby and
thereby, constitute legally valid and binding obligations of Borrower
enforceable against Borrower in accordance with their respective terms, except
as enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, or other similar laws affecting the rights of creditors generally
and by equitable principles.
(b) All of the representations and warranties made by Borrower in
the Loan Agreement and the other Existing Loan Documents are true and correct
on the date hereof as if made on and as of the date hereof and are so repeated
herein, except that representations and warranties of financial statements or
conditions as of an earlier date relate solely to such earlier date.
(c) Upon the execution and delivery of this Loan Modification
Agreement and the satisfaction of the conditions precedent set forth in Section
6 hereof, no Event of Default shall exist and be continuing.
6. CONDITIONS PRECEDENT.
(a) The agreements contained herein and the amendments
contemplated hereby shall not be effective unless each of the following
conditions precedent is satisfied:
4
<PAGE> 31
(1) All of the representations and warranties made by
Borrower in Section 5 hereof shall be true and correct;
(2) Bank shall receive in form and substance satisfactory
to Bank, a Certificate of the President of Borrower as to the satisfaction of
the condition specified in clause (1) of this Section 6(a);
(3) Bank shall have received, in form and substance
satisfactory to Bank, such other documents as Bank shall deem necessary and/or
appropriate;
(4) Borrower's payment of the facility fee for the
Committed Equipment Line; and
(5) Execution and delivery of an Equipment Promissory
Note in the principal amount of $250,000.
Upon satisfaction of each of the conditions precedent set forth in this Section
6(a), the agreements contained herein and the amendments contemplated hereby
shall be deemed effective as of the date hereof.
(b) From and after the satisfaction of the conditions precedent
set forth in Section 6(a) hereof, Bank's obligations to make any Credit
Extensions to Borrower under the Loan Agreement and the other Loan Documents
shall be subject to the additional conditions that (i) all of the
representations and warranties made by Borrower herein, whether directly or
incorporated herein by reference, shall be true and correct immediately prior
to the time of the proposed Credit Extensions as if made at and as of such
time, except that representations and warranties of financial statements or
conditions as of an earlier date relate solely to such earlier date, and (ii)
no Event of Default, or event or condition which, with notice or lapse of time,
or both, would constitute an Event of Default, would occur after giving effect
to the making of such Credit Extension. From and after the satisfaction of the
conditions precedent set forth in Section 6(a) hereof, each request by Borrower
for a Credit Extension under the Loan Agreement and the other Loan Documents
shall be deemed to be a representation and warranty by Borrower that all of the
conditions precedent in this Section 7(b) have been met.
7. NO DEFENSES OF BORROWER. Borrower agrees that it has no defenses
against the obligations to pay any amounts under the Obligations, including,
but not limited to, the Committed Revolving Line and Committed Equipment Line.
8. CONTINUING VALIDITY. Borrower understands and agrees that in modifying
the Existing Loan Documents, Bank is relying upon Borrower's representations,
warranties, and agreements, as set forth in the Existing Loan Documents and
herein, and Borrower hereby ratifies and affirms all such representations and
warranties as if fully restated herein. Except as expressly modified pursuant
to this Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Bank's agreement to
modification of the Existing Loan Documents pursuant to this Loan Modification
Agreement in no way shall obligate Bank to
5
<PAGE> 32
make any future amendments or modifications to the Existing Loan Documents.
Nothing in this Loan Modification Agreement shall constitute a novation or
satisfaction of the Borrower's Obligations to Bank. It is the intention of Bank
and Borrower to retain as liable parties all makers and endorsers of Existing
Loan Documents, unless the party is expressly released by Bank in writing. No
maker, endorser, or guarantor will be released by virtue of this Loan
Modification Agreement. The terms of this paragraph apply not only to this Loan
Modification Agreement, but also to all subsequent loan modification
agreements.
9. MISCELLANEOUS. This Loan Modification Agreement shall be considered a
"Loan Document" under and as defined in the Loan Agreement. This Loan
Modification Agreement shall be governed by and construed in accordance with
the laws of The Commonwealth of Massachusetts (without giving effect to the
conflicts of law principles thereof), and shall take effect as a sealed
instrument under such laws. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH
ITS PROPERTIES, UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF ANY STATE OR
FEDERAL COURT OF COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN
ANY ACTION, SUIT OR PROCEEDING OF ANY KIND AGAINST IT WHICH ARISES OUT OF OR BY
REASON OF THIS AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT
AVAIL ITSELF OF THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, BORROWER
ACCEPTS JURISDICTION OF THE COURTS AND VENUE IN SANTA CLARA COUNTY, CALIFORNIA.
BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH
PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
6
<PAGE> 33
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER: BANK:
T/R SYSTEMS, INC. SILICON VALLEY BANK, doing
business as SILICON VALLEY
EAST
By: /s/ Lyle W. Newkirk By: /s/ Gerard F. Benson
-------------------------------- --------------------------------
Name: Lyle W. Newkirk Name: Gerard F. Benson
------------------------------ ------------------------------
Title: VP & CFO Title: AVP
----------------------------- -----------------------------
SILICON VALLEY BANK
By: /s/
--------------------------------
Name:
------------------------------
Title: VP
-----------------------------
(Signed in Santa Clara, CA)
7
<PAGE> 34
SECOND
LOAN MODIFICATION AGREEMENT
This Second Loan Modification Agreement is entered into as of October
16, 1998, by and between T/R Systems, Inc., a Georgia corporation ("Borrower")
whose address is 1300 OakBrook Parkway, Norcross, Georgia 30093 and Silicon
Valley Bank, a California-chartered bank ("Lender"), with its principal place of
business at 3003 Tasman Drive, Santa Clara, California 95054 and with a loan
production office located at 3343 Peachtree Road, N.E., Suite 312, Atlanta,
Georgia 30326.
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness
which may be owing by Borrower to Lender, Borrower is indebted to Lender
pursuant to, among other documents, a Loan and Security Agreement dated October
17, 1997, as amended by a Loan Modification Agreement dated March 31, 1998
between Borrower and Lender and as may be amended further from time to time
(the "Loan Agreement"). The Loan Agreement provides for, among other things, a
Committed Revolving Line in the original principal amount of One Million
Dollars ($1,000,000) (the "Committed Revolving Line") and a Committed Equipment
Line in the original principal amount of Two Hundred Fifty Thousand Dollars
($250,000) (the "Committed Equipment Line").
The purpose of this Second Loan Modification Agreement is to increase
the maximum principal available under the Committed Revolving Line and to make
such other modifications, upon the terms and conditions set forth herein.
Capitalized terms used but not otherwise defined herein shall have the
same meaning as in the Loan Agreement. Hereinafter, all indebtedness owing by
Borrower to Lender shall be referred to as the "Indebtedness."
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the
Indebtedness is secured by the Collateral as described in the Loan Agreement.
Hereinafter, above-described security documents, together with all other
documents securing payment of the Indebtedness shall be referred to as the
"Security Documents." Hereinafter, the Security Documents, together with all
other documents evidencing or securing the Indebtedness shall be referred to as
the "Existing Loan Documents."
3. DESCRIPTION OF CHANGE IN TERMS.
A. Modification to Revolving Facility.
(1) The Committed Revolving Line is hereby
renewed, and the maturity date is extended
from October 16, 1998 to October 15, 1999.
The Committed Revolving Line shall be and
is hereby increased from One Million
Dollars ($1,000,000) to Two Million Dollars
($2,000,000).
<PAGE> 35
B. Modifications to Loan Agreement.
(1) The definition of "Committed Revolving
Line" in the Loan Agreement is amended by
deleting "One Million Dollars ($1,000,000)"
and simultaneously inserting in lieu
thereof "Two Million Dollars ($2,000,000)."
(2) The definition of "Revolving Maturity Date"
in the Loan Agreement is deleted and is
replaced with the following:
"'Revolving Maturity Date' means October
15, 1999."
(3) Section 2.2 is hereby amended by deleting
it in its entirety and replacing it with
the following:
Section 2.2 Overadvances. If, at any time
or for any reason, (i) the amount owed by
Borrower to Bank pursuant to Sections 2.1.1
and 2.1.2 exceeds the lesser of the
Committed Revolving Line or the Borrowing
Base or (ii) the amount owed by Borrower to
Bank pursuant to Section 2.3 exceeds the
Committed Equipment Line, then Borrower
shall immediately pay to Bank, in cash, the
amount of such excess.
(4) Section 6.3(a) of the Loan Agreement is
amended by deleting the reference to
"twenty-five (25) days" and replacing it
with "thirty (30) days."
(5) Section 6.3(f) and 6.3(g) of the Loan
Agreement, as amended, are deleted in their
entirety and replaced with the following:
(f) Within twenty (20) days
after the last day of each month, Borrower
shall deliver to Bank a Borrowing Base
Certificate signed by a Responsible Officer
in substantially the form of Exhibit C
hereto, together with aged listings of
accounts receivable.
(g) Within thirty (30) days
after the last day of each month, Borrower
shall deliver to Bank with the monthly
financial statements a Compliance
Certificate signed by a Responsible Officer
in substantially the form of Exhibit D
hereto.
(6) Section 6.7 of the Loan Agreement, as
amended, shall be deleted in its entirety
and replaced with the following:
"Borrower shall maintain with Bank at all
times (a) a demand deposit account ("DDA")
with a balance of no less than $30,000,
2
<PAGE> 36
and (b) a money market account with a
balance of no less than $200,000."
(7) Section 6.8 of the Loan Agreement, as
amended, is deleted and replaced with the
following:
"6.8 Quick Ratio. Borrower shall maintain,
as of the last day of each calendar month,
a ratio of Quick Assets to Current
Liabilities less deferred revenues of at
least 1.50 to 1.00."
(8) Section 6.9 of the Loan Agreement, as
amended, is deleted and replaced with the
following:
"6.9 Tangible Net Worth. At all times
after the hereof, Borrower shall maintain,
as of the last day of each calendar month,
a Tangible Net Worth of not less than
$4,500,000."
(9) A copy of the new Compliance Certificate of
Borrower is attached hereto as Exhibit "A."
(10) Section 10 of the Loan Agreement, as
amended, is hereby amended by deleting the
current address for notice to Borrower and
inserting the following:
T/R Systems, Inc.
1300 Oak Brook Parkway
Norcross, Georgia 30093
Attn: President
Fax: (770) 448-3202
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby
amended wherever necessary to reflect the changes described above.
5. PAYMENT OF LOAN FEE. Borrower shall pay to Lender an annual
loan fee in the amount of Ten Thousand Dollars ($10,000) for the Committed
Revolving Line (the "Loan Fees").
6. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Lender as follows:
(a) Borrower has adequate corporate power and authority
to execute and deliver this Second Loan Modification Agreement and the other
documents executed and/or delivered in connection herewith (collectively, the
"Modification Documents") and to perform its respective obligations hereunder
and thereunder, and under the Existing Loan Documents, as amended hereby. Each
of this Second Loan Modification Agreement and the other Modification
3
<PAGE> 37
Documents has been duly authorized, executed and delivered by Borrower, and
does not contravene any law, rule or regulation applicable to Borrower or any
of the terms of its Articles of Incorporation or bylaws, or any other
indenture, agreement or undertaking to which Borrower is a party. This Second
Loan Modification Agreement and the other Modification Documents effectively
amend the Existing Loan Documents in accordance with the terms hereof and
thereof. Borrower's obligations hereunder and under the other Modification
Documents, and under the Loan Agreement and the other Existing Loan Documents,
each as amended hereby and thereby, constitute legally valid and binding
obligations of Borrower enforceable against Borrower in accordance with their
respective terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, or other similar laws affecting the
rights of creditors generally and by equitable principles.
(b) All of the representations and warranties made by
Borrower in the Loan Agreement and the other Existing Loan Documents are true
and correct on the date hereof as if made on and as of the date hereof and are
so repeated herein, except that representations and warranties of financial
statements or conditions as of an earlier date relate solely to such earlier
date.
(c) Upon the execution and delivery of this Second Loan
Modification Agreement and the satisfaction of the conditions precedent set
forth in Section 7 hereof, no default shall exist and be continuing.
7. CONDITIONS PRECEDENT.
(a) The agreements contained herein and the amendments
contemplated hereby shall not be effective unless each of the following
conditions precedent is satisfied:
(1) All of the representations and warranties
made by Borrower in Section 6 hereof shall
be true and correct;
(2) Lender shall receive in form and substance
satisfactory to Lender, a Certificate of
the President of Borrower as to the
satisfaction of the condition specified in
clause (1) of this Section 7(a);
(3) Lender shall have received, in form and
substance satisfactory to Lender, such
other documents as Lender shall deem
necessary and/or appropriate;
(4) Borrower's payment of the Loan Fees;
(5) Execution and delivery of an Amended and
Restated Committed Revolving Line Note in
the principal amount of $2,000,000 having a
maturity date of October 15, 1999;
4
<PAGE> 38
(6) Delivery of a corporate resolution
authorizing the renewal and extension of
the Committed Revolving Line; and
(7) Delivery of a current certificate of good
standing of Borrower issued by the State of
Georgia.
Upon satisfaction of each of the conditions precedent set forth in this Section
7(a), the agreements contained herein and the amendments contemplated hereby
shall be deemed effective as of the date hereof.
(b) From and after the satisfaction of the conditions
precedent set forth in Section 7(a) hereof, Lender's obligations to make any
Advances to Borrower under the Loan Agreement and the other Loan Documents
shall be subject to the additional conditions that (i) all of the
representations and warranties made by Borrower herein, whether directly or
incorporated herein by reference, shall be true and correct immediately prior
to the time of the proposed Advance as if made at and as of such time, except
that representations and warranties of financial statements or conditions as of
an earlier date relate solely to such earlier date, and (ii) no Event of
Default, or event or condition which, with notice or lapse of time, or both,
would constitute an Event of Default, would occur after giving effect to the
making of such Advance. From and after the satisfaction of the conditions
precedent set forth in Section 7(a) hereof, each request by Borrower for an
Advance under the Loan Agreement and the other Loan Documents shall be deemed
to be a representation and warranty by Borrower that all of the conditions
precedent in this Section 7(b) have been met.
8. NO DEFENSES OF BORROWER. Borrower agrees that it has no
defenses against the obligations to pay any amounts under the Indebtedness,
including, but not limited to, the Committed Revolving Line.
9. CONTINUING VALIDITY. Borrower understands and agrees that in
modifying the Existing Loan Documents, Lender is relying upon Borrower's
representations, warranties, and agreements, as set forth in the Existing Loan
Documents and herein, and Borrower hereby ratifies and affirms all such
representations and warranties as if fully restated herein. Except as expressly
modified pursuant to this Second Loan Modification Agreement, the terms of the
Existing Loan Documents remain unchanged and in full force and effect. Lender's
agreement to modification of the Existing Loan Documents pursuant to this
Second Loan Modification Agreement in no way shall obligate Lender to make any
future amendments or modifications to the Existing Loan Documents. Nothing in
this Second Loan Modification Agreement shall constitute a novation or
satisfaction of the Borrower's Indebtedness to Lender. It is the intention of
Lender and Borrower to retain as liable parties all makers and endorsers of
Existing Loan Documents, unless the party is expressly released by Lender in
writing. No maker, endorser, or guarantor will be released by virtue of this
Second Loan Modification Agreement. The terms of this paragraph apply not only
to this Second Loan Modification Agreement, but also to all subsequent loan
modification agreements.
5
<PAGE> 39
10. MISCELLANEOUS. This Second Loan Modification Agreement shall
be considered a "Loan Document" as defined in the Loan Agreement. This Agreement
shall be governed by, and construed in accordance with, the internal laws of The
Commonwealth of Massachusetts, without regard to principles of conflicts of law.
BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT
OR PROCEEDING OF ANY KIND AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS
AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF
THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, BORROWER ACCEPTS JURISDICTION
OF THE COURTS AND VENUE IN SANTA CLARA COUNTY, CALIFORNIA. BORROWER AND BANK
EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY
RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND
WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
This Second Loan Modification Agreement is executed as of the date
first written above.
BORROWER: LENDER:
T/R SYSTEMS, INC. SILICON VALLEY BANK, doing
business as SILICON VALLEY
EAST
By: /s/ Lyle W. Newkirk By: /s/
------------------------------- --------------------------------
Name: Lyle W. Newkirk Name:
----------------------------- ------------------------------
Title: Vice President: CFO Title: SVP
---------------------------- -----------------------------
SILICON VALLEY BANK
By: /s/ Amy B. Young
----------------------------------
Name: Amy B. Young
------------------------------
Title: Vice President
------------------------------
(signed in Santa Clara, CA)
6
<PAGE> 40
EXHIBIT A
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK ("Bank")
FROM: T/R SYSTEMS, INC. ("Borrower")
The undersigned authorized Responsible Officer of T/R Systems, Inc.
hereby certifies that in accordance with the terms and conditions of the Loan
and Security Agreement dated as of October 12, 1997 between Borrower and Bank,
as amended by that certain Modification Agreement dated March 31, 1998 and that
certain Second Loan Modification Agreement dated October 16, 1998 by and
between Borrower and Bank and as may be amended from time to time (the
"Agreement"), (i) Borrower is in complete compliance for the period ending
____________________ with all required covenants except as noted below, (ii) all
representations and warranties of Borrower stated in the Agreement are true and
correct in all material respects as of the date hereof, and (iii) no Event of
Default, and no event which with notice or lapse of time, or both, would
constitute an Event of Default, has occurred and is continuing. Attached
herewith are the required documents supporting the above certification. The
Officer further certifies that these are prepared in accordance with General
Accepted Accounting Principles (GAAP) and are consistently applied from one
period to the next except as explained in an accompanying letter or footnotes.
The Officer expressly acknowledges that no borrowings may be requested by the
Borrower at any time or date of determination that Borrower is not in
compliance with any of the terms of the Agreement, and that such compliance is
determined not just at the date this certificate is delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
- ------------------ -------- --------
<S> <C> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 120 days Yes No
A/R Aging Monthly within 20 days Yes No
A/R Audit Annual Yes No
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
- ------------------ -------- ---------- --------
<S> <C> <C> <C>
Maintain on a Monthly Basis:
Minimum Quick Ratio 1.5:1.0 ______:1.0 Yes No
Minimum Tangible Net Worth $4,500,000 $_________ Yes No
</TABLE>
COMMENTS REGARDING EXCEPTIONS: SEE ATTACHED
BANK USE ONLY
Received By:
----------------------
Date:
-----------------------------
Verified:
-------------------------
Date:
-----------------------------
T/R SYSTEMS, INC. Compliance Status: Yes No
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE> 41
AMENDED AND RESTATED
REVOLVING PROMISSORY NOTE
$2,000,000.00 October 16, 1998
FOR VALUE RECEIVED, the undersigned, T/R SYSTEMS, INC., a Georgia
corporation ("Borrower"), promises to pay to the order of Silicon Valley Bank,
a California-chartered bank ("Bank"), at such place as the holder hereof may
designate, in accordance with the Loan and Security Agreement dated October 17,
1997, as amended by that certain Loan Modification Agreement dated as of March
31, 1998 and that certain Second Loan Modification Agreement as of the date
hereof between Borrower and Bank (as amended, modified or supplemented from
time to time in accordance with its terms, the "Loan Agreement") the principal
sum of Two Million Dollars ($2,000,000.00) or such lesser amount as may
constitute the unpaid principal amount of the Advances made by Bank to
Borrower, in lawful money of the United States, and to pay interest in like
money at such office or place from the date hereof to the date of payment in
full hereof (whether by acceleration or otherwise) on the unpaid principal
balance hereof at a rate per annum which shall be equal to one percentage point
(1.00) in excess of the Prime Rate (as hereinafter defined) in effect from time
to time, which interest rate shall change as the Prime Rate changes. Interest
shall be payable monthly in arrears on the sixteenth (16th) calendar day of
each month, commencing on November 16, 1998 until maturity, and thereafter on
demand. Interest shall be calculated on the basis of actual days elapsed over a
360-day year. The unpaid principal amount of this Note, and accrued interest
thereon, shall be payable on the Revolving Maturity Date, under and as defined
in the Loan Agreement referred to hereinabove or earlier as hereinafter
provided. Bank's computation of amounts outstanding hereunder from time to time
shall be, as between Bank and Borrower, final, conclusive and binding for all
purposes, absent manifest error.
"Prime Rate" shall mean the rate which Bank announces from time to
time as its prime rate, as in effect from time to time. The Prime Rate is a
reference rate and does not necessarily represent the lowest or best rate
actually charged to any customer. Bank may make commercial loans or other loans
at rates of interest at, above or below the Prime Rate.
This Note is issued pursuant to the Loan Agreement and is subject to
and governed by the terms and conditions thereof. Capitalized terms used but not
defined herein shall have the meaning set forth in the Loan Agreement.
Reference is made to the Loan Agreement for provisions regarding mandatory and
optional payments and prepayments hereof, acceleration of the maturity hereof
by Bank upon the happening of certain stated events, and rates of interest
after default.
This Note is secured by the Loan Agreement, certain of the other Loan
Documents, the Collateral and the other agreements and instruments referred to
in the Loan Agreement, all as more particularly described and provided therein,
and is entitled to the benefits thereof.
<PAGE> 42
Borrower hereby waives diligence, demand, presentment, protest and
notice of any kind, and assents to the extension of the time of payment,
release, surrender or substitution of security, or forbearance or other
indulgence, without notice. Borrower agrees to pay all amounts of principal,
interest and fees under this Note without offset, deduction, claim,
counterclaim, defense or recoupment, all of which, except offsets, recoupments
or counterclaims which could not, by reason of any applicable federal or state
procedural laws, be interposed, pleaded or alleged in any other action, are
hereby waived by Borrower.
This Note may not be changed, modified or terminated orally, but only
by an agreement in writing signed by Borrower or any successor or assign of
Borrower, and Bank or any holder hereof.
In the event Bank or any holder hereof shall retain or engage an
attorney to collect, enforce or protect its interests with respect to this
Note, Borrower shall pay all of the reasonable costs and expenses of such
collection, enforcement or protection, including reasonable attorneys' fees,
whether or not suit is instituted.
This Note shall be governed by and construed in accordance with the
laws of The Commonwealth of Massachusetts (without giving effect to the
conflicts of law principles thereof), and shall be binding upon the successors
and assigns of Borrower and insure to the benefit of Bank and its successors,
endorsees and assigns. If any term or provision of this Note shall be held
invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.
This Note is an amendment and restatement of that certain Revolving
Promissory Note dated October 17, 1997 ("Original Note") by Borrower payable to
Bank. It is not intended and shall not be construed to be a novation of the
Original Note or the indebtedness evidenced thereby.
This Note shall take effect as an instrument under seal in The
Commonwealth of Massachusetts.
T/R SYSTEMS, INC.
By: /s/ Michael E. Kohlsdorf
------------------------------------
Title: President / CEO
----------------------------------
ATTEST: /s/ Lyle Newkirk, CFO
----------------------------
Secretary
[CORPORATE SEAL]
2
<PAGE> 43
CERTIFICATE OF OFFICER
I, the undersigned, the duly elected President of T/R SYSTEMS, INC., a
Georgia corporation (the "Company" does hereby certify that:
(a) All representations and warranties of the Company which are
contained in Section 6 of the Second Loan Modification
Agreement of even date herewith (the "Second Modification
Agreement") by and between the Company and Silicon Valley
Bank (the "Bank") are true and correct on and as of the date
hereof.
(b) The Company has performed and complied in all material
respects with all terms and conditions set forth in the
Second Modification Agreement and the other documents
executed or delivered in connection therewith required to be
performed or complied with by the Company on or prior to the
date hereof, and the consummation of the transactions to be
effected on the date hereof shall not result in an Event of
Default, or an event which with notice or passage of time or
both would become an Event of Default.
Except as otherwise indicated, capitalized terms used herein shall
have the respective meanings ascribed to such terms in the Loan and Security
Agreement dated as of October 17, 1997 between the Company and the Bank, as
amended by that certain Loan Modification Agreement dated March 31, 1998 by and
between the Company and the Bank, as amended by the Second Modification
Agreement and as amended from time to time and in effect as of the date hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 16th day of
October, 1998.
/s/ Michael E. Kohlsdorf
----------------------------------------
Michael E. Kohlsdorf, President
<PAGE> 44
T/R SYSTEMS, INC.
CERTIFICATE OF SECRETARY
I, the undersigned, the duly elected Secretary of T/R SYSTEMS, INC., a
Georgia corporation (the "Company") hereby certify that:
1. Attached hereto as Exhibit A is a true and correct copy of
each amendment to the Articles of Incorporation of the
Company effected after March 31, 1998, which amendments have
been certified by the Secretary of State of Georgia. The
Articles of Incorporation, as so amended, are in full force
and effect on the date hereof, and no action has been taken
or is pending to further amend the same.
2. Attached hereto as Exhibit B is a true and correct copy of
each amendment to the bylaws of the Company effected after
March 31, 1998. The bylaws, as so amended, are in effect on
the date hereof, and no action has been taken or is pending
to further amend the same.
3. The Resolutions of the Board of Directors of the Company
contained in the Corporate Borrowing Resolutions executed
October 17, 1997 and March 31, 1998 by the Secretary of the
Company remain in full force and effect on the date hereof,
and have not been modified or revoked in any manner
whatsoever.
IN WITNESS WHEREOF, I have executed this Certificate this 16th day of
October, 1998.
/s/ Lyle Newkirk
------------------------------------
Secretary
The undersigned hereby certifies that the person executing the above
Certificate as Secretary of the Company is, on and as of the date hereof, the
duly elected qualified and acting Secretary of the Company, and the signature
of such person appearing above is such person's true signature.
/s/ Michael E. Kohlsdorf
------------------------------------
Michael E. Kohlsdorf, President,
CEO
<PAGE> 45
THIRD LOAN MODIFICATION AGREEMENT
This Third Loan Modification Agreement is entered into as of January
18, 1999, by and between T/R Systems, Inc., a Georgia corporation ("Borrower")
whose address is 1300 Oakbrook Drive, Norcross, Georgia 30093, and Silicon
Valley Bank, a California-chartered bank ("Bank") with its principal place of
business at 3003 Tasman Drive, Santa Clara, California 95054 and with a loan
production office located at 3343 Peachtree Road, N.E., Suite 312, Atlanta,
Georgia 30326.
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which
may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to,
among other documents, a Loan and Security Agreement, dated October 17, 1997,
as amended by a Loan Modification Agreement dated March 31, 1998 between
Borrower and Bank, a Second Loan Modification Agreement dated October 16, 1998
between Borrower and Bank, and as may be further amended from time to time (the
"Loan Agreement"). The Loan Agreement provides for, among other things, a
Committed Revolving Line in the original principal amount of Two Million
Dollars ($2,000,000) (the "Committed Revolving Line") and a Committed Equipment
Line in the original principal amount of Two Hundred Fifty Thousand Dollars
($250,000) (the "Committed Equipment Line"). Defined terms used herein without
definition shall have the same meaning ascribed thereto in the Loan Agreement.
The purpose of this Loan Modification Agreement is to make certain
modifications to the Committed Equipment Line.
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Committed
Revolving Line and Committed Equipment Line is secured by the Collateral as
described in the Loan Agreement. Hereinafter, the above-described security
documents, together with all other documents securing repayment of the
Committed Revolving Line and Committed Equipment Line shall be referred to as
the "Security Documents". Hereinafter, the Loan Agreement, the Security
Documents, together with all other documents evidencing or securing the
Committed Revolving Line, shall be referred to as the "Existing Loan
Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
A. Modification to Revolving Facility.
1. In accordance with the modifications to the Loan
Agreement set forth below, the Equipment
Availability End Date for the Committed Equipment
Line shall be and hereby is extended to December 31,
1998.
B. Modifications to Loan Agreement.
1. The definition of "Equipment Maturity Date" in
Section 1 "Definitions and Construction" of the Loan
Agreement is deleted and replaced with the
following:
<PAGE> 46
"Equipment Maturity Date" means the maturity date
for the repayment by monthly amortization of the
Committed Equipment Line, which shall be November
30, 2001."
2. The first sentence of Section 2.1.3 of the Loan
Agreement is hereby amended by deleting the first
sentence thereof and replacing it with the
following:
"2.1.3 Equipment Advances.
(a) Subject to and upon the terms and
conditions of this Agreement, at any time from the date
hereof through December 31, 1998 (the "Equipment Availability
End Date"), Bank agrees to make advances (each an "Equipment
Advance" and collectively, the "Equipment Advances") to
Borrower in an aggregate outstanding amount not to exceed the
Committed Equipment Line."
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described above.
5. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Bank as follows:
(a) Borrower has adequate corporate power and authority to execute and
deliver this Loan Modification Agreement and the other documents executed
and/or delivered in connection herewith (collectively, the "Modification
Documents") and to perform its respective obligations hereunder and thereunder,
and under the Existing Loan Documents, as amended hereby. Each of this Loan
Modification Agreement and the other Modification Documents has been duly
authorized, executed and delivered by Borrower, and does not contravene any
law, rule or regulation applicable to Borrower or any of the terms of its
Certificate of Incorporation or bylaws, or any other indenture, agreement or
undertaking to which Borrower is a party. This Loan Modification Agreement and
the other Modification Documents effectively amend the Existing Loan Documents
in accordance with the terms hereof and thereof. Borrower's obligations
hereunder and under the other Modification Documents, and under the Loan
Agreement and the other Existing Loan Documents, each as amended hereby and
thereby, constitute legally valid and binding obligations of Borrower
enforceable against Borrower in accordance with their respective terms, except
as enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, or other similar laws affecting the rights of creditors generally
and by equitable principles.
(b) All of the representations and warranties made by Borrower in the
Loan Agreement and the other Existing Loan Documents are true and correct on
the date hereof as if made on and as of the date hereof and are so repeated
herein, except that representations and warranties of financial statements or
conditions as of an earlier date relate solely to such earlier date.
2
<PAGE> 47
(c) Upon the execution and delivery of this Loan Modification
Agreement and the satisfaction of the conditions precedent set forth in Section
6 hereof, no Event of Default shall exist and be continuing.
6. CONDITIONS PRECEDENT.
(a) The agreements contained herein and the amendments
contemplated hereby shall not be effective unless each of the following
conditions precedent is satisfied:
(1) All of the representations and warranties made by
Borrower in Section 5 hereof shall be true and correct;
(2) Bank shall receive in form and substance satisfactory
to Bank, a Certificate of the President of Borrower as to the
satisfaction of the condition specified in clause (1) of this Section
6(a);
(3) Bank shall have received, in form and substance
satisfactory to Bank, such other documents as Bank shall deem
necessary and/or appropriate; and
(5) Execution and delivery of an Amended and Restated
Equipment Promissory Note in the principal amount of $250,000.
Upon satisfaction of each of the conditions precedent set forth in this Section
6(a), the agreements contained herein and the amendments contemplated hereby
shall be deemed effective as of the date hereof.
(b) From and after the satisfaction of the conditions precedent
set forth in Section 6(a) hereof, Bank's obligations to make any Credit
Extensions to Borrower under the Loan Agreement and the other Loan Documents
shall be subject to the additional conditions that (i) all of the
representations and warranties made by Borrower herein, whether directly or
incorporated herein by reference, shall be true and correct immediately prior
to the time of the proposed Credit Extensions as if made at and as of such
time, except that representations and warranties of financial statements or
conditions as of an earlier date relate solely to such earlier date, and (ii)
no Event of Default, or event or condition which, with notice or lapse of time,
or both, would constitute an Event of Default, would occur after giving effect
to the making of such Credit Extension. From and after the satisfaction of the
conditions precedent set forth in Section 6(a) hereof, each request by Borrower
for a Credit Extension under the Loan Agreement and the other Loan Documents
shall be deemed to be a representation and warranty by Borrower that all of the
conditions precedent in this Section 7(b) have been met.
7. NO DEFENSES OF BORROWER. Borrower agrees that it has no defenses
against the obligations to pay any amounts under the Obligations, including,
but not limited to, the Committed Revolving Line and Committed Equipment Line.
3
<PAGE> 48
8. CONTINUING VALIDITY. Borrower understands and agrees that in modifying
the Existing Loan Documents, Bank is relying upon Borrower's representations,
warranties, and agreements, as set forth in the Existing Loan Documents and
herein, and Borrower hereby ratifies and affirms all such representations and
warranties as if fully restated herein. Except as expressly modified pursuant
to this Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Bank's agreement to modification
of the Existing Loan Documents pursuant to this Loan Modification Agreement in
no way shall obligate Bank to make any future amendments or modifications to
the Existing Loan Documents. Nothing in this Loan Modification Agreement shall
constitute a novation or satisfaction of the Borrower's Obligations to Bank. It
is the intention of Bank and Borrower to retain as liable parties all makers
and endorsers of Existing Loan Documents, unless the party is expressly
released by Bank in writing. No maker, endorser, or guarantor will be released
by virtue of this Loan Modification Agreement. The terms of this paragraph
apply not only to this Loan Modification Agreement, but also to all subsequent
loan modification agreements.
9. MISCELLANEOUS. This Loan Modification Agreement shall be considered a
"Loan Document" under and as defined in the Loan Agreement. This Loan
Modification Agreement shall be governed by and construed in accordance with
the laws of The Commonwealth of Massachusetts (without giving effect to the
conflicts of law principles thereof), and shall take effect as a sealed
instrument under such laws. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH
ITS PROPERTIES, UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR
FEDERAL COURT OF COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN
ANY ACTION, SUIT OR PROCEEDING OF ANY KIND AGAINST IT WHICH ARISES OUT OF OR BY
REASON OF THIS AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT
AVAIL ITSELF OF THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, BORROWER
ACCEPTS JURISDICTION OF THE COURTS AND VENUE IN SANTA CLARA COUNTY, CALIFORNIA.
BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH
PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
4
<PAGE> 49
This Loan Modification Agreement is executed as of the date first
written above.
BORROWER: BANK:
T/R SYSTEMS, INC. SILICON VALLEY BANK, doing
business as SILICON VALLEY
EAST
By: /s/ Lyle W. Newkirk By: /s/ T. Vertin
--------------------------------- ------------------------
Name: Lyle W. Newkirk Name: T. Vertin
------------------------------- ----------------------
Title: VP, Secretary, Treasurer, CFO Title: SVP
------------------------------ ---------------------
SILICON VALLEY BANK
By:
------------------------
Name:
----------------------
Title:
---------------------
(signed in Santa Clara, CA)
5
<PAGE> 50
This Loan Modification Agreement is executed as of the date first
written above.
BORROWER: BANK:
T/R SYSTEMS, INC. SILICON VALLEY BANK, doing
business as SILICON VALLEY
EAST
By: /s/ Lyle W. Newkirk By: /s/ T. Vertin
--------------------------------- ------------------------
Name: Lyle W. Newkirk Name: T. Vertin
------------------------------- ----------------------
Title: VP, Secretary, Treasurer, CFO Title: SVP
------------------------------ ---------------------
SILICON VALLEY BANK
By: /s/ Michelle D. Giannini
-------------------------
Name: MICHELLE D. GIANNINI
----------------------
Title: ASST. VICE PRES.
---------------------
(signed in Santa Clara, CA)
5
<PAGE> 51
AMENDED AND RESTATED
EQUIPMENT LINE PROMISSORY NOTE
$250,000.00 Norcross, Georgia
January 18, 1999
FOR VALUE RECEIVED, the undersigned, T/R SYSTEMS, INC., a Georgia
corporation ("Borrower"), promises to pay to the order of Silicon Valley Bank,
a California-chartered bank ("Bank"), at such place as the holder hereof may
designate, in accordance with the Loan and Security Agreement dated as of
October 17, 1997, as amended by that certain Loan Modification Agreement dated
March 31, 1998, that certain Second Loan Modification Agreement dated October
16, 1998 and a Third Loan Modification Agreement of even date between Borrower
and Bank (as amended, modified or supplemented from time to time in accordance
with its terms, the "Loan Agreement") the principal sum of Two Hundred Fifty
Thousand Dollars ($250,000.00) or such lesser amount as may constitute the
unpaid principal amount of the Equipment Advances made by Bank to Borrower, in
lawful money of the United States, and to pay interest in like money at such
office or place from the date hereof to the date of payment in full hereof
(whether by acceleration or otherwise) on the unpaid principal balance hereof
at a rate per annum which shall be equal to one and one half percentage point
(1.50) in excess of the Prime Rate in effect from time to time, which interest
rate shall change as the Prime Rate changes. Interest on the unpaid Equipment
Advances shall be payable monthly on each Payment Date for each month through
the month in which the Equipment Availability End Date falls. Any Equipment
Advances that are outstanding on the Equipment Availability End Date will be
payable in thirty-six (36) equal monthly installments of principal and
interest, beginning on the Payment Date of the month following the Equipment
Availability End Date and ending on the Equipment Maturity Date, at which time
all unpaid principal hereunder, accrued interest and other charges shall be due
and payable in full. Interest shall be calculated on the basis of actual days
elapsed over a 360-day year. Bank's computation of amounts outstanding
hereunder from time to time shall be, as between Bank and Borrower, final,
conclusive and binding for all purposes, absent manifest error.
This Note is issued pursuant to, the Loan Agreement and is subject to
and governed by the terms and conditions thereof. Capitalized terms used but not
defined herein shall have the meaning set forth in the Loan Agreement.
Reference is made to the Loan Agreement for provisions regarding mandatory and
optional payments and prepayments hereof, acceleration of the maturity hereof
by Bank upon the happening of certain stated events, and rates of interest
after default.
This Note is secured by the Loan Agreement, certain of the other Loan
Documents, the Collateral and the other agreements and instruments referred to
in the Loan Agreement, all as more particularly described and provided therein,
and the holder of this Note is entitled to the benefits thereof.
<PAGE> 52
Borrower hereby waives diligence, demand, presentment, protest and
notice of any kind, and assents to extensions of the time of payment, release,
surrender or substitution of security, or forbearance or other indulgence,
without notice. Borrower agrees to pay all amounts of principal, interest and
fees under this Note without offset, deduction, claim, counterclaim, defense or
recoupment, all of which, except offsets, recoupments or counterclaims which
could not, by reason of any applicable federal or state procedural laws, be
interposed, pleaded or alleged in any other action, are hereby waived by
Borrower.
This Note may not be changed, modified or terminated orally, but only
by an agreement in writing signed by Borrower or any successor or assign of
Borrower, and Bank or any holder hereof.
In the event Bank or any holder hereof shall retain or engage an
attorney to collect, enforce or protect its interests with respect to this
Note, Borrower shall pay all of the reasonable costs and expenses of such
collection, enforcement or protection, including reasonable attorneys' fees,
whether or not suit is instituted.
This Note shall be governed by and construed in accordance with the
laws of The Commonwealth of Massachusetts (without giving effect to the
conflicts of law principles thereof), and shall be binding upon the successors
and assigns of Borrower and inure to the benefit of Bank and its successors,
endorsees and assigns If any term or provision of this Note shall be held
invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.
This Note is an amendment and restatement of that certain Equipment
Line Promissory Note dated March 31, 1998 ("Original Note") by Borrower payable
to Bank. It is not intended and this Note shall not be construed to be a
novation of the Original Note or the indebtedness evidenced thereby.
This Note shall take effect as an instrument under seal in The
Commonwealth of Massachusetts.
T/R SYSTEMS, INC.
By: /s/ Lyle W. Newkirk
------------------------------
Title:
ATTEST: /s/
--------------------
2
<PAGE> 53
[SILICON VALLEY BANK LOGO]
February 2, 1999
Lyle W. Newkirk
VP of Finance and CFO
T/R Systems, Inc.
1300 Oakbrook Drive
Norcross, GA 30093
Dear Lyle W. Newkirk:
Silicon Valley Bank hereby agrees to include in Eligible Accounts, as defined
in the Loan and Security Agreement dated October 17, 1997, as amended, the
foreign receivables from Minolta Co. LTD. Receivables from Minolta Co. LTD.
shall be deemed as eligible Accounts Receivables subject to existing advance
and standard eligibility requirements. We reserve the right to withdraw this
addition to Eligible Accounts upon prior written notice to you.
Cordially,
/s/ Gerry Benson
Gerry Benson
Vice President
Agreed and accepted this 2nd day of February 1999.
T/R Systems, Inc.
/s/ Lyle W. Newkirk
- -----------------------------------
Lyle Newkirk, VP of Finance and CFO
<PAGE> 1
EXHIBIT 10.12
RESELLER AGREEMENT
THIS RESELLER AGREEMENT (hereinafter the "Agreement"), is made and entered into
as of the 18th day of September, 1997 by and between T/R SYSTEMS, INC., a
corporation organized and existing under the laws of the State of Georgia, USA
(hereinafter the "Company"), and Mita Industrial Co., LTD., a corporation
organized and existing under the laws of the country of Japan (hereinafter
"Reseller").
WITNESSETH:
Whereas, the Company is engaged in the design, development, production and
distribution of Products (as defined below) for printing documents containing
mono and full color text, graphics and images for printed communications; and
Whereas, Reseller desires to be a Company authorized reseller for the purpose
of reselling the specified Products of the Company upon the terms and
conditions set forth in this Agreement.
Now, Therefore, in consideration of the mutual promises and covenants herein
contained and other valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. As used in this Agreement:
1.1 "End-User(s)" means Reseller's customers, who shall be the ultimate
end-users of Products.
1.2 "Licensed Software" means software programs, modules, codes and
similar properties and rights, related documentation and manuals,
constituting a portion of the Products and as specified in the
Software License.
1.3 "Price List" means the Company's price list in effect from time to
time in respect of the Products.
1.4 "Product(s)" means any hardware, equipment, Licensed Software,
training courses, consumables, supplies, parts and any associated
services offered by the Company as described in the product
description attached hereto as Attachment A.
1.5 "Proprietary Information" means any information, whether written or
oral, including, without limitation, any technical and/or design
information on the Products, and any information relating to the
present or future business operations, financial condition, plans,
sales, marketing and promotional efforts, customers and price lists of
the Company and its subsidiaries and affiliates disclosing such
information, and all other information of any kind which may
reasonably be deemed confidential or proprietary, including without
limitation this Agreement and its terms.
1.6 "Software License" means the T/R Systems End-User Software License
Agreement, attached hereto as Attachment B.
1.7 "Territory" means the territory specified in Attachment C.
1.8 "Trademark(s)" means any trademark, service mark, trade dress or trade
name which the Company may designate, use or adopt from time to time
in connection with the marketing, sale and licensing of the
Product(s).
2. APPOINTMENT AND DUTIES OF RESELLER.
2.1 The Company hereby appoints Reseller, and Reseller hereby accepts
appointment, as a Company reseller of Products to End-Users in the
Territory during the term of this Agreement. The Company reserves, in
its sole discretion, the right to send technical or sales personnel to
any place within the Territory to assist in any sale of, to handle or
conclude any sale of, or other transaction relative to, the Products,
to provide technical assistance, maintenance or support, although in
each case the Company has no obligation to do so.
<PAGE> 2
The Reseller may appoint dealers to effect sales to End-Users in the
Territory. Such dealers will remain subject to the control of the
Reseller and the Reseller will insure the dealer adherence to the terms
and conditions of this Agreement.
The appointment hereunder is exclusive for a one year term based on the
commitment to purchase the systems contained in Attachment C. Territory
exclusivity is for the products listed in Attachment A and Reseller
print devices marketed in the territory by Reseller. This exclusivity
will not preclude T/R Systems from developing or maintaining business
relationships with other companies located in the territory for
products not marketed by Reseller in the territory.
2.2 In consideration of the Company's grant to Reseller of the limited
rights set forth herein to act as reseller of Products to End-Users in
the Territory. Reseller agrees that during the term hereof, Reseller
shall not in the Territory, directly or indirectly, or in conjunction
with any third party or parties, solicit orders for, distribute, or
sell digital printing systems of any type which are substantially
equivalent to, or competitive with, the Products, or acquire an
interest in any company, corporation, joint venture or other
undertaking which competes with the business of the Company with
respect to the manufacture, production or sale of digital printing
systems which are substantially equivalent to, or competitive with, the
Products.
3. OBLIGATIONS OF RESELLER.
3.1 Reseller shall inform the End-Users of the terms and conditions of the
purchase of the Products and the Licensed Software. The terms and
conditions of the End-User Software License are in Attachment B.
3.2 The Company shall not be a party to any arrangements between Reseller
and its End-Users or in any manner be bound, or have any legal
obligation, in respect thereof. Reseller further agrees that it is not,
nor shall it represent itself to be, the legal or authorized
representative or agent of the Company, nor shall it assume or create
any obligation, warranty or responsibility on behalf of the Company,
unless otherwise agreed upon in writing by the Company.
3.3 Reseller shall use its best efforts to create a market for, to promote,
to maintain a demand for, as well as to establish, an efficient network
within the Territory, in order to obtain maximum sales and
installations of the Products.
3.4 Reseller shall at all times maintain adequate sales and technical
facilities, maintain an adequate number of Products required for
demonstrations and assign competent personnel in sufficient numbers as
may be necessary for the proper performance of its obligations under
this Agreement.
3.5 Reseller shall use its best efforts to promote, at its own expense, the
sale of the Products in the Territory, through advertising, public
relations, trade shows, conventions, direct mail, etc., with the
purpose of achieving the largest possible sales volume for the Products
in the Territory.
3.6 Reseller is responsible for the advertising in the Territory, but the
Company is allowed, although not required, to undertake advertising in
the Territory at its own cost. The Company may also participate in
fairs or exhibitions or undertake other promotional efforts at its own
cost within the Territory and without any obligation to Reseller.
3.7 Reseller will provide advertising plans for the product to the company
for review and approval on a quarterly basis. Reseller shall reasonably
consider any comments or suggestions that the Company may make.
3.8 In all advertising, trade shows, conventions, and other promotions, as
well as in all sales and technical literature, the name of the Company
and the Trademarks shall be evidenced and respected. Reseller shall use
the Trademarks, in their original form and without alteration, unless
otherwise approved in advance in writing by the Company.
3.9 Reseller agrees to purchase minimum quantities as detailed in
Attachment C for the initial term of this agreement. Reseller may not
assume obligation of the minimum quantity commitment if it does not
meet the minimum quantity for reasons caused by Company such as late
delivery, defective Products, or if the Company breaches the Agreement
in any material way and under such circumstances shall reserve their
exclusive right.
2
<PAGE> 3
4. ORDERS.
4.1 Reseller shall submit written orders to the Company. All orders shall
specify: (a) the quantities and descriptions of the Products: and (b)
requested delivery dates and shipping instructions. Orders shall be
placed * (*) days in advance of the start of a quarter as specified in
Attachment D.
4.2 Subject to supply therefore, and conformance of the purchase orders
with forms approved therefore from time to time by the Company, the
Company will accept any such purchase order which is not in
contravention of the terms of this Agreement.
4.3 The order procedures for "Spare Parts" are subject to the Spare Parts
ordering policies contained in Attachments E and F.
5. PRICE.
5.1 Provided Reseller complies with all the terms and conditions of this
Agreement, the Company agrees to invoice at the prices and terms of
the Price List in effect on the date the Company receives Reseller's
order.
5.2 Price to Reseller does not include sales, value added or similar
taxes of any nature. Reseller shall pay applicable taxes based on
Reseller's net price as invoiced by the Company or supply appropriate
tax exemption certificates in a form satisfactory to the Company.
5.3 The Company and Reseller will discuss the Price List on a quarterly
basis. Reductions shall become effective immediately upon general
announcement by the Company and apply to all orders which have not
been confirmed by the Company prior to such announcement date. If the
price is increased, the Company will invoice orders received less
than * (*) days after the increase at the previous pricing/discount
level.
6. PAYMENT AND DELIVERY TERMS.
6.1 Prices are based on delivery FOB US Port (ie, Savannah, Georgia or
comparable)
6.2 Reseller shall pay for the Products, or cause such payment to be made
on its behalf, within * (*) days after the bill of lading date. For
invoices paid within 10 days of the bill of lading date, a 1% (one
percent) early payment discount may be taken. Any late payments shall
accrue interest, which shall be immediately due and payable, at a per
annum rate of eighteen percent (18%) (but in no event higher than the
maximum lawful rate therefor). The Company shall be entitled to be
reimbursed by Reseller for all costs of collection of any sums due
hereunder, including attorneys' fees and expenses.
6.3 All risk of loss shall be conveyed to and pass to Reseller upon
delivery of the Products to Reseller or its carrier or other agent.
Reseller hereby grants unto the Company a security interest in and to
all Products sold to Reseller for which payment in full has not been
made, which security interest shall secure the payment of all sums
due the Company by Reseller hereunder.
6.4 Until any amount not paid to the Company at the due date has been
paid in full, the Company shall have the right of rescission and
stoppage in transit, the right to postpone further shipments to
Reseller, as well as the right to terminate the present Agreement
with immediate effect. All such rights of the Company being in
addition to all security arrangements and other rights permitted by
law or by this Agreement. Reseller is not entitled to withhold
payment on account of pending appeals to warranty.
7. PATENT AND COPYRIGHT INDEMNITY.
7.1 If timely and promptly notified in writing of any action (and all
prior claims relating to such action) brought against Reseller, based
on a claim that Reseller's use of the Products infringes a patent or
copyright, the Company shall defend such action at its expense and
pay the costs and damages awarded in any such action, provided that
the Company shall have sole control of the defense of any such action
and all negotiations for its settlement or compromise. At any time
during the course of any litigation rising out of a claim of
infringement of a patent or copyright, or if in the Company's
opinion, the Products are likely to become the subject of a claim of
infringement of a patent or copyright, the Company will, at its
option and at its expense, either procure for Reseller the right to
continue using the Product, replace or modify the same so that it
becomes non-infringing, or grant Reseller a credit for the Product
then held by Reseller as
* Confidential information has been omitted and filed separately with the
Commission.
3
<PAGE> 4
depreciated and accept its return. The depreciation will be an equal
amount per year over the lifetime of the Product as established by
the Company. The Company will not have any liability to Reseller
under any provision of this Section 7.1 for any claim for patent or
copyright infringement whereby the Products were modified or
otherwise altered in contravention of Section 8.1 hereof or where the
apparatus or process, which is the subject of the claim, consists of,
or is practiced using, a combination of the Products with equipment
not made or not sold by the Company or which does not bear one or more
of the Trademarks.
7.2 The foregoing states the entire liability of the Company with respect
to infringement of patents or copyrights by the Products, or any part
thereof, or by their operation. No costs or expenses will be incurred
by the Company without the prior written consent of the Company.
7.3 There shall be no grant of implied copyright, patent or other
intellectual property rights made pursuant to this Agreement.
8. RIGHTS, SERVICES, AND OBLIGATIONS OF THE COMPANY.
8.1 The Company reserves the right to modify the characteristics of the
Products. Reseller shall be advised by the Company of any significant
changes in Product specifications. Reseller may not modify,
supplement, improve or in any way alter or combine with other
products, the Products.
8.2 The Company shall provide Reseller with documents and system
documentation, which shall remain the property of the Company.
Reseller shall be responsible for costs of duplicating, translating
and printing of all documentation. Such documents and system
documentation may be in written form or transmitted by tape, diskette
or other software media, as determined by the Company.
8.3 The Company shall provide Reseller with all pertinent technical and
sales information as normally provided to the Company's customers.
The Company shall inform Reseller on a regular basis about the
evolution of Products and application area, trends, and competition
in the market.
8.4 The Company shall provide Reseller, free of charge, two training
sessions of approximately four days in duration each at a Reseller
location. Reseller shall be responsible for all travel, lodging, and
all other costs and out-of-pocket expenses for the Company's training
personnel. Additional training will also be provided at a Company
location at the training class prices in effect at that time less
*%. The Company will provide additional on site training at the
Company's then standard daily training rates less *% plus applicable
travel and living expenses. The Reseller is responsible for providing
adequate facilities and equipment for on site training. Training and
consulting rates are specified in Attachment G.
8.5 The Product(s) will contain the Company's standard Trademarks and
identification. With prior consent of the Company, which will not be
unreasonably withheld, the Reseller may add its proprietary
Trademarks identifying it as the distributor. Reseller may use the
Company's Trademarks in connection with the Products and for related
advertisement.
8.6 The Company agrees to develop the Japanese version of the Product with
cooperation of Reseller. Once developed the Japanese version of the
Product will be subject to inspection as agreed by the parties. Such
inspection will include appropriate testing. The Company will perform
the initial testing and provide a report which will be subject to the
Resellers approval. Compensation for the development of the Japanese
version is $*, payable by Reseller $* on August 28, 1997 and $* within
30 days after Reseller's approval of the Japanese version of the
product.
9. LICENSED PRODUCTS.
9.1 All software provided pursuant to this Agreement is intended to be
licensed by the Company directly to and for the benefit of the
End-Users, pursuant to the terms of the Software License. The Reseller
must notify the End-User, as per section 3.1 above, that the purchase
of the system is contingent upon End-User acceptance of the terms of
the Software License. The Reseller shall also be bound by the Software
License, as a licensee, for the purpose only of using the Software to
fulfill its obligations hereunder in respect of demonstration, sales,
installation, support and maintenance. When used in reference to
Software, the words "purchase", "sale", or similar or derivative words
are understood to mean "license", and "Reseller" or "End-User" or
similar derivative words used in connection therewith are to be
understood to mean "Licensee." Title to the Products constituting
Licensed Software shall remain with the Company, and the transfer of
title to Reseller of purchased hardware and/or equipment constituting
the Products will not include a sale of, or transfer of title to, any
Licensed Software, notwithstanding general references to "sale" of
"Products" or any other part of this Agreement susceptible to contrary
construction or implication.
* Confidential information has been omitted and filed separately with the
Commission.
4
<PAGE> 5
9.2 Reseller may use the Licensed Software provided under this Agreement
only in accordance with the restrictions of the Software License and
provisions of this Agreement. This Agreement does not give Reseller
any right to make use of the Licensed Software for its own purposes.
9.3 Reseller shall include as one of its conditions of under which it
offers to sell Products to End-Users, the Software License. Reseller
shall have the responsibility of securing such acknowledgment from
its End-Users.
9.4 For each unit of equipment which utilizes the Licensed Software or
any portion thereof, Reseller may furnish only one copy of the
Licensed Software for use only with that unit.
9.5 The Company may offer End-Users additional Products and Product
upgrades to the Licensed Software. These Software Products and
Product upgrades will be listed and priced in the Reseller Product
price sheets.
10. INSTALLATION, END-USER TRAINING AND MAINTENANCE.
10.1 Reseller is responsible for proper installation in its End-User's
facility and all necessary education and training of the End-User in
the use of the Product.
10.2 Reseller shall provide the End-User with all necessary or requested
maintenance and support in respect of the Products. Such support
shall include without limitation, remedial telephone support.
Application software support shall also be the responsibility of
Reseller. The Company may, but is not required to, offer as an
additional product offering, training, maintenance and support
services to the End-Users. These services will be listed and priced
in the Reseller Product price sheets.
11. WARRANTY.
11.1 The Company warrants to Reseller only that the hardware and equipment
with the exception of PrintStations and MicroScanners sold to Reseller
pursuant to this Agreement will be free of material defects for a
period of * (*) days, unless specifically stated differently, from
initial delivery. Should any defect in workmanship or material appear
within * (*) days, unless specifically stated differently, after
initial date of delivery, the Company will (upon written notification
thereof, delivered during the warranty period, and substantiation by
Reseller that the hardware and equipment have been stored, installed,
maintained and operated in accordance with the Company's requirements
and standard industry practice, and that the defect(s) have not arisen
from unauthorized repair, modification, or improper connection by
mechanical or electrical means to any other piece of equipment or
device) correct such defect(s) by suitable repair or replacement at
the Company's facilities, or at the place of business of the Company's
designated local representative, or at Reseller's place of business,
at the Company's option. The Company warrants to Reseller only that
the PrintStations and MicroScanners sold to Reseller pursuant to this
Agreement will be free of material defects for a period of * (*) days,
unless specifically stated differently, from initial delivery.
All returns to the Company or its representative must be
pre-authorized in writing and shipped prepaid. The Company assumes no
risk of loss or damage prior to acceptance of delivery. Return
shipment will not be prepaid by the Company if inspection fails to
disclose a warranted defect. It is agreed between the parties that
the foregoing shall be Reseller's exclusive remedy for warranted
defects.
The sole purpose of this exclusive remedy shall be to provide
Reseller with free repair and replacement of the defective parts in
the manner provided herein, and the hardware and equipment shall not
be deemed to have failed of its essential purpose so long as the
Company is willing and able to repair or replace defective parts in
the described manner.
THIS WARRANTY IS EXCLUSIVE AND IN LIEU OF (AND THE COMPANY DISCLAIMS)
ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR PARTICULAR PURPOSE OR
OTHER WARRANTY OF QUALITY OR PERFORMANCE, WHETHER EXPRESSED OR
IMPLIED.
Correction of non-conformities, in the manner and for the time period
provided above, shall constitute fulfillment of all liabilities of
the Company to Reseller with respect to, or arising out of, the goods
or their use, whether based on contract, negligence, strict liability
or otherwise. Reseller shall be fully responsible for any warranty
claims, expressed or implied, brought by its End-Users, and shall
hold the Company harmless with regard to same.
* Confidential information has been omitted and filed separately with the
Commission.
5
<PAGE> 6
11.2 The Company makes no warranties with regard to the Licensed Software,
other than the warranties offered in the Software License, including
all warranties of merchantability and fitness for a particular
purpose. Except as therein expressly provided, such software is
provided to Reseller on an "as-is" basis.
11.3 Product Liability
(a) When Company or Reseller becomes aware that there occurred or
there is a possibility to occur any injury to or death of any
third party or damage to property of any third party arising out
of or in connection with the Product (hereinafter referred to as
'Accident'), it shall immediately notify the other party thereof
and both parties shall discuss and solve the problem together.
(b) In the event that any claims are raised to Reseller or its
clients in connection with the Accident, Reseller shall
immediately notify Company thereof and Company shall settle the
claims at its own responsibility and cost with Resellers
reasonable assistance.
(c) In the event that any law suits are raised against Reseller or
its clients in connection with the Accident, Reseller shall
conduct the defense and Company shall bear any costs and
expenses including attorney's fees incurred by Reseller provided
that Company is given control over its defense or settlement.
(d) Notwithstanding the Article 11.3(a) through 11.3(c), Company
shall have no liability for any Accident; arising from Company's
compliance with Reseller's direction without fault of Company,
or resulting from remodeling or modification made to the Product
by Reseller or its clients or resulting from noncompliance by
Reseller or its clients of conditions specifically instructed by
Company in the form of documents such as instructions, catalogs,
and specifications.
(e) If the Accident is caused by joint reasons of the defect in the
Product and Reseller's fault both parties discuss and determine
the cost and expense to be born by each party.
12. LIMITATION OF REMEDIES.
12.1 THE SOLE REMEDIES FOR BREACH OF ANY AND ALL WARRANTIES AND THE SOLE
REMEDIES FOR THE COMPANY'S LIABILITY OF ANY KIND FOR SERVICES
PROVIDED PURSUANT TO THIS AGREEMENT AND ANY OTHER PERFORMANCE BY THE
COMPANY UNDER OR PURSUANT TO THIS AGREEMENT SHALL BE LIMITED TO THIS
AGREEMENT AND THE ATTACHMENTS HERETO. IN NO EVENT SHALL THE COMPANY'S
LIABILITY TO RESELLER FOR DAMAGES OF ANY NATURE EXCEED THE TOTAL
CHARGES PAID FOR THE PRODUCTS OR SERVICE UPON WHICH SUCH LIABILITY IS
BASED.
12.2 RESELLER AGREES THAT THE COMPANY SHALL NOT BE LIABLE FOR ANY SPECIAL,
INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES OR FOR THE LOSS OF
PROFIT, REVENUE, PRODUCTS OR SERVICES EVEN IF THE COMPANY SHALL HAVE
BEEN ADVISED OF THE POSSIBILITY OF SUCH POTENTIAL LOSS OR DAMAGE AND
ACKNOWLEDGES THAT THE PRICES CHARGED RESELLER HEREIN CONTEMPLATE THE
FOREGOING ALLOCATION OF RISKS. RESELLER IS SOLELY RESPONSIBLE FOR THE
PROTECTION AND BACKUP OF ALL PRODUCTS, SOFTWARE AND SERVICES.
12.3 Reseller agrees that the Company shall not have any responsibility
for any equipment, service, hardware, software or other items
provided with or incorporated into the Product(s) by any persons
other than the Company.
12.4 No action, whether in contract or tort, including negligence, arising
out of the sale of the Products or the performance of services under
this Agreement may be brought by the Company or Reseller more than
twelve (12) months after the cause of action arises, except for an
action by the Company for non-payment by Reseller.
13. DURATION AND TERMINATION OF THE AGREEMENT.
13.1 This Agreement shall be effective on the date of this Agreement and
valid for an initial term of one (1) year from the completion of the
Japanese version of the Products as set forth in section 8.6. If not
terminated by notice by either party at least sixty (60) days prior
to the end of the initial term hereof or any renewal term, the
Agreement will be automatically renewed for successive one (1) year
terms, upon the end of the initial term and each subsequent term
thereafter. The parties hereto shall mutually agree on the Minimum
Target
6
<PAGE> 7
Amount for each renewal term prior to the commencement of such renewal term, and
should the parties fail to agree on same, which each may do in its sole
discretion, such renewal term shall not commence and this Agreement shall be
deemed to have been terminated as of the end of the then current term. If the
Company and Reseller do not mutually agree to extend this agreement beyond the
initial one (1) year term, the Company will refund $* of the original $*
language translation fee paid by the Reseller.
13.2 Either party may, without incurring any liability to the other
party, unilaterally and with immediate effect terminate this Agreement at any
time, by a written notice sent to the other party, in the event that:
(a) The other party fails, for any reasons whatsoever, to perform any
of its obligations under this Agreement and fails to remedy such default
within thirty (30) days after the mailing of written notice of default
and request for cure;
(b) The other party becomes subject as a result of changes in
ownership, control or management of its business, or as a result of
disputes or controversies of any nature whatever, to influence or
difficulties which may adversely affect the performance of this
Agreement;
(c) The other party becomes insolvent, files or is subjected to the
filing of judicial process under any law relating to bankruptcy or
insolvency, consents to a receivership, adopts an arrangement with
creditors, is dissolved, enters into liquidation, or ceases doing
business;
(d) The other party initiates reorganization proceedings or takes any
steps towards liquidation; or
(e) Reseller uses the name of the Company, or any form thereof, as a
corporate name for doing business, or trade name or otherwise, or
otherwise misuses the Company's Trademarks, without the prior written
consent of the Company.
14. EFFECT OF TERMINATION.
Upon expiration or termination of this Agreement:
(a) The Company may stop accepting any orders from Reseller;
(b) Reseller shall immediately (i) pay to the Company all amounts
remaining due under any contract or purchase order, (ii) remove from
Reseller's premises all signs advertising the Products or the
Trademarks, (iii) cease to engage in advertising or promotional
activities concerning the Products and the use of Trademarks, (iv) cease
to represent in any manner that Reseller has been designated by the
Company to license the Licensed Software and (v) order and promptly pay
for the remaining balance (order requirements specified in Attachment C
less systems ordered to date during the current term of the agreement)
of systems contained in Attachment C.
(c) Neither party shall, in connection with the expiration and/or
termination of this Agreement, have the right to claim any indemnity,
reimbursement or compensation for alleged loss of clientele, goodwill,
loss of profits on anticipated sales or the like or have any other
liability for losses or damages resulting from the expiration or
termination. Each party acknowledges that it has decided and will decide
on all investments, expenditures and commitments in full awareness of
the possibility of its potential losses or damages resulting from such
expiration or termination and being willing to bear the risk therefor;
and
(d) If after the expiration or termination of this Agreement, Reseller
places orders and the Company accepts such orders by Reseller for
Products thereof at the prices and terms prevailing under this Agreement
or any other prices and terms, such acts on the part of the Company
shall be fully gratuitous and shall not obligate the Company to continue
any practice or course of trade not secured by written obligation. Any
such Company sales shall not renew this Agreement or waive its
expiration or termination.
(e) The Company shall make available to Reseller the spare parts or
equivalent replacements during the term of this Agreement and for a
minimum of seven years from the earlier of the date of termination of
this Agreement, the date of discontinuance of the item or the Product or
from delivery of the last unit of equipment hereunder.
15. PROTECTION OF PROPRIETARY INFORMATION, ETC.
15.1 Reseller agrees to maintain in confidence and not to copy,
reproduce, distribute or disclose to any third
* Confidential information has been omitted and filed separately with the
Commission.
7
<PAGE> 8
party, without the prior written approval of the Company, any
Proprietary Information.
15.2 All sales of the Products (inclusive of license of the Software) to
Reseller are of the material and tangible Products only: therefore,
as such, do not include the sale or license of the design of the
Products (and source and other codes of Software) which are the
proprietary property of the Company. To the extent any of such
proprietary property is made available by Company to Reseller, it is
done so on a confidential basis. Reseller will neither disclose
circuitry design details or principles, or software codes, nor copy
them for purposes of manufacture, nor attempt to reverse-engineer or
otherwise alter the Products for any purpose whatsoever. Reseller
shall convey the substance of the foregoing conditions in the terms
of sale of the Products to its End-Users.
15.3 With respect to proprietary information relating to Reseller's
business which is made available to the Company by Reseller to allow
the Company to perform its obligations under this Agreement, the
Company will instruct its personnel to keep such information
confidential by using the same care and discretion that they use with
similar data which the Company designates as confidential. However,
the Company shall not be required to keep confidential any data which
is or becomes publicly available, is already in the Company's
possession, is independently developed by the Company outside the
scope of this Agreement, or is rightfully obtained from third
parties. In addition, the Company shall not be required to keep
confidential and may use for the Company's benefit any ideas,
concepts, know-how, or techniques relating to the Company's Products
submitted to the Company or developed during the term of this
Agreement by Company personnel or jointly by Company and Reseller
personnel.
15.4 Reseller agrees that from the date hereof through the termination of
this Agreement, and for a period of two (2) years thereafter, it will
not hire, solicit, take away or attempt to hire, solicit, take away,
any person who is an employee of the Company or who was such an
employee during the six (6) month period immediately preceding the
date of such termination.
15.5 The obligations of the parties under this Section 15 shall survive
the expiration or termination of this Agreement, for whatever
reason, and shall be binding on the parties, their successors and
assigns.
15.6 The parties acknowledge that the obligations and promises under this
Section 15 are of a special, unique character which gives them
particular value, and that a breach thereof could result in
irreparable and continuing damage for which there can be no
reasonable or adequate damages, remedy or compensation in an action
of law. The Company and Reseller expressly agree that each shall be
entitled to injunctive relief, a decree for specific performance
and/or other equitable relief in the event of any breach, or
threatened breach by the other of its obligations or promises under
this Section 15, in addition to any other rights or remedies which it
may possess (including monetary damages, if appropriate).
16. GENERAL.
16.1 This Agreement shall be interpreted and its effect shall be determined
in accordance with the laws of the State of Georgia, USA, excluding
its statutes and decisions regarding choice of, or determination of,
applicable law.
16.2 Any and all disputes arising under this Agreement shall be amicably
and promptly settled upon consultation between the parties hereto,
but in case of failure to reach such settlement, all disputes that
may arise under or in relation to this Agreement shall be submitted
to arbitration (a) under the Commercial Arbitration Rules of the
International Chamber of Commerce if the arbitration is to be held in
New York, New York or (b) under the Commercial Arbitration Rules of
the Japan Commercial Arbitration Association if the arbitration is to
be held in Japan. If the place of arbitration is not so designated by
the parties or is not agreed by the parties within 28 days from the
date on which a demand for arbitration is received by either of the
Associations from either party, the place of arbitration shall be the
country of the respondents. Provided that both Associations may
agree, on the application of either party to either of the
Associations, that the place of arbitration shall be the country of
the claimants, such agreement between the Associations being binding
upon both parties. Failing such agreement between the Association
within 28 days from the date of the said application, the place of
arbitration shall be the country of the respondents. The cost of
arbitration shall be borne equally by the parties. Any award of the
arbitration shall be final and binding upon the parties.
16.3 All notices and demands of any kind which either party may require or
desire to serve upon the other shall be in writing or by facsimile,
and shall be delivered by personal service or by mail at the address
of the receiving party set forth below (or at such different addresses
as may be designated by such party by written notice to the other
party). Such notice shall be deemed received on the earlier of (i) the
date when
8
<PAGE> 9
actually received or (ii) in the case of mailing, five (5) business
days after being deposited in the United States mail, postage prepaid,
registered or certified return receipt requested and properly
addressed, or (iii) if by facsimile, when the sending party shall have
received a facsimile confirmation that the message has been received
by the receiving party's facsimile machine. If notice is sent by
facsimile, a confirmed copy of such facsimile shall be sent by mail to
each address.
The address and facsimile numbers of the parties for the purpose of
this Agreement are as follows:
T/R Systems, Inc.
---------------------------------------------
5985 Financial Drive
---------------------------------------------
Suite 200
---------------------------------------------
Norcross, GA 30071-2950
---------------------------------------------
Facsimile (770) 448-3202 Facsimile: ( )
-----------------------------------
Attention: President Attention:
-----------------------------------
16.4 Any provision of this Agreement held to be invalid under applicable
law shall not render this Agreement invalid as a whole, and in such
event, such provision shall be interpreted so as to best accomplish
the intent of the parties within the limits of applicable law.
16.5 The Company or Reseller shall have no liability for failure to perform
in accordance herewith when such failure results from failure or
delays in supply, shortage in parts or components, labor difficulties,
acts of God, regulation or acts of civil, governmental or military
authority, delays in transport, and other and like causes, including
causes beyond the control or the direction of such party.
16.6 Neither party may assign its rights or delegate its duties or
obligations under this Agreement without prior written consent. Any
attempt to do so is void. In case of changes in ownership, control or
management of its business, each party shall notify the other party
thereof beforehand. This agreement shall be binding on the parties,
their successors and assigns.
16.7 A valid contract binding upon the Company and Reseller comes into
being upon execution of this Agreement by duly authorized
representatives of the Company and Reseller.
This Agreement contains the exclusive terms and conditions between the
parties hereto with respect to the subject matter hereof and, does not
operate as an acceptance of any conflicting or additional terms and
provisions of Reseller's purchase orders or any other instruments,
which shall not be deemed to alter the terms hereof, even if signed by
officials or employees of the Company inadvertently or as an
accounting convenience to Reseller. The terms and conditions specified
herein shall exclusively prevail notwithstanding any variance with the
terms and conditions of any order submitted by Reseller for the
Products sold pursuant to this Agreement. Amendments to this Agreement
may be effected only in writing, when signed by the parties hereto
specially stating it is intended to amend this Agreement.
IN WITNESS WHEREOF the Company and Reseller hereby have duly executed this
Reseller Agreement in duplicate on the dates indicated hereon.
Made in duplicate in Norcross, Georgia, USA
T/R SYSTEMS, INC. Reseller: Mita Industrial Co., Ltd.
By: /s/ Mike Kohlsdorf By: /s/ Yoshimoro Mita
------------------------------ ----------------------------------
Print Name: Mike Kohlsdorf Print Name: Yoshimoro Mita
------------------------ ----------------------------
Title: President and CEO Title: President
---------------------------- -------------------------------
Date: 9-18-97 Date: 9-18-97
---------------------------- -------------------------------
9
<PAGE> 10
ATTACHMENT A
Description of Products
The Products authorized by the Company for sale to End-Users by the Reseller are
contained in the Resellers Price List of Products which will be issued from time
to time.
<TABLE>
<S> <C>
MICROPRESS SYSTEMS 2 PrintStation Support
RipStation 024 Upgrade Support 024
RipStation 312 Upgrade Support 312
RipStation 312-024 Upgrade to Pentium II 266
SatellitePress 312 MicroPress Release 4.0
SatellitePress 024 G.O. Gold Service Plan
SatellitePress 312/1-024/1 G.O. Silver Service Plan
UPGRADES & OPTIONS CONSUMABLES
PrintLink for Ci 7500 024 Printer Cartridge
PrintLink Cii Support for Ci 7500 312 Black Toner Cartridge
MultiRip Enable 312 Yellow Toner Cartridge
PSM to TIFF Enable 312 Cyan Toner Cartridge
ColorTune Enable 312 Magenta Toner Cartridge
Image Manipulation Enable 312 OPC Cartridge
AutoCalibration 312 312 Fuser Oil
QuadLevel 312 024 Printer Cartridge Pallet
Gammatic 312 Black Toner Cartridge Pallet
StochasticFM 312 Yellow Toner Cartridge Pallet
Imposition 312 Cyan Toner Cartridge Pallet
DocumentMerge 312 Magenta Toner Cartridge Pallet
VariableForms
OpenPrinter Connection 024 REPLACEMENT/SPARES & TOOLS
PSM to PDF 024
MicroScan Utility PrintStation 312
MicroTiff Utility PrintStation 024
RipSoft Utility 024 312 Fuser Unit
RipSoft Utility 312 5 Meter Printer Cable
RipSoft Utility 312/024 8 Meter Printer Cable
MicroPress RIP Replacement Host Adapter
MicroSpool 024 Print Adapter
PrintStation 024 Base 312 Print Adapter
PrintStation 312 Base 024 Maintenance Kit
MicroScanner Base 312 Spares Kit
PressDirector Console Spare 024 Duplexer
2000 Sheet Paper Deck 024 Colorimeter
Envelope Feeder PrintStation 312 Diagnostic Tool
Additional Paper Tray 312 Extra 024 Upper Cassette
PrintStation 024 Extra 024 Lower Cassette
PrintStation 312 Extra 312 Paper Cassette
</TABLE>
----------
Initial
10
<PAGE> 11
ATTACHMENT B
Micropress(TM) Software License Agreement
This Software License Agreement enumerates the terms and conditions upon which
T/R Systems, Inc., grants use of the MicroPress software programs ("Software")
and MicroPress documentation ("Documentation") to the end-user of the MicroPress
digital printing system. T/R Systems, Inc., the owner and licensor of the
Software and Documentation, is referred to as "Licensor", and the end-user and
purchaser of the MicroPress(R) system is referred to as the "User".
1. LICENSE. Licensor is the exclusive owner of the Software and
Documentation. Licensor grants to User, and User accepts, a non-exclusive
license to use the Software and Documentation.
User's right to use the MicroPress Software and Documentation under this
Agreement is called the "License." Software means the computer programs included
within the MicroPress digital printing system being sold to User
contemporaneously with delivery of this Agreement (the "Purchased MicroPress").
Documentation means any user manual and other materials provided User relating
to the Software.
2. AUTHORIZED USER. User alone has the right to use the Software and
Documentation. User may not allow another person or entity to use the Software
or Documentation, except to the extent permitted by Section 4 of this Agreement.
3. AUTHORIZED USE. User may use the Software and Documentation only with
the MicroPress digital printing system. User may not use the Software in respect
of any other printers or any other equipment whatsoever.
Without T/R Systems' prior express written consent, User may NOT (1.) copy the
Software, (2.) copy the Documentation, other than for its internal use; (3.)
decompile, disassemble, reverse engineer, or cross-compile the Software or seek
to do any of the foregoing); (4.) merger or embed the Software into another
program; or (5.) modify or alter the Software or Documentation.
4. ASSIGNMENT. User may assign the License to another person, but ONLY if
(1.) prior written approval is obtained from the Company, (2.) the assignment is
for the remainder of the License term, (3.) User delivers all of the Software
and Documentation to the assignee, (4.) the assignee delivers the Software
License Agreement in this form in favor of Licensor, (5.) the entire Purchased
MicroPress system is transferred and delivered to the assignee and (6.) the
assignee agrees in writing with T/R Systems to be bound by the terms hereof.
When User assigns this License, User's right to use the Software and
Documentation ends. User may not assign the License or direct product of the
Software or Documentation to persons located in certain countries specified by
the United States Export Administration Act.
5. TERM. The License is effective for a term coincident with use of the
Purchased MicroPress. Licensor may terminate the License if User violates this
Agreement. User must then return the Software and the Documentation to Licensor.
6. LICENSOR'S RIGHTS. Licensor's Software and Documentation contain
confidential unpublished information protected by copyright, trade secret,
trademark and patent laws. User may not disclose the Software or Documentation
to others, or remove or alter Licensor's ownership and copyright notices on the
Software, Purchased MicroPress or the Documentation. User must prevent any
unauthorized use, copying, or disclosure of the Software and Documentation.
These obligations survive any termination or the License.
7. INFRINGEMENT. User shall promptly notify Licensor if any party makes a
claim against User that the Software or Documentation infringes its rights. If
User gives Licensor sufficient notice and such claim of infringement is deemed
by T/R Systems to represent a bona fide claim, Licensor will at its option make
the Software and Documentation non-infringing, obtain for User the right to use
the Software and Documentation, or give User an appropriate refund. This is
User's sole remedy in the event of a claim of infringement.
8. LIMITED WARRANTY AND DISCLAIMER OF OTHER WARRANTIES AND LIABILITIES.
Licensor warrants that the Software will be free of material defects for a
period of * (*) days immediately following the date of delivery. Without
limiting the generality of the foregoing, T/R Systems shall not have any
responsibility for any third party products, service, hardware, software or
other items provided with or incorporated into the MicroPress digital printing
system.
EXCEPT FOR THE LIMITED WARRANTY DESCRIBED ABOVE, THERE ARE NO WARRANTIES, EITHER
EXPRESSED OR IMPLIED, FOR THE SOFTWARE OR DOCUMENTATION, WHICH ARE LICENSED TO
USER
* Confidential information has been omitted and filed separately with the
Commission.
11
<PAGE> 12
"AS-IS." LICENSOR EXPRESSLY DISCLAIMS ANY WARRANTY AS TO PERFORMANCE OF THE
SOFTWARE OR AS TO RESULTS USER MAY OBTAIN FROM IT. LICENSOR ALSO EXPRESSLY
DISCLAIMS ALL OTHER WARRANTIES, INCLUDING (WITHOUT LIMITATION) IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
IN NO EVENT SHALL LICENSOR, OR ANYONE ELSE WHO HAS BEEN INVOLVED IN THE
CREATION, PRODUCTION, OR DELIVERY OF THE SOFTWARE OR DOCUMENTATION, BE LIABLE
FOR ANY INDIRECT, SPECIAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES RESULTING FROM
THE USE OF THE SOFTWARE OR DOCUMENTATION OR ARISING OUT OF ANY BREACH OF ANY
WARRANTY.
9. GENERAL. This Agreement shall be governed by the laws of the State of
Georgia and the United States. If, notwithstanding the foregoing choice of law,
the law of another jurisdiction is applied to this Agreement, then any term of
this Agreement found to be inconsistent with such law shall automatically be
deemed to be revised to the limited extent necessary to comport with such law
without affecting any of the remaining terms. Any waiver by Licensor of a breach
of this Agreement shall not constitute a waiver of any later breach. No legal
action arising out of this Agreement may be commenced by User more than one year
after the cause of action has accrued. In any legal action to enforce this
Agreement, the prevailing party shall be entitled to recover reasonable expenses
and attorneys' fees.
This Agreement represents the entire and complete agreement between the parties
hereto, and supersedes any prior agreement, oral or written, and any other
communications between the parties on the Software and Documentation. This
Agreement will be effective upon delivery of the MicroPress digital printing
system together with the License Software and Documentation.
T/R Systems, Inc.
5985 Financial Drive
Norcross, Georgia 30071
12
<PAGE> 13
ATTACHMENT C
Territory
The exclusive Territory of the Reseller of the Products under this
Agreement includes:
Japan
End-User Prospects or Customers whose Products would be ordered centrally and
installed in locations covering the Territories of more than one Reseller will
be classified as International Accounts and are the selling responsibility of
Company. Installation and service for such Products will be performed by the
Resellers in whose Territories such installation will reside.
Minimum Target Amount of Products to be sold by the Reseller during the initial
term of this Agreement is * MicroPress(TM) Systems. Beginning * from the date of
the completion of the Japanese version set forth in section 8.6 of this
Agreement the Reseller must achieve a minimum sales rate of * systems a month.
Minimum Target Amount of Products to be sold each Agreement term by the Reseller
and the minimum monthly sales rate will be determined prior to the renewal of
each term of the Agreement. Exclusivity of the territory will be based on *. The
initial order for the first ninety days sales volumes including demonstration
systems will be placed by the Reseller by August 25, 1997. Reseller commits to
purchase the minimum volumes specified in this schedule in the initial term of
this Agreement.
<TABLE>
<CAPTION>
Month MicroPress Demo Units (Japan)
<S> <C>
October 1997 *
November 1997 *
December 1997 *
January 1997 ***
February 1997 ***
March 1998 ***
April 1998 ***
May 1998 ***
June 1998 ***
June 1998 ***
July 1998 ***
August 1998 ***
September 1998 ***
Subtotal Demo Units: *
</TABLE>
<TABLE>
Month MicroPress Unit Sales (Japan)
<S> <C>
October 1997 *
November 1997 *
December 1997 *
January 1997 ***
February 1997 ***
March 1998 ***
April 1998 ***
May 1998 ***
June 1998 ***
July 1998 ***
August 1998 ***
September 1998 ***
Subtotal Sales Units: *
Balance to be Purchased *
Total Minimum Purchases *
</TABLE>
* Confidential information has been omitted and filed separately with the
Commission.
13
<PAGE> 14
Attachment D
With reference to section 4.1, the order policy is as follows:
Orders will be placed by the 19th day of the month (or the next business day if
the 19th is a holiday) sixty days in advance of the required shipment date from
the Company's facility. Order quantities will be for a quarterly quantity
representing three months supply. The quantity for the first month of the
quarter will be a firm actual order quantity. Order quantities for months two
and three of the quarter are forecasted quantities which will be confirmed as
actual order quantities sixty days in advance. Forecasted order quantities may
be adjusted plus or minus *% (* percent) at the time of confirmation. Quarters
start on January 1, April 1, July 1 and October 1. The initial order quantities
for the first quarter of the agreement (October, November, and December, 1997)
are detailed in Attachment C and shall be placed by Reseller by August 25, 1997.
* Confidential information has been omitted and filed separately with the
Commission.
14
<PAGE> 15
Attachment E
SPARE PARTS ORDERING POLICIES (PRINT STATIONS)
The policies and procedures which follow are subject to change upon * (*) days
written notice.
1. Service Support
Company shall offer to Reseller spare parts required to service/repair the
Products and provide Reseller with a recommended spare parts stocking guide
which identifies the proper type of parts to be stocked on an ongoing basis by
Reseller. Reseller shall assume full responsibility for stocking spare parts.
2. Regular Spare Parts Ordering Procedures.
Company shall, from time to time during the term of the Agreement, make
available to Reseller its most current list of spare parts for the Products, and
the prices then applicable thereto. In the event of manufacturer production or
shipping delays, Company shall allocate distribution of such items in a fair,
and equitable manner among all customers, even though this may effectively limit
delivery of ordered quantities.
(A) Placement of Orders
Reseller will place regular stocking spare parts orders by
formal purchase orders via Reseller's written purchase order form to
Company. A separate order must be submitted for each delivery date and
the Company part number must be referenced. Additionally, spare parts
order's with like delivery dates should be combined into a single
order. A hard copy of all Reseller telephone orders must be received by
Company within three (3) days of placement. Company will confirm
acceptance of such orders within three (3) weeks of receipt of
Reseller's purchase order.
(B) Lead - Time
For all parts orders other than "special parts" orders
delivery will generally be made about * (*) weeks after receipt of
order. Special parts orders will require an additional * (*) weeks due
to special handling requirements. Special Parts are those parts subject
to regulation such as "COCOM", Textiles or semiconductors.
(C) Spare Parts Availability
In the event of discontinuance of a spare part, its subsequent
unavailability and need, Company and Reseller shall discuss mutually
satisfactory solutions which may include provision of commercially
available alternative sources.
(D) Spare Parts Pricing
During the term of this Agreement the prices charged for spare
parts will be the same as those offered to Company's other Reseller
customers purchasing similar materials in the same or lesser quantities
on similar terms and conditions.
(E) Monthly Regular Stocking Order (Standard/Special Parts)
Limitations
Company reserves the right to limit the maximum number of
units of a given part to be shipped to Reseller in any one (1) month.
3. Emergency Spare Parts Support
(A) Placement of Orders
Reseller shall place emergency parts orders via Purchase
Orders, Telephone or Facsimile. All "Emergency Orders" must be so noted
at the time of placement and such a legend must appear on all purchase
orders. A separate order referencing the Company's part number must be
submitted for each delivery date. Packing slips will bear both
Company's and Resellers part numbers if same appears on Reseller's hard
copy purchase order.
Until further notice, the telephone number for submitting
facsimile orders is 770-448-3202. Hard copies of or facsimiles of
Resellers telephone Emergency Orders must be received within twenty
four (24) hours. Company shall confirm Emergency Orders immediately
over telephone if in stock, or it part number is out of stock, Company
will advise of estimated time of part number arrival (availability) by
facsimile within five (5) working days.
It is understood and agreed that emergency parts support will
be provided only when Equipment is inoperative at end-user's location
and Reseller has maintained a regular stock of spare parts which is
exhausted and Reseller has no inventory at hand to effect the repair or
has an open order for the spare parts sought on an emergency basis.
Company may decline to honor an emergency spare parts order
where (i) the Reseller has failed to maintain the inventory levels
recommended in the Recommended Stocking List or (ii) Company does not
have such spare part in its
* Confidential information has been omitted and filed separately with the
Commission.
15
<PAGE> 16
inventory; provided however, that in such event, company shall advise
Reseller within five (5) Days of the estimated date of delivery of such
spare part. Separate purchase orders must be issued by Reseller for
each shipment destination.
(B) Lead-Time
Except when a spare part is not in stock, Company will
generally ship within * (*) working days of the receipt of an Emergency
Order or to meet Reseller's due date whichever is later.
(C) Handling and Freight Charges
A handling charge equal to * percent (*%) of the regular
Reseller price for the part shall be added to any part shipped from
stock, except when the part had been previously ordered by Reseller and
has not been delivered within the time frames set forth in 2.B above.
Reseller shall designate the method of delivery and shall bear the
costs hereof.
(D) Emergency Order Limitations
A daily maximum of * (*) part numbers, each with no more than
* (*) units may be ordered.
4. Duration of Spare Parts Support
Company shall make available to Reseller the spare parts and
consumables during the term of this Agreement and for a
minimum of * (*) years from the earlier of the date of
termination to the Agreement, the date of discontinuance of
the item or the Product or from delivery of the last unit of
equipment hereunder. Thereafter, Company shall give Reseller
ninety (90) days prior written notice of discontinuance and
the opportunity to purchase a reasonable number of such parts
within the said ninety (90) day period.
Company shall, from time to time, during the term of the
Agreement, make available to Reseller its most current list of
supplies for the Products and the prices then applicable
thereto In the event of manufacturer production or shipping
delays, Company shall allocate distribution of such items in a
fair and equitable manner among all other customers, even
though this may effectively limit delivery of ordered
quantities.
5. Terms of Payment for Spare Parts and Repairs
Payment is due * (*) days after bill of lading date.
ALL SPARE PARTS PRICES FOR COMPANY ARE QUOTED ON A F.O.B.
NEAREST U.S. SHIPPING POINT WHERE PARTS ARE THEN AVAILABLE.
THEY SALL BE INVOICED AND PAYABLE IN U.S. DOLLARS.
6. Service Documentation
Company will supply Reseller, one set of documentation with
the initial delivery of Product. Reseller may purchase
reasonable additional quantities of documentation for
Reseller's internal use only at company's then prevailing
prices. With reasonable lead-time, Company shall deliver to
Reseller artwork for reproduce and publish portions of said
documentation for incorporation in Reseller's own User Manual
and Field Maintenance Manual(s). such manual(s) of Reseller
shall bear a copyright notice of Reseller provided, however,
that any copyright interest of Reseller therein shall be
subordinate to any existing copyright interest of Company or
such other author as Company may designate.
* Confidential information has been omitted and filed separately with the
Commission.
16
<PAGE> 17
Attachment F
SPARE PARTS ORDERING POLICIES (Servers, MicroScanners and PrintLinks)
The policies and procedures which follow are subject to change upon * (*) days
written notice.
1. Service Support
Company shall offer to Reseller spare parts required to service/repair the
Products and provide Reseller with a recommended spare parts stocking guide
which identifies the proper type of parts to be stocked on an ongoing basis by
Reseller. Reseller shall assume full responsibility for stocking spare parts.
2. Regular Spare Parts Ordering Procedures.
Company shall, from time to time during the term of the Agreement, make
available to Reseller its most current list of spare parts for the Products, and
the prices then applicable thereto. In the event of manufacturer production or
shipping delays, Company shall allocate distribution of such items in a fair,
and equitable manner among all customers, even though this may effectively limit
delivery of ordered quantities.
(A) Placement of Orders
Reseller will place regular stocking spare parts orders by
formal purchase orders via Reseller's written purchase order form to
Company. A separate order must be submitted for each delivery date and
the Company part number must be referenced. Additionally, spare parts
order's with like delivery dates should be combined into a single
order. A hard copy of all Reseller telephone orders must be received by
Company within three (3) days of placement. Company will confirm
acceptance of such orders within three (3) weeks of receipt of
Reseller's purchase order.
(B) Lead - Time
For all parts orders other than "special parts" orders
delivery will generally be made about * (*) weeks after receipt of
order. Special parts orders will require an additional * (*) weeks
due to special handling requirements. Special parts are those parts
subject to regulation such as "COCOM", Textiles or semiconductors.
(C) Spare Parts Availability
In the event of discontinuance of a spare part, its subsequent
unavailability and need. Company and Reseller shall discuss mutually
satisfactory solutions which may include provision of commercially
available alternative sources.
(D) Spare Parts Pricing
During the term of this Agreement the prices charged for spare
parts will be the same as those offered to Company's other Reseller
customers purchasing similar materials in the same or lesser quantities
on similar terms and conditions.
(E) Monthly Regular Stocking Order (Standard/Special Parts)
Limitations
Company reserves the right to limit the maximum number of
units of a given part to be shipped to Reseller in any one (1) month.
3. Emergency Spare Parts Support
(A) Placement of Order
Reseller shall place emergency parts orders via Purchase
Orders, Telephone or Facsimile. All "Emergency Orders" must be so noted
at the time of placement and such a legend must appear on all purchase
orders. A separate order referencing the Company's part number must be
submitted for each delivery date. Packing slips will bear both
Company's and Resellers part numbers if same appears on Reseller's hard
copy purchase order.
Until further notice, the telephone number for submitting
facsimile orders is 770-448-3202. Hard copies of or facsimiles of
Resellers telephone Emergency Orders must be received within twenty
four (24) hours. Company shall confirm Emergency Orders immediately
over telephone if in stock, or it part number is out of stock, Company
will advise of estimated time of part number arrival (availability) by
facsimile within five (5) working days.
It is understood and agreed that emergency parts support will
be provided only when Equipment is inoperative at end-user's location
and Reseller has maintained a regular stock of spare parts which is
exhausted and Reseller has no inventory at hand to effect the repair or
has an open order for the spare parts sought on an emergency basis.
Company may decline to honor an emergency spare parts order
where (i) the Reseller has failed to maintain the inventory levels
recommended in the Recommended Stocking List or (ii) Company does not
have such spare part in its
* Confidential information has been omitted and filed separately with the
Commission.
17
<PAGE> 18
inventory; provided however, that in such event, Company shall advise
Reseller within five (5) Days of the estimated date of delivery of such
spare part. Separate purchase orders must be issued by Reseller for
each shipment destination.
(B) Lead-Time
Except when a spare part is not in stock, Company will
generally ship within * (*) working days of the receipt of an
Emergency Order or to meet Reseller's due date whichever is later.
(C) Handling and Freight Charges
A handling charge equal to * percent (*%) of the regular
Reseller price for the part shall be added to any part shipped from
stock, except when the part had been previously ordered by Reseller and
has not been delivered within the time frames set forth in 2.B above.
Reseller shall designate the method of delivery and shall bear the
costs hereof.
(D) Emergency Order Limitations
A daily maximum of * (*) part numbers, each with no more than
* (*) units may be ordered.
4. Duration of Spare Parts Support
Company shall make available to Reseller the spare parts and
consumables during the term of this Agreement and for a
minimum of * (*) years from the earlier of the date of
termination to the Agreement, the date of discontinuance of
the item or the Product or from delivery of the last unit of
equipment hereunder. Thereafter, Company shall give Reseller
ninety (90) days prior written notice of discontinuance and
the opportunity to purchase a reasonable number of such parts
within the said ninety (90) day period.
Company shall, from time to time, during the term of the
Agreement, make available to Reseller its most current list of
supplies for the Products and the prices then applicable
thereto In the event of manufacturer production or shipping
delays, Company shall allocate distribution of such items in a
fair and equitable manner among all other customers, even
though this may effectively limit delivery of ordered
quantities.
5. Terms of Payment for Spare Parts and Repairs
Payment is due * (*) days after bill of lading date.
ALL SPARE PARTS PRICES FOR COMPANY ARE QUOTED ON A F.O.B.
NEAREST U.S. SHIPPING POINT WHERE PARTS ARE THEN AVAILABLE.
THEY SHALL BE INVOICED AND PAYABLE IN U.S. DOLLARS.
6. Service Documentation
Company will supply Reseller, one set of documentation with
the initial delivery of Product. Reseller may purchase
reasonable additional quantities of documentation for
Reseller's internal use only at company's then prevailing
prices. With reasonable lead-time, company shall deliver to
Reseller artwork for reproduce and publish portions of said
documentation for incorporation in Reseller's own User Manual
and Field Maintenance Manual(s). such manual(s) of Reseller
shall bear a copyright notice of Reseller provided, however,
that any copyright interest of Reseller therein shall be
subordinate to any existing copyright interest of Company or
such other author as Company may designate.
* Confidential information has been omitted and filed separately with the
Commission.
18
<PAGE> 19
Attachment G
T/R Systems Training and Consulting Rates
Effective June 20, 1997
Trainer: $ * per day
Engineer: $ * per day
Sr. Engineer: $ * per day
Managing Engineer: $ * per day
Chief Technology Officer: $ *
All rates are in US dollars. A day represents a normal eight hour working day.
Rates are subject to change with * (*) days notice. Daily rates do not include
travel and living expenses which will be billed separately.
* Confidential information has been omitted and filed separately with the
Commission.
19
<PAGE> 20
FIRST ADDENDUM TO RESELLER AGREEMENT
This First Addendum to the Reseller Agreement dated September 18, 1997
("hereinafter the "Agreement") is made and entered into as of the ___ day of
March, 1998 by and between T/R Systems, Inc., a corporation organized and
existing under the laws of the State of Georgia, USA (hereinafter the "Company")
and Mita Industrial Co., Ltd., a corporation organized and existing under the
laws of the country of Japan (hereinafter "Reseller").
W I T N E S S E T H:
WHEREAS, the Reseller has been appointed by the Company as an
authorized reseller for the purpose of selling Products pursuant to the
Agreement;
WHEREAS, the Reseller desires to obtain additional rights whereby
pursuant to the Agreement as supplemented by this Addendum:
(i) the Reseller would purchase from the Company certain
hardware components, and certain media which would
contain the Company's proprietary software related
to or incorporated in the Products which software is
described with further specificity in the Agreement
(such software herein referred to as the "T/R
Software") (such hardware components and media to be
so purchased herein referred to as the "Addendum
Deliverables");
(ii) the Reseller would be granted from the Company the
right to use (A) the T/R Software and (B) the
Company's "MicroPress(R)" trademark (collectively,
the "Addendum Permitted Use Property"), although no
ownership rights in or to the Addendum Permitted Use
Property are to be conveyed; and
(iii) the Reseller would assemble and configure certain
hardware components and servers including printers
and other equipment that Reseller would supply or
otherwise obtain, in conjunction with the Addendum
Deliverables and the Addendum Permitted Use Property
to create a MicroPress(R) printing system (herein
the "Mita Assembled Systems") to be distributed and
sold by Mita in accordance with the terms of the
Agreement;
WHEREAS, the Company desires to sell Addendum Deliverables to
Reseller, and grant to Reseller a right to use (although no ownership rights in
or to) the Addendum Permitted Use Property, to assemble and configure, and
distribute and sell, the Mita Assembled Systems;
<PAGE> 21
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained and other valuable consideration, the receipt of which are
hereby acknowledged, the parties hereto agree as follows:
1. All capitalized terms herein unless defined in this Addendum
shall have the meanings assigned to same in the Agreement.
2. Subject to the terms and conditions of the Agreement, as
modified by this Addendum, Company hereby grants to Reseller
the exclusive right to use (although no ownership rights in
or to) the Addendum Permitted Use Property to assemble and
configure the Mita Assembled Systems, and to use the Addendum
Permitted Use Property in connection with the distribution,
marketing and sale of the Mita Assembled Systems in the
Territory during the term of the Agreement. Reseller will
have the right to grant unto End-Users the right to use
(although no ownership rights in or to) the T/R Software
connection with the distribution and sale of the Mita
Assembled Systems, provided all agreements in respect of the
granting of such rights are in conformance with the
provisions of Section 9 of the Agreement. The right to use
provided for herein shall be exclusive as to the Territory
for so long as the appointment of the Reseller pursuant to
the Agreement remains exclusive as to the Territory. Other
than the limited right to grant rights to use the T/R
Software pursuant to the immediately preceding sentence, the
rights granted herein are not assignable or transferable, nor
may they be granted to any other party.
3. Pursuant to the terms and conditions of the Agreement,
Reseller will purchase the Addendum Deliverables for use in
Mita Assembled Systems from the Company, for the prices, and
shall pay the amount for media in respect of the Addendum
Permitted Use Property, as indicated on the Price List.
4. Reseller shall only assemble and configure the Mita Assembled
System using, in addition to the Addendum Deliverables,
hardware, printers and other equipment and components that
have been tested and approved by the Company. It is
understood that Reseller may not assemble the Mita Assembled
System using server components not presently in use or
certified by the Company. The Company will perform the
appropriate testing and approval before distribution may
occur. A current component list is attached as Exhibit "A" to
this Addendum.
5. Except to the extent otherwise provided for herein, or unless
the context indicates otherwise, all provisions in the
Agreement relating to the purchase and sale of Products and
the granting of the right to use the T/R Software shall apply
to the purchase and sale of Addendum Deliverables and the
granting of the right to use the Addendum Permitted Use
Property under this Addendum, including without limitation,
the Obligations of the Reseller in Section 3 of the Agreement
to the extent applicable; the provisions governing Orders,
Price, and Payment and Delivery Terms in Sections 4, 5 and 6;
the Patent and Copyright Indemnity and Warranty in Sections 7
and 11, without application, however, to hardware, printer or
other components or equipment not supplied by the Company,
and subject to the Limitation of Remedies in Section 12; and
provisions governing Protection of Proprietary Information in
Section 16. The term of this Addendum shall be co-
2
<PAGE> 22
extensive with the term of the Agreement and subject to the
termination provisions of the Agreement.
6. Other than specifically provided for herein, this Addendum
shall not modify or amend or otherwise alter, or constitute
any waiver of any rights or remedies under, the Agreement.
IN WITNESS WHEREOF, the Company and Reseller hereby have duly executed
this Reseller Agreement in duplicate on the dates indicated hereon.
Made in duplicate in Norcross, Georgia, USA
T/R SYSTEMS, INC. MITA INDUSTRIAL CO., LTD.
By: /s/ By: /s/ Makoto Miyazaki
-------------------------------- ------------------------------
Print Name: Lyle W. Newkirk Print Name: Makoto Miyazaki
------------------------ ----------------------
Title: Vice President and Chief Title: Trustee
Financial Officer ---------------------------
-----------------------------
Date: Aug. 21, 1998 Date: Sept. 17, 1998
----------------------------- ---------------------------
3
<PAGE> 23
Exhibit A
Tested IBM 325 Single Processor Test Configurations
Configuration 1
Standard IBM 325 from Mita Corporation
128 Megabytes of RAM
Video RAM Upgrade to 2 megabytes
Configuration 2
325 w 266 Mhz Pentium II
256 Megabytes of RAM configured as 2x64 and 1x128 and 2x128
2 megabytes of video ram
Western Digital Enterprise 9100 hard drive (9.1 gigabytes WDE9100-0007A5)
Configuration 3
325 w 266Mhz Pentium II
256 Megabytes of RAM configured as 2x64 and 1x128 and 2x128
2 megabytes of video ram
Western Digital Enterprise 4.36 hard drive (4.36 gigabytes WDE4360-0007B2)
Test Results
The PCI transfer speed on all 6 slots is > 93 megabytes/sec for all
configurations.
The raw transfer speed of the 9.1 gig disk is > 12 megabytes/sec.
The structured storage transfer speed of the 9.1 gig disk is > 7 megabytes/sec.
The raw transfer speed of the 4.36 gig disk is > 10 megabytes/sec.
The structured storage transfer speed of the 9.1 gig disk is > 6 megabytes/sec.
The RIP is running a bit faster than the current shipping systems system.
The transfer speed to and from MacIntosh systems is also a bit faster.
We verified the following system configurations:
8x024,
7x024+1x312
4x024+4xCII (Only with 256 megabytes of RAM)
6x024+1xCII+1x312 (Only with 256 megabytes of RAM)
Issues
The only problem identified is when screen resolutions of 1024x768 at 75 hz with
install of Internet Explorer 4.0. Must change the resolution, install the
software and then change the screen settings.
Not tested with two processors.
<PAGE> 1
EXHIBIT 10.13
SUPPLY AGREEMENT
This SUPPLY AGREEMENT is entered into as of the 28th day of January, 1999,
by and between MINOLTA CO., LTD., a Japanese corporation having its principal
place of business at 3-13,2-Chrome, Azuchi-Machi, Chuo-ku, Osaka 541-8556, JAPAN
(hereinafter "MINOLTA"), and T/R SYSTEMS, INC., a Georgia, U.S.A. corporation
having its principal place of business at 1300 Oakbrook Drive, Norcross,
Georgia, U.S.A. 30093 (hereinafter "T/R").
RECITALS:
1 T/R has designed and developed, and currently assembles, distributes
and sells, a proprietary commercial printing system known as the
MICROPRESS(R) PressDirector(TM) ClusterServer(TM), which includes
Micropress(R) Release 4.5.
2 T/R has proprietary skills, know-how, technology, inclusive of trade
secrets and other know-how, and patent rights applicable to the
product architecture, development, design, assembly, manufacturing,
connectivity, production and distribution of the MICROPRESS(R)
commercial printing system.
3 As of March 31, 1998, the parties entered into a Development
Agreement (the "Development Agreement") whereby T/R agreed to
undertake and fulfill, subject to the terms and conditions thereof,
the "Development" as defined therein, and the parties agreed
to enter into mutually agreeable terms and conditions for the
purchase and related licensing of the "Controller" (as defined in the
Development Agreement) and associated products.
4 The parties intend this Agreement to constitute the agreement
contemplated by the terms of the Development Agreement to provide such
purchase and licensing so as to permit MINOLTA to complete the
assembly of MICROPRESS(R) commercial printing systems, with such
products to be distributed and sold by MINOLTA and either marked or
identified with trademarks owned, possessed or controlled by MINOLTA,
marked or identified with trademarks of a party other than MINOLTA or
for "private label" distribution. This method of distribution shall
involve the assembly of Systems by MINOLTA.
5 To accommodate the foregoing agreements, and to effect certain other
agreements and undertakings between T/R and MINOLTA, such parties
have entered into this Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
1. Definitions.
1.1 "Confidential Information" shall mean only the following information
including, but not limited to, technical or non-technical data, Know-how,
trade secrets, skills and processes, from which MINOLTA or T/R derives
economic value by such information not being generally known to, and not
being readily ascertainable by proper means, by third parties, disclosed in
any of the following method 1)~3):
<PAGE> 2
T/R - MINOLTA Supply Agreement Thursday, January 21, 1999
1) disclosure in written form which is clearly marked "Confidential" or
otherwise marked as such; or
2) disclosure through tangible object with a notice which is clearly
marked "Confidential" or otherwise marked as such; or
3) oral disclosure; provided, however, the disclosing party shall identify
so at the time of disclosure and send to the receiving party, within
thirty (30) days after such disclosure, documents clearly marked
"Confidential" or otherwise marked as such and referring to the date
and place of disclosure and describing such information to be deemed as
Confidential Information.
Only the information which meets all conditions provided in this Section
shall be deemed as Confidential Information and other information shall not
be deemed as Confidential Information in any case. Moreover, the following
information shall not be deemed as Confidential Information and the
Receiving Party shall have no obligation with respect to such information:
(a) information which becomes available to the public or to industry
without fault of the receiving party; or
(b) information which is already available to the public or to
industry at the time of disclosure; or
(c) information which is already in the possession of the receiving
party at the time of disclosure; or
(d) information which is subsequently rightfully received by the
receiving party from a third party without notice of restriction
on further disclosure; or
(e) information which is demonstrated to have been developed by an
employee of the receiving party independently of and without
reference to Confidential Information; or
(f) information which is disclosed to the third party by the
disclosing party without similar restriction on such third party.
1.2 "Customer" means any Person that acquires Systems from MINOLTA for its own
use or for sale, lease or other disposition.
1.3 "Deliverables" has the meaning set forth in Section 2 hereof.
1.4 "End User" means a Person that acquires a System directly from MINOLTA or
indirectly from a Customer of MINOLTA, and uses the System for any purpose.
1.5 "Know-how" means knowledge, information, inventions (other than those
embodied in the patent rights), trade secrets and systems used in the
design, development, manufacture, assembly, servicing or testing of the
MICROPRESS(R) commercial printing system.
1.6 "License" means the license granted by T/R to MINOLTA pursuant to this
Agreement.
1.7 "Licensed Intellectual Property Rights" means the Know-how, patent rights
and similar intellectual property owned by T/R and used in the design,
development, manufacture, assembly, servicing or testing of the System or
any portion thereof.
1.8 "MINOLTA Orders" has the meaning set forth in Section 5 hereof.
1.9 "Person" means any individual, partnership, joint venture, corporation,
trust, unincorporated organization, government, governmental agency or any
other entity.
1.10 "Subsidiary" means a corporation or other entity of which more than 50% of
the shares of the outstanding stock (representing the right to vote for the
election of directors or other managing authority) are now or hereafter
owned or controlled, directly or indirectly, by a party hereto, but such
corporation or other entity shall be deemed to be a Subsidiary only so long
as such ownership or control exists.
2
<PAGE> 3
T/R - MINOLTA Supply Agreement Thursday, January 21, 1999
1.11 "System" means the MicroPress(R) commercial printing systems to be
assembled by or for MINOLTA and incorporating the Deliverables, and known
generally as the "Minolta 62 ppm Monochrome Copier/Printer OEM
Micropress(R) Version", "Minolta Color Copier/Printer Micropress(R)
Version," or as used herein as context may require, any portion thereof.
1.12 "Technical Assistance" means the technical assistance to be provided by T/R
to MINOLTA as provided in Section 8 hereof.
1.13 "Territory" shall mean the entire world.
2. Completion of Development. After completion of the "Development" (as
defined in the Development Agreement), and the completion of acceptance
testing (as described in the Development Agreement as the "Acceptance") in
respect of the Controller (as defined in the Development Agreement), the
parties shall commence, pursuant to the terms and conditions of this
Agreement, the purchase and sale (and related licensing) of equipment and
software comprising the Controller and related software and other related
technology and communications hardware, more particularly described below
and specified in Attachment C or D (and which items are defined herein as
the "Deliverables"):
(a) The MICROPRESS(R) PressDirector ClusterServers, constituting
(and including) the Controller developed pursuant to the
Development Agreement;
(b) Technology and Software Packages, which shall include the
software in executable code and other technology, employing the
Licensed Intellectual Property Rights, and providing the
software and related technology principally required for
operation of the Systems to be distributed by MINOLTA pursuant to
this Agreement; and
(c) Printlinks communication hardware used in and constituting a part
of the Systems consisting of boards including print adaptors and
host adaptors.
2.2 Engineering changes shall be made in accordance with the procedure
specified in Attachment E attached hereto.
3. Purchase and Sale. During the term of this Agreement, and pursuant to the
terms and conditions hereof, T/R agrees to sell (and license as indicated
in Section 4 hereof), and MINOLTA agrees to purchase (and obtain a license
as provided for in Section 4 hereof in respect of) the Deliverables, in the
quantities and at the prices, and on the other terms provided for herein.
MINOLTA shall have the exclusive sales right in respect of those
Deliverables indicated as "Exclusive" on Attachment C, however nothing
contained herein will provide MINOLTA with any exclusive rights to similar
devices which do not include any proprietary and/or intellectual property
rights resulting from Development (as defined in the Development
Agreement). Coincident with the execution and delivery of this Agreement,
MINOLTA shall provide to T/R its first purchase order for the purchase of
Deliverables, in conformance with the terms of Section 5 hereof.
4. License.
4.1 Grant. Subject to the terms and conditions hereof, T/R hereby grants to
MINOLTA and MINOLTA hereby accepts from T/R a license entitling MINOLTA
during the term of this Agreement to use the Licensed Intellectual Property
Rights to complete the assembly of the Systems and to distribute, sell or
lease the Systems to Customers for use by End Users located in the
Territory.
4.2 No Sublicenses. This Agreement does not grant, license or permit (either
expressly or by implication) MINOLTA to transfer, assign, sell, give,
license, sub-license, or in any way permit the use of the Licensed
Intellectual Property Rights, by or to any Person, other than (i) any of
its Subsidiaries for the sole purpose of assembling the Systems, or any
components or subassemblies thereof; or (ii) any other
3
<PAGE> 4
T/R - MINOLTA Supply Agreement Thursday, January 21, 1999
third party under MINOLTA's supervision or by parties deemed qualified by
MINOLTA and under MINOLTA's authorization for the sole purpose of
assembling the Systems or any components or subassemblies thereof, for
supply only to MINOLTA. If MINOLTA becomes aware, or gains reasonable
suspicion, of the unauthorized use or exercise of the Licensed Intellectual
Property Rights by any Person, then MINOLTA shall forthwith notify T/R in
writing and cooperate with T/R, and at T/R's discretion, to abate or
terminate such unauthorized use or actions.
4.3 No Other Licenses. No license or right is granted under this Agreement by
T/R to MINOLTA by implication, estoppel or otherwise, except as expressly
set forth in this Agreement and MINOLTA may not use the corporate names,
trademarks, trade names, service marks, or logos of T/R without the prior
written consent of T/R.
4.4 Labeling. MINOLTA shall apply to the Systems assembled for sale by or for
MINOLTA to Customers a statement reasonably located and sized, identifying
the fact that the Systems are assembled under license from T/R and, as
applicable, are subject to patents or patents pending, and which shall
identify by number any issued patents which are part of the Patent Rights.
Such statement, and its proposed location and size, shall be submitted to
T/R by MINOLTA in advance of its use for pre-approval by T/R, which
approval may not be unreasonably withheld.
4.5 Limitation on Use. MINOLTA shall not use the Licensed Intellectual Property
Rights or any other T/R technology, for any purpose or purposes other than
those expressly permitted under the License.
5. Orders.
5.1 By the twentieth (20th) of each month, MINOLTA shall submit written
purchase orders (hereinafter "Order") to T/R in respect of the Deliverables
to be delivered to MINOLTA in the second (2nd) month following the ordering
month. All orders shall specify the quantities and descriptions of the
Deliverables, and requested delivery dates and shipping instructions. On
submitting Order, MINOLTA shall provide T/R with a forecast ("Forecast") of
quantities of Deliverables to be delivered to MINOLTA in each of the next
succeeding three (3) months. The quantity of Deliverables in Forecast for
delivery of; (i) the first (1st) month thereof may be increased or
decreased by not more than * percent (*%) when rolling into the Order,
(ii) the second (2nd) month thereof may be increased or decreased by not
more than * percent (*%) when rolling into next Forecast. The quantity of
Deliverables in Forecast for delivery of the third (3rd) month thereof is
non-binding.
5.2 Subject to supply therefore, and conformance of the purchase orders with
forms approved therefor from time to time by T/R, T/R shall accept any such
purchase order which is not in contravention of the terms of this
Agreement. Unless T/R gives a notice of any objection to the Order within
ten (10) days after receipt thereof, such Order shall be deemed to have
been accepted by T/R.
5.3 T/R shall make available to MINOLTA the spare parts or equivalent
replacements during the term of this Agreement and for a minimum of seven
years from the earlier of the date of termination of this Agreement, the
date of discontinuance of the item or the Deliverables or from delivery of
the last unit of equipment hereunder. The order procedures for "Spare
Parts" are subject to the Spare Parts ordering policies contained in
Attachment A.
5.4 The terms and conditions of this Agreement shall apply to all MINOLTA's
Orders submitted to T/R and supersede any different or additional terms
contained on MINOLTA's Orders. MINOLTA's Orders and T/R's acceptance shall
constitute an individual contract between MINOLTA and T/R under this
Agreement.
6. Shipment and Delivery. The Deliverables shall include, as appropriate,
certain documentation related thereto prepared by or for T/R. The
Deliverables shall be delivered by the twentieth (20th) of each month
according to Order and on the following conditions.
* Confidential information has been omitted and filed separately with the
Commission.
4
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T/R MINOLTA Supply Agreement Thursday, January 21, 1999
(a) All Shipments of the Deliverables shall be made by Ex Works T/R's
facility at Norcross in Georgia, U.S., according to Incoterms 1990
conditions, if such Deliverables are shipped to the destinations in
U.S. as specified in the respective Order.
(b) All Shipments of the Deliverables shall be made by F.C.A. nearest
seaport or airport from Norcross, Georgia, U.S. according to Incoterms
1990 conditions, if such Deliverables are shipped to the destinations
in the other countries except for U.S. as specified in the respective
Order.
Title of the Deliverables shall pass from T/R to MINOLTA at delivery point set
forth in above (a) and (b), with respect to hardware, media and other items
included within the Deliverables which do not constitute nor comprise Licensed
Intellectual Property Rights.
7. Price.
7.1 Provided MINOLTA complies with all the terms and conditions of this
Agreement, during the initial three (3)-year term of this Agreement T/R
agrees to invoice in respect of the sums due for Deliverables at the prices
and terms of the Price List contained on Attachment B. No later than one
hundred twenty (120) days prior to the commencement of any one (1)-year
renewal term, MINOLTA and T/R may reconsider the prices and terms to be
applicable during such succeeding renewal term by mutual agreement.
7.2 Price to MINOLTA does not include sales, value added or similar taxes of
any nature. MINOLTA shall pay applicable taxes based on MINOLTA's net price
as invoiced by T/R or supply appropriate tax exemption certificates in a
form satisfactory to T/R.
7.3 T/R and MINOLTA will meet quarterly at mutually agreed times and locations
to review Attachment B and business activity in the territory, marketing
plans, product plans and pricing strategies.
8. Technical Assistance.
8.1 To effectuate the purposes of this Agreement, upon the reasonable request
by MINOLTA and subject to the terms and conditions of the License, T/R,
employing the Licensed Intellectual Property Rights, shall consult with and
provide technical assistance to MINOLTA with respect to (i) the design and
operation of the Systems, inclusive of the selection and design of print
engine therefor; (ii) MINOLTA's assembling of the Systems for mass
production; (iii) MINOLTA's initiation of assembling for commercial
production of the Systems; (iv) MINOLTA's outsourcing plans and operations;
(v) MINOLTA's current and future device connectivity to the System; and
(vi) matters related to the above (hereinafter "Technical Assistance"). In
addition to Technical Assistance, T/R shall provide standard training for
MINOLTA personnel, upon the reasonable request of MINOLTA. Upon receiving
MINOLTA's request, T/R shall provide MINOLTA with written estimates of fees
(including T/R's personnel's travel and living expense) for the requested
Technical Assistance within three (3) days. T/R shall launch on Technical
Assistance, after obtaining MINOLTA's written requests based on above
estimates for it. Each of T/R and MINOLTA will appoint a personnel in
charge of technical liaison to interact and support the technical interface
between T/R and MINOLTA.
8.2 T/R agrees to provide MINOLTA (including MINOLTA's Subsidiary) with sales
and service training at T/R Systems training centers in the U.S. and Europe
at no charge on a seats available basis for regularly scheduled training
classes. T/R and MINOLTA shall negotiate and decide the other terms and
conditions for such sales and service training.
9. Payments.
9.1 Payment of Consideration. As for the Deliverables delivered to MINOLTA from
T/R, T/R shall issue invoices for such Deliverables to MINOLTA promptly.
After receiving such invoices, MINOLTA
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T/R MINOLTA Supply Agreement Thursday, January 21, 1999
shall make payment for such Deliverables by the * of the invoice date.
Unless otherwise agreed by T/R in writing, all payments by MINOLTA
shall be remitted in immediately available U.S. Dollars by wire
transfer per T/R's instructions, and confirmation of each payment
shall be made by MINOLTA to T/R by facsimile or telegraphic means to
T/R's principal place of business. A late payment charge of one and
one-half percent (1.5%) per month shall be charged upon unpaid
balances due for more than thirty (30) days. All pricing and fees
under this Agreement are exclusive of taxes. Except for taxes based on
T/R's net income, MINOLTA shall pay any national, federal, state,
county, local or other governmental taxes, fees or duties now or
hereafter imposed on the licensing, export, use or possession of the
Licensed Intellectual Property Rights and the Deliverables or any
other transaction contemplated by this Agreement, as well as any
penalties or interest thereon. Notwithstanding anything in this
Agreement to the contrary, if, under any applicable law, MINOLTA is
required to withhold tax or any other amount from any payment to T/R,
the amount due to T/R shall be increased to the amount T/R would have
received if no withholding had been required.
9.2. Consulting, Training Compensation. As compensation for the consulting
and training required to be provided as Technical Assistance pursuant
to Section 8 hereof, MINOLTA shall compensate T/R at T/R's standard
rates as in effect from time to time for consulting, and at T/R's
standard rates as in effect from time to time for training. In
addition, MINOLTA shall reimburse (or advance if requested) T/R's
travel and living expenses incurred in connection with such consulting
and training. T/R's standard per diem rates are subject to change from
time to time by T/R. T/R's per diem rates as of the date of this
Agreement are as follows: Training $1,000, Engineer $1,500, Senior
Engineer $1,750, Managing Engineer $2,000 and Chief Technology Officer
$2,500.
10. Minimum Purchases.
10.1 MINOLTA's minimum amounts of purchases shall be as follows.
(a) The first one year (from January 1, 1999 to December 31, 1999
(both inclusive)): * U.S. dollar (*U.S.$) of
Deliverables designated by Attachment B.
(b) The second one year (from January 1, 2000 to December 31, 2000
(both inclusive)): * U.S. dollar (*U.S.$) of
Deliverables designated by Attachment B.
(c) The third one year (from January 1, 2001 to December 31, 2001
(both inclusive)): * U.S. dollar (*U.S.$) of
Deliverables designated by Attachment B.
In addition, MINOLTA shall make efforts to purchase * U.S. dollar
(*U.S.$) of Deliverables as yearly purchase for second and third
year.
10.2 MINOLTA may include the following payments paid to T/R in above
minimum amount.
(a) the Maintenance Charge and Major Release Fee as described in
Section 11
(b) purchase account of any hardware and/or software for MINOLTA'S
products Di520, CF911P, Di620P, CF910 or CF900 from T/R
10.3 As for any year, if the minimum purchase level is not met due to the
failure of T/R to deliver within such year Deliverables in accordance
with the delivery terms and conditions of this Agreement and of
accepted Orders, then MINOLTA'S minimum purchase responsibility for
such year as set forth herein above shall be reduced by the aggregate
purchase price of such Deliverables not timely delivered within such
year.
10.4 In order that MINOLTA may fulfill this Section 10, T/R shall liable
to keep high performance of System and to ensure it remains
competitive in the market of print on demand system by appropriate
version up of software in System.
6
* Confidential information has been omitted and filed separately with the
Commission.
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T/R MINOLTA Supply Agreement Thursday, January 21, 1999
11. Maintenance. T/R will provide MINOLTA with software bug fixes, major
software releases and telephone support for a quarterly maintenance charge
(hereinafter "Maintenance Charge"), and the payment of $* per major
release (hereinafter "Major Release Fee"). The quarterly Maintenance Charge is
payable on the 15th day of January, April, July and October in respect of the
calendar quarter ending December 31, March 31, June 30 and September 30,
respectively, and shall equal * percent (*%) of the purchase price amounts
paid or payable in respect of Deliverables ordered during such calendar
quarter. Upon issuance of each major release by T/R, upon invoice therefor,
MINOLTA will pay T/R Major Release Fee. Provided, in case that T/R issues a
major release in the first one year of this Agreement, T/R shall provide such
major release to MINOLTA free of a Major Release Fee charge. T/R shall take all
customary commercial efforts to update its software to operate in conjunction
with industry-utilized operating systems, and to remain competitive in all
material respects as to principal functions and performance standards.
12. Ownership and Proprietary Rights.
12.1 Ownership. T/R represents that it has all rights in and to copyrights,
trade secrets, patent rights and other intellectual property rights
associated with the Licensed Intellectual Property Rights and the
Deliverables as are necessary to license the Licensed Intellectual Property
Rights and license and/or sell the Deliverables, as the case may be, under
and pursuant to this Agreement.
12.2 Proprietary Rights. MINOLTA and T/R acknowledges that the Confidential
Information constitute valuable trade secrets and confidential information
of each other. MINOLTA and T/R shall not use or disclose the other party's
Confidential Information, except as expressly permitted by this Agreement.
Ownership of all applicable copyrights, trade secrets, patents and other
intellectual property rights in the Licensed Intellectual Property Rights
and the Deliverables shall remain vested in T/R. Title to all Licensed
Intellectual Property Rights shall remain with T/R. MINOLTA shall not
remove T/R's copyright notices, restricted rights legends or any other
notices from the Deliverables and such notices shall appear on all tapes,
diskettes and other tangible media distributed by MINOLTA containing the
Licensed Intellectual Property Rights or constituting the Deliverables.
12.3 Unauthorized Use or Copying. Except as expressly permitted hereunder,
MINOLTA shall not copy, modify or reproduce the Deliverables in any way,
nor shall it permit third parties to do so. MINOLTA shall fully cooperate
with T/R in any action relating to enforcement of T/R's proprietary rights.
12.4 End User License. MINOLTA shall only distribute the Deliverables to
Customers for delivery to End Users. MINOLTA shall distribute the
Deliverables after obtaining the written assent of the Customer to cause
all End Users to agree, as to the software and other proprietary
technology included in the Deliverables, to the terms of a standard T/R
Software License, and a form of which shall be supplied to MINOLTA by T/R.
MINOLTA shall make no representations or warranties on behalf of T/R.
MINOLTA shall make no representations to Customers or End Users or other
third parties regarding the Deliverables except as set forth in the
applicable documentation therefor provided by T/R. MINOLTA will be
responsible for all conversions, translations and localizations necessary
for use of the Deliverables by End Users in the various countries included
within the Territory.
12.5 Third Party Software. To the extent the software included within the
Deliverables constitutes software or other technology rights owned by a
third party and licensed to T/R, such software, and its sublicense to
MINOLTA by T/R hereunder, is subject to all terms and conditions,
including where required, approval rights, of such third party license
agreements.
12.6 Security. The software included within the Deliverables will be protected
by a security mechanism known as a "dongle". MINOLTA shall distribute the
"dongle" supplied by T/R for the software for each System. MINOLTA will
ensure that such security mechanisms remain intact and that such software
remains secure from unauthorized copying, reverse engineering and reverse
compiling and unauthorized distribution.
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* Confidential information has been omitted and filed separately with the
Commission.
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T/R MINOLTA Supply Agreement Thursday, January 21, 1999
12.7 Indemnification. MINOLTA and T/R agree to indemnify and hold harmless the
other party from and against any claim, injury, loss or expense, including
attorneys' fees, arising out of (a) the failure of MINOLTA or T/R to comply
with the provision of Section 12, (b) any misrepresentations of MINOLTA in
connection with T/R or the Deliverables or (c) any other wrongful conduct
of MINOLTA or T/R or their agents.
13. Warranty.
13.1 Limited Warranty. T/R warrants that for a period of * (*) months after
delivering Deliverables to MINOLTA, equipment and media constituting the
Deliverables delivered from T/R will be of good quality and free from
defect in materials and/or workmanship, in all material respects, and will
comply with specifications listed in Attachment C or D. MINOLTA will not
intend to offer with warranty period for equipment and media constituting
the Deliverables with End User more than * (*) months. Upon written notice
from MINOLTA of defective media or equipment as to any Deliverable, T/R
shall promptly provide MINOLTA with replacement equipment or media. If
MINOLTA should discover epidemic failures (same defects occurring from same
cause) in at least * percent (*%) of Deliverables delivered within the *
(*) months warranty period or * (*) months thereafter, MINOLTA shall notify
T/R of occurrence of such failure. After receiving such notification by
T/R, T/R shall inspect such failure of Deliverables. As a result the
inspection, in case that both parties recognize that such failure is
epidemic failure, then in addition to remedies in the preceding Section 13.
hereof, T/R shall reimburse all the costs incurred by MINOLTA in rectifying
such epidemic failures in respect of Deliverables delivered to MINOLTA
within the prior * (*) months, including, but not limited to, the cost for
callback of such defective equipment or media from the market.
13.2 Disclaimer of Warranties. EXCEPT FOR THE LIMITED WARRANTY PROVIDED ABOVE IN
SECTIONS 13.1, THE DELIVERABLES ARE PROVIDED "AS IS." T/R SPECIFICALLY
DISCLAIMS ALL OTHER WARRANTIES EXPRESSED OR IMPLIED, INCLUDING BUT NOT
LIMITED TO, IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE AS TO ANY TERMS OR SERVICES PROVIDED UNDER THIS
AGREEMENT.
13.3 Damage Limitations. IN NO EVENT SHALL T/R BE LIABLE FOR ANY LOSS OF PROFIT
OR ANY OTHER COMMERCIAL DAMAGE, INCLUDING BUT NOT LIMITED TO SPECIAL,
INCIDENTAL, CONSEQUENTIAL OR OTHER INDIRECT DAMAGES UNDER ANY CAUSE OF
ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT (EXCLUDING T/R'S
LIABILITY SET FORTH IN SECTION 15 AND SECTION 16), INCLUDING, WITHOUT
LIMITATION, CLAIMS ARISING FROM MALFUNCTION OR DEFECTS IN THE DELIVERABLES
OR, NON-DELIVERY, EVEN IF T/R HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. IN NO EVENT SHALL T/R'S LIABILITY FOR ANY CLAIM ARISING OUT OF
THIS AGREMENT (EXCLUDING T/R'S LIABILITY SET FORTH IN SECTION 15 AND
SECTION 16) EXCEED THE AMOUNT PAID TO T/R BY MINOLTA DURING TWELVE (12)
MONTHS PRIOR TO THE DATE OF CLAIM MADE BY MINOLTA. NO CLAIM MAY BE BROUGHT
BY MINOLTA UNDER THIS AGREEMENT MORE THAN ONE (1) YEAR AFTER ACCRUAL OF
SUCH DAMAGES.
14. Term and Termination.
14.1 Expiration. This Agreement shall commence on the date set forth above and
shall continue for an initial term of three (3) years. Thereafter, this
Agreement shall be automatically renewed for additional terms of one (1)
year unless either party serves written notice, at least ninety (90) days
prior to the expiration of the initial term or any renewal, of its
intention not to renew.
14.2 T/R Termination. This Agreement may be terminated by T/R under any of the
following conditions:
*Confidential information has been omitted and filed separately with the
Commission.
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T/R MINOLTA Supply Agreement Thursday, January 21, 1999
(a) if MINOLTA does not pay T/R within sixty (60) days from the due date.
14.3 Termination. This Agreement and/or individual contract thereunder may be
terminated by aggrieved party under any of the following conditions:
(a) if one of the parties shall be declared insolvent or bankrupt;
(b) if a petition is filed in any court and not dismissed in ninety (90)
days to declare one of the parties bankrupt or for a reorganization
under the Bankruptcy Law or any similar statute;
(c) if a trustee in Bankruptcy or a receiver or similar entity is
appointed for one of the parties;
(d) if MINOLTA or T/R commits a material breach of this Agreement which is
not cured by the breaching party within thirty (30) days after written
notice of such breach is given by not breaching party.
14.4 Duties Upon Termination. Upon termination, MINOLTA and T/R shall return
all Confidential Information (including all copies), that have been supplied by
the other party. The following provisions of this Agreement shall survive its
termination: Sections 9, 12, 13, 15, 16 and 17. In the event that MINOLTA has
any paid-up inventory of the Deliverables as of the date of termination under
Section 14.2 or 14.3, MINOLTA may continue to market and distribute its
inventories of the Deliverables, but MINOLTA shall have no right to order or
receive any additional copies of the Deliverables.
15. Indemnification.
15.1 Intellectual Property. T/R shall, at its expense, defend any claim
against MINOLTA that the Deliverables infringes a copyright, trade secret or
patent right of any third party. T/R shall pay any direct costs and damages
attributable to such claim, including, but not limited to damages finally
awarded by a court against MINOLTA on such claim. T/R shall have no liability
for any such claim as based on use of or anything other than an unaltered
release of the Deliverables available from T/R, or based on combination with
any other software, data or hardware, if such infringement would have been
avoided by the use of unaltered release of the Deliverables available from T/R.
15.2 Cooperation by MINOLTA. T/R shall have no obligations under Section 15.1
of this Agreement unless:
(a) T/R shall have been promptly notified of the suit or claim by MINOLTA
and furnished by MINOLTA with a copy of each communication, notice or
other action relating to said claim;
(b) T/R shall have the right to assume sole authority to conduct the trial
or settlement of such claim or any negotiations related thereto at
T/R's expense; and
(c) MINOLTA shall provide reasonable information and assistance requested
by T/R in connection with such claim or suit.
16. Product Liability
16.1 If any product liability accident occurs out of or in relation to
Deliverables or Systems, and there is a reasonable suspicion that such accident
is caused by defect in Deliverables or Systems due to T/R's responsibility;
then T/R shall cooperate to MINOLTA in the investigation of causes and
defending on such accident.
16.2 Should any claim or suit be made or filed for damages of product liability
accident in relation to Deliverables or Systems as a result of any defect in
Deliverables or Systems attributable to T/R's responsibility, T/R shall
undertake the sole and complete defense of any such claim or suit at its own
expense and responsibility, and indemnify MINOLTA against all such damages and
costs suffered or incurred by MINOLTA. T/R shall investigate and study the
possibility of recurrence of the product
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T/R MINOLTA Supply Agreement Thursday, January 21, 1999
liability accident due to the same cause and report the result of such
investigation to MINOLTA; and T/R shall take proper and reasonable
measures, at its own expenses and responsibility, to prevent the recurrence
if the recurrence is foreseen as a result of the investigation. In the
course of defense of claim or suit or measures of prevention of recurrence,
T/R shall pay attention not to discredit MINOLTA's name or trust, and shall
consult with MINOLTA in determining method of defense or preventive
measures, although such defense and preventive methods shall be finally
determined by T/R.
16.3 Notwithstanding the foregoing, T/R shall not be liable for any claim suit
of product liability which is based on defect or failure caused by; a) any
modifications to the Deliverables or Systems or b) documentation prepared
made by other party than T/R or c) specifications designated by MINOLTA or
d) use or combination of Deliverables or Systems with any hardware or
software which is not intended or designated by T/R.
17. General.
17.1 Force Majeure. T/R shall not be liable for any delay or failure in
performance under this Agreement resulting directly or indirectly from acts
of God, or any causes beyond its reasonable control.
17.2 Jurisdiction and Venue. (1) This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, U.S.A.,
without reference to its conflicts of laws provisions. (2) Any disputes,
controversies or differences which may arise between both parties, out of,
in relation to or in connection with this Agreement, or breach thereof,
shall be amicably and promptly settled upon consultation between both
parties. (3) In case that the amicable settlement is not reached within
thirty (30) days after commencing consultation as provided in the
proceeding subparagraph, the dispute controversy or difference shall be
settled by arbitration in country in which is located the principle office
of the respondent party, in accordance with the Commercial Rules of
Arbitration for the International Chamber of Commerce, without being
submitted to general court in such country. The award rendered by the
arbitrators shall be final and binding upon the parties hereto.
17.3 Entire Agreement. This Agreement, including the Schedules and Attachments
attached hereto, constitutes the entire agreement between the parties with
respect to this subject matter and supersedes all previous proposals, both
oral and written, negotiations, representations, writings and all other
communications between the parties. This Agreement may not be released,
discharged, or modified except by an instrument in writing signed by the
parties.
17.4 Independent Contractors. It is expressly agreed that MINOLTA and T/R are
acting hereunder as independent contractors. Under no circumstances shall
any of the employees of one party be deemed the employees of the other for
any purpose.
17.5 Notice. Any notice required to be given by either party to the other shall
be deemed given if in writing and actually delivered or if deposited in the
United States mail in registered or certified form with return receipt
requested, postage paid, addressed to the notified party at the address set
forth herein.
17.6 Assignment. This Agreement is not assignable by both parties without
obtaining consent of the other party. Provided that, either party may
assign this Agreement to any entity that acquires or otherwise succeeds to
all or substantially all the business or assets of the assigning party.
17.7 Severability. If any provision of this Agreement is determined by a court
of competent jurisdiction to be invalid or unenforceable, such
determination shall not affect the validity or enforceability of any part
or provision of this Agreement.
17.8 Waiver. No waiver by any party hereto of any breach of any provisions
hereof shall constitute a waiver of any other term of this Agreement unless
made in writing signed by such party.
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T/R MINOLTA Supply Agreement Thursday, January 21, 1999
18. International Matters.
18.1 Export License. T/R shall be responsible for the procurement and renewing
of all export or import licenses required under United States or any
foreign law for the export or import of the Deliverables or the value added
products and shall pay all costs and other expenses in connection with such
procurement and renewal.
18.2 Export Assurance. Regardless of any disclosure made by MINOLTA to T/R of
any ultimate destination of a Deliverable or any System assembled using
same, MINOLTA shall not export or reexport directly or indirectly the
Deliverable or any System assembled using same, without first obtaining the
required written approval or export license, if any, to do so from the
United States Department of Commerce or any other agency of the U.S.
Government having jurisdiction over such transaction. MINOLTA hereby
assures T/R that it does not intend to nor will it knowingly, without the
prior written consent, if required, of the Office of Export Administration
of the U.S. Department of Commerce, transmit or ship the Deliverable or any
System assembled using same, directly or indirectly, to any country as to
which such export is made unlawful as provided in laws or by regulations
issued by the U.S. Department of Commerce, or other such regulations as may
be adopted from time to time. T/R shall obtain the list of above countries
from the Office of Export Administration of the U.S. Department of Commerce
and shall provide MINOLTA with such list from time to time.
18.3 Compliance with Local Laws. MINOLTA shall be exclusively responsible at its
own expense for compliance with all local laws relating to a Deliverable or
any System assembled using same, in the countries in which MINOLTA licenses
or markets same.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by a
duly authorized representative as of the date set forth above.
T/R SYSTEMS, INC. MINOLTA CO., LTD.
By: /s/ Michael E. Kohlsdorf By: /s/ Yoshikatsu Ota
---------------------------------- ------------------------------------
Yoshikatsu Ota
Title: President/CEO Title: Executive Director
Date: 1-28-99 Date: Feb. 19, 1999
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T/R-MINOLTA Supply Agreement Thursday, January 21, 1999
ATTACHMENT A
SPARE PARTS ORDERING POLICIES
As used hereinbelow, "Company" shall mean T/R, and "Reseller" shall mean
MINOLTA.
The policies and procedures which follow are subject to change upon * (*)
days written notice.
1. Service Support
Company shall offer to Reseller spare parts required to service/repair the
Deliverables and provide Reseller with a recommended spare parts stocking guide
which identifies the proper type of parts to be stocked on an ongoing basis by
Reseller. Reseller shall assume full responsibility for stocking spare parts.
2. Regular Spare Parts Ordering Procedures.
Company shall, from time to time during the term of the Agreement, make
available to Reseller its most current list of spare parts for the Deliverables,
and the prices then applicable thereto. In the event of manufacturer production
or shipping delays, Company shall allocate distribution of such items in a fair,
and equitable manner among all customers, even though this may effectively limit
delivery of ordered quantities.
(A) Placement of Orders
Reseller will place regular stocking spare parts orders by
formal purchase orders via Reseller's written purchase order form to Company. A
separate order must be submitted for each delivery date and the Company part
number must be referenced. Additionally, spare parts order's with like delivery
dates should be combined into a single order. A hard copy of all Reseller
telephone orders must be received by Company within three (3) days of placement.
Company will confirm acceptance of such orders within ten (10) days of receipt
of Reseller's purchase order.
(B) Lead-Time
For all parts other than "special parts" orders delivery will
generally be made about * (*) days after receipt of order. Special parts
orders will require an additional * (*) days due to special handling
requirements. Special Parts are those parts subject to regulation such as
"COCOM", Textiles or semiconductors.
(C) Spare Parts Availability
In the event of discontinuance of a spare part, its subsequent
unavailability and need, Company and Reseller shall discuss mutually
satisfactory solutions which may include provision of commercially available
alternative sources.
(D) Spare Parts Pricing
During the term of this Agreement the prices charged for spare
parts will be the same as those offered to Company's other Reseller customers
purchasing similar materials in the same or lesser quantities on similar terms
and conditions.
(E) Monthly Regular Stocking Order (Standard/Special Parts)
Limitations
* Confidential treatment has been omitted and filed separately with the
Commission.
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T/R-MINOLTA Supply Agreement Thursday, January 21, 1999
Company reserves the right to limit the maximum number of
units of a given part to be shipped to Reseller in any one (1) month.
3. Emergency Spare Parts Support
(A) Placement of Orders
Reseller shall place emergency parts orders via Purchase
Orders, Telephone or Facsimile. All "Emergency Orders" must be so noted at the
time of placement and such a legend must appear on all purchase orders. A
separate order referencing the Company's part number must be submitted for each
delivery date. Packing slips will bear both Company's and Resellers part
numbers if same appears on Reseller's hard copy purchase order.
Until further notice, the telephone number for submitting
facsimile orders is 770-448-3202. Hard copies of or facsimiles of Resellers
telephone Emergency Orders must be received within twenty four (24) hours.
Company shall confirm Emergency Orders immediately over telephone if in stock,
or if part number is out of stock, Company will advise of estimated time of part
number arrival (availability) by facsimile within five (5) working days.
It is understood and agreed that emergency parts support will
be provided only when Equipment is inoperative at end-user's location and
Reseller has maintained a regular stock of spare parts which is exhausted and
Reseller has no inventory at hand to effect the repair or has an open order for
the spare parts sought on an emergency basis.
Company may decline to honor an emergency spare parts order
where (I) the Reseller has failed to maintain the inventory levels recommended
in the Recommended Stocking List or (ii) Company does not have such spare part
in its inventory; provided however, that in such event, company shall advise
Reseller within five (5) Days of the estimated date of delivery of such spare
part. Separate purchase orders must be issued by Reseller for each shipment
destination.
(B) Lead-Time
Except when a spare part is not in stock, Company will
generally ship within * (*) working days of the receipt of an Emergency Order
or to meet Reseller's due date whichever is later.
(C) Handling and Freight Charges
A handling charge equal to * percent (*%) of the regular
Reseller price for the part shall be added to any part shipped from stock,
except when the part had been previously ordered by Reseller and has not been
delivered within the time frames set forth in 2.B above. Reseller shall
designate the method of delivery and shall bear the costs hereof.
(D) Emergency Order Limitations
A daily maximum of * (*) part numbers, each with no more than
* (*) units may be ordered.
4. Duration of Spare Parts Support
Company shall make available to Reseller the spare parts and
consumables during the term of this Agreement and for a minimum of * (*)
years from the earlier of the date of termination to the Agreement, the date of
discontinuance of the item or the Deliverable or from delivery of the last unit
of equipment hereunder. Thereafter, Company shall give Reseller ninety (90) days
prior written notice of discontinuance and the opportunity to purchase a
reasonable number of such parts within the said ninety (90) day period.
* Confidential information has been omitted and filed separately with the
Commission
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T/R-MINOLTA Supply Agreement Thursday, January 21, 1999
Company shall, from time to time, during the term of the Agreement,
make available to Reseller its most current list of supplies for the
Deliverables and the prices then applicable thereto. In the event of
manufacturer production or shipping delays, Company shall allocate distribution
of such items in a fair and equitable manner among all other customers, even
though this may effectively limit delivery of ordered quantities.
5. Terms of Payment for Spare Parts and Repairs
Payment is due * (*) days after bill of lading date.
ALL SPARE PARTS PRICES FOR COMPANY ARE QUOTED ON A F.O.B. NEAREST U.S.
SHIPPING POINT WHERE PARTS ARE THEN AVAILABLE. THEY SHALL BE INVOICED AND
PAYABLE IN U.S. DOLLARS.
6. Service Documentation
Company will supply Reseller, one set of documentation with the initial
delivery of Deliverables. Reseller may purchase reasonable additional quantities
of documentation for Reseller's internal use only at company's then prevailing
prices. With reasonable lead-time, Company shall deliver to Reseller artwork for
reproduce and publish portions of said documentation for incorporation in
Reseller's own User Manual and Field Maintenance Manual(s). Such manual(s) of
Reseller shall bear a copyright notice of Reseller provided, however, that any
copyright interest of Reseller therein shall be subordinate to any existing
copyright interest of Company or such other author as Company may designate.
* Confidential information has been omitted and filed separately with the
Commission.
14
<PAGE> 15
Attachment A Spare Parts List
MicroPress ClusterServer
Effective December 1, 1998
All prices in US Dollars
<TABLE>
<CAPTION>
Model Code Description Minolta Price
<S> <C> <C>
PSCKx Printer Cable $ *
ODS2 Host Adapter, AMCC $ *
RPLCii Replacement PrintLink Cii $ *
RPL062 Replacement PrintLink 062 $ *
RHA Replacement Host Adapter $ *
300-000178-01 32 X CD-ROM Drive $ *
300-000372-00 9.1 GB Hard Drive $ *
300-000037-00 3.5" Floppy Drive $ *
300-000042-00 17" Color Monitor $ *
300-000396-00 Systems Chassis w/400 mhz main board $ *
300-000394-00 400 mhz Intel Pentium Processor $ *
300-000392-00 128 mb DIMM $ *
300-000440-00 256 mb DIMM $ *
300-000397-00 101 Keyboard, PS2 $ *
300-000398-00 Microsoft Mouse, PS2 $ *
300-000315-00 SCSI Terminator $ *
300-000338-01 Cable, assembly U/W SCSI II $ *
300-000048-00 Microsoft NT, ver 4.0 $ *
</TABLE>
* Confidential information has been omitted and filed separately with the
Commission.
15
<PAGE> 16
Attachment B Price T/R Systems, Inc.
Minolta Di620 Pricing
Effective Date: December 14, 1998
<TABLE>
<CAPTION>
Product Model Codes Minolta
------- ----------- Price
-----
US $
<S> <C> <C>
Base Server & Software
- ----------------------
Base Server 062 MPBS400 *
Base Software 062 (Includes 062 Enable, One 2-Output Device Support, BSSW062 *
Impositions and MicroSpool)
Output Enable
- -------------
Output Enable Cii OPENCii *
Output Enable 062 (included in base software) OPEN062 *
Output Device Support
- ---------------------
2-Output Device Support (One ODS2 included in base software) ODS2 *
PrintLinks
- ----------
PrintLink Cii PLCII *
PrintLink 062 PLC062 *
Optional Software
- -----------------
MicroSpool (required for 2 or more devices) MSPOOL *
Color Tools CTOOLS *
Color Tools+ CTOOLS+ *
QuadLevel QUAD *
StochasticFM STOFM *
MPTrap MPTRAP *
Imposition (included in base software) IMPOS *
DocumentMerge MERGE *
VariableForms FORMS *
Page Numbering PAGENUM *
Image Manipulation IMAGEMAP *
Job Scripting SCRIPT *
Page Annotation PAGEANNO *
MicroTicket MICROTICKET *
PSM to PDF Utility PSM-PDF *
PSM to TIFF Utility PSM-TIFF *
MicroTIFF Utility MICROTIFF *
Furniture
- ---------
ClusterServer Console CSCONSL *
</TABLE>
* Confidential information has been omitted and filed separately with the
Commission.
16
<PAGE> 17
Attachment B Price T/R Systems, Inc.
Minolta Di620 Pricing
Effective Date: December 14, 1998
<TABLE>
<CAPTION>
Product Model Codes Minolta
------- ---------- Price
-----
<S> <C> <C>
Upgrades
- --------
Upgrade to Dual 400 UP2NDPROC *
9 GB Hard Drive Upgrade UP9GHD *
Upgrade to 512MB 512UP266/400 *
</TABLE>
* Confidential information has been omitted and filed separately with the
Commission.
17
<PAGE> 18
<TABLE>
<CAPTION>
ATTACHMENT C:
Deliverables
Deliverable Item Exclusive or Non- Description
exclusive
<S> <C> <C> <C>
PrintLinks Print Link 062 Exclusive PrintLink 062 includes
Communication PrintAdapter board and
Hardware chassis
Technology and Software 062 Enable Software Exclusive Enables Support for
Packages Di620
062 PPDs for Printer Exclusive Di620 PrintDrivers for
drivers Mac and Windows
Operating Systems
<CAPTION>
Attachment D:
Deliverables
Deliverable Item Exclusive or Non- Description
exclusive
MicroPress PressDirector Computer Non-exclusive A 400 MHz Pentium 2
Cluster Server processor with 256 Meg
Ram, 9.1 Gig Hard drive,
Monitor, Floppy, 10/100
Ethernet, NT Server 4.0
with 5 site license
Host Adapter Non-exclusive Dual Port PCI Host
Adapter
Video Cable Non-exclusive 8 Meter Cable to connect
Host Adapter to Print
Adapter (Print Link)
Technology and Software Base Software Non-exclusive RIP, PSM, ODS2, 062
Packages Enable (062 Enable is
Exclusive, see X2)
Optional Software Non-exclusive All Other Release Version
4.52 Software Modules
==================================================================================================================
</TABLE>
18
<PAGE> 19
Attachment E: ENGINEERING CHANGE REQUEST PROCEDURE
ENGINEERING CHANGE PROCEDURE
The following procedures shall be used for engineering changes made by T/R or
Minolta into the Deliverable or Minolta digital copier.
However, these procedures do not cover the changes in the specifications of the
Deliverable agreed by both parties.
1. Minolta shall provide T/R with the engineering changes incorporated in
the digital copier by the form of the service bulletin.
2. T/R shall notify Minolta, in writing, of all details (including
description of the change, the reason for the change, effectivity of
the change, parts description, and spare parts information) of any
proposed Class I Change (as described below) prior to delivery of any
Deliverable incorporating such change after Acceptance. Minolta shall
have * (*) days after receipt of the foregoing information to
accept or reject such change. No change shall be unreasonably rejected
by Minolta. T/R shall not discontinue shipment of any Deliverable
released by Minolta pending Minolta's approval of such Class I change
without Minolta's prior written consent. T/R shall notify Minolta, in
writing * (*) days prior to shipment, of all details of Class II
changes, Class II Changes do not require approval of Minolta.
2-1. Class I Change
The term "Class I Change" shall mean an engineering change that affects
one or more of the following items:
(i) Form (external appearance)
(ii) Fit (unit and/or spare parts interchangeability)
(iii) Function (unit and/or spare parts interface or specification)
(iv) Spare parts (not interchangeable)
(v) Special tooling (not interchangeable)
(vi) Price changes due to Class I Change and/or Class II Change
(unit and/or spare parts)
2-2. Class II Change
* Confidential information has been omitted and filed separately with the
Commission.
19
<PAGE> 20
The term "Class II Change" shall mean an engineering change not
affecting the items described under Class I Change above.
3 Procedures
3-1. T/R shall inform Quality Assurance Division of Minolta by facsimile or
mail of the need of a change by the form (ECR) attached with the T/R's
signature in the column of ORIGINATOR.
3-2. Minolta shall reply for the acceptance or rejection of such change, to
T/R within * weeks after the receipt of the ECR. And within the period
Minolta may request T/R to send a sample of the new parts. In the event
of any delay for such response by Minolta, Minolta will notify T/R of
the reason of such delay and propose action plans. In the case that the
response by Minolta has not been given to T/R within * (*) weeks after
the receipt of the ECR, the change shall be deemed to be accepted by
Minolta.
3-3. T/R shall proceed the implementation of such change after the receipt
of Minolta's acceptance.
4. Emergency Procedures
4-1. In the case that the urgent implementation of a change is needed, T/R
shall inform Minolta of such change by facsimile, Minolta shall respond
within * hours after the receipt of ECR from T/R.
4-2. In the case that the response of Minolta was not made to T/R within
such period, the change shall be deemed to be accepted.
5. ECR FORM
ECR form shall be used for the changes as described in Item 2-1.
5-1. There are two types of ECR forms. One is complete ECR form with the
columns of all necessary information shown in Fig. 1. The other is an
ECR description sheet in Fig. 2. The description sheets may be used
with the complete ECR form to provide additional information or
illustrations.
* Confidential information has been omitted and filed separately with the
Commission.
20
<PAGE> 21
5-2. ECR Form Description
The content of each column is described below.
The following item numbers correspond to the numbers in Fig. 1 and
Fig. 2.
(1) MODEL: is specified model name.
(2) SUBJECT: represents proper contents of the change.
(3) ECR NO is ECR identification assigned by T/R. All ECR numbers
begin with a specified capital letter "E". And following three
digits of number are added after each letter of the specified
capital letter "E". For example, T/R's first ECR number
commences from "E001".
(4) ORIGINATOR: is the name of person(s) of T/R in charge.
(5) DATE: is the date the ECR is issued.
(6) DESCRIPTION OF CHANGE: The contents of the changes are
described. Illustration or drawing showing the changing points
may be attached. If another sheet is necessary, ECR
description sheet (Form 2) shall be used.
(7) REASON FOR CHANGE: A proper box of reason for change is
checked.
PERFORMANCE IMPROVEMENT
COST REDUCTION
SAFETY
STANDARDIZATION OF PARTS
COMPATIBILITY WITH OTHER DELIVERABLE
OTHER (Specific reason is written in this column)
(8) CHANGE EFFECTIVITY
a. ESTIMATED: to describe both the estimated date and
serial number of the change.
b. FINAL: to describe the actual implementation date and
serial number.
(9) MACHINE COST CHANGE: is either YES or NO dependent on if there
is a
21
<PAGE> 22
Deliverable cost change as a result of this ECR. In case of
Yes, the price or the price difference is described in this
column.
(10) OTHER COST REQUIREMENTS: is either YES or NO dependent on if
there is a cost requirement such as engineering cost, molding
cost or others as a result of this ECR. In case of YES, the
cost to be paid by T/R is described in this column.
(11) - (17)
There are two blocks on the form which describing individual
parts information, one is called OLD and the other NEW. OLD
means the part as it exists on the Deliverable now. NEW means
the part after modification. Each number in OLD block
corresponds to the same number in NEW block.
(11) PART NO.: is T/R's part number for the part to be changed.
REF.PART NO. column remains blank. In case of parts addition,
a horizontal line should be drawn through the row in the "old"
block corresponding to that part. In case of parts deletion, a
horizontal line should be drawn through the row in the "new"
block corresponding to that part.
(12) PART NAME: is the part name in accordance with the parts
manual issued by T/R.
(13) QTY: refers to the quantity of that part used in the one unit
of the Deliverable.
(14) FIG/IND: is figure number and index number in parts manual of
T/R. Edition number of the parts manual is entered in the
blank after the letters "PM".
(15) REMARKS: can be used for extra information concerning the
part.
(16) COST" is the price per part in US$ if there are changes in
part price as a result of this ECR. A US$ sign should be put
in the cost column to clarify the unit. The price difference
is indicated in the parenthesis with + or -. e.g. US$40
(+US$1.00).
(17) P.I.A.: refer to the three boxes which are located in the
middle of the form. The most suitable code will be selected
and entered in each column.
22
<PAGE> 23
a. In the "P" column, the purpose of the change will be
indicated.
A: add
B: delete
C: change
D: QTY change
b. In the "I" column, the code for the interchangeability
of the new part with the old is indicated. This code
means how the new and old part can be used on the new
and old Deliverable.
A: Both new and old parts can be used for both
Deliverable after and before modifications.
This is the case that the parts have fully
mutual interchangeability.
B: New part can be used for the Deliverable
before modification, and Old part can not be
used for the Deliverable after modification.
C: New part can be used for the Deliverable
after modification, and can not be used for
the Deliverable before modification.
However, old part can be used for both
Deliverables before and after modifications.
D: New part can only be used for the
Deliverable after modification. Old part can
only be used for the Deliverable before
modification.
c. In the "A" column, either Y (YES) or N (No) for
indicating the necessity of the artwork change for
the new part will be written.
Y: artwork change is necessary
N: artwork change is not necessary
(18) REPLY: in reply to T/R ECR, the ACCEPT or REJECT box is
checked by Minolta with Minolta's person's signature and date.
(19) REASON FOR NOT ACCEPT: when the REJECT box is checked, its
reason should be described in this column.
23
<PAGE> 24
Fig. 1
ENGINEERING CHANGE REQUEST (ECR)
<TABLE>
<S> <C> <C> <C>
MODEL: # (1) SUBJECT: (2) ECR NO.: (3)
ORIGINATOR: (4) APP'D CHECK'D DESIGN'D APPROVAL (INTERNAL): DATE:
DATE: (5)
DESCRIPTION OF CHANGE: (6) REASON FOR CHANGE:
(7)
[ ] PERFORMANCE
IMPROVEMENT
[ ] COST REDUCTION
[ ] SAFETY
[ ] STANDARDIZATION
OF PARTS
[ ] COMPATIBILITY
WITH OTHER
PRODUCTS
[ ] OTHER
CHANGE EFFECTIVITY: (8) MACHINE COST OTHER COST REQUIREMENT
(ESTIMATED) (FINAL) CHANGE: (9) ENG./MOLD/OTHER: (10)
DATE: ____________ DATE: ____________ [ ] WILL BE INFORMED [ ] YES -> [ ] YES ->
BY [ ] NO [ ] NO
S/N: ____________ S/N: _____________ SERVICE BULLETIN
PURPOSE: (P) INTERCHANGEABILITY: (I)
A ADD [X] OLD PART [ ] NEW PART ART WORK CHANGE: (A)
B DELETE [X] OLD MACHINE [ ] NEW MACHINE
C CHANGE A B C D Y: YES
D QTY CHANGE
E MIS ENTRY N: NO
F OMISSION
No. REF. PART NO. MINOLTA PART NO. PART NAME QTY. FIG./IND.<- PMN REMARKS
1 (11) (12) (13) (14) (15)
O 2
L 3
D 4
5
No. REF. PART NO. MINOLTA PART NO. PART NAME QTY. COST (NET) P I A
1 (16) (1 7)
N 2
E 3
W 4
5
REPLY: (18) REASON FOR NOT ACCEPT:
[ ] ACCEPT [ ] REJECT [ ] NEW SHEET ISSUE (19)
SIGN:
-------------------------------------------------
DATE:
-------------------------------------------------
</TABLE>
24
<PAGE> 25
Fig. 2
ENGINEERING CHANGE REQUEST (ECR)
MODEL: # (1) SUBJECT: (2) ECR NO.: (3)
DESCRIPTION OF CHANGE: (6)
25
<PAGE> 1
EXHIBIT 10.14
APRIL 1, 1999
AGREEMENT
This AGREEMENT is entered into as of the 1st day of April, 1999, by and
between HITACHI KOKI IMAGING SOLUTIONS, INC., a corporation having its
principal place of business at 1757 Tapo Canyon Suite 203, Simi Valley, CA 93063
(hereinafter "HKIS"), and T/R SYSTEMS, INC., a Georgia, U.S.A. corporation
having its principal place of business at 1300 Oakbrook Drive, Norcross, GA
30093 (hereinafter "T/R").
RECITALS:
a. T/R has designed and developed, and currently assembles, distributes
and sells, a proprietary commercial printing system know as the
MICROPRESS(R) PressDirector(TM) ClusterServer(TM), which currently
includes MICROPRESS(R) Release 4.52, the details of which are set
forth in Schedule 1, which is incorporated by this reference
("System").
b. T/R has proprietary skills, know-how, technology, inclusive of trade
secrets and other know-how, and patent rights applicable to the
product architecture, development, design, assembly, manufacturing,
connectivity, production and distribution of the MICROPRESS(R)
commercial printing system.
c. HKIS desires to: (i) distribute Systems incorporating HKIS network
printer/copier devices identified in Schedule 1 ("Printers"), (ii)
purchase certain equipment assembled by T/R for incorporation into
such Systems, and (iii) have the worldwide right on behalf of HKIS
and its parent company, Hitachi Koki Company, Limited, to sell or
otherwise distribute such connected Printers and Systems (whether
connected to a Printer or distributed separately) under the
trademarks and logos of HKIS or its parent company, either directly
or through their respective OEMs and distributors.
d. HKIS desires for T/R to develop (where such development has not
already been completed) connectivity software and hardware as
required for the Printers to be connected to and be controlled by the
respective System.
e. To accommodate the foregoing matters, and to effect certain matters
and undertakings between T/R and HKIS, such parties have entered into
this Agreement.
<PAGE> 2
NOW, THEREFORE, the parties hereby agree as follows:
1. Definitions.
1.1 "Confidential Information" means information
disclosed by either party to the other during the term of this Agreement
including, but not limited to, technical or nontechnical data, Know-how, trade
secrets, skills and processes, designs, drawings, documentation, software
(regardless of form or media), machinery, prototypes, methods, concepts,
facilities, research, development and business activities, whether obtained or
disclosed orally or in writing or through observation, but excluding any such
information which (i) is publicly available through no fault of the receiving
party; (ii) is in the receiving party's possession free of any obligation of
confidence to the disclosing party at the time it was communicated to the
receiving party; (iii) is received independently from a third party who is free
to disclose such information; or (iv) is demonstrated to have been subsequently
and independently developed by the receiving party without the use of
Confidential Information of the disclosing party. Notwithstanding the
foregoing, in order to be considered Confidential Information, tangible
information must be marked with the words "confidential" or "secret" or with
words of similar import. Non-tangible information must be reduced to a writing
by the disclosing party, which writing must describe the information as
confidential or secret and must be delivered to the recipient party within
thirty (30) days of the date of disclosure. Notwithstanding the foregoing,
information supplied by T/R relating to the Systems and not so marked or
reduced to writing shall be presumed to be Confidential.
1.2 "Customer" means any Person that acquires Systems
from HKIS or its parent company for its own use or for sale, lease or other
disposition (e.g., an OEM or distributor).
1.3 "Deliverables" has the meaning set forth in Section
4 hereof.
1.4 "End User" means a Person that acquires a System
directly from HKIS or its parent company or indirectly from a Customer of HKIS
or its parent company, and uses the System for any purpose other than resale or
further distribution.
1.5 "Improvement" means any and all derivatives,
improvements or betterments of the T/R Intellectual Property Rights made by T/R
or any other Person, including all intellectual property rights pertaining
thereto, including patent rights, copyright rights, trade secrets, Know-how or
similar rights recognized under applicable law.
1.6 "Know-how" means knowledge, information, inventions
(other than those embodied in the Patent Rights), trade secrets and systems
used in the design, development, manufacture, assembly, servicing or testing of
the MICROPRESS(R) commercial printing system.
1.7 "T/R Intellectual Property Rights" means the
following rights, knowledge,
2
<PAGE> 3
know-how and similar intellectual property owned by T/R and used in the design,
development, manufacture, assembly, servicing or testing of the System or any
portion thereof:
(a) Patent Rights;
(b) Copyrights and applications therefor
(including the right to make derivative
works);
(c) Trade secrets;
(d) Know-how and any other proprietary
information; and
(e) All Improvements.
1.8 "HKIS Orders" has the meaning set forth in Section
7 hereof.
1.9 "Patent Rights" means all T/R domestic and foreign
patents (including applications therefor) and all divisions, continuations,
continuations-in-part, re-examinations and reissues or extensions thereof,
whether now or hereafter issued, containing a claim or claims in whole or in
part relating directly or indirectly to the design, development, use or
manufacture of the System or any portion thereof and the processes and methods
associated therewith, and all Improvements thereto that become the subject of a
patent application.
1.10 "Person" means any individual, partnership, joint
venture, corporation, trust, unincorporated organization, government,
governmental agency or any other entity.
1.11 "Subsidiary" means a corporation or other entity of
which more than 50% of the shares of the outstanding stock (representing the
right to vote for the election of directors or other managing authority) are
now or hereafter owned or controlled, directly or indirectly, by a party
hereto, but such corporation or other entity shall be deemed to be a Subsidiary
only so long as such ownership or control exists.
1.12 "System" means commercial printing systems to be
assembled for HKIS pursuant to the License and incorporating the Deliverables,
all as more particularly described on Schedule 2 hereto, or as used herein as
context may require, any portion thereof.
1.13 "Technical Assistance" means the technical
assistance to be provided by T/R to HKIS as provided in Section 3 hereof.
1.14 "Territory" shall mean the entire world.
2. System Distribution Rights.
3
<PAGE> 4
2.1 Rights and Appointment. Subject to the terms and
conditions hereof, T/R hereby grants to HKIS the right to market, sell, lease,
promote, advertise and otherwise distribute documentation (which may be
modified, reproduced and distributed) and Systems which Systems include
deliverables purchased from T/R hereunder, under HKIS', its parent company's or
their OEM's names. Such products may be sold to Customers who are not End Users
for resale to End Users. This right and appointment is non-exclusive, except to
the extent the Systems include Printers identified in Schedule 2.1, in which
case HKIS' appointment as distributor hereunder of such Systems is exclusive. It
is understood by both parties that Schedule 2.1 will be updated periodically by
mutual agreement.
2.2 Labeling; Use of MicroPress(R) Trademark. HKIS shall
apply to the Systems manufactured for sale by or for HKIS to Customers a
statement reasonably located and sized, identifying the fact that the Systems
were developed using and include T/R Intellectual Property Rights, proprietary
to T/R and, as applicable, are subject to patents or patents pending, and which
shall identify by number any issued patents which are part of the Patent Rights.
Such statement, and its proposed location and size, shall be submitted to T/R by
HKIS in advance of its use for pre-approval by T/R, which approval shall not be
unreasonably withheld. Furthermore, during the term hereof, HKIS may use the
trademark MicroPress(R), and T/R hereby grants a non-exclusive license to HKIS
for such purpose; however, HKIS may not continue to affix the trademark
MicroPress(R) to HKIS products after the effective date of termination or
cancellation of this Agreement. All usage of such trademark, including any
display thereof and the artwork comprising the same, and location and size,
thereof must be approved in advance by T/R, which approval shall not be
unreasonably withheld. This trademark may only be used on products assembled
with or incorporating the Deliverables purchased and licensed hereunder and for
promotion and advertising therefor in the Territory.
3. System Development and Technical Assistance. To effectuate
the purposes of this Agreement, upon the reasonable request by HKIS and subject
to the terms and conditions of the License, T/R, employing the T/R Intellectual
Property Rights, shall consult with HKIS during T/R's development and product
launch of Systems with respect to: (i) the design and operation of the Systems,
inclusive of the selection and design of print engine therefor; (ii) HKIS'
connectivity for the Systems; (iii) HKIS' initiation of distribution processes
for the Systems; (iv) HKIS' marketing plans and operations; (v) HKIS' current
and future device connectivity to the System; and (vi) similar matters related
thereto. System specifications are attached to Schedule 2 of this Agreement and
are incorporated by this reference. Each of T/R and HKIS will appoint and assign
a lead technical liaison to interact and support the technical interface between
T/R and HKIS. T/R and HKIS will meet quarterly to review the business activity
as to sales and marketing plans, service plans and future product plans. T/R
agrees to conduct one free "train-the-trainers" course for HKIS prior to the
product launch with respect to each System (i.e., one training course for each
type of Printer for which T/R designs a System), and additional training courses
as requested by HKIS for a price to be mutually agreed-upon by the parties. T/R
shall provide HKIS with post-launch technical support and maintenance in
accordance with section 9 of this Agreement and the post-release technical
support procedures attached hereto as Schedule 3, which are incorporated by
4
<PAGE> 5
this reference. T/R shall have no obligation to provide support directly to
HKIS' Customers. Development shall be conducted according to the milestone
project schedule attached hereto as Schedule 5.
4. Deliverables.
4.1 Defined. For each System purchased hereunder, T/R
shall deliver, in accordance with purchase orders issued by HKIS ("HKIS
Orders"), the servers, software, documentation in electronic form and related
technology and communications hardware more fully described in Schedule 2 (the
"Deliverables").
4.2 Delivery. The Deliverables shall include, as
appropriate, certain documentation related thereto prepared by or for T/R. The
Deliverables shall be delivered F.O.B. T/R's Norcross, Georgia, U.S.A.
facility. All risk of loss shall be conveyed and passed to HKIS upon delivery
of the Deliverables at T/R's facility to HKIS or its carrier or other agent. To
the extent any of the Deliverables includes T/R Intellectual Property Rights,
including without limitation, software, codes, Know-how, Patent Rights,
Licensed Intellectual Property Rights and other such rights, no title will pass
to HKIS (although End Users will be afforded a software license as provided in
Section 10.4 hereof). Title will pass to HKIS upon delivery as to server, other
hardware, media and other items included within the Deliverables which do not
constitute nor comprise T/R Intellectual Property Rights.
4.3 Third-Party Sourcing of PC Servers. Nothing herein
shall be construed to require HKIS to purchase PC Servers from T/R alone; HKIS
shall have the right to purchase from any third parties of its choosing PC
Servers for incorporation into Systems and Printers. T/R agrees to provide HKIS
with technical support in the selection of alternate PC Servers for use with
Systems pursuant to Section 3 of this Agreement at mutually agreed to
certification fees per server platform.
5. Fees and Prices
5.1 Technology Access Fee. In exchange for T/R's
appointment of HKIS pursuant to Section 2.1 hereof, and in part for T/R's
agreement to provide the Technical Assistance pursuant to Section 3 hereof, HKIS
shall pay T/R the one-time non-refundable technology access fee set forth in
Schedule 1 for each print device listed therein or later added hereto by
agreement of the parties. Such technology access fees shall be payable with
respect to each System in two equal installments, one-half due and payable
thirty (30) days from execution and delivery of this Agreement, with the
remaining one-half due and payable net payable thirty (30) days from HKIS'
acceptance of the production version of the System. Payment of technology
access fees for Systems designed for Printers added to Schedule 1 after the
effective date of the Agreement shall be payable in two equal installments,
one-half due and payable net thirty (30) days from the addition of the Printer
to Schedule 1, with the remaining one-half due and payable net thirty (30) days
from HKIS' acceptance of the production version of the System. Technology
access fees are
5
<PAGE> 6
for United States English version of the software user interface and
documentation. HKIS and its parent company shall have the right to acquire
access to additional language versions for the translation fees identified in
Schedule 1. HKIS and its parent company shall also have the right to make such
translations itself, or to have such translations made by a third party of
HKIS' selection. Acceptance criteria for the production version of the System
will be defined and mutually agreed to by the parties within thirty (30) days
of execution of this Agreement.
5.2 Equipment Purchase Price. Equipment purchase prices
for Deliverables shall be as provided on Schedule 2 (the "Price List") for the
term of this Agreement. T/R shall be entitled to add new options, servers,
software and equipment to the Price List after reviewing pricing with HKIS, and
HKIS shall be entitled to purchase such new Deliverables under the terms and
conditions of this Agreement. T/R may from time to time revise the Price List.
Any change in the Price List will be effective as to HKIS Orders received after
* (*) days of the issuance of such revision. T/R will give due consideration to
the input of HKIS when updating Price List changes to the extent that changes
will be mutually agreed to in advance.
5.3 Consulting, Training Compensation. As compensation
for post-launch consulting and training required to be provided in addition to
Technical Assistance pursuant to Section 3 hereof, HKIS shall pay T/R
consulting and/or training fees, set forth in Schedule 3. In addition, HKIS
shall reimburse T/R's travel and living expenses incurred in connection with
such consulting and training as reasonably incurred. The fees shall be subject
to adjustment only by the mutual written agreement of the parties.
6. Payments. Payments for technology access fees pursuant to
Section 5.1, for license fees and equipment purchase price amounts in respect
of the Deliverables pursuant to Section 5.2, for consulting and training
pursuant to Section 5.3 and for maintenance pursuant to Section 9 shall be due
and payable by HKIS net * (*) days from the date of invoice so long as the
date of invoice is no earlier than the date of delivery of the Deliverables or
service. A late payment charge of one and one half percent (1.5%) per month
shall be charged upon unpaid balances due for more than thirty (30) days,
provided that T/R has notified HKIS in writing of such delinquency. In the
event such a delinquency in payment by HKIS extends for more than thirty (30)
days from T/R's written notice thereof, T/R reserves the right to request
advance payment of HKIS Orders until the delinquency is remedied by HKIS. All
pricing and fees under this Agreement are exclusive of taxes. Except for taxes
based on T/R's net income, HKIS shall pay any national, federal, state, county,
local or other governmental taxes, fees or duties now or hereafter imposed on
the licensing, export, use or possession of the Deliverables or any other
transaction contemplated by this Agreement, as well as any penalties or
interest thereon. Notwithstanding anything in this Agreement to the contrary,
if, under any applicable law, HKIS is required to withhold tax or any other
amount from any payment to T/R, the amount due to T/R shall be increased to the
amount T/R would have received if no withholding had been required.
7. HKIS Orders.
* Confidential information has been omitted and filed separately with the
Commission.
6
<PAGE> 7
7.1 Monthly Forecasts and Periodic Purchase Orders.
Each month, HKIS shall submit to T/R a six-month, non-binding, rolling forecast
of its expected requirements. The first forecast will be submitted sixty (60)
days in advance of the first month's requirements. HKIS shall also issue
periodic written purchase orders ("HKIS Orders") to T/R for Deliverables. All
HKIS Orders shall specify: (a) the quantities and descriptions of the
Deliverables ordered; and (b) requested delivery dates and shipping
instructions.
7.2 Cancellation and Rescheduling. Monthly forecasts
shall specify forecasted order quantities by month with the first (most
current) month's purchase quantity being firm and noncancellable. Months "two"
and "three" of the monthly forecast may adjusted plus or minus *%;
additionally, HKIS shall have the right to reschedule for delivery up to *% of
the forecast for months two and three. Quantities so rescheduled may not be
further rescheduled, adjusted or cancelled by HKIS.
7.3 Order Acknowledgment and Acceptance/Rejection. The
terms and conditions of this Agreement shall apply to all HKIS Orders submitted
to T/R and supersede any different or additional terms contained on HKIS'
Orders or T/R's order acknowledgments or other similar documents. All orders
are subject to acceptance, which acceptance shall not be unreasonably withheld
by T/R, by issuance of an order acknowledgement or similar document.
Notwithstanding the foregoing, HKIS Orders conforming to the requirements of
this Agreement, which are not rejected by T/R within five (5) days of receipt,
shall be automatically be deemed accepted by T/R. Lead times for Deliverables
are specified in Schedule 2, and T/R shall not be required to deliver
Deliverables earlier than the specified lead time from the date of receiving
HKIS' Order. T/R shall use reasonable efforts to provide for timely delivery of
accepted HKIS Orders. Notwithstanding the foregoing, T/R shall not be
responsible for any expenses arising from a failure to deliver a quantity
specified in a HKIS Order which exceeds the previously-forecasted quantity by
more than * percent (*%), and in no event shall T/R be liable to
HKIS or any third party for consequential damages such as loss of sales. HKIS
shall be entitled to cancel or reschedule in whole or in part any Order which
T/R is late in delivering by providing written notice thereof to T/R prior to
actual delivery HKIS shall have the right to inspect Deliverables after
delivery by T/R and to reject nonconforming or defective Deliverables within
thirty (30) days of the date of delivery by requesting a Return Material
Authorization number from T/R and returning the defective or nonconforming
Deliverables to T/R, freight prepaid, F.O.B. HKIS' shipping dock. T/R shall, at
its sole option and expense, either repair or replace the defective
nonconforming Deliverables and return them to HKIS, freight prepaid, F.O.B.
T/R's shipping dock, Norcross, Georgia.
8. Purchase Commitments. HKIS has provided T/R with its volume
commitment for purchases of Systems for the first * (*) years of this
Agreement following first-customer-shipment availability of a HKIS-exclusive
System (set forth in Schedule 2), which committed requirements are set forth in
Schedule 4. HKIS provides this commitment in reliance upon the representations
of T/R that: (i) T/R is committed to maintaining a competitive position in
cluster printing solutions market, (ii) T/R is committed to providing
competitive functionality in its
* Confidential information has been omitted and filed separately with the
Commission.
7
<PAGE> 8
Systems, and (iii) T/R is committed to providing the marketing support that
HKIS reasonably requires to achieve its volume commitment (reasonably
consistent with the level of support T/R provides to its other OEM partners).
9. Maintenance and Post-Release Technical Support. T/R will
provide HKIS and its parent company (not HKIS Customers or End Users) with
software updates, bug fixes, software releases and post-release technical
support in accordance with the procedures set forth in Schedule 3 for an annual
maintenance charge to be determined by good faith negotiation and mutual
agreement of the parties within thirty (30) days of the execution and delivery
of this agreement, it being the intention of the parties that such fees and
charges shall be similar to those offered by T/R to other OEM's but tailored to
coordinate with maintenance to be offered by HKIS to its Customers.
10. Ownership and Proprietary Rights.
10.1 Ownership. T/R represents and warrants that it owns
all rights, title and interest in and to the T/R Intellectual Property Rights
and the Deliverables as are necessary to sell the Deliverables and to grant the
right and licenses granted by it under and pursuant to this Agreement. T/R
further represents and warrants that as of the Effective Date of this
Agreement, it does not know or have reason to believe that the Deliverables or
Systems, or components thereof including software and related documentation to
be provided by T/R hereunder infringe any U.S. or foreign patent, copyright,
intellectual property or other proprietary right of any party. T/R further
represents and warrants that it is not a party to any legal proceeding (and
knows of no claim against it) in which such infringement is alleged.
10.2 Proprietary Rights and Protection of Confidential
Information. The parties acknowledge that the Confidential Information provided
by the parties pursuant to this Agreement constitutes valuable trade secrets
and/or confidential information of the disclosing party, ownership of which is
not transferred by this Agreement. Ownership of all applicable copyrights,
trade secrets, patents and other intellectual property rights in the T/R
Intellectual Property Rights and the Deliverables shall remain vested in T/R.
Title to all T/R Intellectual Property Rights and any derivative works thereof
shall remain with T/R. No Confidential Information shall be disclosed to any
third party whatsoever without the prior express written approval of the
disclosing party, and all such Confidential Information shall be protected by
the recipient party with at least the same diligence, care and precaution that
the recipient party uses to protect its own confidential and trade secret
information, but in no event less than reasonable care. Except as otherwise
provided in a further written agreement between the parties, all tangible
Confidential Information (including without limitation all equipment and other
materials containing any Confidential Information) shall, immediately upon the
disclosing party's request, be returned to the disclosing party, including any
and all copies, translations, interpretations and adaptions thereof. Neither
party shall use or disclose the Confidential Information except as required to
fulfill the purposes of this Agreement. HKIS shall not remove T/R's copyright
notices, restricted rights legends or any other notices from the Deliverables
and such notices shall appear
8
<PAGE> 9
on all tapes, diskettes and other tangible media distributed by HKIS containing
the T/R Intellectual Property Rights or constituting the Deliverables.
10.3 Unauthorized Use or Copying. Except as expressly
permitted hereunder, HKIS shall not copy, modify or reproduce the Deliverables
in any way, nor shall it permit third parties to do so. HKIS agrees to provide
reasonably-requested cooperation to T/R, at T/R's expense as to out-of-pocket
expenses reasonably incurred by HKIS, in any action relating to enforcement of
T/R's proprietary rights.
10.4 End User License. Any software included in or with
the Systems is subject to license and not sale. HKIS shall distribute the
software pursuant to HKIS' standard software license agreement, the minimum
terms of which are attached hereto as Schedule 6. In jurisdictions in which an
enforceable copyright covering the software exists, such license agreement may
be enclosed in the packaging or start-up screen of the System or software (i.e.
a "shrink wrap" or "click-wrap" license). In all other jurisdictions, unless
otherwise agreed, HKIS will ensure that each End User signs a copy of such
Agreement prior to receipt of the Deliverables. T/R, or such other party from
which T/R has acquired the right to grant such license, shall retain full title
to the Software and all copies thereof. Neither HKIS nor its Customers shall
have access to or rights in the software source code. Except as otherwise
provided herein, neither HKIS nor its Customers or End Users shall have the
right to copy, modify, reverse engineer, or disassemble any software or part
thereof. HKIS shall make no representations or warranties on behalf of T/R.
HKIS shall bind T/R to no representations HKIS makes to its Customers or End
Users or other third parties regarding the Deliverables except as set forth in
the applicable documentation therefor provided by T/R. HKIS will be responsible
for all conversions, translations and localizations necessary for use of the
Deliverables by End Users in the various countries included within the
Territory. T/R will provide translation services on a per language basis at
fees specified in Schedule 1. Translated versions will be delivered after the
American English version in accordance with a jointly agreed schedule.
10.5 Third Party Software. To the extent the software
included within the Deliverables constitutes software or other technology
rights owned by a third party and licensed to T/R, such software is referenced
by the list contained in Schedule 7.
10.6 Security. The software included within the
Deliverables will be protected by a security mechanism known as a "dongle."
HKIS may copy the software for distribution with T/R supplying the "dongle" for
the software for each System. HKIS shall not disable or provide to have
disabled, the security mechanisms protecting the software.
10.7 Indemnification. Each party hereto (an
"Indemnitor") shall, at its expense, indemnify, defend and hold the other party
and its parent company, subsidiary company, and operating divisions
(collectively, the "Indemnitees") harmless in connection with any claim, or in
any suit or proceeding brought against or threatened against the Indemnitees or
for injuries, losses, damages and expenses directly incurred by them based or
arising from the failure of the
9
<PAGE> 10
Indemnitor to comply with any provisions of this Agreement or breach any
representation of warranties provided for herein. Indemnitor shall be given
sole control of the defense and settlement of such suit or proceeding.
Indemnitees shall have the right, at their sole expense, to participate in the
defense and settlement of any infringement suit or settlement thereof, and will
provide reasonable assistance to Indemnitor at Indemnitor's expense as to
out-of-pocket expenses reasonably incurred by Indemnitees as requested by
Indemnitor, in connection with such claim, suit or proceeding. Indemnitor shall
pay all costs (including reasonable attorney's fees) incurred by, all
settlements agreed to, and all damages awarded against Indemnitees in respect
of any such third party claim. If the sale or use of a Deliverable is enjoined
T/R shall, at its sole expense, promptly (1) procure for HKIS the right to
continue using the Deliverable (2) modify the Deliverable to avoid the claim of
infringement so long as it performs in accordance with the specifications or
(3) replace the Deliverable with a non-infringing compatible and functionally
equivalent product.
11. Warranty.
11.1 Limited Warranty. T/R represents and warrants: (i)
that all Deliverables provided to HKIS pursuant to this Agreement are in all
respects "Year 2000 Compliant" in accordance with the Year 2000 Certification
and Warranty contained in Schedule 8 of this Agreement; (ii) that for the lesser
of (a) * (*) months after delivery of the Deliverables to HKIS' End User, or (b)
* (*) months after delivery of the Deliverables by T/R to HKIS, the hardware
components of each Deliverable shall conform to the descriptions in Schedule 2,
perform substantially in accordance with the specifications, and be free of
defects in material and workmanship; and (iii) that with respect to software
provided under this Agreement, for * (*) days after delivery, the software and
media shall conform to the descriptions in Schedule 2, perform substantially in
accordance with the specifications, and be free of defects in material and
workmanship. T/R does not guarantee that operation of the software will be
uninterrupted or error free. T/R shall, without charge to HKIS, within fifteen
(15) days after receipt of returned Deliverables from HKIS, repair or replace
and return, freight prepaid by T/R, any Product which is determined to be
defective within this warranty period, provided:
(a) HKIS notifies T/R of the alleged defect prior to the
expiration of the respective warranty period;
(b) HKIS obtains a Return Material Authorization (RMA)
number from T/R before returning the defective
Deliverables to T/R, freight prepaid by HKIS; and
(c) The Product has not been damaged, subjected to
misuse, abnormal operation, improperly altered or
repaired or maintained in a manner which is
reasonably determined to have adversely affected
performance or reliability.
11.2 Safety Hazard. "Safety Hazard" shall mean any
mechanical, electrical, chemical or other feature of any Deliverables which is
demonstrated in a clear and convincing
* Confidential information has been omitted and filed separately with the
Commission.
10
<PAGE> 11
manner to create an immediate and substantial risk of injury to persons and/or
material damage to property, including to the Deliverables or to the
environment. In the event the parties determine that a Safety Hazard exists in
the Product, T/R shall: (a) expeditiously develop and implement changes
reasonably required to correct the Safety Hazard; (b) ensure that the
Deliverables as modified conforms to the Specifications; (c) as soon as possible
but not more than * (*) days after such determination, provide conforming
replacement parts or replacement Deliverables as necessary to correct the
failure in all affected Deliverables previously delivered to HKIS under this
Agreement and reimburse HKIS for the reasonable costs of repairing or replacing
the defective Deliverables in the installed base; and (d) implement corrective
measures eliminating the Safety Hazard in all new Deliverables delivered to
HKIS. T/R agrees to defend, indemnify and hold HKIS, its parent company,
subsidiary company, and operating divisions, harmless from and against all
liability, loss, damages, costs and expenses (including reasonable attorney's
fees) in connection with any claim that the Product contains a Safety Hazard.
11.3 Disclaimer of Warranties. EXCEPT FOR THE EXPRESS
WARRANTIES PROVIDED IN THIS AGREEMENT, THE DELIVERABLES ARE PROVIDED, AND THE
GRANT OF LICENSE AS TO THE LICENSED INTELLECTUAL PROPERTY RIGHTS IS MADE, "AS
IS." T/R SPECIFICALLY DISCLAIMS ALL OTHER WARRANTIES EXPRESSED OR IMPLIED,
INCLUDING BUT NOT LIMITED TO, IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE AS TO ANY TERMS OR SERVICES PROVIDED UNDER THIS
AGREEMENT.
11.4 Damage Limitations. IN NO EVENT SHALL EITHER PARTY
BE LIABLE FOR ANY LOST PROFITS OR ANY COLLATERAL, CONSEQUENTIAL, INDIRECT, OR
INCIDENTAL DAMAGES ARISING OUT OF OR CONNECTED IN ANY WAY WITH THIS AGREEMENT.
IN NO EVENT SHALL T/R'S LIABILITY FOR ANY CLAIM ARISING OUT OF THIS AGREEMENT
EXCEED THE AMOUNT PAID TO T/R BY HKIS DURING THE THIRTY SIX (36) MONTHS
PRECEDING THE DATE OF THE CLAIM MADE BY HKIS. NO CLAIM MAY BE BROUGHT BY HKIS
UNDER THIS AGREEMENT MORE THAN ONE (1) YEAR AFTER ACCRUAL OF SUCH CLAIM.
12. Supply Agreement. Subsequent to the execution and delivery
of this Agreement, HKIS agrees to supply to T/R two of the print devices for
use in development of the connectivity within 14 days of the date of execution
of this agreement and an additional eight of the print devices within fourteen
days of request by T/R for testing and training requirements for the
connectivity. These print devices will be provided at no charge to T/R. A
similar quantity will be provided at no charge to T/R for each different print
device HKIS request T/R to develop connectivity. HKIS will also provide the
Video Interface, technical documentation and reasonable technical support to
T/R for development of the connectivity to the devices specified in Schedule 1.
The HKIS printers, video interfaces and related equipment and technical
documentation shall be returned to HKIS at the conclusion of the development of
the connectivity for the associated System, except for equipment reasonably and
necessarily required by T/R to provide ongoing support to HKIS, which shall be
returned upon the termination or cancellation of the Agreement.
* Confidential information has been omitted and filed separately with the
Commission.
11
<PAGE> 12
13. Term and Termination.
13.1 Expiration. This Agreement shall commence on the
date set forth above and shall continue for an
initial term of three (3) years. Thereafter, this
Agreement shall be automatically renewed for
additional terms of one (1) year unless either party
serves written notice, at least ninety (90) days
prior to the expiration of the initial term or any
renewal term, of its intention not to renew.
13.2 Termination by Either Party. This Agreement may be
terminated by either party under any of the following conditions:
(a) if the other party is declared insolvent or
bankrupt;
(b) if a petition is filed in any court and not
dismissed in ninety (90) days to declare
the other party bankrupt or for a
reorganization under the Bankruptcy Law or
any similar statute;
(c) if a trustee in Bankruptcy or a receiver or
similar entity is appointed for the other
party; or
(d) if the other party commits a material
breach (inclusive without limitation, any
payment default) of this Agreement which is
remains uncured for more than thirty (30)
days after written notice of such breach is
given by the party not in breach.
13.3 Duties Upon Termination. Upon termination, upon
written request by the other party to do so, the parties shall return all
Confidential Information, including all copies, together with any equipment
documentation or other assets provided by the other party for development.
Obligations remaining executory as of the date of the termination or
cancellation expiration of this Agreement or otherwise intended by the parties
to survive the Term of this Agreement, including but not limited to warranty
obligations, obligations to protect Confidential Information, obligations to
indemnify and the obligation to pay pay amounts due and owing hereunder shall
survive its termination or cancellation for any reason. End User sublicenses
granted by HKIS during the Term of this Agreement shall remain unaffected by
the termination or cancellation of this Agreement for any reason. The
distribution rights and related licenses shall be extended with respect to any
HKIS inventory and Deliverables ordered by HKIS and accepted by T/R as of the
date of termination, in order to allow HKIS to sell its remaining inventory;
however, HKIS shall have no right to order any additional copies of the
Deliverables after the termination or cancellation of the Agreement.
14. General.
12
<PAGE> 13
14.1 Force Majeure. Neither party shall be liable for
any delay or failure in performance (other than an obligation to pay money)
under this Agreement resulting directly or indirectly from acts of God, or any
causes beyond its reasonable control. In the event of any delay or anticipated
delay by a party in the performance of its obligations hereunder due to any
causes beyond its reasonable control, that party shall immediately notify the
other in writing of such delay, setting forth the causes therefor and the
estimated duration thereof. Should a delay in performance by any party continue
or reasonably be expected to continue for a period of longer than one hundred
eighty (180) days, then the other party may terminate this Agreement and/or any
Orders, in whole or in part, by written notice to the other party, without any
further cost or obligation of the other party.
14.2 Jurisdiction and Venue. This Agreement shall be
governed by and construed in accordance with the laws of the State of Georgia,
U.S.A., without reference to its conflicts of laws provisions. Jurisdiction for
litigation of any dispute, controversy or claim arising out of or in connection
with this Agreement, shall be only in a Federal or a State Court having subject
matter jurisdiction located in Atlanta, Georgia U.S.A.
14.3 Entire Agreement. This Agreement, including the
Schedules and Exhibits attached hereto, constitutes the entire agreement
between the parties with respect to this subject matter and supersedes all
previous proposals, both oral and written, negotiations, representations,
writings and all other communications between the parties. This Agreement may
not be released, discharged, or modified except by an instrument in writing
signed by the parties.
14.4 Independent Contractors. It is expressly agreed
that HKIS and T/R are acting hereunder as independent contractors. Under no
circumstances shall any of the employees or agents of one party be deemed the
employees or agents of the other for any purpose.
14.5 Notice. Any notice required to be given by either
party to the other shall be deemed given if in writing and actually received or
if deposited in the United States mail in registered or certified form with
return receipt requested, postage paid, addressed to the notified party at the
address set forth herein.
14.6 Assignment. The purported delegation or assignment
by either party of any or all of its duties, obligations or rights under this
Agreement, except for right to receive a payment in money, without the prior
written consent of the other, which consent shall not be unreasonably withheld,
shall be void.
14.7 Severability. If any provision of this Agreement is
determined by a court of competent jurisdiction to be invalid or
unenforceable, such determination shall not affect the validity or
enforceability of any remaining part or provision of this Agreement.
14.8 Waiver. No waiver by any party hereto of any breach
of any provisions hereof shall constitute a waiver of any other term of this
Agreement unless made in writing signed by such party.
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<PAGE> 14
14.9 Other Distribution. Except as explicitly provided
herein with regard to the exclusive distribution of certain Systems as
indicated in Section 2.1 hereof, nothing in this Agreement shall be deemed to
preclude T/R from distributing or licensing Deliverables and the Licensed
Intellectual Property Rights, as it deems appropriate, or from appointing
others to do so, in or outside of the Territory.
15. International Matters.
15.1 Export License. HKIS shall be exclusively
responsible for the procurement and renewing of all export or import licenses
required under United States or any foreign law for the export or import of the
Deliverables or the value added products and shall pay all costs and other
expenses in connection with such procurement and renewal. T/R shall provide
HKIS with assistance and relevant documentation reasonably requested by HKIS in
conjunction with the procurement and renewing of export or import licenses.
15.2 Export Assurance. Regardless of any disclosure made
by HKIS to T/R of any ultimate destination of a Deliverable or any System
assembled using same, HKIS shall not export or re-export directly or indirectly
the Deliverable or any System assembled using same, without first obtaining the
required written approval or export license, if any, to do so from the United
States Department of Commerce or any other agency of the U.S. Government having
jurisdiction over such transaction. HKIS hereby assures T/R that it does not
intend to nor will it knowingly, without the prior written consent, if
required, of the Office of Export Administration of the U.S. Department of
Commerce, transmit or ship the Deliverable or any System assembled using same,
directly or indirectly, to any country as to which such export is made unlawful
as provided in laws or by regulations issued by the U.S. Department of
Commerce, or other such regulations as may be adopted from time to time.
15.3 Compliance with Local Laws. HKIS shall be
exclusively responsible at its own expense for compliance with all local laws
relating to a Deliverable or any System assembled using same, in the countries
in which HKIS licenses or markets same. T/R agrees to provide, upon request by
HKIS or applicable government agency, such supporting documentation as shall
demonstrate compliance with applicable laws and regulations by the Deliverable
or System.
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<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
a duly authorized representative as of the date set forth above.
T/R SYSTEMS, INC. HITACHI KOKI IMAGING SOLUTIONS, INC.
By: /s/ Mike Kohlsdorf By: /s/
------------------------ ---------------------------------
Title: President/CEO Title: Senior Vice President
--------------------- -----------------------------
Date: 4/1/99 Date: 4/6/99
--------------------- -----------------------------
15
<PAGE> 16
Schedule 1
Fees
Print Device Connectivity
<TABLE>
<CAPTION>
Device Technology Access Fee
- ------ ---------------------
<S> <C>
DDS 70 *
DDS 24 *
</TABLE>
*Note: *
Fees
Language Translation and Conversion
Each Language Translation and Conversion: $ * per language for screen
files, online help files and hardcopy documentation. Alternatively, T/R will
translate screen files and implement online help files from HKIS provided
translated hardcopy documentation in Microsoft Word Format for $ * per
language.
* Confidential information has been omitted and filed separately with the
Commission.
16
<PAGE> 17
Schedule 2
Product Specifications and Price List
T/R Systems (TM) HKIS OEM Price List
(all amounts in U.S. dollars)
<TABLE>
<CAPTION>
Product Model Code HKIS Price
<S> <C> <C> <C>
ClusterServer MicroPress ClusterServer 400 MPCS400 $*
Solutions SatellitePress ClusterServer 400 SATCS400 $*
ClusterServer Console CSCONSL $*
Incremental RIPing MultiRip Server 400 MULTIRIPCS400 $*
Solutions MultiRIP (Software Only) MULTIRIP $*
ClusterServer Console CSCONSL $*
Document Control Document Processing Package (includes DOCPROC $*
And Workflow MERGE, IMAGEMAP, IMPOS, PAGENUM
Packages and FORMS)
Web Enable Package (includes PSM-PDF, WEBEN $*
MICROTICKET and PAGEANNO)
Document DocumentMerge MERGE $*
Production Image Manipulation IMAGEMAP $*
Add-Ins Imposition IMPOS $*
Job Scripting SCRIPT $*
Numbering PAGENUM $*
Page Annotation PAGEANNO $*
Variable Forms* FORMS $*
Utilities MicroTIFF MICROTIFF $*
MicroPress RIP for PCL MICROPCL $*
PSM to PDF PSM-PDF $*
PSM to TIFF PSM-TIFF $*
MicroTicket MICROTICKET $*
Connectivity Type 2-Output Device Support ODS2 $*
Support Support for Two network Connect Devices NDS2 $*
Upgrades Upgrade to Dual 400 UP2NDPROC $*
9 GB Hard Drive Upgrade UP9GHD $*
Upgrade to 512MB 512UP266/400 $*
DDS 24 024 Enable Software OPEN024 $*
PrintLink 024 PL024 $*
DDS 70 070 Enable Software OPEN070 $*
</TABLE>
Note: Standard Lead Time from order placement date is * (*) days.
Pricing subject to change based on further project scope and definition.
* Confidential information has been omitted and filed separately with the
Commission.
17
<PAGE> 18
Schedule 2.1
List of HKIS Exclusive Systems
Specifications - Name and Date of Revision
DDS 70 - HKIS 70 PPM Printer
(070 Enable Software)
18
<PAGE> 19
Schedule 3
Post-Release Technical Support Program and Related Fees
Effective February 1, 1999
<TABLE>
<CAPTION>
Daily Rates
-----------
<S> <C>
Trainer (On-site) $*
Engineer $*
Senior Engineer $*
Managing Engineer $*
Executive Engineer $*
</TABLE>
Notes: Does not include travel and living expenses.
* Confidential information has been omitted and filed separately with the
Commission.
19
<PAGE> 20
Schedule 4
Long Term Forecast(1)
(Purchase Commitment)
Server placements
by * period(2)
<TABLE>
<CAPTION>
Period Case 1 Case 2
<S> <C> <C>
1st * * *
period(2)
2nd * * *
period
3rd * * *
period
4th * * *
period
* Year Total * *
</TABLE>
- --------------
(1) *
(2) The first * period is the first * following the first-customer-shipment
("FCS") availability of the first System designed for connectivity to the HKIS
DDS 70 printer engine.
* Confidential information has been omitted and filed separately with the
Commission.
20
<PAGE> 21
SCHEDULE 5
Project Schedule, Statement of Work, QA and Testing
<TABLE>
<CAPTION>
ESTIMATED START ESTIMATED COMPLETION
--------------- --------------------
<S> <C> <C>
Project Scope & Definition:
PrintLink Design:
PrintLink Firmware Development:
PrintLink Prototype:
PrintLink De-bug:
Enable Software Design:
Enable Software Development:
PPD and Driver Development:
Connectivity Testing:
Regulatory Testing:
Software Alpha Functional QA:
Software Integration Testing:
Software Beta Test:
Software Golden Master:
Acceptance by HKIS:
</TABLE>
Note: HKIS and T/R Systems will mutually agree on requirements and scope of the
connectivity development and acceptance criteria within thirty (30) days of
contract execution.
T/R QA Program and Testing Procedures
Document No. 011-000002 Revision AA
HKIS Acceptance Test Plan
March 31, 1999
21
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Schedule 6
End User Software License
IMPORTANT!
DO NOT OPEN THIS PACKAGE UNTIL YOU HAVE READ THIS AGREEMENT
By opening this package, you agree to the terms and conditions of this Licensing
Agreement. If you do NOT accept the terms of this Licensing Agreement, you must
return the package UNOPENED to the seller from whom you purchased it.
(1) All software included with your purchase ("Software") is licensed for
use by a single end-user. You may not rent or lease the Software. You may
permanently transfer all of your rights under this Licensing Agreement by
transferring this document, all copies of the Software and all associated
documentation (retaining nothing yourself) to another person who agrees to the
terms and conditions of this Licensing Agreement. You may not otherwise resell
or distribute the Software to any other person. You may not export the Software.
(2) The Software is protected by copyright, and all rights are reserved by
the Licensor or its suppliers. You may not attempt to reverse-compile,
disassemble, alter or modify the Software. You may not copy the software except
as required to install it on a single computer (for each license purchased) for
your own person use and except as required in order to make (for each license
purchased) single backup copy for your own personal use. You may not copy the
written materials accompanying the Software, and you may not resell or
distribute the written materials except as provided in paragraph (1) above.
(3) UNLESS YOU HAVE A WRITTEN AGREEMENT WITH THE SELLER FROM WHOM YOU
PURCHASED IT, ALL SOFTWARE IS SUPPLIED "AS IS" AND WITHOUT WARRANTY OF ANY KIND,
EXPRESS OR IMPLIED, IN PARTICULAR, ANY AND ALL WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT OF THIRD PARTY RIGHTS ARE
EXPRESSLY EXCLUDED. IF YOU HAVE A WRITTEN WARRANTY AGREEMENT WITH THE SELLER
FROM WHOM YOU PURCHASED THE SOFTWARE, IT OBLIGATES ONLY THE SELLER AND DOES NOT
APPLY TO LICENSOR OR ITS SUPPLIERS.
(4) IN NO EVENT SHALL LICENSOR OR ITS SUPPLIER-LICENSORS BE LIABLE FOR ANY
ACTUAL OR ALLEGED DAMAGES ARISING OUT OF OR CONNECTED IN ANY WAY WITH THE USE OR
LOSS OF USE OF THE SOFTWARE.
(5) This Licensing Agreement shall remain in effect until terminated. You
may terminate this Licensing Agreement at any time by destroying the Software
and any existing copies you have made.
This Licensing Agreement shall be governed by and construed under the laws of
the State of California without reference to its conflict of laws provisions.
Some states, under certain circumstances and with respect to some parties, do
not allow the exclusion of implied warranties or the limitation or exclusion of
consequential damages, so the above limitations and exclusions may not apply to
you.
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Schedule 7
List of Third-Party Licenses
<TABLE>
<CAPTION>
COMPANY PRODUCT
------- -------
<S> <C>
Harlequin Scriptworks
Microsoft Windows NT Server
Lincoln PCL RIP
Lead Technologies Lead Tools
Adobe Acrobat Reader (free)
SUN Java Virtual Machine
Murisawa Kanji Fonts
VISE MAC Installer
</TABLE>
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Schedule 8
Year 2000 Certification and Warranty
This Certification is a "Year 2000 Readiness Disclosure" as defined in the Year
2000 Information and Readiness Disclosure Act of 1998 (Public Law 105-271, 112
Stat. 2386) enacted on October 19, 1998.
T/R represents and warrants to HKIS that any and all Deliverables provided
pursuant to this Agreement shall in all material respects be "Year 2000
Complaint" including "fault-free performance in processing" of date and
date-dependent or date-related data by the hardware, software, and firmware of
the Products as those terms are defined in the Year 2000 Information and
Readiness Disclosure Act of 1998 (Public Law 105-271, 112 Stat. 2386) enacted on
October 19, 1998. The term "fault-free performance in processing" means to
accurately exchange electronically and correctly recognize, interpret, process
(including but not limited to, sorting, indexing, comparing, sequencing and
calculating), manipulate, display, store, import, and export calendar related
data and data values (including, but not limited to, dates, duration, and days
of week) for all dates before, including and after January 1, 2000 to produce
accurate results across centuries for all valid data values within the
application domain and to accept and respond to, generate, and store all date
information in a way that resolves correctly any ambiguity as to century. The
term "Year 2000 Complaint" with respect to a Product means: (i) the Product
accurately processes date and time data (including, but not limited to,
calculating, sorting, indexing, comparing and sequencing) from, into, and
between the nineteenth, twentieth, and twenty-first centuries, and the years
1999 and 2000 and leap year calculations, without error or interruption of any
kind; and (ii) when the Product is used in combination with other products, the
Product accurately processes date and time data if the other products properly
exchange date and time data with it; and (iii) the Product accommodates date
data recognition in a format which includes the correct presentation of the
century as described above, all calculations performed by the Product correctly
accommodate same and multi-century formulas and dates, date data and the date
values and input/output of data values from and to the Product accurately
reflect the correct century.
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<PAGE> 1
EXHIBIT 10.15
AGREEMENT
THIS AGREEMENT is entered into as of the 1st day of September, 1999, by and
between RICOH CORPORATION, a corporation having its principal place of business
at Five Dedrick Place, West Caldwell, NJ 07006 (hereinafter "RICOH"), and T/R
SYSTEMS, INC., a Georgia, U.S.A. corporation having its principal place of
business at 1300 Oakbrook Drive, Norcross, GA 30093 (hereinafter "T/R").
RECITALS:
a. T/R has designed and developed, and currently assembles,
distributes and sells, a proprietary commercial printing
system known as the MICROPRESS(R) PressDirector(TM), Cluster
Server(TM), which includes MICROPRESS(R) Release 4.52.
b. T/R has proprietary skills, know-how, technology, inclusive of
trade secrets and other know-how, and patent rights applicable
to the product architecture, development, design, assembly,
manufacturing, connectivity, production and distribution of
the MICROPRESS(R) commercial printing system.
c. RICOH desires to license certain rights and properties from
T/R so as to permit RICOH to complete the connectivity of
MICROPRESS(R)commercial printing systems to Ricoh products,
and to purchase certain equipment from T/R to incorporate into
such products, with such products to be distributed and sold
by RICOH and either marked or identified with trademarks
owned, possessed or controlled by RICOH marked or identified
with trademarks of a party other than RICOH or for "private
label" distribution . This method of distribution shall
involve the assembly of Systems by T/R Systems.
d. RICOH desires for T/R to develop connectivity software and
hardware so as to permit RICOH print devices identified in
Schedule 1 to connect and be controlled by the MICROPRESS(R).
e. RICOH desires to resell the MICROPRESS(R), with connectivity
to the RICOH print devices in Schedule 1 in the Territory.
f. To accommodate the foregoing agreements, and to effect certain
other agreements and undertakings between T/R and RICOH, such
parties have entered into this Agreement.
<PAGE> 2
NOW, THEREFORE, the parties hereby agree as follows:
1. DEFINITIONS.
1.1 "Confidential Information" means information of T/R or Ricoh
respectively, including, but not limited to, technical or
non-technical data, Know-how, trade secrets, skills and
processes, from which T/R or Ricoh derives economic value by
such information not being generally known to, and not being
readily ascertainable by proper means, by third parties, but
excluding any such information which (i) is publicly available
through no fault of the receiving party; (ii) is in the
receiving party's possession free of any obligation of
confidence to T/R at the time it was communicated to the
receiving party; (iii) is received independently from a third
party who is free to disclose such information; (iv) is
demonstrated to have been subsequently and independently
developed by the receiving party without the use of
confidential information of T/R; or (v) has been or will be
made public pursuant to a decree or order of any court of
competent jurisdiction.
1.2 "Customer" means any Person that acquires Systems from RICOH
for its own use or for sale, lease or other disposition.
1.3 "Deliverables" has the meaning set forth in Section 4 hereof.
1.4 "End User" means a Person that acquires a System directly from
RICOH or indirectly from a Customer of RICOH, and uses the
System for any purpose.
1.5 "Improvement" means any and all derivatives, improvements or
betterments of the Licensed Intellectual Property Rights made
by T/R or any other Person, including all intellectual
property rights pertaining thereto, including patent rights,
copyright rights, trade secrets, Know-how or similar rights
recognized under applicable law, and all technical
information, including, but not limited to computer
programming code, including object code and source code as
well as associated procedural code, microcode, firmware,
programmable array logic, algorithms, programs, routines,
subroutines, designs, plans, methods, processes, systems,
concepts, ideas, formulae, flow charts, descriptions,
schematics, lay-out drawings, assembly drawings, printed
circuit patterns, specifications, parts lists and inspection
and test procedures, experiments and inventions associated
therewith.
1.6 "Know-how" means knowledge, information, inventions (other
than those embodied in the Patent Rights), trade secrets and
systems used in the design, development, manufacture,
assembly, servicing or testing of the MICROPRESS(R) commercial
printing system.
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<PAGE> 3
1.7 "License" means the license granted by T/R to RICOH pursuant
to this Agreement.
1.8 "Licensed Intellectual Property Rights" means the following
rights, knowledge, know-how and similar intellectual property
owned by T/R and used in the design, development, manufacture,
assembly, servicing or testing of the System or any portion
thereof.
(a) Patent Rights as defined below;
(b) Copyrights and applications therefor (including the
right to make derivative works);
(c) Trade secrets;
(d) Know-how and any other proprietary information; and
(e) All Improvements.
1.9 "RICOH Orders" has the meaning set forth in Section 7 hereof.
1.10 "Patent Rights" means all T/R patents (including applications
therefor) pertaining to the Territory, whether now or
hereafter issued, containing a claim or claims in whole or in
part covering the design, development, use or manufacture of
the System or any portion thereof, and all Improvements
thereto that become the subject of a patent application.
1.11 "Person" means any individual, partnership, joint venture,
corporation, trust, unincorporated organization, government,
governmental agency or any other entity, including, but not
limited to, Ricoh.
1.12 "Subsidiary" means a corporation or other entity of which more
than 50% of the shares of the outstanding stock (representing
the right to vote for the election of directors or other
managing authority) are now or hereafter owned or controlled,
directly or indirectly, by a party hereto, but such
corporation or other entity shall be deemed to be a Subsidiary
only so long as such ownership or control exists.
1.13 "System" means commercial printing systems to be assembled for
RICOH pursuant to the License and to incorporate the
Deliverables, all as more particularly described on Schedule 1
hereto, or as used herein as context may require, any portion
thereof.
1.14 "Technical Assistance" means the technical assistance to be
provided by T/R to RICOH as provided in Section 3 hereof.
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<PAGE> 4
1.15 "Territory" shall mean the United States and Canada.
2. LICENSE.
2.1 Grant. Subject to the terms and conditions hereof, T/R hereby
grants to RICOH and RICOH hereby accepts from T/R a license
entitling RICOH during the term of this Agreement to use the
Licensed Intellectual Property Rights to complete the
connectivity of the Systems and to distribute, sell or lease
the Systems to Customers for use by End Users located in the
Territory.
2.2 No Sublicenses. This Agreement does not grant, license or
permit (either expressly or by implication) RICOH to transfer,
assign, sell, give, license, sub-license, or in any way permit
the use of the Licensed Intellectual Property Rights, by or to
any Person, other than (1) any of its Subsidiaries located in
the Territory for the sole purpose of connecting the hardware
and software supplied by T/R to the RICOH print devices, or
(ii) any other third party under RICOH's supervision solely
for such purpose. If RICOH becomes aware, or gains reasonable
suspicion, of the unauthorized use or exercise of the Licensed
intellectual Property Rights by any Person, then RICOH shall
forthwith notify T/R in writing and cooperate with T/R, and at
T/R's discretion, to abate or terminate such unauthorized use
or actions.
2.3 No Other Licenses. No license or right is granted under this
Agreement by T/R to RICOH by implication, estoppel or
otherwise, except as expressly set forth in this Agreement,
and except as provided in Section 2.4 RICOH may not use the
corporate names, trademarks, trade names, service marks, or
logos of T/R without the prior written consent of T/R.
Notwithstanding anything else to the contrary, it is
understood and agreed by both parties that Ricoh will use the
T/R product brand name MicroPress(R) in combination with the
Ricoh brands and execution of this Agreement by T/R shall
constitute T/R's consent thereto. Any use of T/R Systems brand
names requires adherence to T/R Systems brand guidelines.
2.4 Labeling; Use of MicroPress(R) Trademark. RICOH shall apply to
the Systems manufactured for sale by or for RICOH to Customers
a statement reasonably located and sized, identifying the fact
that the Systems are provided under license from T/R and, as
applicable, are subject to patents or patents pending, and
which shall identify by number any issued patents which are
part of the Patent Rights. Such statement, and its proposed
location and size, shall be submitted to T/R by RICOH in
advance of its use for pre-approval by T/R, which approval may
not be unreasonably withheld. Furthermore, during the term
hereof, RICOH may use the trademark MicroPress(R) and T/R
hereby grants a non-exclusive license to RICOH for such
purpose, to expire upon termination or expiration of this
Agreement. All usage of such trademark, including any display
thereof and the artwork
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<PAGE> 5
comprising same, and location and size, thereof must be
approved in advance by T/R. This trademark may only be used on
products assembled with the Deliverables purchased and
licensed hereunder and for promotion and advertising therefore
in the Territory.
2.5 Limitation on Use. RICOH shall not use the Patent Rights, the
Know-how, the Licensed Intellectual Property Rights or any
other T/R technology, for any purpose or purposes other than
those expressly permitted under the License.
3. TECHNICAL ASSISTANCE. To effectuate the purposes of this Agreement,
upon the reasonable request by RICOH and subject to the terms and
conditions of the License, T/R, employing the Licensed Intellectual
Property Rights, shall consult with RICOH with respect to (i) the
design and operation of the Systems, inclusive of the selection and
design of print engine therefor; (ii) RICOH's connectivity for the
Systems; (iii) RICOH's initiation of distribution process for the
Systems; (iv) RICOH's marketing plans and operations only as to T/R's
products; (v) RICOH's current and future device connectivity to the
System; and (vi) similar matters recited thereto. Each of T/R and RICOH
will appoint and assign a lead technical liaison to interact and
support the technical interface between T/R and RICOH. T/R and Ricoh
will meet quarterly to review the business activity as to sales and
marketing plans, service plans and future product plans.
4. DELIVERABLES. For each System, T/R shall deliver, in accordance with
license/purchase orders made by RICOH ("RICOH Orders"), from time to
time and subject to availability, the following items constituting
servers, software, and related technology and communications hardware
(and which items are deemed herein as the "Deliverables"):
(a) Servers, technology and software Packages, which shall include
for each System a server and the software in executable code
and other technology, employing the Licensed Intellectual
Property Rights, and providing the software and related
technology principally required for operation of the Systems
to be distributed by RICOH pursuant to this Agreement; and
(b) PrintLinks communication hardware used in and constituting a
part of the Systems consisting of boards including print
adapters and host adapters.
The Deliverables shall include, as appropriate, certain documentation
related thereto prepared by or for T/R. The Deliverables shall be
delivered F.O.B. T/R's Norcross, Georgia, U.S.A. facility. All risk of
loss shall be conveyed and passed to RICOH upon delivery of the
Deliverables at T/R's facility to RICOH or its carrier or other agent.
To the extent any of the Deliverables includes Licensed Intellectual
Property Rights, including without limitation, software, codes,
Know-how, Patent Rights, Licensed Intellectual Property Rights and
other such rights, no title will pass to RICOH but rather such property
will be deemed licensed pursuant to the License. Title will pass to
RICOH as to
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<PAGE> 6
server, other hardware, media and other items included within the
Deliverables which do not constitute nor comprise Licensed Intellectual
Property Rights.
5. FEES AND PRICES.
5.1 Technology Access Fee. In exchange for T/R's agreement and
granting of the License in respect of the Licensed
Intellectual Property Rights, and in part for T/R's agreement
to provide the Technical Assistance pursuant to Section 3
hereof, RICOH shall pay T/R the non-refundable technology
access fees identified in Schedule 1 payable upon execution
and deliver of this Agreement. These fees are for United
States English version of the product. Additional languages
are available at a language conversion fee identified in
Schedule 1 per language conversion provided by T/R.
5.2 License Fees and Equipment Purchase Price. For each
Deliverable, the license fees or equipment purchase price
amounts, as the case may be, are detailed in Schedule 2 (the
"Price List"). Price List is subject to change from time to
time by T/R. Any change in the Price List will be effective as
to RICOH Orders received after * (*) days of the issuance of
such revised price list.
5.3 Consulting, Training Compensation. As compensation for the
consulting and training required to be provided in addition to
Technical Assistance pursuant to Section 3 hereof, RICOH shall
compensate T/R at * as in effect from time to time for
consulting, and at * as in effect from time to time for
training. In addition, RICOH shall reimburse T/R's travel and
living expenses incurred in connection with such consulting
and training. T/R's standard per diem rates are subject to
change from time to time by T/R. T/R's per diem rates are
specified in Schedule 3. T/R will provide three training
sessions, one for Ricoh sales, service and technical trainers,
respectively, each at no charge.
6. PAYMENTS. Payments for technology access fees pursuant to Section 5.1,
for license fees and equipment purchase price amounts in respect of the
Deliverables pursuant to Section 5.2, for consulting and training
pursuant to Section 5.3 and for maintenance pursuant to Section 9 shall
be due and payable by RICOH * (*) days from the date of invoice issued
therefor by T/R. Unless otherwise agreed by T/R in writing, all
payments by RICOH shall be remitted in immediately available U.S.
Dollars by wire transfer per T/R's instructions, and confirmation of
each payment shall be made by RICOH to T/R by facsimile or telegraphic
means to T/R's principal place of business. A late payment charge of
one and one-half percent (1.5%) per month shall be charged upon unpaid
balances due for more than * (*) days. All pricing and fees under this
Agreement are exclusive of taxes. Except for taxes based on T/R's net
income, RICOH shall pay any national, federal, state, county, local or
other governmental taxes, fees or duties now or hereafter imposed on
the licensing, export, use or possession of the Licensed Intellectual
Property Rights
*Confidential information has been omitted and filed separately with the
Commission.
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and the Deliverables or any other transaction contemplated by this
Agreement, as well as any penalties or interest thereon.
Notwithstanding anything in this Agreement to the contrary, if, under
any applicable law, RICOH is required to withhold tax or any other
amount from any payment to T/R, the amount due to T/R shall be
increased to the amount T/R would have received if no withholding had
been required.
7. RICOH ORDERS. RICOH shall submit written orders to T/R for Deliverables
("RICOH Orders"). All RICOH orders shall specify: (a) the quantities
and descriptions of the Products; and (b) requested delivery dates and
shipping instructions. RICOH Orders shall be placed 30 days in advance
of the quarter for which the product is required. Calendar quarters
start on January 1, April 1, July 1 and October 1. Quarterly order
quantities shall specify order quantities by month with the first
month's order quantity being a firm order amount. Months two and three
order quantities for the quarterly order will be firm order quantities
upon issue of the quarterly Ricoh order. The terms and conditions of
this Agreement shall apply to all RICOH Orders submitted to T/R and
supersede any different or additional terms contained on RICOH's
Orders. RICOH Orders are solely for the purpose of requesting delivery
dates and quantities. All orders are subject to acceptance by T/R. T/R
shall use reasonable efforts to provide for delivery of accepted RICOH
Orders but shall not be liable to RICOH or any third party for any
delay, error or failure in filling any such orders. T/R may allocate
among its customers and for its own use or sale available Deliverables,
as deemed equitable by T/R in its reasonable discretion. Separately, a
non-binding Ricoh forecast shall be provided 120 days in advance of the
quarter for which the product is required.
8. PURCHASES. During the term of this Agreement, RICOH agrees to license
and/or purchase as the case may be Deliverables for Systems in
quantities and amounts as specified in Schedule 4 during the initial
term of this Agreement.
9. MAINTENANCE. T/R shall provide RICOH (not RICOH Customers or End Users)
with software updates, major software releases and telephone support
for a annual maintenance charge per system. A maintenance charge at an
annual rate of * percent (*%) is due and payable quarterly as
attested below in respect of system purchases (including equipment
purchases and license fees). The maintenance charge is payable on the
15th day of January, April, July and October in respect of the calendar
quarter ending December 31, March 31, June 30 and September 30,
respectively, and such quarterly payment shall equal * percent (*%)
of the license fees and equipment purchase price amounts paid or
payable in respect of Deliverables ordered during such calendar quarter
and the same calendar quarter of each of the previous two years of this
Agreement.
*Confidential information has been omitted and filed separately with the
Commission.
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<PAGE> 8
10. OWNERSHIP AND PROPRIETARY RIGHTS.
10.1 Ownership. T/R represents that it has all rights in and to
copyrights, trade secrets, patent fights and other
intellectual property fights associated with the Licensed
Intellectual Property Rights and the Deliverables as are
necessary to license the Licensed Intellectual Property Rights
and license and/or sell the Deliverables, as the case may be,
under and pursuant to this Agreement.
10.2 Proprietary Rights. Each party acknowledges that the
Confidential Information of the other constitutes valuable
trade secrets and confidential information. Ownership of all
applicable copyrights, trade secrets, patents and other
intellectual property rights in the Licensed Intellectual
Property Rights and the Deliverables shall remain vested in
the respective owners. Title to all Licensed Intellectual
Property Rights shall remain with T/R. Neither party shall use
or disclose the Confidential Information of the other, except
as expressly permitted by this Agreement. RICOH shall not
remove T/R's copyright notices, restricted rights legends or
any other notices from the Deliverables and such notices shall
appear on all tapes, diskettes and other tangible media
distributed by RICOH containing the Licensed Intellectual
Property Rights or constituting the Deliverables.
10.3 Unauthorized Use or Copying. Except as expressly permitted
hereunder, RICOH shall not copy, modify or reproduce the
Deliverables in any way, nor shall it permit third parties to
do so. RICOH shall fully cooperate with T/R in any action
relating to enforcement of T/R's proprietary fights.
10.4 End User License. RICOH shall only distribute the Deliverables
to Customers for Customer's own use or for delivery to End
Users. RICOH shall only distribute the Deliverables after
obtaining the written assent of the Customer to cause all End
Users to agree, as to the software and other proprietary
technology included in the Deliverables, to the terms of a
standard T/R Software License, a form of which shall be
supplied to RICOH by T/R. RICOH shall make no representations
or warranties on behalf of T/R. RICOH shall make no
representations to Customers or End Users or other third
parties regarding the Deliverables except as set forth in the
applicable documentation therefor provided by T/R. RICOH will
be responsible for all conversions, translations and
localizations necessary for use of the Deliverables by End
Users in the various countries included within the Territory.
T/R will provide translation services on a per language basis
at fees specified in Schedule 1. Translated versions will be
delivered after the American English version in accordance
with a jointly agreed schedule.
10.5 Third Party Software. To the extent the software included
within the Deliverables constitutes software or other
technology rights owned by a third party and licensed to T/R,
such software, and its sublicense to RICOH by T/R hereunder,
is subject
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<PAGE> 9
to all terms and conditions, including where required,
approval rights, of such third party license agreements.
10.6 Security. The software included within the Deliverables will
be protected by a security mechanism known as a "dongle."
RICOH may copy the software for distribution with T/R
supplying the "dongle" for the software for each System. RICOH
will ensure that such security mechanisms remain intact and
that such software remains secure from unauthorized copying,
reverse engineering and reverse compiling and unauthorized
distribution. RICOH will use its best efforts to ensure that
its Customers adhere to such security mechanisms.
10.7 Indemnification. RICOH agrees to indemnify and hold harmless
T/R from and against any claim, injury, loss or expense,
including attorneys' fees, arising out of (a) the failure of
RICOH to comply with the provisions of Section 10, (b) any
misrepresentations of RICOH in connection with T/R or the
Deliverables or (c) any other wrongful conduct of RICOH or
its agents.
11. WARRANTY.
11.1 Limited Warranty. For * after delivering Deliverables to RICOH
T/R warrants that equipment and media constituting the
Deliverables shall be of good quality and workmanship. Upon
written notice from RICOH of defective media or equipment as
to any Deliverable, T/R shall use reasonable efforts to
promptly provide replacement equipment or media.
11.2 Disclaimer of Warranties. EXCEPT FOR THE LIMITED WARRANTY
PROVIDED ABOVE IN SECTIONS 11.1, THE DELIVERABLES ARE
PROVIDED, AND THE GRANT OF LICENSE AS TO THE LICENSED
INTELLECTUAL PROPERTY RIGHTS IS MADE, "AS IS." T/R
SPECIFICALLY DISCLAIMS ALL OTHER WARRANTIES EXPRESSED OR
IMPLIED, INCLUDING BUT NOT LIMITED TO, IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE AS TO ANY
TERMS OR SERVICES PROVIDED UNDER THIS AGREEMENT.
11.3 Damage Limitations. IN NO EVENT SHALL T/R BE LIABLE FOR ANY
LOSS OF PROFIT OR ANY OTHER COMMERCIAL DAMAGE, INCLUDING BUT
NOT LIMITED TO SPECIAL, INCIDENTAL, CONSEQUENTIAL OR OTHER
INDIRECT DAMAGES UNDER ANY CAUSE OF ACTION ARISING OUT OF
OR RELATING TO THIS AGREEMENT INCLUDING, WITHOUT
LIMITATION, CLAIMS ARISING FROM MALFUNCTION OR DEFECTS IN
THE DELIVERABLES OR NON-DELIVERY, EVEN IF T/R HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. SUBJECT TO THE
MAXIMUM LIABILITY SET FORTH HEREIN, IN NO EVENT SHALL T/R's
*Confidential information has been omitted and filed separately with the
Commission.
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LIABILITY FOR ANY CLAIM ARISING OUT OF THIS AGREEMENT EXCEED
THE AMOUNT PAID TO T/R BY RICOH UNDER THIS AGREEMENT WITHIN
THE * PERIOD IMMEDIATELY PRECEDING THE ACCRUAL OF SUCH CLAIM.
NO CLAIM MAY BE BROUGHT BY RICOH UNDER THIS AGREEMENT MORE
THAN * AFTER ACCRUAL OF SUCH CLAIM.
12. SUPPLY AGREEMENT. Subsequent to the execution and delivery of this
Agreement, RICOH agrees to supply to T/R two of the print devices for
use in development of the connectivity within 14 days of the date of
execution of this agreement and an additional ten of the print devices
within fourteen days of request by T/R for testing and training
requirements for the connectivity. These print devices will be provided
at no charge to T/R. A similar quantity will be provided at no charge
to T/R for each different print device RICOH request T/R to develop
connectivity. Ricoh will also provide the Video Interface, technical
documentation and reasonable technical support to T/R for development
of the connectivity to the devices specified in Schedule 1.
13. TERM AND TERMINATION.
13.1 Expiration. This Agreement shall commence on the date set
forth above and shall continue for an initial term of six
(6) months. Thereafter, this Agreement shall be renewed for
additional terms only upon mutual written consent of the
parties. It is the intention, but not the obligation, of both
parties to subsequently enter into Phase II of this
transaction which will involve a separate and distinct OEM
Distribution Agreement where Ricoh will include T/R in their
High Volume Product Strategy.
13.2 Mutual Termination Right. This Agreement may he terminated
by either party under any of the following conditions:
(a) if one of the parties shall be declared insolvent
or bankrupt;
(b) if a petition is filed in any court and not dismissed
in ninety (90) days to declare one of the parties
bankrupt or for a reorganization under the Bankruptcy
Law or any similar statute;
(c) if a trustee in Bankruptcy or a receiver or similar
entity is appointed for one of the parties;
13.3 T/R Termination. This Agreement may be terminated by T/R:
(a) if RICOH does not pay T/R within sixty (60) days
from receipt of a T/R invoice; or
*Confidential information has been omitted and filed separately with the
Commission.
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(b) if RICOH commits a material breach of this Agreement
which is not cured by RICOH within thirty (30) days
after written notice of such breach is given by T/R.
13.4 RICOH Termination. This Agreement may be terminated by RICOH
upon a material breach by T/R which is not cured by T/R within
thirty (30) days after written notice of such breach is given
by RICOH.
13.5 Duties Upon Termination. Upon termination, RICOH shall return
all Deliverables, as well as all copies of other Confidential
Information, promotional materials, marketing literature,
written information and reports pertaining to the Deliverables
that have been supplied by T/R. The following provisions of
this Agreement shall survive its termination: Sections 5, 6,10
and 15. In the event that RICOH has any paid-up inventory of
the Deliverables as of the date of termination under Section
13.2 or 13.3, termination of this Agreement shall be adjourned
for a period not to exceed three (3) months, during which
period RICOH may continue to market and distribute its
inventories of the Deliverables. During such three (3) month
period, RICOH shall have no right to order or receive any
additional copies of the Deliverables.
14. INDEMNIFICATION.
14.1 Intellectual Property. T/R shall, at its expense, defend any
claim against RICOH that use of the Deliverables infringes a
copyright, trade secret or patent right of any third party.
T/R shall pay any direct costs and damages attributable to
such claim finally awarded by a court against RICOH on such
claim. T/R shall have no liability for any such claim if RICOH
is in material breach of this Agreement, or if the claim is
based on use of or anything other than an unaltered release of
the Deliverables available from T/R, alone and not in
combination with any other software, data or hardware, if such
infringement would have been avoided by the use of a unaltered
release of the Deliverables available from T/R.
14.2 Cooperation by RICOH. For all instances involving
Section 14.1:
(a) T/R shall be notified promptly of the suit or claim
by RICOH and furnished by RICOH with a copy of each
communication, notice or other action relating to
said claim;
(b) T/R shall have the right to assume sole authority to
conduct the trial or settlement of such claim or any
negotiations related thereto at T/R's expense; and
(c) RICOH shall provide reasonable information and
assistance requested by T/R in connection with such
claim or suit.
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15. GENERAL.
15.1 Force Majeure. Except for Ricoh's obligation to make payment
for amounts presently due T/R, neither party shall be liable
for any delay or failure in performance under this Agreement
resulting directly or indirectly from acts of God, or any
causes beyond its reasonable control.
15.2 Jurisdiction and Venue. This Agreement shall be governed by
and construed in accordance with the laws of the State of New
Jersey, U.S.A., without reference to its conflicts of laws
provisions.
15.3 Entire Agreement. This Agreement, including the Schedules and
Exhibits attached hereto, constitutes the entire agreement
between the parties with respect to this subject matter and
supersedes all previous proposals, both oral and written,
negotiations, representations, writings and all other
communications between the parties. This Agreement may not be
released, discharged, or modified except by an instrument in
writing signed by both parties.
15.4 Independent Contractors. It is expressly agreed that RICOH and
T/R are acting hereunder as independent contractors. Under no
circumstances shall any of the employees of one party be
deemed the employees of the other for any purpose.
15.5 Notice. Any notice required to be given by either party to the
other shall be deemed given if in writing and actually
delivered or if deposited in the United States mail in
registered or certified form with return receipt requested,
postage paid, addressed to the notified party at the address
set forth herein. Notice will be deemed received immediately,
upon delivery, if delivered in person or four (4) days after
being deposited in the U.S. mail.
15.6 Assignment. This Agreement is not assignable by either party,
except if assigned to one of their respective subsidiaries.
15.7 Severability. If any provision of this Agreement is determined
by a court of competent jurisdiction to be invalid or
unenforceable, such determination shall not affect the
validity or enforceability of any part or provision of this
Agreement.
15.8 Waiver. No waiver by any party hereto of any breach of any
provisions hereof shall constitute a waiver of any other term
of this Agreement unless made in writing signed by such party.
15.9 Other Distribution. Nothing in this Agreement shall be
deemed to preclude T/R from distributing or licensing
Deliverables and the Licensed Intellectual Property
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Rights, as it deems appropriate, or from appointing others to do so,
in or outside of the Territory.
16. INTERNATIONAL MATTERS.
16.1 Export License. RICOH shall be exclusively responsible for the
procurement and renewing of all export or import licenses
required under United States or any foreign law for the export
or import of the Deliverables or the value added products and
shall pay all costs and other expenses in connection with such
procurement and renewal.
16.2 Export Assurance. Regardless of any disclosure made by RICOH
to T/R of any ultimate destination of a Deliverable or any
System assembled using same, RICOH shall not export or
re-export directly or indirectly the Deliverable or any System
assembled using same, without first obtaining the required
written approval or export license, if any, to do so from the
United States Department of Commerce or any other agency of
the U.S. Government having jurisdiction over such transaction.
RICOH hereby assures T/R that it does not intend to nor will
it knowingly, without the prior written consent, if required,
of the Office of Export Administration of the U.S. Department
of Commerce, transmit or ship the Deliverable or any System
assembled using same, directly or indirectly, to any country
as to which such export is made unlawful as provided in laws
or by regulations issued by the U.S. Department of Commerce,
or other such regulations as may be adopted from time to time.
16.3 Compliance With Local Laws. RICOH shall be exclusively
responsible at its own expense for compliance with all local
laws relating to a Deliverable or any System assembled using
same, in the countries in which RICOH licenses or markets
same.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by a duly
authorized representative as of the date set forth above.
T/R SYSTEMS, INC. RICOH CORPORATION
BY: /s/ MIKE KOHLSDORF BY: /s/
-------------------------------- ----------------------------
TITLE: PRESIDENT / CEO TITLE: CHAIRMAN / CEO
----------------------------- -------------------------
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Schedule 1
Fees
Print Device Connectivity
<TABLE>
<CAPTION>
Device Technology Access Fee
- ------ ---------------------
<S> <C>
Ricoh Aficio 650 and/or Successor Product "M Series" $ *
* *
* *
--------
Net Technology Access Fee Payable To T/R $ *
</TABLE>
Notes:
1. Changes in project scope must be provided by project change request and
accepted by T/R and Ricoh.
2. Ricoh represents that the video interface and connectivity requirements
for the Successor Product "M Series" are substantially equivalent to
the Aficio 650 therefore requiring minimal changes from the Aficio 650
connectivity development project.
Fees
Additional Print Device Connectivity
Additional Print Device Connectivity Fees for future connections are estimated
at the following rates based upon the type of print device. These fees require a
firm purchase commitment by Ricoh for deliverables to include MicroPress
ClusterServers, PrintLinks and Software Packages for each Print Device
connectivity project.
<TABLE>
<S> <C>
Black & White Digital Printer/Copier $ * US
Color Printer/Copier $ * US
Color Printer/Copier Tandem Design $ * US
</TABLE>
Fees
Language Translation and Conversion
Each Language Translation and Conversion: $ * per language
Note: Language Translation includes standard MICROPRESS hardcopy documentation
and MICROPRESS language conversion includes screen files and online help files.
* Confidential information has been omitted and filed separately with the
Commission.
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Schedule 2
Ricoh Price List
<TABLE>
<CAPTION>
Product Model Code Ricoh Price
<S> <C> <C>
MicroPress ClusterServer 400 MPCS400 $ *
SatellitePress ClusterServer 400 SATCS400 $ *
ClusterServer Console CSCCNSL $ *
MultiRip Server 400 MULTIRIPCS400 $ *
MultiRIP (Software Only) MULTIRIP $ *
ClusterServer Console CSCONSL $ *
Document Processing Package (includes MERGE, IMAGEMAP, IMPOS, DOCPROC $ *
PAGENUM and FORMS)
Web Enable Package (Includes PSM-PDF, MICROTICKET and WEBEN $ *
PAGEANNO)
DocumentMerge MERGE $ *
Image Manipulation IMAGEMAP $ *
Imposition IMPCS $ *
Job Scripting SCRIPT $ *
Numbering PAGENUM $ *
Page Annotation PAGEANNO $ *
Variable Forms FORMS $ *
Micro TIFF MICROTIFF $ *
PSM to PDF PSM-PDF $ *
PSM to TIFF PSM-TIFF $ *
MicroTicket MICROTICKET $ *
2-Output Device Support ODS2 $ *
PrintLink 650 TBD $ *
Output Enable 650 TBD $ *
Upgrade to Dual 400 UP2NDPROC $ *
9 GB Hard Drive Upgrade UP9GHD $ *
Upgrade to 512MB 512UP266/400 $ *
</TABLE>
* Confidential information has been omitted and filed separately with the
Commission.
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<PAGE> 16
Schedule 3
T/R Systems Consulting and Training Rates
Effective February 1, 1999
<TABLE>
<CAPTION>
Daily Rates
- -----------------------------------------------
<S> <C>
Trainer (On-site) $ *
Engineer $ *
Senior Engineer $ *
Managing Engineer $ *
Executive Engineer $ *
</TABLE>
Notes: Does not include travel and living expenses.
* Confidential information has been omitted and filed separately with the
Commission.
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<PAGE> 17
Schedule 4
Purchase and Launch Commitments
1. Ricoh agrees to purchase $ * in deliverables for the initial
purchase under this agreement. The initial purchase will be issued by
September 15, 1999 with a delivery date of 10 days from availability of
deliverables planned for November, 1999.
2. Ricoh agrees to the following with regard to the launch of the product
in the Ricoh Sales Channels during the initial term (Phase 1) of this
agreement.
o Product Launch investments and activities will be equivalent
to a typical Ricoh launch for other similar classes of Ricoh
digital products.
o Marketing collateral will be developed and available at launch
for the deliverables equivalent to other similar classes of
Ricoh digital products.
o Advertising and promotions equivalent to other similar classes
of Ricoh digital products.
o Compensation programs for Ricoh Sales and Sales Management
equivalent to or better than other similar classes of Ricoh
digital products.
o Sales, Service and Training programs equivalent to other
similar classes of Ricoh digital products.
3. Purchase quantities for additional terms of this agreement will be
mutually agreed in accordance with Section 8.
* Confidential information has been omitted and filed separately with the
Commission.
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<PAGE> 1
EXHIBIT 23.2
The financial statements and independent auditors' report referred to in the
following consent and report on schedule give effect to the anticipated 1:1.65
reverse stock split as described in Note 14 to the financial statements. The
following independent auditors' consent and report on schedule is in the form
that will be furnished by Deloitte & Touche LLP upon the consummation of the
reverse stock split described in Note 14 to the financial statements assuming
that no other material events occur that would affect the accompanying
financial statements or require disclosure therein.
/s/ DELOITTE & TOUCHE LLP
Atlanta, Georgia
November 29, 1999
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
To the Board of Directors and Shareholders of T/R Systems, Inc.:
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-88439 of T/R Systems, Inc. on Form S-1 of our report dated March 26, 1999
(May 17, 1999 as to the first paragraph of Note 9 and ____, 1999 as to Note 14),
appearing in the Prospectus, which is a part of this Registration Statement, and
to the references to us under the headings "Selected Financial Data" and
"Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned report
also included the financial statement schedule of T/R Systems, Inc., listed in
Item 16. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Atlanta, Georgia
December , 1999
