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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 10, 1999
REGISTRATION NO. 333-88439
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
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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GEORGIA 3577 58-1958870
(State or other jurisdiction of (Primary Standard Industrial (I. R. S. Employer Identification
incorporation or organization) Classification Code Number) No.)
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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
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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. [ ]
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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. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE(2)(3)
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Common Stock, $0.01 par value....... 3,450,000 $10.00 $34,500,000 $9,591
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(1) Includes 450,000 shares which the underwriters have the option to purchase
solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) A fee of $11,510 was paid on the initial filing of this registration
statement on October 5, 1999.
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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 NOVEMBER 10, 1999
[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 51
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 5.
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PER SHARE TOTAL
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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.
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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."
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 1
Risk Factors................................................ 5
Special Notice Regarding Forwarding-Looking Statements...... 12
Use of Proceeds............................................. 13
Dividend Policy............................................. 13
Capitalization.............................................. 14
Dilution.................................................... 15
Selected Financial Data..................................... 16
Management's Discussion and Analysis of Financial Condition 18
and Results of Operations.................................
Business.................................................... 30
Management.................................................. 42
Related Party Transactions.................................. 50
Principal and Selling Shareholders.......................... 51
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 effective date of this
prospectus.
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. This system allows our customers
to flexibly and economically print desired quantities with minimum lead time.
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. 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. 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.
T/R Systems addresses the needs of the mid-range print-on-demand market by
providing a line of products that enable cost-effective, high-speed digital
production of complex, short-run, color and black and white text and images. The
core of our solution is the MicroPress, a server-based software and hardware
system built on industry-standard open-architecture technologies. 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.
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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;
- expand distribution;
- develop new applications and features;
- expand Internet functionality;
- focus on core technologies and build on industry-standard
open-architecture technologies; and
- further develop international sales.
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 Canada and one in the
United Kingdom.
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. 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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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................................. 11,500,160 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 is based on
shares outstanding at October 31, 1999 and excludes:
- 1,610,181 shares issuable under outstanding options at a weighted average
exercise price of $2.02 per share; and
- 976,608 additional shares reserved for issuance under our stock plans,
after giving effect to the adoption of our 1999 stock option plan.
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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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NINE MONTHS
FISCAL YEAR ENDED JANUARY 31, ENDED OCTOBER 31,
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1995 1996 1997 1998 1999 1998 1999
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
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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............................ $ (1.13) $ (1.81) $ (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............................ $ (1.13) $ (1.81) $ (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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OCTOBER 31, 1999
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PRO FORMA
ACTUAL AS ADJUSTED
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(IN THOUSANDS)
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BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 3,344 $26,637
Working capital............................................. 5,444 28,589
Total assets................................................ 10,067 33,200
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. Although we
had net income for the first three quarters of fiscal 2000, we may not be able
to sustain that profitability. In particular, 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. We cannot assure you that we will be
able to increase revenue in future years. 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, including pricing and product offerings
and customer demand;
- the level of sales promotion activities, such as advertising, by us, our
original equipment manufacturer customers, referred to as OEMs, 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; and
- product configurations and the gross margin changes resulting from
variations in the proportion of hardware and software in systems sold.
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. Often,
small business customers purchase our products using third-party financing. If
these customers are unable to obtain acceptable financing, they may not
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purchase our products. Also, some of our competitors have significantly greater
financial resources than us. These competitors could use their financial
resources to offer more attractive financing terms than the financing terms an
end-user customer could otherwise obtain to purchase our products. These factors
could limit or reduce our customer base, causing our sales to suffer.
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
To date, we have generated substantially all of our revenue from one
product line, the MicroPress. For the next several years, we expect to continue
to generate substantially all of our revenue from sales of this product line as
well as consumables and add-on software, hardware and services to support this
product line. If potential customers prefer other products or if competitors
introduce new products which gain market acceptance, we would lose a substantial
amount of revenue. Additionally, this product line may not be profitable due to
competitive pricing pressures, manufacturing difficulties or other factors. If
this product line is not profitable, we will not be profitable. If the
MicroPress cannot successfully compete, we cannot assure you that we will be
able to develop a more competitive product.
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, 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, as happened with Mita Industrial Co., Ltd. of
Japan, our revenues would decline and our results of operations would suffer. An
OEM customer could decrease its order for our products if demand for their
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 particular, dealers could fail to devote sufficient resources to marketing
our products or could develop relationships with our competitors. In the future,
we will need to add new dealers and increase business with our existing dealers
to be successful. We are currently investing and will continue to invest
significant time and money into expanding our dealer network, but we cannot
assure you that our efforts will be successful.
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
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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.
We could also 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 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 THE THIRD-PARTY SUPPLIERS OF EQUIPMENT THAT WE RESELL WITH OUR SYSTEMS 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. If those
third party manufacturers fail to deliver these products, we would have to find
an alternate supplier, 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.
WE DEPEND ON THIRD PARTIES TO MANUFACTURE SOME COMPONENTS OF OUR SYSTEMS AND
THEIR FAILURE TO PERFORM COULD CAUSE SHIPMENT DELAYS FOR OUR PRODUCTS, INCREASED
COSTS AND HARM TO OUR REPUTATION
We outsource the manufacture of some of the hardware components of our
products. If any of the manufacturers of these components do not meet our
requirements, we may not be able to find suitable alternative manufacturers on a
timely basis, if at all. Failure to find alternative manufacturers could affect
our product availability and sales.
Our third-party manufacturers conduct quality control and testing
procedures that we specify. However, we have occasionally experienced
manufacturing quality problems with circuit boards, which we have discovered
through testing before placing these boards in our products. Although we have
not encountered significant problems to date, we cannot assure you that we will
not experience future quality problems that could harm our reputation and
increase service and warranty costs.
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. 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.
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We expect competition in our market to increase. 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 REVENUES
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.
IF WE ARE UNABLE TO OBTAIN NEW EMPLOYEES AND EXPAND OUR SYSTEMS, OUR BUSINESS
WILL NOT GROW
We have experienced significant growth in our business. Our revenue has
grown from $4.0 million in fiscal 1997 to $15.8 million in fiscal 1999.
Competition for employees in our industry is intense. If we cannot attract,
train and motivate new employees and expand our operational, financial and
management systems effectively, we will not be able to grow our business, and
consequently increase our revenues and improve our profitability.
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
Rapid technological change in the digital document production market is
primarily driven by customer needs and emerging competition. 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.
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.
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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 REVENUES
Our success is based, in part, on our proprietary technology. We rely on a
combination of patent, copyright, trade secret and trademark laws and
nondisclosure and other contractual restrictions to protect our proprietary
rights. If we cannot protect our intellectual property and proprietary rights,
we may not remain competitive. We may incur substantial costs and invest
significant time in defending our intellectual property and proprietary rights,
which would hurt our results of operations.
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.
In addition, OEMs licensing our software could allow unauthorized use of
our software despite contractual terms prohibiting it.
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.
Further, any claims may require us to enter into royalty or licensing
agreements which may not be obtainable on terms acceptable to us.
9
<PAGE> 14
OUR BUSINESS, OPERATIONS AND PRODUCT DEVELOPMENT EFFORTS COULD BE HARMED BY THE
LOSS OF KEY PERSONNEL
Our future success depends, in significant part, upon key personnel,
including 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. If we
lose any of our key personnel, 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 will 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.
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.
10
<PAGE> 15
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 32.8% 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 our common stock.
See "Shares Eligible For Future Sale."
11
<PAGE> 16
SPECIAL NOTICE REGARDING 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.
12
<PAGE> 17
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.
13
<PAGE> 18
CAPITALIZATION
The following table presents T/R Systems' capitalization as of October 31,
1999 on an actual 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;
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.
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 AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt.............................................. $ 61 $ --
Redeemable, convertible preferred stock 9,500,000 shares
designated, actual; none designated, pro forma as
adjusted:
series A redeemable, convertible preferred stock;
5,000,000 shares designated, 4,799,999 shares issued
and outstanding, actual; none designated, issued or
outstanding, 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 designated, issued or
outstanding, 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 designated, issued or
outstanding, pro forma as adjusted..................... 2,732 --
Shareholders' equity (deficit):
Preferred stock; 12,000,000 shares authorized, actual and
pro forma as adjusted; 9,500,000 shares designated as
redeemable, convertible preferred stock, actual;
222,222 shares designated as convertible preferred
stock, actual; none designated, pro forma as adjusted;
222,222 shares of series D convertible preferred stock
issued and outstanding, actual; none issued or
outstanding, 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; 11,500,160 shares issued and
outstanding, pro forma as adjusted..................... 26 115
Additional paid-in capital................................ 2,171 40,349
Deferred compensation..................................... (68) (68)
Accumulated deficit....................................... (10,912) (10,912)
-------- -------
Total shareholders' equity (deficit)................. (8,781) 29,484
-------- -------
Total capitalization.............................. $ 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
- 976,608 additional shares reserved for issuance under our stock plans.
14
<PAGE> 19
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
- 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.
15
<PAGE> 20
SELECTED FINANCIAL DATA
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. The selected
financial data for the fiscal years ended January 31, 1997, 1998 and 1999 and as
of January 31, 1998 and 1999 are derived from our financial statements audited
by Deloitte & Touche LLP, independent auditors, presented elsewhere in this
prospectus. The selected financial data for the fiscal year ended January 31,
1996 and as of January 31, 1996 and 1997 are derived from our financial
statements audited by Deloitte & Touche LLP, independent auditors, not included
in this prospectus. The selected financial data as of and for the period ended
January 31, 1995 are derived from 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.
<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....... 1725 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............................ $ (1.13) $ (1.81) $ (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 2,427 2,532
======= ======= ======= ======= ======= ======= =======
Diluted net income (loss) per
share............................ $ (1.13) $ (1.81) $ (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>
16
<PAGE> 21
<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) (10,238) (9,975) (8,781)
</TABLE>
17
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements. Our actual
results could be materially different from those anticipated in these
forward-looking statements. Factors that might cause future results to be
materially different from those anticipated in these forward-looking statements
include those discussed in "Risk Factors" and elsewhere in this prospectus. The
terms fiscal 1997, fiscal 1998, fiscal 1999 and fiscal 2000 refer to the
corresponding year ended January 31, 1997, 1998, 1999 and 2000.
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.
18
<PAGE> 23
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.
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 for the
foreseeable future. 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 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.
19
<PAGE> 24
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 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.
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.
20
<PAGE> 25
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 16.1% 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.
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 30.7% 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 $220,000 due to an increase in sales.
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 7.8% 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.
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 in revenue from engineering service fees, a $417,000 increase
in revenue from royalties, a $402,000 increase in revenue from the sale of
consumable products and a $144,000 increase in revenue 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
21
<PAGE> 26
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 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
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<PAGE> 27
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 $720,000 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
$123,000 increase in travel expense, a $96,000 increase in payments for outside
consulting services and a $95,000 increase in trade show costs and travel.
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 $238,000 increase in
employee compensation for fiscal 1998 over fiscal 1997 resulting from the hiring
of additional administrative employees and improved operating performance.
Additionally, we incurred a $66,000 increase in the provision for doubtful
accounts, a $42,000 increase in professional service and a $34,000 increase in
travel-related expenses from fiscal 1998 to fiscal 1999.
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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<PAGE> 28
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 such 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 $5,816
Cost of sales........ 2,264 2,452
------ ------
Gross profit......... 2,969 3,364
Total operating
expenses............ 2,859 3,201
------ ------
Operating income
(loss).............. 110 163
Interest income,
net................. 26 39
Other expense........ -- --
------ ------
Net income (loss).... $ 136 $ 202
====== ======
</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
42.1% 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> 29
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 certain 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> 30
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
26
<PAGE> 31
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 such 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 in order 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
27
<PAGE> 32
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 Certificate 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 in accordance with the relevant sections of 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> 33
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.
29
<PAGE> 34
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> 35
- 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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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> 37
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 54 independent and 68 Minolta-owned or affiliated North
American dealers as of July 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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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. The MicroPress Spool is an 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. 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. 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
combines Harlequin RIP software with value-added plug-ins developed by
T/R Systems.
- MicroPress PrintStation Manager. The MicroPress PrintStation Manager is
a 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 - convert standard
document pages into a - move documents from one
- - create page thumbnails head-to-toe 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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In addition to the three standard modules, we offer the following
value-added 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 via 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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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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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 19.0% of
our revenue. During fiscal 1998 and 1999, Mita accounted for 19.1% 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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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.
We categorize our competitors into 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. The
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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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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.
43
<PAGE> 48
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. and will be designated as Class I
directors whose initial term will expire at the annual meeting of
shareholders to be held in 2000;
- Messrs. and 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. and 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.
After the closing of this offering, directors who are not executive
officers of T/R Systems will be paid $ for each meeting of the board of
directors or of any committee on which that director serves which is not held in
conjunction with a board meeting. In addition, T/R Systems will grant each
outside director an option to purchase shares immediately after
the closing of this offering, 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.
44
<PAGE> 49
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>
45
<PAGE> 50
OPTION GRANTS IN THE 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 $9.00 per share, the actual appreciation exceeds these
values.
OPTION GRANTS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF EXERCISE ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS OR PRICE APPRECIATION FOR
UNDERLYING GRANTED TO BASE OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------
NAME GRANTED(#) FISCAL YEAR ($/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 such 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, $4.95 per share, as determined
by the board of directors, minus the aggregate exercise price payable for such
shares.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES VALUE OPTIONS AT FY-END(#) AT FY-END($)
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>
46
<PAGE> 51
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
47
<PAGE> 52
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 deemed 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
prior to 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, as amended, 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
48
<PAGE> 53
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 500,000 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, such
amendment will be subject to shareholder approval. In no event will any
amendment which would impair the rights of an optionee be made without the
optionee'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 optionee'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
49
<PAGE> 54
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.
RELATED PARTY TRANSACTIONS
Mr. Gaffin, one of our directors, received options to purchase 6,061 shares
of common stock at $.083 per share pursuant to 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 certain
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.
50
<PAGE> 55
PRINCIPAL AND SELLING SHAREHOLDERS
The following tables present information regarding 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 with respect to the common stock owned by
them. Beneficial ownership is determined in accordance with 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>
51
<PAGE> 56
<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. Also includes 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 all of the shares held by Sevin Rosen Funds IV L.P. Mr. Phipps
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest. The address of each 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 InterWest
Partners V, L.P. and InterWest Investors V, L.P. As a general partner, Mr.
Gianos has shared voting and dispositive power over all of the shares held
by the InterWest funds. Mr. Gianos disclaims beneficial ownership of the
shares held by the InterWest funds except to the extent of his pecuniary
interest. The address of each 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, as well as 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 respective 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. Also includes 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 respective 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. Also includes 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.
Also includes 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
52
<PAGE> 57
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, as well as 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.
(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 108,745 shares held by Slayton & Associates, of which Mr. Slayton
is the sole shareholder.
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<PAGE> 58
DESCRIPTION OF CAPITAL STOCK
Giving effect to the amendment to our articles of incorporation on
September 28, 1999, as of that date, the authorized capital stock of T/R Systems
consisted 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 were
outstanding;
- 3,000,000 shares of series B preferred stock, 2,961,585 of which were
outstanding;
- 1,500,000 shares of series C preferred stock, 1,215,500 of which were
outstanding;
- 222,222 shares of series D preferred stock, all of which were
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. The remainder of this section describes the provisions
of our articles of incorporation and bylaws as they will be amended before
closing.
Upon the closing of the offering, the authorized capital stock of T/R
Systems will consist of:
- 88,000,000 shares of common stock, par value $0.01 per share; and
- 12,000,000 shares of preferred stock, par value $0.01 per share.
After giving effect to this offering and a proposed 1 for 1.65 reverse
stock split 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.
PREFERRED STOCK
Our board of directors will be authorized, without any further vote or
action by the shareholders, to issue 12,000,000 shares of preferred stock in one
or more series and to fix,
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<PAGE> 59
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
- 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.
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<PAGE> 60
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 business combination,
referred to as the announcement date, or in the transaction in which
it became an interested shareholder;
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<PAGE> 61
- 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 voting stock of the corporation
which was not held by directors, officers, their affiliates, subsidiaries
or specified employee stock plans of the corporation; or
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<PAGE> 62
- 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;
- the requirement that shareholders may remove directors only for cause and
only by the affirmative vote of at least 80% of our voting stock;
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<PAGE> 63
- 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 in its entirety 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 11,500,160 outstanding
shares of common stock. Of these shares, the 2,880,000 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 8,620,160 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 % of our outstanding stock, including 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 shares
will be immediately available for sale in the public market;
- beginning 90 days after the date of this prospectus, approximately
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
shares will be eligible for sale, approximately
of which will be subject to volume, manner of sale and other limitations
under Rule 144; and
- the remaining 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 shares immediately after the offering; or
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<PAGE> 65
- the average weekly trading volume of the common stock during the four
calendar weeks immediately before the sale.
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 those holders 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 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, holders of shares will
have such 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 such 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 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 % of our outstanding stock, including our officers and
directors, have agreed, during the period of 180 days after the date of this
prospectus, subject to various exceptions, not to offer to sell, contract to
sell, or otherwise sell, dispose of, loan, pledge or grant any rights with
respect to any shares of common stock or any options or warrants to purchase any
shares of common stock, or any securities convertible into or exchangeable for
shares of common stock, owned as of the date of this prospectus or later
acquired by them other than in the public markets, or with respect to which they
have the power of disposition, without the prior written consent of BancBoston
Robertson Stephens Inc. 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
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<PAGE> 68
- 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.
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, pursuant to Regulation M under
the Exchange Act, some persons participating in the offering may engage in any
of the following transactions:
- stabilizing bids, 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, bids for the purchase of common stock on
behalf of the underwriters to reduce a short position, which result when
an underwriter sells more shares than it has committed to purchase,
incurred by the underwriters in connection with the offering; and
- penalty bids, 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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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 herein 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 regarding registrants that file
electronically with the SEC, like T/R Systems, at http://www.sec.gov.
65
<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 10, 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....................................... 251 537 702 538 392
Deferred compensation expense...................... -- 5 32 24 24
Changes in assets and liabilities:
Decrease (increase) in receivables.............. (82) (1,720) (223) 320 (380)
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 (307) 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) -- --
------- ------- ------- ------- ------
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, the Company
issued 40,000 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. (the "Company") was incorporated in September 1991 under
the laws of the State of Georgia. The Company designs, develops, and markets
digital document processing and printing systems for the print-on-demand market.
The Company distributes its products in North America and internationally
through a network of independent dealers and through its distribution
relationship with Minolta.
2. SIGNIFICANT ACCOUNTING POLICIES
Unaudited Pro Forma Balance Sheet -- Upon consummation of the Company's
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 the Company's common stock. The unaudited pro forma balance sheet as of
October 31, 1999 gives effect to such 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 in
accordance with AICPA Statement of Position ("SOP") 97-2, Software Revenue
Recognition. The Company recognizes 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, the Company allocates revenue to the various
elements based on vendor-specific objective evidence of fair value. The
Company's products do not require significant customization. Prior to the
February 1, 1998 effective date of SOP 97-2, the Company recognized revenue on
printing systems upon shipment. The adoption of SOP 97-2 had no effect on the
Company's accounting for revenue. The Company recognizes revenue from the sale
of printing consumables upon shipment.
The Company recognizes 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, the Company has
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 ("FIFO") basis.
F-7
<PAGE> 77
T/R SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
Product Warranty -- The Company provides 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 in which 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, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, which requires that long-lived assets and certain intangibles 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 in which the recognition criteria are first applied,
based on the fair value of the asset. Long-lived assets and certain intangibles
to be disposed of are reported at the lower of carrying amount or fair value
less cost to sell. There was no impact on the financial statements upon adoption
of SFAS No. 121.
Stock-Based Compensation -- The Company accounts for compensation cost
related to employee stock options in accordance with the requirements of
Accounting Principles Board Opinion 25, Accounting for Stock Issued to
Employees. In fiscal 1997, the Company adopted the disclosure requirements of
SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123 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 such recognition
provisions been elected are required to be disclosed in financial statements.
Net Income (Loss) Per Common Share -- Net income (loss) per common share is
computed in accordance with SFAS No. 128, Earnings Per Share. Basic net income
(loss) per common share is computed by dividing net income (loss) available to
common shareholders by the weighted average common shares outstanding. Diluted
net income (loss) per common share is computed by dividing net income (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, the Company adopted
SFAS No. 130, Reporting Comprehensive Income. SFAS No. 130 establishes standards
for reporting
F-8
<PAGE> 78
T/R SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and display of comprehensive income and its components (revenues, expenses,
gains, and losses) in a full set of general purpose financial statements. As the
Company has no components of other comprehensive income, the adoption of this
statement had no effect on the financial statements.
Fair Value of Financial Instruments -- The carrying value of the Company's
cash and cash equivalents, accounts receivable, accounts payable, accrued
liabilities and notes payable approximate their fair values.
Unaudited Interim Financial Information -- The accompanying unaudited
interim financial statements of the Company have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial information.
In the opinion of management, all adjustments (consisting only of normal
recurring entries) considered necessary for a fair presentation have been
included. 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.
Reclassifications -- Certain prior period amounts have been reclassified to
conform with the current period presentation.
New Accounting Pronouncements -- In June 1998, the Financial Accounting
Standards Board (FASB) issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is effective for all fiscal years
beginning after June 15, 2000. SFAS 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. Under SFAS 133, certain
contracts that were not formerly considered derivatives may now meet the
definition of a derivative. The Company intends to adopt SFAS 133 effective
February 1, 2001. Management does not expect the adoption of SFAS 133 to have a
significant impact on the financial position or results of operations of the
Company because the Company does not have significant derivative activity.
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: (1) the total fair value of the undelivered elements, as
indicated by vendor-specific objective evidence, is deferred and subsequently
recognized in accordance with the relevant sections of SOP 97-2 and (2) the
difference between the total arrangement fee and the amount deferred for the
undelivered elements is recognized as revenue related to the delivered elements.
The Company will adopt SOP 98-9 in fiscal 2001 and does not expect the adoption
of SOP 98-9 to have a material effect on revenue recognition.
F-9
<PAGE> 79
T/R SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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>
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 for the years ended January 31, 1997, 1998, and 1999
and for the nine months ended October 31, 1998 and 1999 was $251,000, $537,000,
$702,000, $538,000, and $392,000, respectively.
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
The Company's 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 its deferred tax assets,
the Company considers both positive and negative evidence and gives greater
weight to evidence that is objectively verifiable. Due to the Company's
cumulative losses, the Company currently believes that the future realization of
its deferred tax assets is uncertain. The valuation allowance increased by
$2,050,000 and $507,000, and decreased by $298,000 in fiscal 1997, 1998, and
1999, respectively.
As of January 31, 1999, the Company has approximately $8.2 million in tax
net operating loss carryforwards which, if not utilized, expire from 2007
through 2019. The utilization of such net operating loss carryforwards and
realization of tax benefits in future years depends predominantly upon the
recognition of taxable income. Further, the utilization of $658,000 of these
carryforwards is subject to annual limitations of approximately $330,000 per
year as a result of a change in ownership of the Company, as defined in the
Internal Revenue Code. The limitation does not reduce the total amount of net
operating losses which may be taken, but rather limits the amount which may be
used during a particular year.
7. CREDIT FACILITY
The Company has 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 $27,000
borrowings against this line of credit. All borrowings under the line of credit
bear interest at prime plus 0.75% (8.55% at January 31, 1999) and are secured by
the Company's tangible assets, as defined. This agreement requires the
maintenance of certain covenants, including a restriction on paying dividends,
for which the Company was in compliance at January 31, 1999 and October 31,
1999. The agreement also provides for up to $200,000 in letters of credit. Any
letters of credit issued reduce the amount
F-11
<PAGE> 81
T/R SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
available for borrowing under the line. In April 1998, the Company 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, the credit agreement with the bank was amended to
provide an additional line of credit in the amount of $250,000 for the purchase
of property and equipment (the "Equipment Line"). The Equipment Line bears
interest at the bank's prime rate plus one and one-half percent (9.25% at
January 31, 1999). Borrowings against the Equipment Line are repayable over 36
months. At January 31, 1999, the outstanding balance on the Equipment Line was
$151,000 of which $52,000 is classified as short-term. The Company's ability to
draw against the Equipment Line expired in December 1998.
At January 31, 1999, the Company 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, the Company is required to maintain
a certificate of deposit for $200,000. The certificate of deposit is classified
as restricted cash.
8. REDEEMABLE, CONVERTIBLE PREFERRED STOCK
The Company is authorized to issue up to 12,000,000 shares of preferred
stock, of which 5,000,000 shares have been designated as Series A redeemable,
convertible preferred stock, 3,000,000 shares have been designated as Series B
redeemable, convertible preferred stock, and 1,500,000 shares have been
designated as Series C redeemable, convertible preferred stock. Through August
1995, the Company issued 4,799,999 shares of Series A preferred stock at $1.00
per share. In January 1996, the Company issued 2,961,585 shares of Series B
preferred stock at $2.55 per share. During March and June 1997, the Company
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 a qualified
public offering. Subject to adjustment to prevent dilution, each share of Series
A, Series B, and Series C converts into .606 share, .773 share, and .606 share
of common stock, respectively. 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 have liquidation preferences equal
to $1.00, $2.55, and $2.25 per share, respectively. 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 shares 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. The offering of securities contemplated by
this registration statement will result in the automatic conversion of the
preferred shares to common shares.
<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>
Costs associated with the issuance of redeemable preferred stock have been
netted against the gross proceeds received and are being accreted to the
carrying amount of the respective series of preferred stock through a charge to
additional paid-in capital.
9. SHAREHOLDERS' DEFICIT
Preferred Stock -- The Company is authorized to issue up to 12,000,000
shares of $0.01 par value preferred stock of which 9,500,000 shares have been
designated into three series of redeemable, convertible preferred stock (Note 8)
and 222,222 shares have been designated as Series D convertible preferred stock.
On May 17, 1999, the Company 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
automatically convert into common shares upon the closing of a qualified public
offering, as defined. 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 the Company's other series of preferred stock.
Common Stock -- The Company is authorized to issue up to 17,000,000 shares
of $0.01 par value voting common stock. On September 28, 1999, the Company
increased the number of authorized common shares to 88,000,000 shares. The
financial statements reflect this change on a retroactive basis.
F-13
<PAGE> 83
T/R SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Stock Option Plans -- The Company has 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 the Company's common stock. The plans allow
for the grant of both incentive and nonqualified stock options. The exercise
price of the incentive stock options shall not be less than fair market value of
the stock on the date of grant. Generally, such options are exercisable ratably
over four years and expire after ten years.
In October 1994, the Company established the 1994 Associates Stock Option
Plan (the "Associates Plan"), whereby the Company may issue, as approved by the
Board of Directors, to nonemployees of the Company who act in a role of a
director, consultant, or advisor, nonqualified options to purchase up to 30,303
shares of the Company's common stock. Such options are exercisable immediately
upon grant and expire at the earlier of three months after the nonemployee
ceases to be associated with the Company or ten years from the date of grant.
The following table sets forth 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>
F-14
<PAGE> 84
T/R SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<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>
The fair value of options at date of grant was estimated 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 the Company's stock option grants in fiscal 1997,
1998, and 1999 been determined based on grant-date fair value in accordance with
SFAS No. 123, the Company's net loss would have been $4,175,000, $1,334,000 and
$696,000 in fiscal 1997, 1998, and 1999, respectively. Net income would have
been $353,000 for the nine months ended October 31, 1999 (unaudited). Basic and
diluted net loss would have been $2.46, $0.66, and $0.30 per share in fiscal
1997, 1998, and 1999, respectively. Basic and diluted net income per share would
have been $0.13 and $0.03, respectively, for the nine months ended October 31,
1999 (unaudited). Because the effect under SFAS No. 123 on the Company's net
income (loss) of the determination of compensation for grants of stock options
has not been applied to options granted prior to January 31, 1995, the resulting
pro forma compensation cost may not be representative of that expected in future
years.
F-15
<PAGE> 85
T/R SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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, the Company recorded $130,000 in
deferred compensation representing the excess of the estimated market value of
the Company's 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, $32,000, and $24,000 for the years ended January 31, 1998 and 1999 and
for the nine months ended October 31, 1999, respectively.
In connection with the retirement of a director as an officer in August
1997, the Company accelerated the vesting and extended the exercise date of
options to purchase 113,939 shares of common stock which previously had been
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 exercise price of the options was not less than the estimated market
value of the Company's common stock at the time the options were modified.
10. COMMITMENTS
The Company leases existing office facilities and equipment under operating
lease agreements which expire through 2004. The Company has 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 for the years ended January 31, 1997, 1998, and 1999 was
$112,000, $143,000, and $364,000, respectively. Rent expense for the nine months
ended October 31, 1998 and 1999 was $236,000 and $290,000, respectively.
During fiscal 1998, the Company adopted a plan to relocate its headquarters
and entered into negotiations to lease a new office facility. The Company
executed the new lease in
F-16
<PAGE> 86
T/R SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
February 1998. In connection therewith, the Company recorded a $180,000 charge
in its fiscal 1998 financial statements for expected losses to be incurred with
respect to the existing lease.
11. SEGMENT INFORMATION
The Company operates in one reportable segment, the print-on-demand market,
and assesses 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 $11,727 $14,858 $15,249
Other................................... 272 305 989 455
------ ------- ------- -------
Total................................... $4,036 $12,032 $15,847 $15,704
====== ======= ======= =======
</TABLE>
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 the Company ships its
products. Substantially all of the Company's long-lived assets are located in
the United States.
One customer in each period accounted for 19.0%, 19.1%, 14.1%, and 39.1% of
revenue for the years ended January 31, 1997, 1998 and 1999, and the nine month
period ended October 31, 1999 (unaudited), respectively. One customer in each
period accounted for 46.3%, 6.9%, and 20.2% of total receivables at January 31,
1998 and 1999, and October 31, 1999 (unaudited), respectively.
12. EMPLOYEE RETIREMENT SAVING PLAN
The Company has 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. The Company's discretionary contribution is determined by
its board of directors. Currently, the Company matches 50% of each participant's
contribution up to 6% of the participant's compensation. Company contributions
vest with each employee ratably over four years beginning
F-17
<PAGE> 87
T/R SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
after the employee's first full year of service. During fiscal 1997, 1998 and
1999 and the nine month period ended October 31, 1999 the Company contributed
$0, $7,000, $69,000, and $79,000, respectively, to the plan.
13. NET INCOME (LOSS) PER COMMON SHARE
The following table summarizes the computation of basic and diluted net
income (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 consummation of the
Company's 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 certain stock options and convertible preferred stock
because such securities are antidilutive. At 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, respectively.
F-18
<PAGE> 88
T/R SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
14. REVERSE STOCK SPLIT
On , the Company completed a 1 for 1.65 reverse split
of its common shares. All common share and per share information included herein
has been retroactively adjusted to give effect to the reverse stock split.
F-19
<PAGE> 89
[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."
[LOGO]
UNTIL , 2000 (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 WITH RESPECT TO THEIR 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> 90
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> 91
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> 92
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> 93
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
1.1* -- 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> 94
<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 (included in signature page)
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> 95
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> 96
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 9, 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 9, 1999
- --------------------------------------------- Officer (Principal Executive
Michael E. Kohlsdorf Officer)
/s/ Lyle W. Newkirk Vice President, Chief November 9, 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: November 9, 1999
--------------------------------------
Michael E. Kohlsdorf
As Attorney-in-Fact
*By: November 9, 1999
--------------------------------------
Lyle W. Newkirk
As Attorney-in-Fact
</TABLE>
II-7
<PAGE> 97
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
1.1* -- 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> 98
<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 (included in signature page)
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> 99
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 82 200 -- (107) 175
for doubtful accounts
Year ended January 31, 1997 allowance -- 82 -- -- 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 4.3
1999 REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), made as of this
10th day of September, 1999, by and among the shareholders listed on the
signature pages hereto (collectively referred to hereinafter as the "Investors")
and T/R Systems, Inc., a Georgia corporation (the "Company");
W I T N E S E T H:
WHEREAS, the Investors own outstanding shares of the Company's common
stock or shares of Series D Preferred Stock convertible into the Company's
common stock;
WHEREAS, the Investors desire to enter into an agreement providing
certain registration rights and providing for certain lock-up provisions in the
event of a public offering of the Company's common stock; and
WHEREAS, the Company desires to enter into an agreement regulating the
relative rights of the Investors and the Company in the event of a public
offering of the Company's common stock;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto do agree to enter into the agreements contained
hereinbelow as follows:
1. REGISTRATION RIGHTS.
1.1 Certain Definitions. As used in this Agreement, in addition to the
terms defined above, the following terms shall have the following respective
meanings:
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean common stock, par value $.01 per share, of
the Company.
"Holders" shall mean the Investors and any other person holding
Registrable Securities to whom these registration rights have been transferred
pursuant to Section 1.9 hereof.
"Initial Public Offering" shall mean the effectiveness of the first
registration statement under the Securities Act that covers the offer and sale
to the public of Common Stock by the Company.
"Other Shareholders" shall mean persons other than Holders who, by
virtue of agreements with the Company, are entitled to include their securities
in a registration effected pursuant to this Agreement.
<PAGE> 2
The terms "register," "registered" and "registration" refer to the
effectiveness of a registration statement prepared and filed in compliance with
the Securities Act.
"Registrable Securities" shall mean all shares of Common Stock held by
the Holders and all shares of Common Stock issuable upon conversion of the
Series D Preferred Stock by the Holders, together with any shares of Common
Stock issued with respect thereto upon any stock split, stock dividend,
recapitalization or similar event.
"Registration Expenses" shall mean all expenses incurred by the Company
in complying with Section 1.2 hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, reasonable fees and expenses of a single counsel for
the selling Holders, state "blue sky" fees and expenses, and accountants'
expenses, including without limitation any special audits incident to or
required by any such registration (but excluding the compensation of regular
employees of the Company, which shall be paid in any event by the Company and
any additional disbursements of counsel for the selling Holders, which shall be
paid by such selling Holders).
"Securities Act" shall mean the federal Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations of the
Commission promulgated thereunder, all as the same shall be in effect at the
time.
"Securities Exchange Act" shall mean the federal Securities Exchange
Act of 1934, as amended, or any similar federal statute and the rules and
regulations of the Commission promulgated thereunder, all as the same shall be
in effect at the time.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and any other
securities of the Company being sold in the same registration as the Registrable
Securities by the Company or Other Shareholders.
"Series D Preferred Stock" shall mean the Company's Series D Preferred
Stock, par value $0.01 per share.
- 2 -
<PAGE> 3
1.2 Company Registration.
1.2.1 If the Company shall determine to register any of its
securities in connection with the public offering of such securities solely for
cash on a form that would permit the registration of the Registrable Securities
other than on Form S-8, Form S-4 or another form not available for registering
the Registrable Securities for sale to the public, the Company shall promptly
give to each Holder written notice of such registration (a "Piggyback
Registration"), which shall include a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under the applicable blue
sky or other state securities laws; and include in such registration (and any
related qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made by any Holder or Holders within fifteen (15)
days after receipt of such written notice from the Company, subject to the
underwriter limitations, if any, described in Subsection 1.2.3 hereof. The
Company shall have the right to withdraw or cease to prepare or file any
registration statement for any offering referred to in this Subsection 1.2.1
without any obligation or liability to any Holder.
1.2.2 Number of Piggyback Registrations. Subject to the
underwriter limitations, if any, described in Subsection 1.2.3 below, each
Holder shall be entitled to have its Registrable Securities included in (i) the
Initial Public Offering and (ii) in an unlimited number of Piggyback
Registrations pursuant to this Section 1.2 until such time as the number of
Registrable Securities held by any such Holder does not exceed one percent (1%)
of the shares outstanding of the Company as shown by the most recent report or
statement published by the Company and filed with the Commission.
1.2.3 Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Subsection 1.2.1 hereof. In such event the right of any Holder to
registration pursuant to Subsection 1.2.1 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and Other Shareholders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for underwriting by the
Company. Notwithstanding any other provision of this Section 1.2, if the
underwriter reasonably determines that marketing factors require a limitation on
the number of shares to be underwritten, the number of shares that may be
included in the registration shall be allocated first to each holder of the
Company's stock electing to participate in the registration that is a party to
that certain Second Amended and Restated Registration Rights Agreement dated as
of March 31, 1997, as amended by that certain First Amendment to Stock Purchase
Agreement, Second Amended and Restated Shareholders' Agreement and Second
Amended and Restated Registration Rights Agreement dated as of June 20, 1997,
and then among the Holders and Other Shareholders requesting registration of
securities in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities and other securities that such Holders had requested to
be included in such registration. The Company shall advise all holders of
securities requesting registration as to the number of shares or securities that
may be included in the registration and underwriting as allocated in the
foregoing manner. No such reduction shall be made with respect to securities
- 3 -
<PAGE> 4
offered by the Company for its own account. If any Holder or Other Shareholder
disapproves of the terms of any such underwriting, such person may elect to
withdraw therefrom by written notice to the Company and the underwriter. Any
Registrable Securities or other securities excluded or withdrawn from such
underwriting shall also be withdrawn from such registration.
1.3 Expenses of Registration. All Registration Expenses incurred
in connection with any registration, qualification or compliance pursuant to
this Agreement shall be borne by the Company; and all Selling Expenses shall be
borne by the Holders, the Other Shareholders of the securities so registered and
the Company, to the extent of securities registered on its behalf, pro rata on
the basis of the number of their shares so registered; provided, however, that
if any jurisdiction in which the securities shall be qualified shall require
that expenses incurred in connection with the qualification of the securities in
that jurisdiction be borne by the selling shareholders, then such expenses shall
be payable by the selling shareholders pro rata to the extent required by such
jurisdiction.
1.4 Registration Procedures. In the case of each registration
effected by the Company pursuant to this Agreement, the Company shall keep each
Holder advised in writing as to the initiation of each registration and as to
the completion thereof. At its expense the Company shall use its best efforts
to:
1.4.1 keep such registration effective for a period of one
hundred eighty (180) days or until the distribution described in the
registration statement relating thereto has been completed, whichever first
occurs; and
1.4.2 furnish such number of prospectuses and other
documents incident thereto as a Holder from time to time may reasonably request.
1.5 Indemnification.
1.5.1 With respect to each Holder whose securities have been
registered pursuant to this Agreement, the Company shall indemnify such Holder,
each of such Holder's officers, directors and partners, and each person
controlling (as defined in Subsection 1.5.4 below) such Holder and each of such
controlling person's officers, directors and partners, and shall also indemnify
each underwriter, if any, and each person who controls any underwriter, against
all claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any prospectus, offering circular or other document
(including any related registration statement, notification or the like)
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
any violation by the Company of any rule or regulation promulgated under the
Securities Act applicable to the Company and relating to action or inaction
required of the Company in connection with any such registration, qualification
or compliance, and shall reimburse each such Holder and each person controlling
such Holder, and each of such controlling person's officers, directors and
partners, each of its officers, directors and partners, each such underwriter,
and each person who controls such underwriter, for any legal and other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action; provided, however, that the Company
shall not be liable in
- 4 -
<PAGE> 5
any such case to the extent that any such claim, loss, damage, liability or
expense arises out of or is based upon written information furnished to the
Company by the Holder or on behalf of the Holder by the officers, directors or
partners of the Holder seeking to be indemnified, where such information is
stated to be specifically for use in such prospectus, offering circular or
related document.
1.5.2 Each Holder and Other Shareholder shall, if securities
held by him or it are included among the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, each of its directors and officers, each underwriter, if any, of the
Company's securities covered by such a registration statement, each person who
controls (as defined in Subsection 1.5.4 below) the Company or such underwriter,
and each other such Holder and Other Shareholder and each of such controlling
person's officers, directors and partners, and each person controlling such
Holder or Other Shareholder and each of such controlling person's officers,
directors and partners, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and shall reimburse
the Company and such Holders, Other Shareholders, directors, officers, partners,
persons, underwriters and control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder or
Other Shareholder specifically for use therein; provided, however, that the
obligations of such Holder or Other Shareholder hereunder shall be limited to an
amount equal to the proceeds to such Holder or Other Shareholder of securities
sold as contemplated herein.
1.5.3 Each party entitled to indemnification under this
Section 1.5 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought and shall permit the Indemnifying Party to assume the defense of any such
claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not be withheld unreasonably), and the Indemnified Party
may participate in such defense at such Indemnified Party's expense. The failure
of any Indemnified Party to give notice as provided herein shall relieve the
Indemnifying Party of its obligations under this Section 1.5 only if such
failure is prejudicial to the ability of the Indemnifying Party to defend such
action, and such failure shall in no event relieve the Indemnifying Party of any
liability that he or it may have to any Indemnified Party otherwise than under
this Section 1.5. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability with respect to such claim or
litigation, provided that such unconditional release may be subject to a
parallel release of
- 5 -
<PAGE> 6
a claimant or plaintiff by such Indemnified Party from all liability in respect
of claims or counterclaims asserted by such Indemnified Party.
1.5.4 For purposes of this Section 1.5, the term "control"
shall have the meaning assigned thereto under the Securities Act.
1.6 Information by Holders and Other Shareholders. Each Holder or Other
Shareholder of securities included in any registration shall furnish to the
Company such information regarding such Holder or Other Shareholder and the
distribution proposed by such Holder or Other Shareholder as the Company may
request in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Agreement.
1.7 Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission that may permit the sale of the
Common Stock to the public without registration, the Company shall:
1.7.1 make and keep public information available as those
terms are understood and defined in Rule 144 promulgated by the Commission under
the Securities Act ("Rule 144"), at all times after ninety (90) days following
the Initial Public Offering;
1.7.2 file with the Commission in a timely manner all reports
and other documents required of the Company under the Securities Act and the
Securities Exchange Act at any time after it has become subject to the reporting
requirements thereunder; and
1.7.3 so long as any Holder owns any securities constituting
or representing Registrable Securities, furnish to such Holder forthwith upon
request a written statement by the Company as to its compliance with the
reporting requirements of Rule 144 (at any time after ninety (90) days following
the Initial Public Offering), and of the Securities Act and the Securities
Exchange Act (at any time after it has become subject to the reporting
requirements thereunder), a copy of the most recent annual or quarterly report
of the Company, and such other reports and documents so filed by the Company as
such Holder may reasonably request in availing itself of any rule or regulation
of the Commission allowing such Holder to sell any such securities without
registration.
1.8 Transfer of Registration Rights. The rights to cause the Company to
register securities of the Company under Section 1.2 hereof may be assigned by
any Holder to any transferee of Registrable Securities together with the
securities being transferred, provided that in each case the Company is given
written notice, at the time or within a reasonable time after said transfer,
stating the name and address of said transferee and identifying the securities
with respect to which such registration rights are being assigned. No such
assignment shall be effective unless the transferee shall be required, as a
condition to such transfer, to agree in writing that he or it will receive and
hold such securities subject to the provisions of this Article 1.
1.9 "Market Stand-Off" Agreement. If requested by the Company upon the
recommendation of the Board of Directors of the Company and an underwriter of
Common Stock of the Company, the Holders shall not sell or otherwise transfer or
dispose of any Common Stock of the Company held by them during the one hundred
eighty (180)-day period following the
- 6 -
<PAGE> 7
effective date of a registration statement of the Company filed under the
Securities Act, provided that Other Shareholders selling securities pursuant to
such registration statement and substantially all of the officers and directors
of the Company enter into similar agreements.
Such agreement shall be in writing in form satisfactory to the Company
and such underwriter. The Company may impose stop-transfer instructions with
respect to the shares (or securities) subject to the foregoing restriction until
the end of said one hundred eighty (180)-day period.
2. MISCELLANEOUS.
2.1 Governing Law. This Agreement shall be governed and construed under
the laws of the State of Georgia, notwithstanding the fact that one or more
parties to this Agreement may be a resident of a different state.
2.2 Successors and Assigns. The rights and obligations set forth in
this Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective legal representatives, successors and assigns.
2.3 Captions. The captions of the several sections and paragraphs of
this Agreement are included for reference only and shall not limit or otherwise
affect the meaning thereof.
2.4 Amendments. Neither this Agreement nor any term of provision hereof
may be amended, waived, discharged or terminated except in writing signed by all
parties to this Agreement.
2.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which taken
together shall constitute but one and the same instrument.
[SIGNATURES APPEAR ON SUCCEEDING PAGES]
- 7 -
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this 1999 Registration
Rights Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By: /s/ Lyle W. Newkirk
-------------------------------
Title: Vice President, Chief
Financial Officer
and Secretary
INVESTORS:
By:
-------------------------------
Name:
-----------------------------
(Please Print)
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<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this 1999 Registration
Rights Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
-------------------------------
Title:
----------------------------
INVESTORS:
KYOCERA CORPORATION
By: /s/ Masahiro Unemura
-------------------------------
Name: Masahiro Unemura
-----------------------------
Executive Vice President
(Please Print)
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<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this 1999 Registration
Rights Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
-------------------------------
Title:
----------------------------
INVESTORS:
By: /s/ Kevin Chapin
-------------------------------
Name: Kevin Chapin
-----------------------------
(Please Print)
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<PAGE> 11
IN WITNESS WHEREOF, the parties have executed this 1999 Registration
Rights Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
-------------------------------
Title:
----------------------------
INVESTORS:
By: /s/ Tye R. Peel
-------------------------------
Name: Tye R. Peel
-----------------------------
(Please Print)
- 8 -
<PAGE> 12
IN WITNESS WHEREOF, the parties have executed this 1999 Registration
Rights Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
-------------------------------
Title:
----------------------------
INVESTORS:
By: /s/ Robert G. Pennington
-------------------------------
Name: Robert G. Pennington
-----------------------------
(Please Print)
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<PAGE> 13
IN WITNESS WHEREOF, the parties have executed this 1999 Registration
Rights Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
-------------------------------
Title:
----------------------------
INVESTORS:
By: /s/ Lynn S. Mettler
-------------------------------
Name: Lynn S. Mettler
-----------------------------
(Please Print)
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<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this 1999 Registration
Rights Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
-------------------------------
Title:
----------------------------
INVESTORS:
By: /s/ Lawrence W. Cohen
-------------------------------
Name: Lawrence W. Cohen
-----------------------------
(Please Print)
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<PAGE> 15
IN WITNESS WHEREOF, the parties have executed this 1999 Registration
Rights Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
-------------------------------------
Title:
----------------------------------
INVESTORS:
By: /s/ Lyle W. Newkirk
-------------------------------------
Name: Guardian for Mary Elizabeth Newkirk
-----------------------------------
(Please Print)
/s/ Mary Elizabeth Newkirk
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<PAGE> 16
IN WITNESS WHEREOF, the parties have executed this 1999 Registration
Rights Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
-------------------------------
Title:
----------------------------
INVESTORS:
By: /s/ Lyle W. Newkirk, Jr.
-------------------------------
Name: Lyle W. Newkirk, Jr.
-----------------------------
(Please Print)
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<PAGE> 17
IN WITNESS WHEREOF, the parties have executed this 1999 Registration
Rights Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
-------------------------------
Title:
----------------------------
INVESTORS:
By: /s/ William Newkirk
-------------------------------
Name: William Newkirk
-----------------------------
(Please Print)
/s/ Lyle William Newkirk, Jr.
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<PAGE> 18
IN WITNESS WHEREOF, the parties have executed this 1999 Registration
Rights Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
-------------------------------
Title:
----------------------------
INVESTORS:
By: /s/ Russell T. Shaver
-------------------------------
Name: Russell T. Shaver
-----------------------------
(Please Print)
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<PAGE> 19
IN WITNESS WHEREOF, the parties have executed this 1999 Registration
Rights Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
-------------------------------
Title:
----------------------------
INVESTORS:
By: /s/ Kathleen Anne Hunt
-------------------------------
Name: Kathleen Anne Hunt
-----------------------------
(Please Print)
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<PAGE> 20
IN WITNESS WHEREOF, the parties have executed this 1999 Registration
Rights Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
-------------------------------
Title:
----------------------------
INVESTORS:
By: /s/ Thomas L. Orr
-------------------------------
Name: Thomas L. Orr
-----------------------------
(Please Print)
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<PAGE> 21
IN WITNESS WHEREOF, the parties have executed this 1999 Registration
Rights Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
-------------------------------------
Title:
----------------------------------
INVESTORS:
By: /s/ Thomas L. Orr /s/ Teresa M. Orr
-------------------------------------
Name: Thomas L. Orr Teresa M. Orr
-----------------------------------
(Please Print)
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<PAGE> 1
EXHIBIT 10.5
T/R SYSTEMS, INC.
1999 STOCK OPTION PLAN
1. PURPOSE. The purpose of this Plan is to promote share
ownership by key employees of T/R Systems, Inc. and its subsidiaries and
directors of T/R Systems, Inc. thereby reinforcing a mutuality of interest
with other shareholders, and to enable T/R Systems, Inc. and its subsidiaries
to attract, retain and motivate key employees and directors by permitting them
to share in its growth.
2. DEFINITIONS. As used in this Plan,
"Board" means the Board of Directors of the Company and, to
the extent of any delegation by the Board to a committee (or subcommittee
thereof) pursuant to Section 10 of this Plan, such committee (or subcommittee).
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto.
"Common Shares" means the Common Stock, .01 par value, of T/R
Systems, Inc.
"Company" means T/R Systems, Inc., a Georgia corporation.
"Date of Grant" means the date specified by the Board on which
a grant of Options shall become effective (which date shall not be earlier than
the date on which the Board takes action with respect thereto).
"Director" means a member of the Board of Directors of the
Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder, as such law, rules and
regulations may be amended from time to time.
"Fair Market Value" means, as of any given day, the per share
closing price of a Common Share on Nasdaq on the day preceding the day such
determination is being made or, if there was no closing price reported on such
day, on the most recently preceding day on which such a closing price was
reported; or if the Common Shares are not listed or admitted to trading on
Nasdaq on the day as of which the determination is being made, the amount
determined by the Board to be the fair market value of a Common Share on such
day.
"Incentive Stock Options" means Options that are intended to
qualify as "incentive stock options" under Section 422 of the Code or any
successor provision.
"Nasdaq" means The Nasdaq Stock Market.
<PAGE> 2
"Option" means the right to purchase Common Shares upon
exercise of an option granted pursuant to Section 4 of this Plan.
"Optionee" means the optionee named in an agreement evidencing
an outstanding Option.
"Option Price" means the purchase price payable on exercise of
an Option.
"Participant" means a person who is selected by the Board to
receive benefits under this Plan and who is at the time a key employee of the
Company or a Subsidiary or a Director of the Company, or who has agreed to
commence serving in any of such capacities within 30 days of the Date of Grant.
"Plan" means this 1999 Stock Option Plan of the Company, as
amended from time to time.
"Rule 16b-3" means Rule 16b-3 under the Exchange Act (or any
successor rule to the same effect) as in effect from time to time.
"Stock Option Agreement" means the agreement entered into by
the Company and Optionee pursuant to Section 6 of this Plan.
"Subsidiary" means a corporation, company or other entity (i)
more than 50 percent of whose outstanding shares or securities (representing the
right to vote for the election of directors or other managing authority) are, or
(ii) which does not have outstanding shares or securities (as may be the case in
a partnership, joint venture or unincorporated association), but more than 50
percent of whose ownership interest representing the right generally to make
decisions for such other entity is, now or hereafter, owned or controlled,
directly or indirectly, by the Company except that for purposes of determining
whether any person may be a Participant for purposes of any grant of Incentive
Stock Options, "Subsidiary" means any corporation in which at the time the
Company owns or controls, directly or indirectly, more than 50 percent of the
total combined voting power represented by all classes of stock issued by such
corporation.
3. SHARES AVAILABLE.
(a) Subject to adjustment as provided in Section 5 of this
Plan, the total number of Common Shares which may be issued and sold under
Options granted pursuant to this Plan shall not exceed 1,500,000 Common Shares.
Such shares may be treasury shares or shares of original issue or a combination
of the foregoing. In the event that any outstanding Option for any reason
expires or is cancelled or otherwise terminated, the Common Shares allocable to
the unexercised portion of such Option shall again be available for purposes of
this Plan.
(b) Subject to adjustment as provided in Section 5 of this
Plan, no individual Participant shall be granted Options under this Plan for
more than 500,000 Common Shares during any calendar year.
2
<PAGE> 3
4. OPTIONS. The Board may, from time to time and upon such terms
and conditions as it may determine, authorize the granting of Options to
Participants. Each such grant shall be subject to all of the requirements
contained in the following provisions and such other terms as the Board shall
determine:
(a) Each grant shall specify the number of Common Shares to
which it pertains, subject to the limitations set forth in Section 3 of this
Plan.
(b) Each grant shall specify an Option Price per share, which
may not be less than the Fair Market Value on the Date of Grant. In the case of
the grant of any Incentive Stock Option to an employee who, at the time of the
grant, owns more than 10% of the total combined voting power of all classes of
stock of the Company or any of its Subsidiaries, such price per Common Share, if
required by the Code at the time of grant, will not be less than 110% of the
Fair Market Value of the Common Shares on the Date of Grant.
(c) The Option Price shall be payable (i) in cash or by other
consideration acceptable to the Company, (ii) by the actual or constructive
transfer to the Company of Common Shares owned by the Optionee for at least 6
months having a value at the time of exercise equal to the total Option Price,
or (iii) by a combination of such methods of payment. The Optionee shall not
surrender, or attest to the ownership of, Common Shares in payment of the Option
Price if such action would cause the Company to recognize compensation expense
(or additional compensation expense) with respect to the Option for financial
reporting purposes.
(d) Any grant may provide for deferred payment of the Option
Price from the proceeds of sale through a broker on a date satisfactory to the
Company of some or all of the Common Shares to which such exercise relates.
(e) Successive grants may be made to the same Optionee whether
or not any Option previously granted to such Optionee remains unexercised.
(f) Each grant shall specify the period or periods of
continuous service by the Optionee with the Company or any of its Subsidiaries
that is necessary before the Options or installments thereof will become
exercisable and may provide for earlier exercise of the Option, including,
without limitation, in the event of a change in control of the Company or
similar event.
(g) Options granted under this Plan may be (i) options that
are intended to qualify under particular provisions of the Code, including,
without limitation, Incentive Stock Options, (ii) options that are not intended
so to qualify under the Code, or (iii) combinations of the foregoing.
(h) Except as otherwise determined by the Board, no Option
shall be transferable by the Optionee except by will or the laws of descent and
distribution. Except as otherwise determined by the Board, Options shall be
exercisable during the Optionee's lifetime only by the Optionee or, in the event
of the Optionee's legal incapacity to do so, the Optionee's guardian or legal
representative acting on behalf of the Optionee in a fiduciary capacity under
state law and court supervision.
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<PAGE> 4
(i) No Option shall be exercisable more than 10 years from the
Date of Grant. In the case of the grant of an Incentive Stock Option to an
employee who at the time of the grant owns more than 10% of the total combined
voting power of all classes of stock of the Company or any of its Subsidiaries,
in no event will such Option be exercisable, if required by the Code at the time
of grant, more than five years from the Date of Grant.
(j) An Optionee may exercise an Option in whole or in part at
any time and from time to time during the period within which an Option may be
exercised. To exercise an Option, an Optionee shall give written notice to the
Company specifying the number of Common Shares to be purchased and provide
payment of the Option Price and any other documentation that may be required by
the Company.
(k) To the extent required for "Incentive Stock Option" status
under Section 422 of the Code, the aggregate Fair Market Value (determined as of
the Date of Grant) of the Common Shares with respect to which Incentive Stock
Options are exercisable for the first time by the Optionee during any calendar
year under the Plan and/or any other stock option plan of the Company (within
the meaning of Section 424 of the Code) shall not exceed $100,000.
5. ADJUSTMENTS. The Board may make or provide for such
adjustments in the Option Price and in the number or kind of shares or other
securities covered by outstanding options as the Board in its sole discretion
may in good faith determine to be equitably required in order to prevent
dilution or enlargement of the rights of Optionees that would otherwise result
from any (a) stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Company, (b)
merger, consolidation, separation, reorganization, partial or complete
liquidation, issuance of rights or warrants to purchase stock to holders of
Common Shares or (c) other corporate transaction or event having an effect
similar to any of the foregoing. Moreover, in the event of any such transaction
or event, the Board, in its discretion, may provide in substitution for any or
all outstanding options under this Plan such alternative consideration as it, in
good faith, may determine to be equitable in the circumstances and may require
in connection therewith the surrender of all options so replaced. The Board may
also make or provide for such adjustments in the number of shares specified in
Section 3 of this Plan as the Board in its sole discretion, exercised in good
faith, may determine is appropriate to reflect any transaction or event
described in this Section 5; provided, however, that any such adjustment to the
number specified in Section 3(a) shall be made only if and to the extent that
such adjustment would not cause any Option intended to qualify as an Incentive
Stock Option to fail so to qualify.
6. STOCK OPTION AGREEMENT. The form of each Stock Option
Agreement shall be prescribed, and any Stock Option Agreement evidencing an
outstanding Option may with the concurrence of the affected Optionee be amended,
by the Board, provided that the terms and conditions of each Stock Option
Agreement and amendment are not inconsistent with this Plan and that no
amendment shall adversely affect the rights of the Optionee with respect to any
outstanding Option without the Optionee's consent.
7. WITHHOLDING. No later than the date as of which an amount
first becomes includible in the gross income of the Optionee for applicable
income tax purposes with respect to any Option under the Plan, the Optionee
shall pay to the Company, or make arrangements satisfactory to the
4
<PAGE> 5
Board regarding the payment of, any Federal, state or local taxes of any kind
required by law to be withheld with respect to such amount. Unless otherwise
determined by the Board, the minimum required withholding obligations may be
settled with Common Shares, including Common Shares that are part of the award
that gives rise to the withholding requirement. The obligations of the Company
under this Plan shall be conditional on such payment or arrangements and the
Company shall, to the extent permitted by law, have the right to deduct any such
taxes from any payment of any kind otherwise due to the Optionee.
8. GOVERNING LAW. The Plan and all Options granted and actions taken
thereunder shall be governed by and construed in accordance with the laws of the
State of Georgia.
9. FRACTIONAL SHARES. The Company shall not be required to issue any
fractional Common Shares pursuant to this Plan. The Board may provide for the
elimination of fractions or for the settlement of fractions for cash.
10. ADMINISTRATION. This Plan shall be administered by the Board, which
may from time to time delegate all or any part of its authority under this Plan
to a committee of not less than two Directors appointed by the Board. The
members of the committee shall be "Non-Employee Directors" within the meaning of
Rule 16b-3. To the extent of any such delegation, references in this Plan to the
Board shall also refer to the committee. A majority of the members of the
committee shall constitute a quorum, and any action taken by a majority of the
members of the committee who are present at any meeting of the committee at
which a quorum is present, or any actions of the committee that are unanimously
approved by the members of the committee in writing, shall be the acts of the
committee. The Board shall have the authority to delegate responsibility and
authority for the operation and administration of this Plan, appoint employees
and officers of the Company and Subsidiaries to act on its behalf, and employ
persons to assist in fulfilling its responsibilities under this Plan.
11. AMENDMENT. This Plan may be amended from time to time by the Board;
provided, however, that any amendment which must be approved by the shareholders
of the Company in order to comply with applicable law or the rules of Nasdaq, or
if the Common Shares are not quoted on Nasdaq, the principal national securities
exchange upon which the Common Shares are traded or quoted, shall not be
effective unless and until such approval has been obtained. Presentation of this
Plan or any amendment hereof for shareholder approval shall not be construed to
limit the Company's authority to offer similar or dissimilar benefits under
other plans without shareholder approval. Furthermore, no amendment, alteration
or discontinuation of this Plan shall be made which would impair the rights of
an Optionee with respect to any outstanding Option under this Plan without the
Optionee's consent, or which, without approval of the Company's shareholders,
would (a) except as expressly provided in this Plan, increase the total number
of Common Shares reserved for this Plan or (b) extend the maximum option period
applicable under this Plan.
12. EFFECTIVE DATE. This Plan shall be effective immediately; provided,
however, that the effectiveness of this Plan is conditioned on its approval by
the shareholders of the Company at a meeting duly held in accordance with
Georgia law within 12 months after the date this Plan is adopted by the Board.
All awards under this Plan shall be null and void if the Plan is not approved by
the shareholders within such 12-month period.
5
<PAGE> 6
13. TERM. No Option shall be granted pursuant to this Plan on or after
the tenth anniversary of the date this Plan is adopted by the Board, but awards
granted prior to such tenth anniversary may extend beyond that. The date this
Plan is adopted by the Board shall be September 23, 1999.
14. AWARDS IN SUBSTITUTION FOR AWARDS GRANTED BY OTHER COMPANIES. To
the extent not otherwise provided in the Plan, Options may be granted under this
Plan in substitution for awards held by employees of a company who become
employees of the Company or a Subsidiary as a result of the acquisition, merger
or consolidation of the employer company by or with the Company or a Subsidiary.
The terms, provisions and benefits of the substitute awards so granted may vary
from those set forth in or authorized by this Plan to such extent as the Board
at the time of the grant may deem appropriate to conform, in whole or in part,
to the terms, provisions and benefits of awards in substitution for which they
are granted.
6
<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").
WITNESETH:
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.
1
<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 * (*) * 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
* Confidential information has been omitted and filed separately with the
Commission.
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 * (*) * 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
---------------------------- -------------------------------
19
<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. *
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 *.
<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 *.
(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 *.
(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.
<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-
<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
----------------------------- ---------------------------
<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):
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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
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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
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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 * (*)-*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
5
* Confidential information has been omitted and filed separately with the
Commission.
<PAGE> 6
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.
<PAGE> 7
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.
7
* Confidential information has been omitted and filed separately with the
Commission.
<PAGE> 8
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 * (*) 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
9
<PAGE> 10
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.
10
<PAGE> 11
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
11
<PAGE> 12
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 *.
(E) Monthly Regular Stocking Order (Standard/Special Parts)
Limitations
* Confidential treatment has been omitted and filed separately with the
Commission.
12
<PAGE> 13
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
13
<PAGE> 14
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.
<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.
<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.
<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>
<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.
<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.
<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
<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.
<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.
<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>
<PAGE> 25
Fig. 2
ENGINEERING CHANGE REQUEST (ECR)
MODEL: # (1) SUBJECT: (2) ECR NO.: (3)
DESCRIPTION OF CHANGE: (6)
<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.
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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,
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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.
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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
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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
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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.
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<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.
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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
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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
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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.
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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.
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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 * (*) 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.
* Confidential information has been omitted and filed separately with the
Commission.
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.
13
<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.
14
<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
<PAGE> 22
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.
22
<PAGE> 23
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>
23
<PAGE> 24
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.
24
<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.
2
<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.
3
<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
4
<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
5
<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.
6
<PAGE> 7
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.
7
<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
8
<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.
9
<PAGE> 10
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 *.
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.
10
<PAGE> 11
(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.
11
<PAGE> 12
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
12
<PAGE> 13
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
----------------------------- -------------------------
13
<PAGE> 14
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
* 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.
14
<PAGE> 15
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.
15
<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.
16
<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.
17
<PAGE> 1
EXHIBIT 10.16
FOURTH LOAN MODIFICATION AGREEMENT
This Fourth Loan Modification Agreement is entered into as of October
15, 1999, by and between T/R Systems, Inc., a Georgia corporation ("Borrower")
whose address 1300 Oakbrook Drive, Norcross, Georgia 30093, and Silicon Valley
Bank ("Lender") whose address is 3003 Tasman Drive, Santa Clara, CA 95054
(hereinafter the "Loan Modification Agreement"), with a loan production office
at 3343 Peachtree Road, 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 as of March 31, 1998 between Borrower and
Bank, a Second Loan Modification Agreement dated as of October 16, 1998 between
Borrower and Bank, a Third Loan Modification Agreement dated as of January 18,
1999 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 Revolving 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) Modifications to Revolving Facility.
The purpose of this Loan Modification Agreement is to renew the
Committed Revolving Line and to further modify the Existing Loan
Documents as follows:
(1) The amount of the Committed Revolving Line is increased to Three
Million and No/100ths Dollars ($3,000,000.00); provided, however,
that the face amount of outstanding Letters of Credit shall not
exceed Two Hundred Thousand and No/l00ths Dollars ($200,000.00);
(2) The term of the Committed Revolving Line is extended from October
15, 1999 to October 14, 2000; and
<PAGE> 2
(3) Except as set forth in Section 2.3(b) of the Loan Agreement, any
Credit Extensions shall bear interest, on the average daily
balance thereof, at a per annum rate equal to three-quarters of
one percentage point (.75%) above the Prime Rate.
(b) Modification(s) to Loan Agreement.
(1) In the Loan Agreement, the definition of "Committed Revolving
Line" is deleted and replaced with the following:
"Committed Revolving Line" means a credit extension of up to
Three Million and No/100ths Dollars ($3,000,000.00).
(2) In the Loan Agreement, the definition of "Revolving Maturity
Date" is deleted and replaced with the following:
"Revolving Maturity Date" means October 14, 2000.
(3) Subparagraph (a) of Section 2.1.2 of the Loan Agreement is
deleted in its entirety and replaced with the following:
"(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 TWO HUNDRED THOUSAND AND NO/100THS
DOLLARS ($200,000.00). Each letter of Credit shall have any
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."
(4) Subparagraph (a) of Section 2.3 of the Loan Agreement is deleted
in its entirety and replaced with the following:
"(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 three-quarters of
one percentage point (.75%) above the Prime Rate."
2
<PAGE> 3
(5) Subparagraph (f) of Section 6.3 of the Loan Agreement is deleted
in its entirety and replaced with the following:
"(f) within thirty (30) days after the last day of each month, a
Borrowing Base Certificate signed by a Responsible Officer in
substantially the form of Exhibit C hereto, together with aged
listings of accounts receivable."
(6) The Borrowing Base Certificate of Borrower attached as Exhibit
"C" to the Loan Agreement is deleted and replaced with the
Borrowing Base Certificate attached hereto as Schedule 1.
(7) The Compliance Certificate of Borrower attached as Exhibit "D" to
the Loan Agreement is deleted and replaced with the Compliance
Certificate attached hereto as Schedule 2.
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 a Facility Fee equal to
one-half of one percentage point (.5%) of $2,000,000.00 of the Committed
Revolving Line (i.e., $10,000.00), which shall be due at the time of execution
of the documentation of this Loan Modification Agreement, and an additional
Facility Fee of one-half of one percentage point (.5%) on the remaining
$1,000,000.00 of the Committed Revolving Line (i.e., $5,000.00) if the aggregate
Credit Extensions ever exceed $2,000,000.00, to be paid on the date such
aggregate Credit Extensions exceed $2,000,000.00. All such Facility Fees shall
be fully earned and nonrefundable when paid. In addition, Borrower shall pay all
out of pocket expenses, including legal fees and expenses.
6. 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 Articles 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.
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<PAGE> 4
(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 7 hereof,
no Event of 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) Bank shall receive in form and substance reasonably satisfactory to
Bank, a Certificate of the President of Borrower as to the
satisfaction of the condition specified in clause (1) of this Section
7(a);
(3) Bank shall receive the Loan Fee;
(4) Borrower shall execute and deliver a Renewal Promissory Note;
(5) Bank shall have received, in form and substance reasonably
satisfactory to Bank, such other documents as Bank shall deem
necessary and/or appropriate; and
(6) Bank shall receive have received a Certificate of Good Standing for
Borrower from 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, Bank'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
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<PAGE> 5
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.
9. 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. 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.
10. MISCELLANEOUS. This Loan Modification Agreement shall be considered a "Loan
Document" under and as defined in the Loan Agreement. THE LOAN DOCUMENTS SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE
OF GEORGIA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND BANK EACH HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OR 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. THE BORROWER AND THE
BANK ALSO AGREE THAT ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ENFORCE ANY JUDGMENT OBTAINED
AGAINST THE BORROWER IN CONNECTION WITH THIS AGREEMENT OR SUCH OTHER LOAN
DOCUMENT, MAY BE BROUGHT BY THE BANK OR BORROWER IN ANY STATE OR FEDERAL COURT
SITTING IN THE COUNTY OF THE STATE IN WHICH BANK'S ADDRESS SHOWN IN SECTION 10
OF THE LOAN AGREEMENT IS LOCATED, OR BANK, IN ITS SOLE DISCRETION, MAY BRING
LEGAL ACTION AGAINST BORROWER IN ANY OTHER COURT TO THE JURISDICTION OF WHICH
SUCH BORROWER OR ANY OF ITS PROPERTY IS OR MAY BE SUBJECT. EACH OF THE BORROWER
AND THE BANK, AS APPLICABLE,
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IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE AFORE SAID STATE AND FEDERAL
COURTS, AND IRREVOCABLY WAIVES ANY PRESENT OR FUTURE OBJECTION TO VENUE IN ANY
SUCH COURT, AND ANY PRESENT OR FUTURE CLAIM THAT ANY SUCH COURT IS AN
INCONVENIENT FORUM, IN CONNECTION WITH ANY ACTION OR PROCEEDING RELATING TO THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.
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/ Angela Hart
------------------------------- ----------------------------------
Name: Lyle W. Newkirk Name: Angela Hart
----------------------------- --------------------------------
Title: VP; CPO Title: Vice President
----------------------------- -------------------------------
SILICON VALLEY BANK
By: /s/
----------------------------------
Name:
--------------------------------
Title: AVP
-------------------------------
(signed in Santa Clara, CA)
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SCHEDULE 1
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: T/R Systems, Inc. Bank: Silicon Valley Bank
Commitment Amount: $3,000,000.00
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of _____ $________
2. Additions (please explain on reverse) $________
3. TOTAL ACCOUNTS RECEIVABLE $________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
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 minus #13) $________
15. LOAN VALUE OF ACCOUNTS (80% of #14) $________
BALANCES
16. Maximum Loan Amount $3,000,000.00
17. Total Funds Available (Lesser of #16 or #15) $________
18. Present balance owing on Line of Credit $________
19. Outstanding under Sublimits (L/C $200,000) $________
20. RESERVE POSITION (#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, and as may be amended from time
to time, between the undersigned and Silicon Valley Bank.
COMMENTS:
===============================
BANK USE ONLY
RECEIVED BY: _______________
DATE: ______________________
REVIEWED BY: _______________
COMPLIANCE STATUS: YES / NO
===============================
- ----------------------------------------
By:
------------------------------------
Authorized Signer
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SCHEDULE 2
EXHIBIT D
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, that
certain Second Loan Modification Agreement dated October 16, 1998, that certain
Third Loan Modification Agreement dated January 18, 1999, and that certain
Fourth Modification Agreement dated October 15, 1999 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 130 days Yes No
A/R Audit Annual Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
- ------------------ -------- ------ --------
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: ______________________
COMPLIANCE STATUS: YES / NO
===============================
T/R SYSTEMS, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
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<PAGE> 1
EXHIBIT 23.2
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.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
November 10, 1999
