<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 5, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
T/R SYSTEMS, INC.
(Exact name of registrant as specified in charter)
<TABLE>
<S> <C> <C>
GEORGIA 3577 58-1958870
(State or other jurisdiction of (Primary Standard Industrial (I. R. S. Employer Identification
incorporation or organization) Classification Code Number) No.)
</TABLE>
1300 OAKBROOK DRIVE
NORCROSS, GEORGIA 30093
(770) 448-9008
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
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)
---------------------
COPIES TO:
<TABLE>
<S> <C>
LISA A. STATER, ESQ. BRENT B. SILER, ESQ.
JONES, DAY, REAVIS & POGUE HALE AND DORR LLP
3500 SUNTRUST PLAZA 1455 PENNSYLVANIA AVENUE, NW
303 PEACHTREE STREET, N.E. WASHINGTON, D.C. 20004
ATLANTA, GEORGIA 30308 (202) 942-8400
(404) 521-3939
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED PRICE(1) FEE(2)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.01 par value............................... $41,400,000 $11,510
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated pursuant to Rule 457(o) of the Securities Act of 1933, as amended
(the "Securities Act"), solely for the purpose of calculating the
registration fee.
(2) The registration fee for the securities registered hereby, $11,510, is
calculated pursuant to Rule 457(o) under the Securities Act, as follows:
.000278 multiplied by the proposed maximum aggregate offering price of
$41,400,000.
---------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
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 OCTOBER 5, 1999
[LOGO]
SHARES
COMMON STOCK
T/R Systems, Inc. is offering shares of its common stock and the
selling shareholders are selling an additional 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 $ and $ per share.
------------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
------------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ----------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to T/R Systems..................................... $ $
Proceeds to selling shareholders............................ $ $
</TABLE>
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 additional shares of common stock to cover over-allotments.
------------------------------
BANCBOSTON ROBERTSON STEPHENS
U.S. BANCORP PIPER JAFFRAY
RAYMOND JAMES & ASSOCIATES, INC.
The date of this prospectus is , 1999
<PAGE> 3
Graphics on outside of gatefold: text
T/R SYSTEMS(TM) MICROPRESS(R)
The MicroPress is a short run, on-demand, digital printing system designed
for production printing of both black & white and color documents. The
MicroPress is driven by ClusterPower,(SM) The Power Of Many Working As One:
ClusterPower is the power of many people, technologies, and print devices
working as one to meet today's document challenges. The MicroPress is:
Cost-Effective. A high performance solution at the mid-range price
level.
Scaleable & Configurable. Add color, black & white, and wide format
print devices to meet changing needs.
Integrated Mixed-Mode Capability. Supports the simultaneous
production of documents that are color, black & white, and wide format, or
a combination of all within a single system.
Flexible & Reliable. Print large jobs across multiple devices or
print multiple jobs simultaneously. Automatic job rerouting for maximum
uptime.
Easy to Use. Designed to increase the ease of managing documents and
workflow.
The document production capabilities of the MicroPress are well suited for
applications such as on-demand book publishing, personalization, rapid reprint
services, and color proofing, as well as the publishing of forms & statements,
operations & training manuals, and sales & marketing collateral.
Graphics on first inside page of gatefold: representation of MicroPress
ClusterServer and console, including sample screen shots, with text "the
MicroPress takes on the document production challenges..."
Graphics on second inside page of gatefold: text "the MicroPress has a
powerful work flow architecture..." and illustration of work flow beginning with
document input from Digital, Mac and PC platforms and Scanner to the MicroPress
and on to B&W Output, Color Output, Wide Format and Digital, with the text
"input processing output" at bottom center.
<PAGE> 4
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 THE COMMON STOCK.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 5
Special Notice Regarding Forwarding-Looking Statements...... 14
Use of Proceeds............................................. 15
Dividend Policy............................................. 15
Capitalization.............................................. 16
Dilution.................................................... 17
Selected Financial Data..................................... 18
Management's Discussion and Analysis of Financial Condition 20
and Results of Operations.................................
Business.................................................... 32
Management.................................................. 44
Related Party Transactions.................................. 52
Principal and Selling Shareholders.......................... 53
Description of Capital Stock................................ 56
Shares Eligible for Future Sale............................. 63
Underwriting................................................ 65
Legal Matters............................................... 67
Experts..................................................... 68
Where You Can Find More Information......................... 68
Index to Financial Statements............................... F-1
</TABLE>
-------------------------
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.
In this prospectus, references to "T/R Systems," "we," "our," and "us"
refer to T/R Systems, Inc. T/R Systems was incorporated in Georgia in September
1991.
i
<PAGE> 5
PROSPECTUS SUMMARY
Because this is only a summary, it does not contain all the information
that may be important to you. You should read 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
prior to the closing of this offering. Our fiscal year ends on January 31.
References to fiscal 2000, fiscal 1999, fiscal 1998 and fiscal 1997 refer to the
years ended January 31, 2000, 1999, 1998 and 1997, respectively.
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 distribution and archiving;
- variable data printing;
- document merging;
- 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 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 was approximately $5.0 billion in 1998 and will grow to
approximately $10.6 billion in 2002. The print-on-demand market is characterized
by a large number of printing providers. CAP Ventures estimates that, at
December 1997, 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.
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-
1
<PAGE> 6
based software and hardware system built on industry-standard open-architecture
technologies. The MicroPress fills the critical gap in the digital document
production market between desktop printers and high-end digital production
systems. Our cluster printing architecture delivers a high-quality solution to
mid-range users at prices that are often significantly lower than those of
traditional high-end digital systems.
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 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 September 15, 1999, we had eleven regional
managers throughout the United States, one in Canada and one in the United
Kingdom.
Our principal executive office is located at 1300 Oakbrook Drive, Norcross,
Georgia 30093, and our telephone number at that office is (770) 448-9008. Our
World Wide Web home page is located at http://www.trsystems.com. Information
contained on our website does not constitute, and shall not be deemed to
constitute, part of this prospectus.
2
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by T/R Systems........ shares
Common stock offered by the selling
shareholders............................. shares
Common stock to be outstanding after the
offering................................. shares
Use of proceeds............................ For general corporate purposes, including
working capital, research and development
and capital expenditures, and possible
acquisitions of technology. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol..... TRSI
</TABLE>
The number of shares to be outstanding after the offering is based on
shares outstanding at September 15, 1999 and excludes:
- 2,662,820 shares subject to options at a weighted average exercise price
of $1.23 per share; and
- 1,606,550 additional shares reserved for issuance under our stock plans,
after giving effect to the adoption of our 1999 stock option plan.
3
<PAGE> 8
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." For a description of the basic and diluted net income (loss) per
share and the basic and diluted weighted average shares outstanding, see note 13
of the notes to our financial statements.
The pro forma as adjusted balance sheet data give effect to:
- the conversion of all outstanding shares of our preferred stock into an
aggregate of 10,013,738 shares of common stock prior to the closing of
this offering; and
- the sale of shares of common stock offered by T/R Systems at an
assumed initial public offering price of $ per share and our
receipt of the net proceeds of the sale of those shares, after deducting
estimated underwriting discounts and estimated offering expenses payable
by us.
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED JANUARY 31, ENDED JULY 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 $8,340 $ 9,889
Cost of sales.................... 27 1,013 3,387 6,107 6,579 3,514 4,210
Total operating expenses......... 1,725 3,051 4,982 7,329 9,801 4,783 5,510
Operating income (loss).......... (1,658) (2,870) (4,333) (1,404) (533) 43 169
Net income (loss)................ (1,657) (2,819) (4,120) (1,218) (623) (101) 211
Basic net income (loss) per
share.......................... $ (0.69) $ (1.10) $ (1.47) $ (0.37) $ (0.16) $(0.03) $ 0.05
Basic weighted average shares
outstanding.................... 2,409 2,566 2,808 3,385 4,033 3,958 4,163
Diluted net income (loss) per
share.......................... $ (0.69) $ (1.10) $ (1.47) $ (0.37) $ (0.16) $(0.03) $ 0.01
Diluted weighted average shares
outstanding.................... 2,409 2,566 2,808 3,385 4,033 3,958 15,967
</TABLE>
<TABLE>
<CAPTION>
JULY 31, 1999
------------------------
PRO FORMA
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 3,708 $
Working capital............................................. 5,229
Total assets................................................ 10,039
Redeemable, convertible preferred stock..................... 15,053
Total shareholders' equity (deficit)........................ (8,988)
</TABLE>
4
<PAGE> 9
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 $11.1 million as of July 31, 1999. Although we had
net income for the first two quarters of fiscal 2000, we may not be able to
sustain profitability in future quarters or years. 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, many of which are fixed
in the short term. 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. 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 two quarters
of fiscal 2000. Many factors contribute to the fluctuations in our operating
results. We have limited or no control over several of these factors. Because of
factors such as these, you should not rely on our historical operating results
as an indicator of future performance. Some of these factors include:
- changes in the average selling price of our products;
- customer demand for our products;
- competitive market conditions, including price competition;
- 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;
- 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;
5
<PAGE> 10
- 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.
MANY OF OUR CURRENT END USERS ARE SMALL BUSINESSES, ARE SUSCEPTIBLE TO A GREATER
RISK OF BUSINESS FAILURE THAN LARGE, ESTABLISHED BUSINESSES AND ARE DEPENDENT
UPON THIRD-PARTY FINANCING
Many of our current end-user customers are small businesses. These small
businesses run a greater risk of business failure than large businesses,
especially during general downturns in the economy. In many cases, small
business customers purchase our products using third-party financing. If these
customers are unable to obtain acceptable financing, they may not 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 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 REVENUES 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
In September 1997, we began a relationship with our first OEM customer,
Mita Industrial Co., Ltd. of Japan. Mita represented a significant source of our
revenue in fiscal 1998 and fiscal 1999. Mita discontinued orders of our systems
in June 1998 and subsequently filed for reorganization. Since then, our sales to
Mita have been negligible. In fiscal 1999, we began selling to a second OEM
customer, Minolta. Minolta accounted for 45.2% of our revenue for the six months
ended July 31, 1999. We recently entered into a development and distribution
agreement with Hitachi Koki Imaging Solutions, Inc. In future years, we expect
sales to our OEM customers will continue to represent a significant portion of
our revenue. Our reliance on our OEM customers subjects us to the following
risks:
- changes in the demand for the OEMs' products -- if market demand for an
OEM's products decreases, the OEM will likely decrease its orders for our
products;
- changes in OEM purchasing patterns -- one or more of our OEM customers
may decide to change the timing or amount of its purchases of our
products; or, an OEM customer may decide to purchase one of our
competitor's products instead of our products, particularly if available
in its region;
6
<PAGE> 11
- termination of an OEM relationship -- if an OEM customer terminates the
relationship or stops ordering our products, we may not be able to obtain
a new OEM customer to replace the lost business; and
- risks of economic trends in Asia -- since our current OEM customers are
all Japanese companies, volatility in the economies of Asian countries
could impact their business, resulting 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. 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.
OUR PRODUCTS DEPEND ON SOFTWARE LICENSED TO US BY THIRD PARTIES
Our products depend on software licensed to us on a non-exclusive basis by
third parties. If those licensors fail to continue to license their software to
us, we would incur costs and experience delays in integrating alternate software
into our products. In some instances, there are a limited number of suppliers of
specialized software and we could have difficulty in obtaining an alternate
licensor. For example, our products depend on Harlequin ScriptWorks, a
PostScript page description software for which there are extremely limited
alternatives. If Harlequin Incorporated were to terminate our license or stop
supporting their software, we would have extremely limited replacement options
and it would require many months to license a replacement and integrate it into
our product. This would result in diversion of our research and development
resources and could result in lost revenue and harm to our reputation.
We could also be required to expend significant time and resources to make
our systems compatible with new releases by our software licensors, which could
result in the delay of product shipments. In addition, if the competitors of our
licensors develop superior software, our products may not achieve market
acceptance 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 we do, integration of new software could be costly and result in delay
in product development and shipment.
WE DEPEND ON THIRD-PARTY SUPPLIERS FOR EQUIPMENT THAT WE RESELL WITH OUR SYSTEMS
We purchase hardware, such as print devices and scanners, from third-party
manufacturers and resell them under our brand as part of our systems. 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. If we have to find an alternate source of black and
white print devices, we would incur significant development costs and could
experience delays in product shipments.
7
<PAGE> 12
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.
Our third-party manufacturers conduct quality control and testing
procedures that we specify. However, from time to time we have experienced
manufacturing quality problems. 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. We primarily compete
with other suppliers in the digital document production market based on speed,
print quality, price and the ability to provide a complete solution, including
service. Any of the following actions by our competitors may cause our business,
and as a result our financial condition, to suffer:
- reductions in product prices;
- increases in product promotion;
- announcements of new products;
- the introduction of new or enhanced products;
- bundling of products; or
- the extension of service offerings significantly beyond our capabilities.
Additionally, 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.
We expect competition in our market to increase. Increased competition
could result in:
- significant price reductions, reducing our margins;
- loss of market share; and
- lack of acceptance of our products.
8
<PAGE> 13
OUR INTERNATIONAL SALES ARE SUBJECT TO REGULATORY, POLITICAL AND CURRENCY
EXCHANGE RATE RISKS
Revenue from customers outside the United States was $5.3 million, or 33.7%
of our revenue, in fiscal 1999 and $5.1 million, or 51.1% of our revenue, for
the first six months of fiscal 2000. The fiscal 2000 international sales total
includes $3.2 million, or 32.2% of our revenue, which was billed to Minolta, a
Japanese company, but shipped to Minolta's U.S. subsidiary for re-sale in the
United States. The remainder of sales to Minolta were shipped to a variety of
destinations, principally Europe and Canada. In the future, we expect that we
will continue to derive a significant portion of our revenue from international
sources. As a result, we encounter risks inherent in international sales
including:
- unexpected changes in regulatory requirements, tariffs and duties;
- the imposition of government controls;
- political and economic instability;
- laws and business practices favoring local competitors;
- longer collection cycles;
- increased difficulties in collecting accounts receivable; and
- potential adverse tax consequences.
Additionally, our results of operations could be harmed by changes in
currency exchange rates. Currently, all our sales are denominated in U.S.
dollars. If the value of the U.S. dollar increases relative to a particular
foreign currency, our products could become relatively more expensive. This
could result in a reduction in our sales in a particular country.
OUR BUSINESS MAY SUFFER IF WE ARE UNABLE TO MANAGE OUR GROWTH
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. This
growth has placed increased demands on our employees, systems, manufacturing
operations and financial resources. If our business continues to grow, we will
need to attract, train and motivate new employees and expand our operational,
financial and management systems effectively. If we do not effectively manage
our growth, our business may suffer.
IF WE FAIL TO ATTRACT AND RETAIN HIGHLY SKILLED TECHNICAL AND MANAGERIAL
PERSONNEL, WE MAY FAIL TO REMAIN COMPETITIVE
Competition for employees in our industry is intense. If we cannot hire,
train and assimilate the new employees we need, or retain existing employees, we
may experience difficulties managing our business and may not be able to
effectively develop and deliver competitive products to the market.
9
<PAGE> 14
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. Accordingly, we will be required to
continually develop new technologies and improvements to our existing
technologies to remain competitive. 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. We face the following risks due to our market's rapidly changing
technology:
- our competitors may develop technologies that make our technologies
obsolete;
- we may not bring our new technologies to market quickly enough;
- customers may not accept the technologies we develop; and
- our cost to develop the technologies may be so great that we cannot make
a profit selling products using these technologies.
IF OUR PRODUCTS CONTAIN DEFECTS, OUR SALES COULD SUFFER
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, failure to achieve
market acceptance of our products, 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
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. Trade secret and copyright laws provide only limited protection of our
software, documentation and other written materials. To date, we have received
10 United States patents and have filed for additional domestic and foreign
patents. We have also taken additional measures to protect our intellectual
property and proprietary rights, but despite these efforts, we face the
following risks:
- we may not be granted the patents for which we apply or have applied;
- our patents may be challenged or invalidated;
- our patents may not provide our products with a commercial advantage over
our competitors' products;
- we may not be able to protect our proprietary technology in countries
where intellectual property laws are not well developed or are poorly
enforced;
- a third party could reverse engineer our products in a way not prohibited
by trade secret laws, and thus obtain use of our proprietary information;
10
<PAGE> 15
- a third party could bypass hardware security devices or key codes we use
and obtain unauthorized access to our software;
- a third party could independently develop the same or similar software or
proprietary information as that which we have protected by trade secrets
or copyrights since trade secret and copyright laws, unlike patent laws,
do not protect us from independent development of the same or similar
products;
- OEMs licensing our software could allow unauthorized use of our software
despite contractual terms prohibiting such use; and
- we may incur substantial costs and invest significant time in defending
our proprietary rights.
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 and other intellectual property rights. Regardless of its
merit, an infringement claim against us could:
- require significant management time and effort;
- result in costly litigation;
- cause product shipment delays; or
- require us to enter into royalty or licensing agreements which may not be
obtainable on terms acceptable to us.
OUR BUSINESS 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.
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 we lose any of our key personnel,
our business, operations and product development efforts would suffer.
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 such claims.
11
<PAGE> 16
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 TO ACQUIRE US
Certain provisions of our articles of incorporation and bylaws as they will
be amended prior to 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.
Some of the provisions which could result in such difficulty include:
- the staggered terms of directors on our board;
- the limitation that directors may be removed only for cause by a
supermajority vote of our shareholders;
- the limitation of actions by our shareholders so that they may only be
taken at an annual or special meeting, and not by written consent; and
- the election in our bylaws to be 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.
OUR OFFICERS AND DIRECTORS WILL HAVE SIGNIFICANT INFLUENCE OVER MATTERS
REQUIRING SHAREHOLDER APPROVAL
After this offering, our directors and officers and their affiliates will
beneficially own % 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.
FUTURE SALES BY SHAREHOLDERS OF OUR COMMON STOCK MAY NEGATIVELY AFFECT THE
MARKET PRICE OF THE COMMON STOCK
Sales of a substantial number of shares of our common stock following this
offering could adversely affect its market price. Upon completion of this
offering, we will have shares of common stock outstanding, assuming
the underwriters do not exercise their over-allotment option and our optionees
do not exercise any outstanding stock options. The shares sold in this
offering will be immediately tradable without restriction. Of the
remaining shares:
- shares will be eligible for sale in the public market upon
completion of this offering;
12
<PAGE> 17
- shares will be eligible for sale 90 days after the date of this
prospectus; and
- shares will be available for sale after 180 days following the
date of this prospectus upon the expiration of lock-up agreements.
BancBoston Robertson Stephens may release all or any portion of the shares
subject to the lock-up agreements at any time without notice. We also intend to
register an aggregate of shares to be issued pursuant to our stock
option plans.
OUR STOCK HAS NOT BEEN PUBLICLY TRADED BEFORE THIS OFFERING AND OUR STOCK PRICE
MAY BE VOLATILE
Prior to this offering, there has been no public market for our common
stock. We cannot assure you that an active trading market will develop or
continue after this offering.
Additionally, in recent years, the stock market in general, and the stock
prices of technology companies in particular, have experienced extreme price
fluctuations, sometimes without regard 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 or anticipated quarterly earnings;
- changes in earnings estimates by analysts;
- market conditions in the industry;
- announcements by competitors; and
- general economic conditions.
PURCHASERS OF OUR COMMON STOCK IN THIS OFFERING WILL SUFFER IMMEDIATE AND
SUBSTANTIAL DILUTION
Purchasers of our common stock in this offering will suffer immediate and
substantial dilution of $ per share. This dilution represents the
difference between the estimated public offering price of $ and the pro
forma net tangible book value of our common stock after this offering.
Purchasers will also experience further dilution upon the exercise of
outstanding options to purchase our common stock.
WE HAVE BROAD DISCRETION IN THE USE OF PROCEEDS OF THIS OFFERING
We can spend the proceeds of this offering in ways you may not deem
prudent. You should read "Use of Proceeds" for a discussion of our plans for the
net proceeds of this offering. However we use the proceeds of this offering, we
cannot assure you that the proceeds will be invested to yield a favorable
return.
13
<PAGE> 18
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 such terms or other
comparable terminology. Our actual results could differ materially 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 invest in our common stock, you should be aware that the
occurrence of the events described in the "Risk Factors" section and elsewhere
in this prospectus could have an adverse affect on our business, financial
condition and results of operations. We undertake no obligation to update any
forward-looking statements.
14
<PAGE> 19
USE OF PROCEEDS
We estimate that the net proceeds we will receive from the sale of the
shares of common stock offered by us will be $ , or
$ if the underwriters exercise their over-allotment option in full. Our
calculation of the net proceeds assumes an initial public offering price of
$ per share, the mid-point of the range set forth on the cover of this
prospectus, and is net of the estimated underwriting discounts and commissions
and estimated offering expenses of $ payable by us. We will not receive
any proceeds from shares sold by the selling shareholders.
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 specific 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 with respect to such transactions.
Pending such uses, we will invest the proceeds in interest-bearing deposit
accounts, certificates of deposit, government securities or short-term,
investment-grade financial instruments.
DIVIDEND POLICY
We have never paid cash dividends and do not anticipate paying cash
dividends in the future. We currently intend to retain future earnings, if any,
to fund the development and growth of our business. Our revolving line of credit
does not allow us to declare or pay cash dividends.
15
<PAGE> 20
CAPITALIZATION
The following table sets forth T/R Systems' capitalization as of July 31,
1999 on an actual basis and on a pro forma as adjusted basis to reflect:
- the conversion of all outstanding preferred shares into 10,013,738 shares
of common stock, which will occur prior to the closing of this offering;
and
- our sale of shares of common stock in this offering at an
assumed initial offering price of $ per share, the mid-point of
the range set forth on the cover of this prospectus, and our receipt of
the net proceeds therefrom and the use of a portion of those proceeds to
repay long-term debt.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our financial
statements and the related notes.
<TABLE>
<CAPTION>
JULY 31, 1999
----------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt.............................................. $ 74 $ --
Redeemable, convertible preferred stock, $0.01 par value;
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..................... 4,787 --
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..................... 7,535 --
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..................... 2,731 --
Shareholders' equity (deficit):
Preferred stock, $0.01 par value; 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, $0.01 par value; 88,000,000 shares
authorized, actual and pro forma as adjusted; 4,197,937
shares issued and outstanding, actual;
shares issued and outstanding, pro forma as adjusted... 42
Additional paid-in capital................................ 2,157
Deferred compensation..................................... (76)
Accumulated deficit....................................... (11,113)
-------- -------
Total shareholders' equity (deficit)................. (8,988)
-------- -------
Total capitalization.............................. $ 6,139 $
======== =======
</TABLE>
The number of shares of common stock outstanding as of July 31, 1999 does
not reflect 2,564,570 shares issuable under options outstanding as of July 31,
1999 at a weighted average exercise price of $0.93 per share or 215,550
additional shares reserved for issuance under our stock plans. After July 31,
1999, T/R Systems issued options to purchase an additional 114,000 shares at a
per share exercise price of $8.00 and reserved an additional 1,500,000 shares
for issuance under our 1999 stock option plan.
16
<PAGE> 21
DILUTION
Our pro forma net tangible book value as of July 31, 1999 was $6.1 million,
or $0.43 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 prior to
the closing of this offering.
If we give effect to our sale of shares of common stock in this
offering, our adjusted pro forma net tangible book value as of July 31, 1999
would have been $ million, or $ per share. This amount represents
an immediate increase in pro forma net tangible book value of $ per
share to existing stockholders and an immediate dilution of $ 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............. $
Pro forma net tangible book value per share
as of July 31, 1999.................................... $ 0.43
Increase per share attributable to new investors..........
-------
Pro forma net tangible book value per share after the
offering..................................................
-------
Dilution per share to new investors......................... $
=======
</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:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders............... 14,222,425 % $17,132,371 % $1.20
New investors.......................
---------- ----- ----------- -----
Totals.................... 100.0% 100.0%
========== ===== =========== =====
</TABLE>
Shares to be sold by the selling shareholders are excluded from the shares
purchased by the new investors and included in shares purchased by the existing
shareholders in this table. Sales by the selling shareholders in this offering
will reduce the shares held by existing shareholders to shares, or
% of the total shares outstanding after this offering, and will increase
the shares held by new investors to , or % 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
shares, or % of the total number of shares of common stock
outstanding after this offering.
The above computations exclude 2,564,570 shares of common stock issuable
upon the exercise of options outstanding as of July 31, 1999 at a weighted
average exercise price of $0.93 per share. If any of those options are
exercised, investors will incur further dilution.
17
<PAGE> 22
SELECTED FINANCIAL DATA
You should read the following selected financial data in conjunction 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 six months ended July 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 six months ended July 31, 1999 are not
necessarily indicative of the results to be expected for the entire year.
For a description of the net income (loss) per share calculations, see note
13 of the notes to our financial statements.
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED JANUARY 31, ENDED JULY 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 $8,340 $9,889
Cost of sales.......................... 27 1,013 3,387 6,107 6,579 3,514 4,210
------- ------- ------- ------- ------- ------ ------
Gross profit........................... 67 181 649 5,925 9,268 4,826 5,679
Operating expenses:
Research and development............. 1,610 1,732 1,786 2,164 3,202 1,487 1,656
Sales and marketing.................. -- 590 2,185 3,542 4,891 2,353 2,992
General and administrative........... 115 729 1,011 1,623 1,708 943 862
------- ------- ------- ------- ------- ------ ------
Total operating expenses........... 1725 3,051 4,982 7,329 9,801 4,783 5,510
------- ------- ------- ------- ------- ------ ------
Operating income (loss)................ (1,658) (2,870) (4,333) (1,404) (533) 43 169
Interest income, net................... 1 51 213 186 150 96 42
Other expenses......................... -- -- -- -- (240) (240) --
------- ------- ------- ------- ------- ------ ------
Net income (loss)...................... $(1,657) $(2,819) $(4,120) $(1,218) $ (623) $ (101) $ 211
======= ======= ======= ======= ======= ====== ======
Basic net income (loss) per share...... $ (0.69) $ (1.10) $ (1.47) $ (0.37) $ (0.16) $(0.03) $ 0.05
======= ======= ======= ======= ======= ====== ======
Basic weighted average shares
outstanding.......................... 2,409 2,566 2,808 3,385 4,033 3,958 4,163
======= ======= ======= ======= ======= ====== ======
Diluted net income (loss) per share.... $ (0.69) $ (1.10) $ (1.47) $ (0.37) $ (0.16) $(0.03) $ 0.01
======= ======= ======= ======= ======= ====== ======
Diluted weighted average shares
outstanding.......................... 2,409 2,566 2,808 3,385 4,033 3,958 15,967
======= ======= ======= ======= ======= ====== ======
Pro forma basic net income (loss) per
share................................ $ (0.05) $ 0.02
======= ======
Pro forma basic weighted average shares
outstanding.......................... 13,825 14,048
======= ======
Pro forma diluted net income (loss) per
share................................ $ (0.05) $ 0.01
======= ======
Pro forma diluted weighted average
shares outstanding................... 13,825 15,967
======= ======
</TABLE>
18
<PAGE> 23
<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
------------------------------------------------ -----------------
1995 1996 1997 1998 1999 1998 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 $ 3,211 $ 3,708
Working capital................ 526 8,251 3,820 5,117 3,892 4,649 5,229
Total assets................... 819 9,721 5,459 8,184 7,770 8,573 10,039
Redeemable, convertible
preferred stock.............. 2,348 12,252 12,272 15,020 15,042 15,031 15,053
Total shareholders' deficit.... (1,703) (4,510) (8,635) (9,759) (10,238) (9,731) (8,988)
</TABLE>
19
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements. Our actual
results could differ materially from those anticipated in these forward-looking
statements. Factors that might cause future results to differ materially from
those anticipated in these forward-looking statements include, but are not
limited to, those discussed in "Risk Factors" and elsewhere in this prospectus.
The terms fiscal 1997, fiscal 1998, fiscal 1999 and fiscal 2000 mean the twelve
months ended January 31, 1997, 1998, 1999 and 2000, respectively. You should
read the following discussion in conjunction with our financial statements and
the related notes.
OVERVIEW
T/R Systems designs, develops and markets digital document processing and
printing systems for the print-on-demand market. 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.
In accordance with 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. Prior to the February 1,
1998 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 their
respective terms, 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.
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.
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.
20
<PAGE> 25
Our gross margin may fluctuate based on a variety of factors, including
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 systems we have sold to Minolta under our OEM
agreement have typically incorporated a higher proportion of software as
compared to systems our independent dealers sell since Minolta is more likely to
sell our systems with its own hardware. 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. We purchase these hardware devices from third parties for resale. Thus,
we typically realize lower margins on hardware devices than we realize on our
software products.
Sales to international customers were $5.3 million, or 33.7% of revenue, in
fiscal 1999 and $5.1 million, or 51.1% of revenue, in the first six months of
fiscal 2000. Of the $5.1 million of sales to international customers in the
first six months of fiscal 2000, $3.2 million, or 32.2% 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, as amended, 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 in accordance with 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.
21
<PAGE> 26
RESULTS OF OPERATIONS
The following table presents operating data expressed as a percentage of
revenue.
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED ENDED
JANUARY 31, JULY 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 42.1 42.6
------ ----- ----- ----- -----
Gross profit........................... 16.1 49.2 58.5 57.9 57.4
Operating expenses:
Research and development............. 44.3 18.0 20.2 17.9 16.7
Sales and marketing.................. 54.1 29.4 30.9 28.2 30.3
General and administrative........... 25.0 13.5 10.8 11.3 8.7
------ ----- ----- ----- -----
Total operating expenses..... 123.4 60.9 61.9 57.4 55.7
------ ----- ----- ----- -----
Operating income (loss)................ (107.3) (11.7) (3.4) 0.5 1.7
Interest income, net................... 5.3 1.5 0.9 1.2 0.4
Other expense.......................... -- -- (1.5) (2.9) --
------ ----- ----- ----- -----
Net income (loss)...................... (102.0)% (10.2)% (4.0)% (1.2)% 2.1%
====== ===== ===== ===== =====
</TABLE>
COMPARISON OF THE SIX MONTHS ENDED JULY 31, 1999 AND 1998
Revenue. Revenue for the six months ended July 31, 1999 was $9.9 million,
representing an increase of 18.6% over revenue of $8.3 million for the six
months ended July 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 six months ended July 31, 1999 was negligible.
Revenue from sales to customers outside the United States was $5.1 million
for the six months ended July 31, 1999, representing 51.1% of revenue, and $3.4
million for the six months ended July 31, 1998, representing 40.3% of revenue.
Of the $5.1 million in sales for the six months ended July 31, 1999 to
international customers, $3.2 million, or 32.2% of revenue, was for sales to
Minolta, which were shipped to Minolta's United States subsidiary for re-sale in
the United States. The balance of international revenue for the six months ended
July 31, 1999 reflected sales primarily to Minolta and other dealers in Europe
and Canada. International sales for the six months ended July 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 six months
ended July 31, 1999 was $5.7 million, as compared to $4.8 million for the six
months ended July 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 six months ended July 31, 1999 was $4.2 million, as compared to $3.5
million for the six months ended July 31, 1998. Gross margin, or gross profit as
a percentage of revenue, for the six months ended July 31, 1999 was 57.4% as
compared to 57.9% for the first six months of fiscal 1999.
22
<PAGE> 27
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 11.4% to $1.7 million, or 16.7% of revenue, for the six months ended
July 31, 1999, from $1.5 million, or 17.8% of revenue, for the six months ended
July 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 27.2% to $3.0 million, or 30.3% of revenue, for the six
months ended July 31, 1999, from $2.4 million, or 28.2% of revenue, for the six
months ended July 31, 1998. The increase was primarily due to the growth in our
sales force and associated increases in salaries, benefits and travel-related
expenses, as well as an increase in sales commissions 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 decreased 8.6% to
$862,000, or 8.7% of revenue, for the six months ended July 31, 1999, from
$943,000, or 11.3% of revenue, for the six months ended July 31, 1998. This
decrease was due to lower recruiting and moving expenses. During the six months
ended July 31, 1998, we incurred expenses related to the move of our principal
offices into new leased office space. No similar moving expenses were incurred
in the six months ended July 31, 1999.
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 $42,000 for
the six months ended July 31, 1999 and $96,000 for the six months ended July 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
and capital expenditures.
Other Expense. During the first six 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, thus necessitating
the recognition of those expenses in fiscal 1999. No similar such expenses were
incurred in the first six 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 primarily the result of an
increase in sales of the MicroPress through both our independent dealer channel
and our OEM arrangement with Mita. Adding to the year-over-year increase in
revenue were increases in revenue from royalties, engineering service fees and
sales of consumable products, add-on software and hardware and 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. 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
23
<PAGE> 28
MicroPress, which increased the fiscal 1998 average selling price, included the
introduction of a scanner and additional devices and software. The fiscal 1998
increase in revenue was also partially attributable to increased sales of add-on
hardware and software and consumable products to support the MicroPress as a
result of more systems being in service in fiscal 1998 than in fiscal 1997.
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 due to the systems sold to Mita and Minolta, including 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. The increase from fiscal 1998 to
fiscal 1999 was primarily 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. Additionally, the 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.
The increase of $1.3 million, or 38.1%, from fiscal 1998 to fiscal 1999 was
primarily due to an increase in employee salaries and benefits due to an
increase in our sales force and marketing personnel during fiscal 1999 and the
second half of fiscal 1998. The year-over-year increase was also due to
increases in sales commissions and travel expense. The increase of $1.4 million,
or 62.1%, from fiscal 1997 to fiscal 1998 was primarily due to an 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.
24
<PAGE> 29
Other costs that contributed to the overall increase in sales and marketing
expenses included payments for outside consulting services, trade shows 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.
Accordingly, such 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 1998 to fiscal 1999 was primarily due to an increase in
salaries and benefits due to an increase in administrative personnel. The
increase in salaries and benefits expense was partially offset by a decrease in
the provision for doubtful accounts. Additionally, expenses for overhead,
including rent, utilities and telephone, and outside services, increased from
fiscal 1998 to fiscal 1999. The increase from fiscal 1997 to fiscal 1998 was
primarily due to the expenses we recorded related to our decision in fiscal 1998
to move to a new facility in fiscal 1999 and to an 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 increases in the provision for doubtful accounts,
professional service and 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 due to the use of 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, thus necessitating the recognition of those
expenses in fiscal 1999. No similar expenses were incurred in fiscal 1998 or
fiscal 1997.
25
<PAGE> 30
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited quarterly statement of operations
data for the ten quarters ended July 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. You should read this quarterly data in conjunction with our audited
financial statements and related notes appearing elsewhere in this prospectus.
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,
1997 1997 1997 1998 1998 1998 1998 1999
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <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
Cost of sales............ 965 1,039 1,384 2,719 2,025 1,489 1,527 1,538
------ ------ ------ ------ ------ ------ ------ ------
Gross profit............. 748 1,130 1,767 2,280 2,817 2,009 2,167 2,275
Total operating
expenses............... 1,384 1,639 1,864 2,442 2,409 2,374 2,457 2,561
------ ------ ------ ------ ------ ------ ------ ------
Operating income
(loss)................. (636) (509) (97) (162) 408 (365) (290) (286)
Interest income, net..... 45 52 49 40 44 52 39 15
Other expense............ -- -- -- -- -- (240) -- --
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)........ $ (591) $ (457) $ (48) $ (122) $ 452 $ (553) $ (251) $ (271)
====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
THREE MONTHS ENDED
-------------------
APR. 30, JULY 31,
1999 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revenue.................. $4,656 $5,233
Cost of sales............ 1,946 2,264
------ ------
Gross profit............. 2,710 2,969
Total operating
expenses............... 2,651 2,859
------ ------
Operating income
(loss)................. 59 110
Interest income, net..... 16 26
Other expense............ -- --
------ ------
Net income (loss)........ $ 75 $ 136
====== ======
</TABLE>
The following table sets forth 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,
1997 1997 1997 1998 1998 1998 1998 1999
-------- -------- -------- -------- -------- -------- -------- --------
<S> <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%
Cost of sales............ 56.3 47.9 43.9 54.4 41.8 42.6 41.3 40.3
------ ------ ------ ------ ------ ------ ------ ------
Gross profit............. 43.7 52.1 56.1 45.6 58.2 57.4 58.7 59.7
Total operating
expenses............... 80.8 75.6 59.2 48.9 49.7 67.9 66.5 67.2
------ ------ ------ ------ ------ ------ ------ ------
Operating income
(loss)................. (37.1) (23.5) (3.1) (3.3) 8.5 (10.5) (7.8) (7.5)
Interest income, net..... 2.6 2.4 1.6 0.8 0.9 1.5 1.1 0.4
Other expense............ -- -- -- -- -- (6.9) -- --
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)........ (34.5)% (21.1)% (1.5)% (2.5)% 9.4% (15.9)% (6.7)% (7.1)%
====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
THREE MONTHS ENDED
-------------------
APR. 30, JULY 31,
1999 1999
-------- --------
<S> <C> <C>
Revenue.................. 100.0% 100.0%
Cost of sales............ 41.8 43.3
------ ------
Gross profit............. 58.2 56.7
Total operating
expenses............... 56.9 54.6
------ ------
Operating income
(loss)................. 1.3 2.1
Interest income, net..... 0.3 0.5
Other expense............ -- --
------ ------
Net income (loss)........ 1.6% 2.6%
====== ======
</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. 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 certain black and
white printers in the fourth quarter. 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 during the 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
26
<PAGE> 31
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 as a result of various
factors. These factors include:
- changes in the average selling price of our products;
- 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 operating expenses will continue to increase.
If our sales in any quarter do not increase accordingly, our results of
operations for that quarter will be adversely affected. For the foregoing
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 due primarily
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 $906,000 for the six months
ended July 31, 1999, as compared to net cash used in operating activities of
$533,000 for the six months ended July 31, 1998. The improvement in operating
cash flow was primarily due to our recording net
27
<PAGE> 32
income of $211,000 for the first six months of fiscal 2000 compared to a net
loss of $101,000 for the first six months of fiscal 1999. Additionally, cash
increased as a result of payments for customer service plans and shipments to
Minolta made during the six months ended July 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.
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
$172,000 for the six months ended July 31, 1999 and $633,000 for the six months
ended July 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 six months ended July 31, 1998 includes
furniture and leasehold improvements purchased for our new office space which we
moved into during the first six 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. Pursuant to this agreement, we can borrow up to $2.0 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 $2.0 million less any letters of credit outstanding under
the agreement. At July 31, 1999, we had a $200,000 letter of credit outstanding
under the agreement and up to $1.7 million available under the line. Loans under
the line bear interest, payable monthly, at the bank's prime rate plus one
percent (9.0% at July 31, 1999). The line expires in October 1999. 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 (9.5% at July 31, 1999). At July
31, 1999, we had $126,000 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
certain covenants on the part of T/R Systems including, among others, the
maintenance of certain financial ratios and a minimum net worth, as well as
limitations on the incurrence of additional indebtedness and the payment of cash
dividends.
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 $1.0 million in the six months ended July 31, 1999 as
compared to $224,000 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 business expansion for at least the next
twelve months. Thereafter, 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.
28
<PAGE> 33
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 of "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. To the extent that 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. To the extent that our manufacturers of other
hardware components are affected by the year 2000 issue, we believe that we
could obtain these hardware 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. To the extent that these 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.
29
<PAGE> 34
We do not currently have any information concerning the year 2000
compliance status of our customers. Our current or future 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 the
occurrence of a material disruption to our business. Any failure of these third
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 certain derivative instruments embedded in
other contracts and for hedging activities. Under this statement, certain
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: (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
Statement of Position 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. We will adopt this statement in
fiscal 2001 and do not expect the adoption of this statement to have a material
effect on revenue recognition.
30
<PAGE> 35
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 July 31, 1999 approximated $153,000. To date, we have
not entered any derivative instruments to manage interest rate exposure. For a
description of our credit facility, see note 7 of the notes to our financial
statements.
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.
31
<PAGE> 36
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 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 and
ticketing, document distribution and archiving, variable data printing, document
merging, electronic collation and imposition.
We distribute our products in North America and internationally through a
network of independent dealers and through our distribution relationship with
Minolta. Our regional sales managers support our independent dealer network and
our Minolta relationship. 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.
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.
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 was approximately $5.0 billion in 1998 and will grow to
approximately $10.6 billion in 2002. The print-on-demand market is characterized
by a large number of printing providers. CAP Ventures estimates that, at
December 1997, 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 software and hardware
systems that allow them to produce a wide variety of print outputs, including
books, manuals, newsletters and various forms of 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;
32
<PAGE> 37
- government entities -- local, city, state and federal agencies as well as
public utilities;
- corporate entities -- in-house print shops and departments such as
marketing, finance and training;
- facilities management -- service providers that manage print operations
for other entities; and
- 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 in which limited viable solutions exist. Accordingly, end
users in the mid-range, generally those with monthly print volumes between
100,000 and 1,000,000 black and white pages per month or 10,000 and 100,000
color pages per month, 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
33
<PAGE> 38
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 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 between desktop
printers and high-end digital production systems. Our cluster printing
architecture delivers a high-quality solution to mid-range users at prices that
are often significantly lower than those of traditional high-end digital
systems. 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. 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.
34
<PAGE> 39
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, a large and fast growing market segment
in the printing and publishing industry. We intend to leverage our sales and
marketing and product development efforts throughout the print-on-demand
segment, including other commercial printers, corporate 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 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 Minolta, Hitachi and Mita 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. In addition, 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 our MicroPress. 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, including document formatting and manipulation, output
production and job status, using a browser with Internet access.
Focus on Core Technologies and Build on Industry-Standard Open-Architecture
Technologies. We expect to continue 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
35
<PAGE> 40
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 intend to expand our dealer network and add 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.
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 value-added 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.
36
<PAGE> 41
The following table summarizes the base software functionality available
with the MicroPress Cluster Printing System:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
INPUT DOCUMENT MANAGEMENT OUTPUT/STORAGE
- -------------------------------------------------------------------------------
<S> <C> <C>
- Publish network- - Allow for remote job - Print to a combination
accessible print management through the of connected print
clusters and queues Internet devices
- Accept and RIP - Preview post-RIP - Automatically or
PostScript-compatible documents manually archive
document files documents
- Convert standard
- Create page thumbnails document pages into a - Move documents from one
of various sizes head-to-toe layout print queue to
another print queue
- Create mirror or - Manipulate the order of
reversed images of a pages within a document - Store documents in
document network accessible or
- Automatically print removable storage
- Batch RIP documents documents in duplex devices
during off-peak format
printing times - Convert MicroPress
- Insert and delete pages formatted documents
- Match document color from post-RIP documents into PDF
quality to industry
standard profiles - Receive job status - Connect to third-party
notification via pager billing or
- Compress color or e-mail authentication systems
documents up to 25
times for storage - Adjust image brightness
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>
37
<PAGE> 42
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 via
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 which can be
installed with the MicroPress to optimize performance. The specific PowerPacks
offered are:
- Color Control PowerPack. The Color Control PowerPack is a software
add-on that ensures consistent color quality. This option is required in
configurations using color print devices.
- Imaging PowerPack. This PowerPack is a software add-on that 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. The e-Ticket 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.
38
<PAGE> 43
- Workflow Automation PowerPack. The Workflow Automation 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 via 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 software 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. The MicroPress ClusterServer 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. The SatellitePress ClusterServer 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. A SatellitePress ClusterServer can be upgraded to a full
MicroPress ClusterServer by adding MultiRIP software.
- MultiRIP Server. The MultiRIP 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. The MicroScan 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.
39
<PAGE> 44
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 per minute or 20 two-sided pages per
minute. The MicroScanner includes software that allows direct scanning
and printing of documents on a MicroPress ClusterServer or SatellitePress
ClusterServer.
MANUFACTURING
We outsource the manufacturing of most of the hardware components of our
products to third-party manufacturers. 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 from third-party
manufacturers complete printing devices and scanners that we resell under our
brand as part of our systems. Prior to shipments 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 September 15, 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 as well as 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
40
<PAGE> 45
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 are 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 1999, Mita accounted for 14.1% of our revenue. No other
customer accounted for more than 10% of our revenue during fiscal 1999.
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 a given 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 September 15, 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 July 31, 1999, over one-third of our employees were employed in
research and development. Research and development expenses were $1.7 million
for the six months ended July 31, 1999 and $3.2 million for fiscal 1999, $2.2
million for fiscal 1998 and $1.8 million for fiscal 1997.
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;
41
<PAGE> 46
- 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 domestic and international 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. See "Risk Factors -- We may not be able to protect our
intellectual property and proprietary rights which could harm our competitive
position."
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, certain of these competitors have much greater financial
resources and could 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 final group includes companies that have
products with similar features to our cluster printing system concept, including
IBM.
42
<PAGE> 47
EMPLOYEES
As of July 31, 1999, we had a total of 88 employees, substantially all of
whom are full-time. Of our employees, 33 were in research and development and 30
were in sales and marketing, with the remaining 25 in administration, finance,
operations and technical support. 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. 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.
43
<PAGE> 48
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of T/R Systems, and their ages as of
September 15, 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................... 46 Vice President, Chief Financial Officer, Secretary
and Treasurer
Charles K. Thackston.............. 42 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.................. 59 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 Control Systems. 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.
44
<PAGE> 49
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. Prior to 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. Prior to 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. Prior to 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. Prior to 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 various 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 pursuant to a shareholders' agreement among T/R
Systems and the holders of specified 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.
45
<PAGE> 50
CLASSIFICATION OF DIRECTORS
Prior to 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. 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
The audit committee of the board of directors 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. and Phipps.
The compensation committee of the board of directors 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.
and Gianos.
DIRECTOR COMPENSATION
Directors currently do not receive any cash compensation for their services
as members of the board of directors. Mr. Gaffin is reimbursed for expenses
associated with attendance at meetings of the board of directors.
Following the completion 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 such 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
completion of this offering which will vest over a three year term.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee consists of Messrs. and Gianos.
Neither of these individuals 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.
46
<PAGE> 51
EXECUTIVE COMPENSATION
The following table sets forth 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:
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL AWARDS
COMPENSATION ----------
------------------ SECURITIES
FISCAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
- --------------------------- ------ -------- ------- ---------- ---------------
<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 25,000 2,618
Senior Vice President, Sales
and Marketing
Michael W. Barry................. 1999 141,558 15,000 25,000 2,326
Senior Vice President,
Development and Engineering
Andrew Nathan.................... 1999 120,000 36,000 -- --
Vice President, OEM Sales
</TABLE>
- -------------------------
(1) Consists of matching contributions to our 401(k) plan.
47
<PAGE> 52
OPTION GRANTS IN THE LAST FISCAL YEAR
The following table sets forth each grant of stock options made to each of
the named executive officers during the fiscal year ended January 31, 1999:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------ VALUE AT ASSUMED
NUMBER OF % OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS EXERCISE PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM(3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------
NAME GRANTED(#)(1) FISCAL YEAR ($/SH)(2) DATE 5%($) 10%($)
- ---- ------------- ------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael E.
Kohlsdorf........... -- -- -- -- -- --
E. Neal Tompkins...... -- -- -- -- -- --
Charles K.
Thackston........... 25,000 9.4% $3.00 9/10/08 $47,167 $119,531
Michael W. Barry...... 25,000 9.4 3.00 11/17/08 47,167 119,531
Andrew Nathan......... -- -- -- -- -- --
</TABLE>
- -------------------------
(1) The options vest ratably over four years commencing on the first anniversary
of the date of grant.
(2) 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.
(3) The 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
mandated 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 $ per share, the actual
appreciation exceeds these values.
OPTION EXERCISES AND YEAR END OPTION VALUES
The following table sets forth information regarding option exercises
during fiscal 1999 and unexercised options that were held at the end of fiscal
1999 by each named executive officer:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES VALUE OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(2)
ACQUIRED ON REALIZED ----------------------------- ---------------------------
NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael E.
Kohlsdorf.......... -- -- 366,750 500,250 $916,875 $1,250,625
E. Neal Tompkins..... -- -- 178,000 47,000 445,000 117,500
Charles K.
Thackston.......... -- -- 75,000 120,000 187,500 237,500
Michael W. Barry..... 40,000 $106,000 134,250 89,750 360,275 162,625
Andrew Nathan........ -- -- 30,000 90,000 75,000 225,000
</TABLE>
- -------------------------
(1) Amount 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.
(2) Amount represents the aggregate market value of the underlying securities at
fiscal year-end January 31, 1999 ($3.00 per share), as determined by the
board of directors, minus the aggregate exercise price payable for such
shares.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with Michael E. Kohlsdorf and E.
Neal Tompkins.
48
<PAGE> 53
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 certain objectives approved by the board of directors. Mr.
Kohlsdorf's base salary is currently $225,000. Pursuant to his employment
agreement, we granted Mr. Kohlsdorf an option to purchase 600,000 shares of
common stock at an exercise price of $0.50 per share in September 1996. In
November 1997, we granted Mr. Kohlsdorf an option to purchase an additional
267,000 shares of common stock. If we terminate Mr. Kohlsdorf's employment, with
or without cause, 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 cause, as defined in his employment
agreement, 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. Termination for cause includes termination in the event
of breaches of the agreement, fraud or misappropriation of our assets. If we
terminate Mr. Tompkins' employment without cause, 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 an aggregate of 1,376,000 shares of common
stock. Our 1994 stock option plan was adopted by the board of directors in March
1994 and provides for issuance of an aggregate of 624,000 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 an aggregate of
1,650,000 shares of common stock for issuance under the 1995 plan. In December
1997, the board of directors authorized an additional 1,000,000 shares, bringing
the aggregate number of shares issuable under the 1995 plan to 2,650,000.
These plans provide 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 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 such 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 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
49
<PAGE> 54
transferred by the optionee other than by will or the laws of descent and
distribution. An optionee whose relationship with T/R Systems ceases for any
reason other than discharge for cause, as defined in the plans (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 an optionee's termination as a result of disability.
The aggregate fair market value of the common stock at the date of the
grant of incentive stock options granted under any of these plans and options
granted under any other stock option plan in the year first exercisable under
any stock option plan may not exceed $100,000. No incentive stock option may be
granted under any of these plans or any other stock option plan to any person
possessing more than 10% of the total combined voting power of all classes of
our stock unless the exercise price of such option is at least 110% of the fair
market value of the stock subject to the option and such option by its terms is
not exercisable after five years from the date such option is granted.
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 such option will be available for future grant.
In the event of specified changes of control, and in the event that the
board of directors does not determine prior to these changes 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.
In the event that a holder of options 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 employee may have
acquired under the 1994 plan. We must exercise this right within ten days of
learning of such employee's subsequent employment.
As of July 31, 1999, options to purchase an aggregate of 2,546,820 shares
of common stock were outstanding under these plans and an aggregate of 202,050
shares of common stock remained available for future grant. Assuming the
consummation 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 an aggregate of 1,500,000 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 total combined voting power of the
outstanding stock of T/R Systems. The exercise price of options granted under
the plan is 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. Fair market value means, as of a given day, the per share
closing price on Nasdaq on the most recently preceding trading day reported or,
if the shares are not admitted to trading on Nasdaq, the amount determined by
the board of directors.
50
<PAGE> 55
Each grant will specify the periods of continuous service by the optionee
that is necessary before the option or installments will become exercisable and
may provide for earlier exercise including, without limitation, 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
optionee other than by will or the laws of descent and distribution.
To the extent required for incentive stock option status under Section 422
of the Internal Revenue Code, as amended, the aggregate fair market value of the
common stock with respect to which incentive stock options are granted under the
plan and options granted under any other stock option plan in the year first
exercisable during any calendar year may not exceed $100,000. No incentive stock
option may be granted under this plan or any other stock option plan to any
person possessing more than 10% of the total combined voting power of all
classes of our stock unless the exercise price of such option is at least 110%
of the fair market value of the stock subject to the option.
If any option issued under the plan expires or is canceled or terminates,
the shares subject to such option will be available for future grant. No
individual 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 optionee for at
least six months or a combination of such 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 to increase the number of shares available under the
plan 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 50,000 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
optionee other than by will or the laws of descent and distribution. An optionee
whose relationship with T/R Systems ceases for any reason other than death may
exercise options within three months of the termination of the optionee's
relationship with T/R Systems. Options may be exercised up to one year from the
date of an optionee's termination by T/R Systems as a result of death.
51
<PAGE> 56
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 such option, the
shares subject to that option shall be available for future grant.
As of July 31, 1999, we had granted options to purchase 37,000 shares of
common stock under the Associates Plan and an additional 13,000 remained
available for future grant. Of the options granted, options to purchase 18,250
shares of common stock were outstanding and options to purchase 18,750 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 10,000
shares of common stock at $.050 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
188,000 shares of our common stock with an exercise price of $0.50 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 which 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 1.275 shares of common stock for each
share of Series B preferred stock instead of on a one-for-one basis. 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.
52
<PAGE> 57
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of September 15, 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
- each selling shareholder.
This table assumes that the underwriters do not exercise their
over-allotment option. If the underwriters exercise the over-allotment option in
full, several of our shareholders will sell an additional shares of
common stock. Information about these shareholders, their holdings and the
number of shares they would sell under these circumstances is included in
footnote 2 below the table.
Except as otherwise indicated, the shareholders listed in the table 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 PRIOR OWNED AFTER
TO THE OFFERING(1) NUMBER OF THE OFFERING(1)
------------------- SHARES -------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT BEING OFFERED(2) NUMBER PERCENT
- ------------------------ --------- ------- ---------------- --------- -------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Charles H. Phipps(3)............. 2,559,781 18.0%
Philip T. Gianos(4).............. 1,694,338 11.9
Francis A. Rowe(5)............... 1,137,527 8.0
E. Neal Tompkins(6).............. 873,583 6.1
Michael E. Kohlsdorf(7).......... 614,833 4.2
Michael W. Barry(8).............. 248,502 1.7
Charles K. Thackston(9).......... 91,250 *
Andrew Nathan(10)................ 60,000 *
C. Harold Gaffin(11)............. 27,500 *
Directors and executive officers
as a group (13 persons)(12).... 7,506,064 49.0
</TABLE>
53
<PAGE> 58
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO THE OFFERING(1) NUMBER OF THE OFFERING(1)
------------------- SHARES -------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT BEING OFFERED(2) NUMBER PERCENT
- ------------------------ --------- ------- ---------------- --------- -------
<S> <C> <C> <C> <C> <C>
OTHER 5 % SHAREHOLDERS
Entities affiliated with Sevin
Rosen Funds IV L.P.(3)......... 2,559,781 18.0%
Noro-Moseley Partners II,
L.P.(13)....................... 2,299,337 16.2
Aperture Associates, L.P.(14).... 1,903,336 13.4
Entities affiliated with
InterWest Management Partners
V, L.P.(4)..................... 1,694,338 11.9
Entities affiliated with Crown
Advisors, Ltd.(15)............. 1,023,843 7.2
</TABLE>
- -------------------------
* Represents beneficial ownership of less than one percent.
(1) Percentage of beneficial ownership is based on 14,222,425 shares
outstanding as of September 15, 1999 and 17,222,425 shares outstanding
after completion of this offering. All options exercisable within 60 days
of September 15, 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.
(2) If the underwriters exercise their over-allotment option in full, the
following shareholders will be obligated to sell to the underwriters the
number of shares indicated below and will, after the offering, beneficially
own the number of shares indicated:
(3) Includes 5,000 shares held by Sevin Rosen Bayless Management Co., of which
Mr. Phipps is a Vice President and principal shareholder, and with respect
to which Mr. Phipps disclaims beneficial ownership. Also includes 2,554,781
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 with respect to 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 therein. The address of each of Mr. Phipps
and the Sevin Rosen funds is Two Galleria Tower, 13455 Noel Road, Suite
1670, Dallas, Texas 75240.
(4) Consists of 1,683,741 shares held by InterWest Partners V, L.P. and 10,597
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 with respect to 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 therein. The address of each of Mr. Gianos and the
InterWest funds is 3000 Sand Hill Road, No. 3-255, Menlo Park, California
94025.
(5) Includes 1,087,527 shares held by Mr. Rowe and his wife as joint tenants,
with respect to which shares Mr. Rowe has shared voting and dispositive
power.
(6) Includes 178,000 shares issuable upon exercise of options exercisable
within 60 days of September 15, 1999, as well as 15,000 shares held by Mr.
Tompkins and his wife as joint tenants, 280,583 shares held by Mr.
Tompkins' wife and 50,000 shares held by Mr. Tompkins' daughter.
(7) Includes 551,500 shares of common stock issuable upon exercise of options
exercisable within 60 days of September 15, 1999.
(8) Includes 147,500 shares of common stock issuable upon exercise of options
exercisable within 60 days of September 15, 1999.
(9) Consists of 91,250 shares of common stock issuable upon exercise of options
exercisable within 60 days of September 15, 1999.
(10) Consists of 60,000 shares of common stock issuable upon exercise of options
exercisable within 60 days of September 15, 1999.
(11) Includes 8,750 shares of common stock issuable upon exercise of options
exercisable within 60 days of September 15, 1999.
(12) Includes 1,091,270 shares of common stock issuable upon exercise of options
exercisable within 60 days of September 15, 1999. See also footnotes (3)
through (11) above.
(13) The address of Noro-Moseley is 9 North Parkway Square, 4200 Northside
Parkway, N.W., Atlanta, Georgia 30327.
54
<PAGE> 59
(14) The address of Aperture Associates, L.P. is 505 Montgomery Street, 21st
Floor, San Francisco, California 94111.
(15) Includes 250,659 shares held by Crown Trust and 80,000 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 with respect to these shares, and disclaims beneficial
ownership except to the extent of his pecuniary interest therein. Also
includes 325,334 shares held by Crown Associates III, L.P., 155,100 shares
held by Crown Glynn Associates, L.P. and 120,000 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 with respect to these shares, and
disclaims beneficial ownership except to the extent of his pecuniary
interest therein. Also includes 10,000 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 with respect to
these shares. He disclaims beneficial ownership of these shares. Also
includes 82,750 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.
55
<PAGE> 60
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 September 28, 1999.
Prior to 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 prior to
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.
Based upon our outstanding stock at September 28, 1999, there will be
shares of common stock outstanding after giving effect to the sale of
common stock in this offering and the conversion of preferred stock into common
stock upon the closing of the offering ( shares if the underwriters
exercise their over-allotment in full), 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 the 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 would be 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. For a discussion
of change of control provisions in our articles of incorporation and bylaws, see
"-- Antitakeover Effects of Georgia Law Provisions" and "-- Antitakeover Effects
of Provisions of Our Charter and Bylaws."
56
<PAGE> 61
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, 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.
The authority of the board of directors with respect to each series
includes the determination of any of the following:
- the number of shares of any series and the designation to distinguish the
shares of that series from any other series;
- the voting powers, and whether the voting powers are full or limited in
any series;
- the redemption provisions applicable to the series, including the
redemption price or prices to be paid;
- whether or not dividends, if any, will be cumulative, the dividend rate
of any series, and the dates and preferences of dividends on that series;
- the rights of any series of preferred stock upon our voluntary or
involuntary dissolution, or upon any distribution of our assets;
- the provisions, if any, permitting the shares of any 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 price or prices or the
applicable rates of exchange;
- the right, if any, to subscribe for or to purchase any of our securities
or those of any other corporation;
- the provisions, if any, of a sinking fund applicable to any 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.
57
<PAGE> 62
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 specified 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 specified fair price criteria are met.
For the purposes of these provisions, a business combination generally
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 pursuant to 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
prior to 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.
58
<PAGE> 63
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 preceding the public announcement of the business combination,
referred to as the announcement date, or in the transaction in which
it became an interested shareholder;
- the higher of the fair market value per share as determined on the
announcement date or the date on which the interested shareholder
first became an interested shareholder; or
- in the case of shares other than common shares, the highest amount per
share to which preferred shareholders are entitled in the event of
liquidation, dissolution or winding up of the corporation, but only if
the interested shareholder acquired the preferred shares within the
two-year period immediately preceding 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 prior to the consummation of the business combination, without
the approval of a majority of the continuing directors, there generally may have
been:
- no failure to declare and pay full dividends on the corporation's
outstanding preferred shares;
- no reduction in the annual rate of dividends paid on common shares,
except as to reflect any subdivision of the shares;
- no 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
- not 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 also 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, whether in
anticipation of or in connection with such business combination or otherwise.
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.
59
<PAGE> 64
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 various
business combinations between a Georgia corporation with at least 100 beneficial
owners in Georgia and meeting certain 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
- 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 pursuant to the exercise of warrants or
rights offered pro rata to all holders of voting securities, and except
pursuant to the exercise or conversion of securities outstanding prior to
the time 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 equity
securities of T/R Systems 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, nor to any person who becomes an
interested shareholder inadvertently, subsequently divests sufficient shares so
that the shareholder ceases to be an interested
60
<PAGE> 65
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 our bylaws contain a number of provisions relating to
corporate governance and to 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 staggered three-year terms;
- the requirement that shareholders may remove directors only for cause and
only by the affirmative vote of at least 80% of our voting stock;
- the authority of our board of directors to issue series of preferred
stock with such 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 provisions and business
combination provisions of the Georgia corporate laws.
These provisions have certain anti-takeover effects and may discourage
proposals that could be viewed as favorable to shareholders. The description set
forth 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.
61
<PAGE> 66
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.
62
<PAGE> 67
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 completion of the offering, we will have outstanding shares
of common stock. Of these shares, the 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 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 promulgated 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.
Our directors, officers and most of our shareholders have entered into
lock-up agreements in connection with this offering generally providing that
they will not offer, sell, contract to sell or grant any option to purchase or
in any way 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 provisions of Rules 144, 144(k) and 701, 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
63
<PAGE> 68
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale.
Sales under Rule 144 are also subject to requirements which govern the
manner of sale, and require specified notice and 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 provision of Rule 144.
Rule 701, as currently in effect, permits our employees, officers,
directors or consultants who purchased shares under a written compensatory plan
or contract to resell these shares in reliance upon Rule 144 but without
compliance with specific restrictions. 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.
In addition, we intend to file registration statements under the Securities
Act as promptly as possible after the effective date 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 or any other benefit plan
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 September
15, 1999 there were outstanding options for the purchase of shares of
common stock, of which options to purchase shares were exercisable.
REGISTRATION RIGHTS
Pursuant to a registration rights agreement entered into in connection with
the issuance of some series of preferred stock, the holders of those shares are
entitled 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, would be entitled to include
their shares in any such registration, subject to possible underwriter cutbacks.
In the event we propose to register any of our securities under the Securities
Act at any time, the holders of those shares will be entitled to include their
shares in our registration, subject to possible underwriter cutbacks. In
addition, pursuant to additional registration rights agreements, to the extent
the parties thereto 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 consummation of this offering, under these
additional registration agreements, holders of shares will have such
rights. T/R Systems is generally required to bear the expenses of all
registrations, except underwriting discounts and commissions.
64
<PAGE> 69
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 severally agreed with us and the selling
shareholders, subject to the terms and conditions of the underwriting agreement,
to purchase from us and the selling shareholders the number of shares of common
stock set forth below opposite their respective names. 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.............................................
=========
</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 set forth on the cover page of this prospectus and to
certain 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. No such reduction will change the amount of
proceeds to be received by us or the selling shareholders as set forth on the
cover page of this prospectus. The common stock is offered by the underwriters
as stated herein, subject to receipt and acceptance by them, and subject to
their right to reject any order in whole or in part.
Prior to this offering, there has been no public market for the 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, certain of our financial information, market
valuations of other companies that we and the representatives believe to be
comparable to us, estimates of our business potential, the present state of our
development and other factors deemed relevant.
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 the "Principal and Selling Shareholders"
table have granted to the underwriters an option, exercisable during the 30-day
period after the date of this prospectus, to purchase up to additional
shares of common stock to cover over-allotments, if any, at the public offering
price less the underwriting discount set forth 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, the underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage
65
<PAGE> 70
thereof as the number of shares to be purchased by each of them bears to the
total number of shares of common stock offered in this offering. If purchased,
these additional shares will be sold by the underwriters on the same terms as
those on which the shares offered hereby are being sold. The selling
shareholders will be obligated, pursuant to the over-allotment option, to sell
shares to the underwriters to the extent the over-allotment option is exercised.
The underwriters may exercise the over-allotment option only to cover
over-allotments made in connection with the sale of the shares of common stock
offered in this offering.
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 certain civil liabilities,
including liabilities under the Securities Act.
Lock-Up Agreements
Each executive officer and director of T/R Systems and holders of % of
our common stock have agreed, during the period of 180 days after the date of
this prospectus, subject to specified 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 thereafter
acquired directly by those holders 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 or from time to time,
without notice, release all or 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 prior to 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., subject
to specified exceptions, consent to the disposition of any shares held by
stockholders subject to lock-up agreements prior to 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 other
66
<PAGE> 71
than our sale of shares in this offering, the issuance of our common stock upon
the exercise of outstanding options or warrants, and the issuance of options
under existing stock option and incentive plans provided that those options do
not vest prior to the expiration of the lock-up period. See "Shares Eligible for
Future Sale."
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 Securities Act, some persons participating in the offering may engage in
transactions, including stabilizing bids, syndicate covering transactions or the
imposition of penalty bids, that may have the effect of stabilizing or
maintaining the market price of the shares of common stock at a level above that
which might otherwise prevail in the open market. A stabilizing bid is a bid for
or the purchase of shares of common stock on behalf of the underwriters for the
purpose of fixing or maintaining the price of the common stock. A syndicate
covering transaction is the bid for or purchase of common stock on behalf of the
underwriters to reduce a short position incurred by the underwriters in
connection with the offering. A penalty bid is an arrangement permitting 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 such underwriter or syndicate member is purchased by
the representatives in a syndicate covering transaction and has therefore not
been effectively placed by such underwriter or syndicate member. The
representatives have advised us that such transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
Directed Share Program
At our request, the underwriters have reserved up to 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 such 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 basis as the shares of common stock offered in this offering.
LEGAL MATTERS
The validity of the common stock offered hereby 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.
67
<PAGE> 72
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. Statements made in this prospectus about the contents of
any contract, agreement or other document are summaries and are not complete
descriptions of all terms.
The registration statement and the related exhibits and schedule filed by
us with the Securities and Exchange Commission can be inspected and copies
obtained from the public reference facilities maintained by the Securities and
Exchange Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Securities and Exchange Commission's regional offices at 500
West Madison Street, Chicago, Illinois 60661, and 7 World Trade Center, New
York, New York 10048. Copies of such material can also be obtained from the
Public Reference Section of the Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. You may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The Securities and Exchange Commission maintains a website that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Securities and Exchange
Commission at http://www.sec.gov.
68
<PAGE> 73
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) July 31, 1999................................. F-3
Statements of Operations for the Years Ended January 31,
1997, 1998 and 1999 and (Unaudited) for the six months
ended July 31, 1998 and 1999.............................. F-4
Statements of Shareholders' Deficit for the Years Ended
January 31, 1997, 1998 and 1999 and (Unaudited) for the
six months ended July 31, 1999............................ F-5
Statements of Cash Flows for the Years Ended January 31,
1997, 1998 and 1999 and (Unaudited) for the six months
ended July 31, 1998 and 1999.............................. F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 74
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.
Deloitte & Touche LLP
Atlanta, Georgia
March 26, 1999
(May 17, 1999 as to the first paragraph of Note 9)
F-2
<PAGE> 75
T/R SYSTEMS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
------------------ --------------------
1999
1998 1999 1999 PRO FORMA
------- -------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 3,527 $ 1,966 $ 3,708 $ 3,708
Restricted cash........................................... 200 200 200 200
Receivables, net of allowance of $175, $200, and $82,
respectively............................................ 2,369 2,592 3,072 3,072
Inventories, net.......................................... 1,116 1,810 1,856 1,856
Prepaid expenses and other................................ 203 191 293 293
------- -------- -------- --------
Total current assets................................ 7,415 6,759 9,129 9,129
Property and equipment, net................................. 769 1,011 910 910
------- -------- -------- --------
$ 8,184 $ 7,770 $ 10,039 $ 10,039
======= ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable.......................................... $ 1,511 $ 1,681 $ 1,348 $ 1,348
Deferred revenue.......................................... 65 159 1,386 1,386
Accrued salaries and wages................................ 344 574 654 654
Borrowing under line of credit............................ -- 27 27 27
Other liabilities......................................... 378 374 433 433
Current portion of long-term debt......................... -- 52 52 52
------- -------- -------- --------
Total current liabilities........................... 2,298 2,867 3,900 3,900
Deferred royalty revenue.................................... 625 -- -- --
Long-term debt, less current portion........................ -- 99 74 74
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 4,787 --
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 7,535 --
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 2,731 --
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, 3,757,932, 4,120,037 and 4,197,937 shares
issued and outstanding (historical), 14,211,675 issued
and outstanding (pro forma)............................. 37 41 42 142
Additional paid-in capital................................ 1,030 1,138 2,157 17,112
Deferred compensation..................................... (125) (93) (76) (76)
Accumulated deficit....................................... (10,701) (11,324) (11,113) (11,113)
------- -------- -------- --------
Total shareholders' equity (deficit)................ (9,759) (10,238) (8,988) 6,065
------- -------- -------- --------
$ 8,184 $ 7,770 $ 10,039 $ 10,039
======= ======== ======== ========
</TABLE>
See notes to financial statements
F-3
<PAGE> 76
T/R SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED JANUARY 31, JULY 31,
--------------------------- ---------------
1997 1998 1999 1998 1999
------- ------- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue........................................ $ 4,036 $12,032 $15,847 $8,340 $9,889
Cost of sales.................................. 3,387 6,107 6,579 3,514 4,210
------- ------- ------- ------ ------
Gross profit................................... 649 5,925 9,268 4,826 5,679
Operating Expenses:
Research and development..................... 1,786 2,164 3,202 1,487 1,656
Sales and marketing.......................... 2,185 3,542 4,891 2,353 2,992
General and administrative................... 1,011 1,623 1,708 943 862
------- ------- ------- ------ ------
Total operating expenses............. 4,982 7,329 9,801 4,783 5,510
------- ------- ------- ------ ------
Operating income (loss)........................ (4,333) (1,404) (533) 43 169
Interest income, net........................... 213 186 150 96 42
Other expenses................................. -- -- (240) (240) --
------- ------- ------- ------ ------
Net income (loss).............................. $(4,120) $(1,218) $ (623) $ (101) $ 211
======= ======= ======= ====== ======
Net income (loss) per common share -- Basic.... $ (1.47) $ (0.37) $ (0.16) $(0.03) $ 0.05
======= ======= ======= ====== ======
Net income (loss) per common share --Diluted... $ (1.47) $ (0.37) $ (0.16) $(0.03) $ 0.01
======= ======= ======= ====== ======
Pro forma net income (loss) per common
share -- Basic (unaudited)................... $ (0.05) $ 0.02
======= ======
Pro forma net income (loss) per common
share -- Diluted (unaudited)................. $ (0.05) $ 0.01
======= ======
</TABLE>
See notes to financial statements
F-4
<PAGE> 77
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...................... 2,698 $27 $ 826 $ (5,363) $ (4,510)
Stock option exercises.... 312 3 12 15
Accretion of redeemable
convertible preferred
stock................... (20) (20)
Net loss.................. (4,120) (4,120)
----- --- ------ -------- --------
Balance -- January 31,
1997...................... 3,010 30 818 (9,483) (8,635)
Stock option exercises.... 748 7 104 111
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...................... 3,758 37 1,030 (125) (10,701) (9,759)
Stock option exercises.... 362 4 130 134
Amortization of deferred
compensation............ 32 32
Accretion of redeemable
convertible preferred
stock................... (22) (22)
Net loss.................. (623) (623)
----- --- ------ ----- -------- --------
Balance -- January 31,
1999...................... 4,120 41 1,138 (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)............. 78 1 37 38
Amortization of deferred
compensation
(unaudited)............. 17 17
Accretion of redeemable
convertible preferred
stock (unaudited)....... (11) (11)
Net income (unaudited).... 211 211
--- -- ----- --- ------ ----- -------- --------
Balance -- July 31, 1999
(unaudited)............... 222 $2 4,198 $42 $2,157 $ (76) $(11,113) $ (8,988)
=== == ===== === ====== ===== ======== ========
</TABLE>
See notes to financial statements
F-5
<PAGE> 78
T/R SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED JANUARY 31, JULY 31,
--------------------------- ---------------
1997 1998 1999 1998 1999
------- ------- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income (loss)..................................... $(4,120) $(1,218) $ (623) $ (101) $ 211
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation........................................ 251 537 702 355 273
Deferred compensation expense....................... -- 5 32 16 17
Changes in assets and liabilities:
Decrease (increase) in receivables............... (82) (1,720) (223) 478 (480)
Decrease (increase) in inventories............... 14 (420) (694) (767) (46)
Decrease (increase) in prepaid expenses and
other.......................................... (81) (1) 12 (137) (102)
Increase (decrease) in accounts payable.......... (160) 1,116 170 107 (333)
Increase (decrease) in deferred revenue.......... -- 65 94 (295) 1,227
Increase in accrued salaries and wages........... 65 209 230 120 80
Increase (decrease) in other liabilities......... 181 (43) (4) 316 59
Decrease in deferred royalty revenue............. (243) (246) (625) (625) --
------- ------- ------- ------ ------
Net cash provided by (used in) operating
activities................................... (4,175) (1,716) (929) (533) 906
Investing Activities:
Purchases of property and equipment................... (335) (619) (944) (633) (172)
Financing Activities:
Restricted cash....................................... (400) 200 -- -- --
Credit facility borrowings............................ -- -- 27 -- --
Proceeds on issuance of long term debt................ -- -- 156 100 --
Principal repayments on long term debt................ -- -- (5) -- (25)
Proceeds from sale of common stock.................... 15 96 134 124 38
Proceeds from sale of Series C preferred stock........ -- 2,741 -- -- --
Proceeds from sale of Series D preferred stock........ -- -- -- -- 995
------- ------- ------- ------ ------
Net cash provided by (used in) financing
activities................................... (385) 3,037 312 224 1,008
------- ------- ------- ------ ------
Net increase (decrease) in cash and cash equivalents.... (4,895) 702 (1,561) (942) 1,742
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 $2,585 $3,708
======= ======= ======= ====== ======
Cash paid for interest.................................. $ -- $ -- $ 17 $ 9 $ 9
======= ======= ======= ====== ======
Supplemental Disclosure of Noncash Financing Activities:
During the year ended January 31, 1998, the Company
issued
66,000 shares of common stock in exchange for 7,000
shares
of Series C preferred stock.
</TABLE>
See notes to financial statements
F-6
<PAGE> 79
T/R SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JULY 31, 1999 AND FOR THE SIX MONTHS ENDED JULY 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 July
31, 1999 gives effect to such conversion as if it had occurred on July 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.
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> 80
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> 81
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 six months ended July 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> 82
T/R SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. INVENTORIES
Inventories at January 31, 1998 and 1999 and July 31, 1999 consisted of the
following:
<TABLE>
<CAPTION>
JANUARY 31,
--------------- JULY 31,
1998 1999 1999
------ ------ -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Components and supplies.......................... $1,393 $1,817 $1,280
Finished goods................................... 393 566 1,053
------ ------ ------
1,786 2,383 2,333
Less reserve for potential losses................ 670 573 477
------ ------ ------
$1,116 $1,810 $1,856
====== ====== ======
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment at January 31, 1998 and 1999 and July 31, 1999
consisted of the following:
<TABLE>
<CAPTION>
JANUARY 31,
--------------- JULY 31,
1998 1999 1999
------ ------ -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Furniture and fixtures........................... $ 59 $ 564 $ 614
Machinery and equipment.......................... 1,420 1,557 1,694
Leasehold improvements........................... 234 68 70
------ ------ ------
1,713 2,189 2,378
Less accumulated depreciation.................... 944 1,178 1,468
------ ------ ------
Property and equipment, net............ $ 769 $1,011 $ 910
====== ====== ======
</TABLE>
Depreciation expense for the years ended January 31, 1997, 1998, and 1999
and for the six months ended July 31, 1998 and 1999 was $251,000, $537,000,
$702,000, $355,000, and $273,000, respectively.
F-10
<PAGE> 83
T/R SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. OTHER LIABILITIES
Other liabilities at January 31, 1998 and 1999 and July 31, 1999 consisted
of the following:
<TABLE>
<CAPTION>
JANUARY 31,
----------- JULY 31,
1998 1999 1999
---- ---- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Professional services fees.......................... $ 78 $ 85 $ 79
Accrued sales and property taxes.................... 56 59 38
Accrued travel costs................................ 55 48 57
Accrued warranty.................................... 24 75 75
Other............................................... 165 107 184
---- ---- ----
$378 $374 $433
==== ==== ====
</TABLE>
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
F-11
<PAGE> 84
T/R SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 $2,000,000 secured revolving line of credit from a bank
which expires on October 15, 1999. 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 1% (8.75% 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. The agreement also
provides for up to $500,000 in letters of credit. Any letters of credit issued
reduce the amount 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.
F-12
<PAGE> 85
T/R SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 1 share, 1.275 shares, and 1 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.
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.
<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).......................... -- 5 -- 5 -- 1 11
----- ------ ----- ------ ----- ------ -------
Balance -- July 31, 1999 (unaudited)..... 4,800 $4,787 2,962 $7,535 1,215 $2,731 $15,053
===== ====== ===== ====== ===== ====== =======
</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 shares of common stock on a one-for-one
basis and automatically convert into common shares upon the closing of a
qualified public offering, as
F-13
<PAGE> 86
T/R SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 4,650,000 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 50,000
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..................... 2,329 $0.25 2,763 $0.35 2,626 $0.46
Granted.......................... 843 0.50 721 0.55 266 3.00
Exercised........................ (365) 0.11 (748) 0.15 (362) 0.37
Forfeited........................ (44) 0.32 (110) 0.28 (39) 3.28
----- ----- -----
Options outstanding as of
January 31..................... 2,763 0.35 2,626 0.46 2,491 0.70
===== ===== =====
Options exercisable as of
January 31..................... 1,235 0.24 931 0.40 1,161 0.44
===== ===== =====
Weighted-average fair value of
options granted during the
year........................... $0.09 $0.24 $0.27
===== ===== =====
</TABLE>
F-14
<PAGE> 87
T/R SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JULY 31, 1999
----------------------
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
------ ---------
(SHARES IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Options outstanding as of February 1.................... 2,491 $0.70
Granted................................................. 190 3.74
Exercised............................................... (78) 0.50
Forfeited............................................... (38) 0.95
-----
Options outstanding as of July 31....................... 2,565 0.93
=====
Options exercisable as of July 31....................... 1,146 0.45
=====
Weighted-average fair value of options granted during
the period............................................ $0.43
=====
</TABLE>
Subsequent to July 31, 1999, the Company granted options to purchase
114,000 shares of common stock at $8.00 per share.
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>
YEAR ENDED
JANUARY 31, SIX MONTHS
------------------ ENDED
1997 1998 1999 JULY 31, 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% 5.3%
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, and $171,000 for the six
months ended July 31, 1999 (unaudited). Basic and diluted net loss would have
been $1.49, $0.40, and $0.18 per share in fiscal 1997, 1998, and 1999,
respectively. Basic and diluted net income per share would have been $0.04 and
$0.01, respectively, for the six months ended July 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> 88
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>
$0.10 to $0.20....... 270 5.0 $0.17 240 $0.17
0.50................ 1,960 7.9 0.50 917 0.50
2.00................ 62 9.1 2.00 4 2.00
2.75 to 3.00........ 199 9.8 2.98 -- --
----- -----
0.10 to 3.00........ 2,491 7.7 0.70 1,161 0.44
===== =====
</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 $17,000 for the years ended January 31, 1998 and 1999 and
for the six months ended July 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 188,000 shares of common stock which previously had been
granted in January 1996 with an exercise price of $.50 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 six months
ended July 31, 1998 and 1999 was $135,000 and $196,000, 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> 89
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>
SIX MONTHS
YEAR ENDED JANUARY 31, ENDED
-------------------------- JULY 31,
1997 1998 1999 1999
------ ------- ------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Printing systems........................ $3,764 $11,727 $14,858 $9,656
Other................................... 272 305 989 233
------ ------- ------- ------
Total................................... $4,036 $12,032 $15,847 $9,889
====== ======= ======= ======
</TABLE>
Revenue by geographic area is summarized below:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED JANUARY 31, ENDED
-------------------------- JULY 31,
1997 1998 1999 1999
------ ------- ------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
United States........................... $2,251 $ 7,990 $10,978 $8,015
Asia.................................... 327 2,735 3,395 156
Europe.................................. 1,185 702 1,047 982
Other foreign countries................. 273 605 427 736
------ ------- ------- ------
Total................................... $4,036 $12,032 $15,847 $9,889
====== ======= ======= ======
</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 45.2% of
revenue for the years ended January 31, 1997, 1998 and 1999, and the six month
period ended July 31, 1999 (unaudited), respectively. One customer in each
period accounted for 46.3%, 6.9%, and 23.9% of total receivables at January 31,
1998 and 1999, and July 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 after the employee's
first full year of service. During fiscal 1997, 1998 and 1999 and the six
F-17
<PAGE> 90
T/R SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
month period ended July 31, 1999 the Company contributed $0, $7,000, $69,000,
and $48,000, 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>
SIX MONTHS
YEAR ENDED JANUARY 31, ENDED JULY 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) $ (101) $ 211 $ 211
Accretion on redeemable preferred
stock............................... (20) (22) (22) -- (11) (11) --
------- ------- ------ ------- ------ ------- -------
Net income (loss) applicable to common
shareholders -- Basic............... (4,140) (1,240) (645) (623) (112) 200 211
Add back accretion on redeemable
preferred stock..................... -- -- -- -- -- 11 --
------- ------- ------ ------- ------ ------- -------
Net income (loss) applicable to common
shareholders -- Diluted............. $(4,140) $(1,240) $ (645) $ (623) $ (112) $ 211 $ 211
======= ======= ====== ======= ====== ======= =======
Denominator:
Weighted average shares outstanding... 2,808 3,385 4,033 4,033 3,958 4,163 4,163
Conversion of preferred stock......... -- -- -- 9,792 -- -- 9,885
------- ------- ------ ------- ------ ------- -------
Total -- Basic........................ 2,808 3,385 4,033 13,825 3,958 4,163 14,048
Conversion of preferred stock......... -- -- -- -- -- 9,885 --
Effect of outstanding stock options... -- -- -- -- -- 1,919 1,919
------- ------- ------ ------- ------ ------- -------
Total -- Diluted...................... 2,808 3,385 4,033 13,825 3,958 15,967 15,967
======= ======= ====== ======= ====== ======= =======
Net income (loss) per common share --
Basic................................. $ (1.47) $ (0.37) $(0.16) $ (0.05) $(0.03) $ 0.05 $ 0.02
======= ======= ====== ======= ====== ======= =======
Net income (loss) per common share --
Diluted............................... $ (1.47) $ (0.37) $(0.16) $ (0.05) $(0.03) $ 0.01 $ 0.01
======= ======= ====== ======= ====== ======= =======
</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 six month
period ended July 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 July
31, 1998 and 1999, common shares issuable under these arrangements were
11,339,000, 12,417,000, 12,282,000, 12,125,000 and 159,500, respectively.
F-18
<PAGE> 91
[GRAPHICS]
Graphics on inside back cover -- text "the MicroPress is the solution to
document production challenges!" and additional text "input processing output"
at bottom center of page under ClusterPower logo which includes the text "The
Power Of Many Working As One. MicroPress Cluster Printing System" with icons to
the left and right representing software applications and media that interface
with the 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.
<PAGE> 92
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> 93
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> 94
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 1,930,630 shares of common stock have been
acquired upon exercise of stock options granted under our option plans for
purchase prices ranging from $0.10 to $2.75 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> 95
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> 96
<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.
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
27.2 -- Financial Data Schedule
27.3 -- Financial Data Schedule
27.4 -- Financial Data Schedule
27.5 -- Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment
+ 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 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
II-5
<PAGE> 97
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> 98
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of
Georgia, on October 4, 1999.
T/R SYSTEMS, INC.
By: /s/ Michael E. Kohlsdorf
--------------------------------------
Michael E. Kohlsdorf
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Michael E. Kohlsdorf and Lyle W. Newkirk, jointly
and severally, his true and lawful attorneys-in-fact and agents, each with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this
registration statement, and any subsequent registration statement for the same
offering which may be filed under Rule 462(b), and to file the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each of said attorneys-in-fact and agents, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
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 October 4, 1999
- --------------------------------------------- Officer (Principal Executive
Michael E. Kohlsdorf Officer)
/s/ Lyle W. Newkirk Vice President, Chief Financial October 4, 1999
- --------------------------------------------- Officer, Secretary and
Lyle W. Newkirk Treasurer (Principal Financial
Officer and Principal
Accounting Officer)
/s/ Charles H. Phipps Director October 4, 1999
- ---------------------------------------------
Charles H. Phipps
/s/ C. Harold Gaffin Director October 4, 1999
- ---------------------------------------------
C. Harold Gaffin
/s/ Philip T. Gianos Director October 4, 1999
- ---------------------------------------------
Philip T. Gianos
</TABLE>
II-7
<PAGE> 99
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Francis A. Rowe Director October 4, 1999
- ---------------------------------------------
Francis A. Rowe
/s/ E. Neal Tompkins Director October 4, 1999
- ---------------------------------------------
E. Neal Tompkins
</TABLE>
II-8
<PAGE> 100
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> 101
<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.
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
27.2 -- Financial Data Schedule
27.3 -- Financial Data Schedule
27.4 -- Financial Data Schedule
27.5 -- Financial Data Schedule
</TABLE>
- ---------------
+ Confidential treatment has been requested with respect to portions of this
exhibit.
* To be filed by amendment.
<PAGE> 102
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 3.1
ARTICLES OF AMENDMENT AND RESTATEMENT
TO
ARTICLES OF INCORPORATION
OF
T/R SYSTEMS, INC.
T/R Systems, Inc. (the "Corporation") a corporation organized and
existing under and by virtue of the Georgia Business Corporation Code (the
"Code"), hereby submits the following Articles of Amendment and Restatement to
its Articles of Incorporation pursuant to ss. 14-2-1007 of the Code, which
action was approved by a majority of the votes of the shareholders entitled to
be cast on said Restatement in accordance with ss. 14-2-1003 of the Code:
T/R SYSTEMS, INC.
AMENDED AND RESTATED ARTICLES OF INCORPORATION
ARTICLE I.
The name of the corporation is "T/R Systems, Inc."
ARTICLE II.
The corporation shall be authorized to issue one hundred million
(100,000,000) shares of stock, divided into eighty-eight million (88,000,000)
shares of capital stock, one cent ($0.01) par value per share, to be designated
as "Common Stock," and twelve million (12,000,000) shares of preferred stock,
one cent ($0.01) par value per share, of which five million (5,000,000) shares
of preferred stock shall be designated as "Series A Preferred Stock," three
million (3,000,000) shares of preferred stock shall be designated as "Series B
Preferred Stock," one million five hundred thousand (1,500,000) shares of
preferred stock shall be designated as "Series C Preferred Stock" and two
hundred twenty-two thousand two hundred twenty-two (222,222) shares of
preferred stock shall be designated as "Series D Preferred Stock"; with the
shares of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock having the terms, preferences, privileges and restrictions set
forth on Exhibit A attached to the Articles of Amendment to the Corporation's
Amended and Restated Articles of Incorporation having the effective date of
April 1, 1997, and the shares of Series D Preferred Stock having the terms,
preferences, privileges and restrictions set forth on Exhibit A to the Articles
of Amendment to the Corporation's Amended and Restated Articles of
Incorporation having the effective date of May 10, 1999.
The designations and the preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption of the shares of each class of stock are as
follows:
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more series. The description of shares of each
series of Preferred Stock, including any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
<PAGE> 2
qualifications, and terms and conditions of redemption shall be as set forth in
resolutions adopted by the Board of Directors, and articles of amendment shall
be filed with the Georgia Secretary of State as required by law to be filed with
respect to issuance of such Preferred Stock, prior to the issuance of any shares
of such series.
The Board of Directors is expressly authorized, at any time, by
adopting resolutions providing for the issuance of, or providing for a change in
the number of, shares of any particular series of Preferred Stock and, if and to
the extent from time to time required by law, by filing articles of amendment
which are effective without Shareholder action to increase or decrease the
number of shares included in each series of Preferred Stock, but not below the
number of shares then issued, and to set or change in any one or more respects
the designations, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or terms and
conditions of redemption relating to the shares of each such series.
Notwithstanding the foregoing, the Board of Directors shall not be authorized to
change the right of holders of the Common Stock of the Corporation to vote one
vote per share on all matters submitted for shareholder action. The authority of
the Board of Directors with respect to each series of Preferred Stock shall
include, but not be limited to, setting or changing the following:
(a) the annual dividend rate, if any, on shares of such series,
the times of payment and the date from which dividends shall be accumulated, if
dividends are to be cumulative;
(b) whether the shares of such series shall be redeemable and, if
so, the redemption price and the terms and conditions of such redemption;
(c) the obligation, if any, of the Corporation to redeem shares of
such series pursuant to a sinking fund;
(d) whether shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or classes and, if so, the
terms and conditions of such conversion or exchange, including the price or
prices or the rate or rates of conversion or exchange and the terms of
adjustment, if any;
(e) whether the shares of such series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the extent of such
voting rights;
(f) the rights of the shares of such series in the event of
voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation; and
(g) any other relative rights, powers, preference, qualifications,
limitations or restrictions thereof relating to such series.
The shares of Preferred Stock of any one series shall be identical with
each other in all respects except as to the dates from and after which dividends
thereon shall cumulate, if cumulative.
2
<PAGE> 3
COMMON STOCK
Subject to all of the rights of the Preferred Stock as expressly
provided herein, by law or by the Board of Directors pursuant to this Article
II, the Common Stock of the Corporation shall possess all such rights and
privileges as are afforded to capital stock by applicable law in the absence of
any express grant of rights or privileges in the Corporation's Articles o f
Incorporation, including, but not limited to, the following rights and
privileges:
(a) dividends may be declared and paid or set apart for payment
upon the Common Stock out of any assets or funds of the Corporation legally
available for the payment of dividends;
(b) the holders of Common Stock shall have the right to vote for
the election of directors and on all other matters requiring stockholder action,
each share being entitled to one vote; and
(c) upon the voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation, the net assets of the Corporation available for
distribution shall be distributed pro rata. to the holders of the Common Stock
in accordance with their respective rights and interest.
ARTICLE III.
The registered office of the corporation shall be 3343 Peachtree Road,
N.E., Suite 800, Atlanta, Fulton County, Georgia, 30326-1044. The initial
registered agent at such address shall be Robert D. Arkin.
ARTICLE IV.
The mailing address of the principal office of the corporation shall be
6145A Northbelt Parkway, Norcross, Gwinnett County, Georgia 30071-2972.
ARTICLE V.
Any action required by law or by these Articles of Incorporation or
bylaws of the Corporation to be taken at a meeting of the shareholders of the
Corporation and any action which may be taken at a meeting of the shareholders
may be taken without a meeting if a written consent, setting forth the action so
taken, shall be signed by persons entitled to vote at a meeting those shares
having sufficient voting power to cast not less than the minimum number (or
numbers, in the case of voting by groups) of votes that would be necessary to
authorize or take such action at a meeting at which all shareholders entitled to
vote were present and voted. No such written consent shall be effective unless
the consenting shareholder has been furnished the same material that would have
been required to be sent to shareholders in a notice of a meeting at which the
proposed action would have been submitted to the shareholders, or unless the
consent includes an express waiver of the right to receive the material. Notice
of such action without a meeting by less than unanimous written consent shall be
given within ten (10) days of the taking of such action to those shareholders of
record on the date when the written consent is first executed and did not
participate in taking the action.
3
<PAGE> 4
ARTICLE VI.
To the extent allowable pursuant to O.C.G.A. ss.14-2-202(b)(4) and (b)
(5), as such provisions now exist or may hereafter be amended, no directors of
this Corporation shall be personally liable to this corporation or its
shareholders for any breach of duty of care or other duty as a director. No
amendment or repeal of this Article shall apply to or have any effect on the
liability or alleged liability of any director of the Corporation for or with
respect to any acts or omissions of such director occurring prior to such
amendment or repeal.
In discharging the duties of their respective positions and in
determining what is believed to be in the best interests of the Corporation, the
Board of Directors, committees of the Board of Directors, and individual
directors, in addition to considering the effects of any action on the
Corporation or its shareholders, may consider the interests of the employees,
customers, suppliers, and creditors of the Corporation and its subsidiaries, the
communities in which offices or other establishments of the Corporation 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.
4
<PAGE> 5
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment and Restatement to the Articles of Incorporation of T/R Systems, Inc.
to be executed, its corporate seal affixed and the foregoing to be attested, all
by duly authorized officers on the 4th day of March, 1994.
T/R SYSTEMS, INC.
By: /s/ Francis A. Rowe
---------------------------------
Francis A. Rowe, Chairman
[CORPORATE SEAL]
ATTEST:
By: /s/ E. Neal Tompkins
--------------------------------------
E. Neal Tompkins, President
5
<PAGE> 6
EXHIBIT A
DESIGNATIONS OF PREFERENCES,
LIMITATIONS, AND RELATIVE RIGHTS OF
SERIES A, SERIES B AND SERIES C
PREFERRED STOCK OF T/R SYSTEMS, INC.
"Board of Directors" shall mean the board of directors of the
Corporation.
"Common Stock" shall mean the common stock, $0.01 par value per share,
of the Corporation.
"Conversion Rate" with respect to the Series A Preferred Stock, the
Series B Preferred Stock, and the Series C Preferred Stock shall have the
respective meanings provided in Subsection (d)(3) hereof.
"Corporation" shall mean T/R Systems, Inc., a Georgia corporation.
"Original Series A Issue Date" shall mean March 4, 1994.
"Original Series B Issue Date" shall mean January 31, 1996.
"Original Series C Issue Date" shall mean the date on which shares of
Series C Preferred Stock are first actually issued by the Corporation pursuant
to the Series C Purchase Agreement.
"Preferred Stock" shall mean the Series A Preferred Stock, the Series B
Preferred Stock, and the Series C Preferred Stock designated hereby,
collectively, or any combination of such shares.
"Series A Conversion Price" shall have the meaning provided in
Subsection (d)(7) hereof.
"Series B Conversion Price" shall have the meaning provided in
Subsection (d)(7) hereof.
"Series C Conversion Price" shall have the meaning provided in
Subsection (d)(7) hereof.
"Series A Invested Amount" per share shall mean $1.00 (as adjusted for
changes in the Series A Preferred Stock by stock split, stock dividend, or the
like occurring after the Original Series A Issue Date.
"Series B Invested Amount" per share shall mean $2.55 (as adjusted for
changes in the Series B Preferred Stock by stock split, stock dividend, or the
like occurring after the Original Series B Issue Date).
"Series C Invested Amount" per share shall mean $2.25 (as adjusted for
changes in the Series C Preferred Stock by stock split, stock dividend, or the
like occurring after the Original Series C Issue Date).
A-1
<PAGE> 7
"Series A Preferred Stock" shall mean the 5,000,000 shares of Series A
Preferred Stock, $0.01 par value per share, hereby designated.
"Series B Preferred Stock" shall mean the 3,000,000 shares of Series B
Preferred Stock, $0.01 par value per share, hereby designated.
"Series C Preferred Stock" shall mean the 1,200,000 shares of Series C
Preferred Stock, $0.01 par value per share, hereby designated.
"Series C Purchase Agreement" shall mean that certain Stock Purchase
Agreement to be dated March 31, 1997, among the Corporation; Interwest Partners
V, L.P.; Interwest Investors V; Harvey B. Cash Self-Directed IRA; Crown
Associates III; Crown Glynn Associates; The Crown Trust; Sevin Rosen Fund IV
L.P.; Noro-Moseley Partners II, L.P.; Aperture Associates, L.P.; David Michael
Hockett; Dietrich R. Erdmann; Stanford University; Michael E. Kohlsdorf and
Michael C. Daly; pursuant to which the initial issuance of shares of Series C
Preferred Stock is to occur.
The relative preferences, powers, limitations and rights granted to and
imposed upon the Preferred Stock are as follows:
(a) Dividend Rights. No holder of Preferred Stock shall be
entitled to receive any dividend thereon unless declared by the Board of
Directors of the Corporation. Without the prior written consent of the holders
of a majority of the outstanding shares of Series A Preferred Stock, the holders
of a majority of the outstanding shares of Series B Preferred Stock, and the
holders of a majority of the outstanding shares of Series C Preferred Stock,
each voting as separate classes, no dividends shall be paid with respect to the
Common Stock of the Corporation at any time as, and for so long as, at least two
million (2,000,000) shares of any of the Preferred Stock remain outstanding
(such number to be adjusted for any stock dividends, combinations or splits with
respect to shares of each such series occurring after the Original Issue Date of
such series). Notwithstanding the foregoing, no dividend may be paid or declared
with respect to the Common Stock until all dividends declared, if any, on all
outstanding shares of the Preferred Stock have been set apart and paid, and (ii)
no dividend may be paid or declared with respect to any of the Series A
Preferred Stock, the Series B Preferred Stock, or the Series C Preferred Stock
unless dividends are being paid simultaneously with respect to each of the other
series of Preferred Stock. In the event that any funds declared by the Board of
Directors to be distributed as dividends to the holders of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock are insufficient to
permit the payment to such holders of the full amount of their respective
dividends, such funds shall be distributed ratably among the holders of all
three series of Preferred Stock in proportion to the aggregate dollar amount
that such holders would otherwise be entitled to receive.
(b) Liquidation Rights. In the event of liquidation, dissolution
or winding up of the Corporation, or a "Sale or Merger" (defined below), unless,
in the case of a Sale or Merger, the holders of a majority of the outstanding
shares of Series A Preferred Stock, the holders of a majority of the outstanding
shares of Series B Preferred Stock and the holders of a majority of the
outstanding shares of Series C Preferred Stock, voting as separate classes, have
all elected to exclude such Sale or Merger from the application of this Section
(b) (in which case this Section (b) shall not apply to such transaction), the
holders of the outstanding shares of the Preferred Stock shall be entitled to
receive in exchange for and in redemption of their Preferred Stock, prior and in
preference to the
A-2
<PAGE> 8
holders of Common Stock and the holders of any other class or series of stock of
the Corporation ranking junior to the Preferred Stock by reason of their
ownership thereof, (i) in the case of a liquidation, dissolution or winding up
of the Corporation, from any funds legally available for distribution to
shareholders, and (ii) in the case of a Sale or Merger to which this Section (b)
applies, from the net proceeds therefrom (defined for these purposes to mean the
proceeds, whether cash, securities or property, available for distribution to
shareholders or payable to the shareholders by reason of the Sale or Merger):
(x) an amount per share of Series A Preferred Stock equal to the Series A
Invested Amount, an amount per share of Series B Preferred Stock equal to the
Series B Invested Amount, and an amount per share of Series C Preferred Stock
equal to the Series C Invested Amount (adjusted for any subdivisions or
combinations of each such Series of Preferred Stock), (y) all declared but
unpaid dividends on such share, if any; plus (z) that portion of such funds or
proceeds remaining after payment or setting aside for payment of the amounts
described in subparagraphs (x) and (y) above equal to a fraction, the numerator
of which is the number of votes to which the holder of such share of Preferred
Stock is entitled by virtue of holding such share and the denominator of which
is the aggregate of the number of votes to which all holders of Preferred Stock
and Common Stock and any other class or series of stock of the Corporation the
holders of which are entitled to vote generally in respect of the election of
the directors of the Corporation and as to matters generally that are voted on
by shareholders of the Corporation, are entitled by virtue of holding shares of
Common Stock and/or Preferred Stock or such other capital stock of the
Corporation.
For purposes of this Section (b), a "Sale or Merger" of the Corporation
shall mean: (i) the merger or consolidation of the Corporation into or with
another corporation in which the shareholders of the Corporation immediately
preceding such merger or consolidation (solely by virtue of their shares or
other securities of the Corporation) shall own less than fifty percent (50%) of
the voting securities of the surviving corporation or (ii) the sale, transfer or
lease (but not including a transfer or lease by pledge or mortgage to a bona
fide lender) of all or substantially all of the assets of the Corporation.
All the preferential amounts to be paid to the holders of the Preferred
Stock under this Section (b) shall be paid or set apart for payment before the
payment or setting apart for payment of any amount for, or the distribution of
any assets of the Corporation to, the holders of the Common Stock or any class
or series of stock of the Corporation ranking junior to the Preferred Stock in
connection with a liquidation, dissolution or winding up, or a Sale or Merger as
to which this Section (b) applies. If the assets or surplus funds to be
distributed to the holders of the Preferred Stock are insufficient to permit the
payment to such holders of their full preferential amount, the assets and
surplus funds legally available for distribution shall be distributed ratably
among the holders of all three series of Preferred Stock in proportion to the
aggregate dollar amount that would be payable in full on liquidation to such
holders.
(c) Voting Rights. The holder of each share of Preferred Stock
shall be entitled to the number of votes equal to the number of shares of Common
Stock into which such share of Preferred Stock would be convertible as of the
record date for the vote or consent of shareholders with respect to a conversion
at the option of the holder thereof, under the circumstances described in
Section (d)(1) hereof on and shall otherwise have voting rights and powers equal
to the voting rights and powers of the Common Stock. With respect to the
election of directors, the holders of Preferred Stock shall vote together with
the holders of Common Stock to elect the members of the Board of Directors. Each
holder of a share of the Preferred Stock shall be entitled to receive the same
prior
A-3
<PAGE> 9
notice of any shareholders' meeting as provided to the holders of Common Stock
in accordance with the Bylaws of the Corporation, as well as prior notice of all
shareholder actions to be taken by legally available means in lieu of meeting,
and shall vote with holders of the Common Stock upon any matter submitted to a
vote of shareholders, except those matters required by law, or by the terms
hereof, to be submitted to a class vote of the holders of Preferred Stock or to
be submitted to a vote of the holders of the Series A Preferred Stock, the
holders of the Series B Preferred Stock or the holders of the Series C Preferred
Stock as a series. Fractional votes shall not, however, be permitted, and any
fractions shall be disregarded in computing voting rights.
(d) Conversion. The holders of each series of the Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(1) Optional. Each share of Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the
date of issuance of such share at the office of the Corporation or any
transfer agent for the Preferred Stock, into Common Stock. The number
of shares of Common Stock to which a holder of Preferred Stock shall be
entitled upon such optional conversion shall be the product obtained by
multiplying the Conversion Rate of such series of Preferred Stock
(determined as provided in Section (d)(3) below) by the number of
shares of Preferred Stock being converted. Such conversion shall be
deemed to have been made immediately prior to the close of business on
the date of the surrender of the shares of Preferred Stock to be
converted in accordance with the procedures described in Section (d)(4)
below. The Corporation shall pay to the holder thereof promptly
following such surrender all declared or accrued but unpaid dividends
on the shares of Preferred Stock so converted to, and including, the
date of such conversion; provided, however, that the Corporation may,
at its option, in lieu of making a full cash payment of all such
declared but unpaid dividends, make payment thereof in that number of
whole shares of Common Stock calculated by dividing the total of such
declared but unpaid dividends due such holder by the fair market value
per share of the Common Stock, as determined in good faith by the
Corporation's Board of Directors.
(2) Automatic.
(A) Should the holders of at least a majority of
the then outstanding shares of the Series A Preferred Stock, the
holders of at least a majority of the then outstanding shares of Series
B Preferred Stock, and the holders of at least a majority of the then
outstanding shares of Series C Preferred Stock, all voting as separate
classes, so elect, by delivery of written notice or notices to the
Corporation, then each and every outstanding share of Preferred Stock
shall automatically be converted into Common Stock at the then
effective Conversion Rate with respect to each series of Preferred
Stock. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of receipt of the last
written notice described above necessary to effect such approval, and
the Corporation shall pay all declared but unpaid dividends on the
outstanding shares of Preferred Stock (if any) to each holder thereof
to and including the date of such conversion; provided that the
Corporation may, at its option, in lieu of making a full cash payment
of all such declared but unpaid dividends, make payment thereof in that
number of whole shares of Common Stock calculated by dividing the total
of such declared but unpaid dividends due such holder by the fair
market value per share of the Common Stock, as determined in good
A-4
<PAGE> 10
faith by the Board of Directors. Such conversion shall be automatic,
without need for any further action by the holders of shares of the
Preferred Stock and regardless of whether the certificates representing
such shares are surrendered to the Corporation or its transfer agent;
provided, however, that the Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such
conversion or to pay the dividends payable upon such conversion unless
certificates evidencing such shares of the Preferred Stock are
surrendered to the Corporation in accordance with the procedures
described in Subsection (d)(4) below. Upon the conversion of the
Preferred Stock pursuant to this Subsection (d)(2)(A), the Corporation
shall promptly send written notice thereof, by registered or certified
mail, return receipt requested and postage prepaid, by hand delivery or
by overnight delivery, to each holder of record of such Preferred Stock
at his or its address then shown on the records of the Corporation,
which notice shall state that certificates evidencing shares of
Preferred Stock must be surrendered at the office of the Corporation
(or of its transfer agent for the Common Stock, if applicable) in the
manner described in Subsection (d)(4) below.
(B) The Corporation shall notify each holder of
Preferred Stock at least ninety (90) days prior to the anticipated
effective date of a registration statement filed by the Corporation
under the Securities Act of 1933, as amended, covering the underwritten
offer and sale of Common Stock to the public at a public offering price
of not less than five dollars ($5.00) per share (which price shall be
appropriately adjusted for any stock splits, stock dividends,
recapitalizations or similar events) and having aggregate net proceeds
to the Corporation of not less than fifteen million dollars
($15,000,000) (such offering being referred to hereafter as a
"Qualified Public Offering"). Upon the closing of, but effective
immediately prior to, the first sale in a Qualified Public Offering,
each and every share of outstanding Preferred Stock held by all holders
of Preferred Stock shall automatically be converted into Common Stock
at the then effective Conversion Rate applicable to each series;
provided that such conversion shall be conditioned upon the Corporation
paying all declared but unpaid dividends on the outstanding Preferred
Stock to each holder, if any, to and including the date of such
conversion; provided, further, that the Corporation may, at its option,
in lieu of making a full cash payment of any such declared but unpaid
dividends, make payment thereof in that number of whole shares of
Common Stock calculated by dividing the total of such declared and
unpaid dividends due such holder by the offering price per share in the
Qualified Public Offering. Such conversion shall be automatic, without
need for any further action by the holders of shares of Preferred Stock
and regardless of whether the certificates representing such shares are
surrendered to the Corporation or its transfer agent; provided,
however, that the Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such
conversion unless certificates evidencing such shares of Preferred
Stock so converted are surrendered to the Corporation in accordance
with the procedures described in Subsection (d)(4) below. Upon the
conversion of the Preferred Stock pursuant to this Subsection
(d)(2)(B), the Corporation shall promptly send written notice thereof,
by registered or certified mail, return receipt requested and postage
prepaid, by hand delivery or by overnight delivery, to each holder of
record of Preferred Stock at his or its address then shown on the
records of the Corporation, which notice shall state that certificates
evidencing shares of Preferred Stock must be surrendered at the office
of the Corporation (or of its transfer agent for the Common Stock, if
applicable) in the manner described in Subsection (d)(4) below.
A-5
<PAGE> 11
(C) In the event that, and each and every time
as, the Board of Directors, acting by the vote required by Section
1.4(b) of the Series C Purchase Agreement, calls for an Additional
Financing (as such term is defined in such section) and any then
existing holder of shares of Preferred Stock who is a party to the
Series C Purchase Agreement fails to purchase all of such holder's
portion (defined in such section) of the number or amount of securities
to be issued, so as to provide the Corporation with funds in the amount
of the required financing, then a portion (defined below) of the shares
of Preferred Stock held by such non-participating holder immediately
prior to the date on which the Additional Financing is to be made shall
automatically convert into shares of Common Stock, effective as of the
closing date set by the Board of Directors for such financing.
For purposes of this Subsection (d)(2)(C), the
portion of the shares of Preferred Stock held by a holder who fails to
participate fully in an Additional Financing as described above, as
such shares are constituted immediately prior to the proposed date of
such financing, that is subject to automatic conversion under this
Subsection (d)(2)(C) shall equal a fraction, the numerator of which is
the difference between such holder's portion of such financing (in
dollars) offered to such holder pursuant to Section 1.4(b) of the
Series C Purchase Agreement and the purchase price of the debt or
equity securities of the Corporation issued to effect such financing
that are actually purchased by such holder, and the denominator of
which is such holder's portion of such financing (in dollars).
Upon any conversion described in this Subsection
(d)(2)(C), all declared but unpaid dividends with respect to the shares
to be converted shall be paid, a notice of the conversion shall be
given to the holder thereof, and the certificates representing the
shares to be converted shall be surrendered, all in accordance with the
terms of Subsection (d)(2)(A) above with respect to an automatic
conversion.
(D) No fractional shares of Common Stock shall
be issued upon conversion of Preferred Stock, and any shares of
Preferred Stock surrendered for conversion that would otherwise result
in a fractional share of Common Stock shall be redeemed at the then
effective Series A Conversion Price, Series B Conversion Price, or
Series C Conversion Price, per share, as applicable, payable as
promptly as possible when funds are legally available therefor.
(3) Conversion Rates. Subject to the provisions of this
Section (d), including the conversion formula specified in Section
(d)(2)(B) with respect to a conversion by virtue of a Qualified Public
Offering, the conversion rate in effect at any time with respect to the
Series A Preferred Stock, the Series B Preferred Stock and Series C
Preferred Stock (a "Conversion Rate") shall be determined as follows:
The Conversion Rate for the Series A Preferred Stock shall be
the quotient obtained by dividing $1.00 by the Series A
Conversion Price, as provided in Subsection (d)(7) hereof. The
Conversion Rate for the Series B Preferred Stock shall be the
quotient obtained by dividing $2.55 by the Series B Conversion
Price, as provided in Subsection (d)(7) hereof. The Conversion
Rate for the Series C Preferred Stock shall be the quotient
obtained by dividing $2.25 by the Series C Conversion Price,
as provided in Subsection (d)(7) hereof.
A-6
<PAGE> 12
(4) Mechanics of Conversion. Before any holder of
Preferred Stock shall be entitled to receive certificates representing
the shares of Common Stock into which shares of Preferred Stock are
converted in accordance with Subsections (d)(1) or (d)(2) above, and
any dividends to be paid thereunder, such holder shall surrender the
certificate or certificates for such shares of Preferred Stock, duly
endorsed, at the office of the Corporation or of any transfer agent for
the Preferred Stock, and shall give written notice to the Corporation
at such office of the name or names in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued, if
different from the name shown on the books and records of the
Corporation. Said conversion notice shall also contain such
representations as may reasonably be required by the Corporation to the
effect that the shares to be received upon conversion are not being
acquired and will not be transferred in any way that might violate the
then applicable laws. The Corporation shall, as soon as practicable
thereafter and in no event later than thirty (30) days after the
delivery of said certificates, issue and deliver at such office to such
holder of Preferred Stock, or to the nominee or nominees of such holder
as provided in such notice, a certificate or certificates for the
number of shares of Common Stock to which such holder shall be entitled
as aforesaid, together with all dividends, if any, to be paid with
respect to the Preferred Stock converted. The person or persons
entitled to receive the shares of Common Stock issuable upon a
conversion pursuant to Subsections (d)(1) or (d)(2) shall be treated
for all purposes as the record holder or holders of such shares of
Common Stock as of the effective date of conversion specified in such
section. All certificates issued upon the exercise or occurrence of the
conversion shall contain a legend governing restrictions upon such
shares imposed by law or agreement of the holder or his or its
predecessors.
(5) Adjustment for Subdivisions or Combinations of Common
Stock. In the event the Corporation at any time or from time to time
after the Original Series C Issue Date effects a subdivision or
combination of the outstanding Common Stock into a greater or lesser
number of shares without a proportionate and corresponding subdivision
or combination of the outstanding Preferred Stock, then and in each
such event the Series A Conversion Price, the Series B Conversion Price
and the Series C Conversion Price and the corresponding Conversion Rate
of each such price shall be increased or decreased proportionately.
(6) Adjustments for Dividends, Distributions and Common
Stock Equivalents. In the event the Corporation at any time or from
time to time after the Original Series C Issue Date shall make or
issue, or fix a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock or other securities or rights
convertible into or entitling the holder thereof to receive additional
shares of Common Stock (hereinafter referred to as "Common Stock
Equivalents") without payment of any consideration by such holder of
such Common Stock Equivalents or the additional shares of Common Stock,
and without a proportionate and corresponding dividend or other
distribution to holders of Preferred Stock, then and in each such event
the maximum number of shares (as set forth in the instrument relating
thereto without regard to any provisions contained therein for
subsequent adjustment of such number) of Common Stock issuable in
payment of such dividend or distribution or upon conversion or exercise
of such Common Stock Equivalents shall be deemed, for purposes of this
Subsection (d)(6), to be issued and outstanding as of the time of such
issuance or, in the event such a record date shall have been fixed, as
of the close of business on such record date. In
A-7
<PAGE> 13
each such event the effective Series A Conversion Price, the Series B
Conversion Price, and the Series C Conversion Price shall each be
decreased (and their respective corresponding Conversion Rates
increased) as of the time of such issuance or, in the event such a
record date shall have been fixed, as of the close of business on such
record date, by multiplying each such Conversion Price by a fraction,
(A) the numerator of which shall be the total
number of shares of Common Stock issued and outstanding or
deemed to be issued and outstanding immediately prior to the
time of such issuance or the close of business on such record
date; and
(B) the denominator of which shall be the total
number of shares of Common Stock (x) issued and outstanding or
deemed pursuant to the terms hereof to be issued and
outstanding (not including any shares described in clause (y)
immediately below), immediately prior to the time of such
issuance or the close of business on such record date, plus
(y) the number of shares of Common Stock issuable in payment
of such dividend or distribution or upon conversion or
exercise of such Common Stock Equivalents;
provided, however, that (i) if such record date shall have been fixed
and such dividend is not fully paid or if such distribution is not
fully made on the date fixed therefor, the Series A Conversion Price,
the Series B Conversion Price, and the Series C Conversion Price shall
each be recomputed accordingly as of the close of business on such
record date and thereafter the Series A Conversion Price, the Series B
Conversion Price and the Series C Conversion Price (and their
respective corresponding Conversion Rates) shall be adjusted pursuant
to this Subsection (d)(6) as of the time of actual payment of such
dividends or distributions; or (ii) if such Common Stock Equivalents
provide, with the passage of time or otherwise, for any decrease in the
number of shares of Common Stock issuable upon conversion or exercise
thereof (or upon the occurrence of a record date with respect thereto),
the Series A Conversion Price, the Series B Conversion Price, and the
Series C Conversion Price (and their respective corresponding
Conversion Rates) computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall each, upon any such decrease becoming
effective, be recomputed to reflect such decrease insofar as it affects
the rights of conversion or exercise of the Common Stock Equivalents
then outstanding; or (iii) upon the expiration of any rights of
conversion or exercise under any unexercised Common Stock Equivalents,
each of the Series A Conversion Price, the Series B Conversion Price,
and the Series C Conversion Price (and their respective corresponding
Conversion Rates) computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon such expiration, be recomputed
as if the only additional shares of Common Stock issued were the shares
of such stock, if any, actually issued upon the conversion or exercise
of such Common Stock Equivalents; or (iv) in the event of issuance of
Common Stock Equivalents that expire by their terms not more than sixty
(60) days after the date of issuance thereof, no adjustments of the
Series A Conversion Price, the Series B Conversion Price, or the Series
C Conversion Price (or such Conversion Rates) shall be made until the
expiration or exercise of all such Common Stock Equivalents, whereupon
such adjustment shall be made in the manner provided in this Subsection
(d)(6).
A-8
<PAGE> 14
(7) Adjustment of Conversion Price for Diluting Issues.
Except as otherwise adjusted as provided herein, the "Series A
Conversion Price" shall be $1.00. Except as otherwise adjusted as
provided herein, the "Series B Conversion Price" shall be $2.00. Except
as otherwise adjusted as provided herein, the "Series C Conversion
Price" shall be $2.25. The Series A Conversion Price, the Series B
Conversion Price, and the Series C Conversion Price shall hereinafter
be referred to collectively as the "Conversion Prices" and individually
as a "Conversion Price." Except as otherwise provided in this
Subsection (d)(7), in the event, and each time as, the Corporation
sells or issues any Common Stock or Common Stock Equivalents, at a per
share consideration (as defined below) less than any of the Series A
Conversion Price, the Series B Conversion Price, and the Series C
Conversion Price then in effect, then any such Conversion Price that is
higher than the per share consideration for which the Corporation sold
or issued Common Stock or Common Stock Equivalents shall be adjusted as
provided in paragraphs (A), (B), (C) and (F) hereof, and the Conversion
Rate corresponding to such Conversion Price shall be appropriately
adjusted. For purposes of the foregoing, the per share consideration
with respect to the sale or issuance of a share of Common Stock shall
be the price per share received by the Corporation, prior to the
payment of any expenses, commissions, discounts and other applicable
costs. With respect to the sale or issuance of Common Stock Equivalents
that are convertible into or exchangeable for Common Stock without
further consideration, the per share consideration shall be determined
by dividing the maximum number of shares (as set forth in the
instrument relating thereto without regard to any provisions contained
therein for subsequent adjustment of such number) of Common Stock
issuable with respect to such Common Stock Equivalents into the
aggregate consideration received by the Corporation upon the sale or
issuance of such Common Stock Equivalents. With respect to the issuance
of other Common Stock Equivalents, the per share consideration shall be
determined by dividing the maximum number of shares (as set forth in
the instrument relating thereto without regard to any provisions
contained therein for subsequent adjustment of such number) of Common
Stock issuable with respect to such Common Stock Equivalents into the
aggregate consideration received by the Corporation upon the sale or
issuance of such Common Stock Equivalents plus the total consideration
receivable by the Corporation upon the conversion or exercise of such
Common Stock Equivalents. The issuance of Common Stock or Common Stock
Equivalents for no consideration shall be deemed to be an issuance at a
per share consideration of $.01. In connection with the sale or
issuance of Common Stock and/or Common Stock Equivalents for non-cash
consideration, the amount of consideration shall be determined by the
Board of Directors of the Corporation in good faith.
As used herein, "Additional Shares of Common Stock" shall mean
either shares of Common Stock issued subsequent to the Original Series
C Issue Date or, with respect to the issuance of Common Stock
Equivalents, the maximum number of shares (as set forth in the
instrument relating thereto without regard to any provisions contained
therein for subsequent adjustment of such number) of Common Stock
issuable in exchange for, upon conversion of, or upon exercise of such
Common Stock Equivalents.
(A) Upon each issuance of Common Stock for a per
share consideration less than any of the Series A Conversion
Price, the Series B Conversion Price, and the Series C
Conversion Price in effect on the date of such issuance, such
Conversion Price as in effect on such date shall be adjusted
by multiplying it by a fraction:
A-9
<PAGE> 15
(x) the numerator of which shall be the
number of shares of Common Stock deemed outstanding
(as defined below) immediately prior to the issuance
of such Additional Shares of Common Stock plus the
number of shares of Common Stock that the aggregate
net consideration received by the Corporation for the
total number of such Additional Shares of Common
Stock so issued would purchase at the Conversion
Price then in effect; and
(y) the denominator of which shall be
the number of shares of Common Stock deemed
outstanding (as defined below) immediately prior to
the issuance of such Additional Shares of Common
Stock plus the number of shares of Common Stock so
issued.
For the purposes of this Subsection (d)(7)(A), the number of shares of Common
Stock deemed to be outstanding as of a given date shall be the sum of (i) the
number of shares of Common Stock actually outstanding, (ii) the number of shares
of Common Stock into which the then outstanding shares of Preferred Stock could
be converted if fully converted on the day immediately preceding the given date,
and (iii) the number of shares of Common Stock which could be obtained through
the exercise or conversion of all other rights, options and convertible
securities on the day immediately preceding the given date.
(B) Upon each issuance of Common Stock
Equivalents, exchangeable without further consideration into
Common Stock, for a per share consideration less than any of
the Series A Conversion Price, the Series B Conversion Price,
and the Series C Conversion Price in effect on the date of
such issuance, such Conversion Price as in effect on such date
shall be adjusted as in paragraph (A) of this Subsection
(d)(7) on the basis that the Additional Shares of Common Stock
are to be treated as having been issued on the date of
issuance of the Common Stock Equivalents, and the aggregate
consideration received by the Corporation for such Common
Stock Equivalents shall be deemed to have been received for
such Additional Shares of Common Stock.
(C) Upon each issuance of Common Stock
Equivalents other than those described in paragraph (B) of
this Subsection (d)(7), for a per share consideration less
than any of the Series A Conversion Price, the Series B
Conversion Price, and the Series C Conversion Price in effect
on the date of such issuance, such Conversion Price as in
effect on such date shall be adjusted as in paragraph (A) of
this Subsection (d)(7) on the basis that the Additional Shares
of Common Stock are to be treated as having been issued on the
date of issuance of such Common Stock Equivalents, and the
aggregate consideration received and receivable by the
Corporation on conversion or exercise of such Common Stock
Equivalents shall be deemed to have been received for such
Additional Shares of Common Stock.
(D) Once any Additional Shares of Common Stock
have been treated as having been issued for the purpose of
this Subsection (d)(7), they shall be treated as issued and
outstanding shares of Common Stock whenever any subsequent
calculations must be made pursuant hereto; provided that on
the expiration of any options, warrants or rights to purchase
Additional Shares of Common Stock, the
A-10
<PAGE> 16
termination of any rights to convert or exchange for
Additional Shares of Common Stock, or the expiration of any
options or rights related to such convertible or exchangeable
securities on account of which an adjustment in any of the
Series A Conversion Price, the Series B Conversion Price, and
the Series C Conversion Price has been made previously
pursuant to this Subsection (d)(7), such Conversion Price
shall forthwith be readjusted to such Conversion Price as
would have obtained had the adjustment made upon the issuance
of such options, warrants, rights, securities or options or
rights related to such securities been made upon the basis of
the issuance of only the number of shares of Common Stock
actually issued upon the exercise of such options, warrants or
rights, upon the conversion or exchange of such securities or
upon the exercise of the options or rights related to such
securities.
(E) The foregoing notwithstanding, no adjustment
of the Series A Conversion Price, the Series B Conversion
Price, or the Series C Conversion Price or its corresponding
Conversion Rate shall be made as a result of the issuance of:
(v) any shares of Common Stock upon the
conversion of shares of Preferred Stock;
(w) any shares of Common Stock pursuant
to which the Series A Conversion Price, the Series B
Conversion Price, or the Series C Conversion Price
and its respective corresponding Conversion Rate is
adjusted under Subsection (5) or (6) of this Section
(d);
(x) any shares of Common Stock issued
pursuant to the exchange, conversion or exercise of
any Common Stock Equivalents that have previously
been incorporated into computations hereunder on the
date when such Common Stock Equivalents were issued;
(y) up to 2,542,200 shares of Common
Stock (which number shall be appropriately adjusted
for any stock splits, stock dividends,
recapitalizations or similar events) reserved for
issuance pursuant to stock options granted prior to
the Original Series C Issue Date to employees and a
director of the Corporation; or
(z) up to 222,050, or such higher
number as is approved by the Board of Directors after
the Original Series C Issue Date, shares of Common
Stock (which number shall be appropriately adjusted
for any stock splits, stock dividends,
recapitalizations or similar events), issued pursuant
to options, warrants or rights that may be granted in
the future to purchase shares of Common Stock,
issuable to employees, directors, officers or
consultants of the Corporation or any subsidiary
thereof pursuant to bona fide employee stock option
plans created in accordance with Section 422 of the
Internal Revenue Code of 1986, as amended, or similar
subsequent legislation or pursuant to a non-statutory
stock option plan or non-statutory stock option
agreements with terms substantially similar to such
statutory plan or plans, provided that any such
non-statutory stock option plan or agreements shall
A-11
<PAGE> 17
provide that any options thereunder not be granted at
an exercise price of less than the fair market value
of the stock into which they are exercisable (which
description is intended to include the Corporation's
1995 Stock Option Plan).
(8) De Minimis Adjustments. No adjustment to the Series A
Conversion Price, the Series B Conversion Price, or the Series C
Conversion Price (and, thereby, to its corresponding Conversion Rate)
shall be made if such adjustment would result in a change in such
Conversion Price of less than $.01. Any adjustment of less than $.01
that is not made shall be carried forward and shall be made at the time
of and together with any subsequent adjustment that, on a cumulative
basis, amounts to an adjustment of $.01 or more in such Conversion
Price.
(9) No Impairment. Except as provided in Section (f)
hereof, the Corporation shall not, by amendment of its Articles of
Incorporation or Bylaws or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities
or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder
by the Corporation, but shall at all times in good faith assist in the
carrying out of all the provisions of this Section (d) and in the
taking of all such action as may be necessary or appropriate in order
to protect the Conversion Rights of the holders of the Preferred Stock
against impairment.
(10) Certificate as to Adjustments. Upon the occurrence of
each adjustment or readjustment of any of the Series A Conversion
Price, the Series B Conversion Price, and the Series C Conversion Price
pursuant to this Section (d), the Corporation at its expense shall
promptly compute such adjustment or readjustment in accordance with the
terms hereof and cause independent public accountants selected by the
Corporation to verify such computation and prepare and furnish to each
holder of Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the
written request at any time of any holder of Preferred Stock, furnish
or cause to be furnished to such holder a like certificate setting
forth (i) such adjustments and readjustments, (ii) the respective
Conversion Rates of the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock, as applicable, at
that time in effect, and (iii) the number of shares of Common Stock and
the amount, if any, of other property that at that time would be
received upon the conversion of each of the Series A Preferred Stock,
the Series B Preferred Stock, and the Series C Preferred Stock.
(11) Notices of Record Date. In the event of any taking by
the Corporation of a record of the holders of any class of securities
other than Preferred Stock for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution,
any Common Stock Equivalents or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, the Corporation
shall mail to each holder of Preferred Stock, at least twenty (20) days
prior to the date specified therein, a notice specifying the date on
which any such record is to be taken for the purpose of such dividend,
distribution or rights, and the amount and character of such dividend,
distribution or rights.
A-12
<PAGE> 18
(12) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock solely for the purpose
of effecting the conversion of the shares of the Preferred Stock such
number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of the
Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall be insufficient to effect the
conversion of all then outstanding shares of Preferred Stock, the
Corporation shall take such corporate action as may, in the opinion of
its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient
for such purpose.
(e) Redemption of Preferred Stock. In the event that the holders
of the outstanding shares of the Series A Preferred Stock, voting separately as
a class, the holders of the outstanding shares of the Series B Preferred Stock,
voting separately as a class, and the holders of the outstanding shares of the
Series C Preferred Stock, voting separately as a class, have each, by a vote of
at least two-thirds (66-2/3%) of the total number of shares of such series
outstanding, elected to cause a redemption of the outstanding shares of
Preferred Stock, then such holders (the "Electing Holders") shall so notify the
Corporation by delivery of written notice or notices to the Corporation prior to
December 4, 2000. The Corporation on March 4, 2001 shall redeem one-half (1/2)
of all the then outstanding shares of Preferred Stock by paying the Redemption
Price (defined below) with respect to each series together with all unpaid
dividends thereon to and including the date of redemption, and the Corporation
on March 4, 2002 shall redeem the remaining shares of Preferred Stock then
outstanding by paying the Redemption Price with respect to each series together
with all unpaid dividends thereon to and including the date of redemption.
The price paid for the redeemed shares of the Series A Preferred Stock
(the "Series A Redemption Price") shall be the greater of the Series A Invested
Amount per share or the Appraised Value thereof as of the date of the request
for redemption. The price paid for the redeemed shares of the Series B Preferred
Stock (the "Series B Redemption Price") shall be the greater of the Series B
Invested Amount per share or the Appraised Value thereof as of the date of the
request for redemption. The price paid for the redeemed shares of the Series C
Preferred Stock (the "Series C Redemption Price") shall be the greater of the
Series C Invested Amount per share or the Appraised Value thereof as of the date
of the request for redemption. The Appraised Value per share of each series
shall be established by the Board of Directors in good faith following such
request for redemption, and each Electing Holder shall be notified in writing of
such value at least eighty (80) days prior to the first scheduled redemption.
If, however, any Electing Holder or Holders shall give the Corporation written
notice at least sixty (60) days prior to the first scheduled redemption that he,
it or they disagree with the value placed upon the shares of such series, then
the Electing Holders and the Corporation shall attempt to agree upon an
Appraised Value per share of such series. Should the Electing Holders and the
Corporation be unable to agree during the twenty (20)-day period immediately
following the giving of the written notice of such disagreement as to the
Appraised Value without the employment of appraisers, then they shall each
select an appraiser experienced in the business of evaluating or appraising the
market value of stock. The appraisers so selected (the "Initial Appraisers")
shall, on or prior to the first scheduled redemption, appraise such shares to be
redeemed as of the date of the first scheduled redemption. The appraisers shall
not discount the shares of the Series A Preferred Stock, the Series B Preferred
Stock, or the Series C Preferred Stock for minority ownership interest or
illiquidity. If the difference between the lowest and the highest of the
resulting
A-13
<PAGE> 19
appraisals is not greater than ten percent (10%) of the highest appraisal, then
the average of the appraisals shall be deemed the Appraised Value; otherwise,
the Initial Appraisers shall select an additional appraiser (the "Additional
Appraiser"), who shall be experienced in a manner similar to the Initial
Appraisers. If they fail to select such Additional Appraiser as provided above,
then either the Electing Holders or the Corporation may apply, after written
notice to the other, to any judge of any court of general jurisdiction for the
appointment of such Additional Appraiser. The Additional Appraiser shall then
choose from the values determined by the Initial Appraisers the value that the
Additional Appraiser considers closest to the market value of the Preferred
Stock in question, and such value shall be the Appraised Value. The Additional
Appraiser shall forthwith give written notice of his determination to the
Corporation and the Electing Holders. Each party shall pay the expenses and fees
of the appraiser selected by him or it, and the party who selected the Initial
Appraiser whose value determination was rejected by the Additional Appraiser
shall pay all the expenses and fees of the Additional Appraiser.
On or before the date of a scheduled redemption, each holder of shares
required to be redeemed shall surrender the certificate representing such shares
to the Corporation and shall receive payment of the Redemption Price therefor in
cash. If less than all the shares represented by a surrendered certificate are
redeemed, the Corporation shall issue a new certificate representing the
unredeemed shares.
The right to redemption established by this Section (e) shall be deemed
absolute and vested upon the occurrence of the conditions specified herein;
however, actual redemption under this Section (e) shall be subject to the legal
availability of funds and, to the extent delayed, shall occur as soon thereafter
as and when funds are legally available therefor, with interest at the per annum
rate announced by Wachovia Bank of Georgia, N.A. as its prime lending rate plus
two percent (2%) per annum for the period of each delay.
(f) Protective Provisions.
(1) Actions Requiring Majority Approval of Preferred
Stock Voting as Single Class. In addition to any other rights provided by law,
so long as no less than 2,000,000 shares (such number to be adjusted for any
stock dividends, combinations or splits following the Original Series C Issue
Date with respect to such shares) of any of the Preferred Stock are then
outstanding, except where the vote or written consent of the holders of a
greater number of shares is required by law or by the Articles of Incorporation,
without first obtaining the affirmative vote or written consent of the holders
of a majority of the total number of shares of Preferred Stock outstanding,
voting together as a single class on an as-if converted basis (as provided in
Section (c) hereof), the Corporation shall not:
(A) except pursuant to the stock option or employee stock
ownership plans or restricted stock agreements or other contracts with, or in
exercise of any right of first refusal of, the Corporation upon a proposed
transfer, purchase, redeem or otherwise acquire for value any shares of any
class of its capital stock or cause or permit any Employee Stock Ownership Plan
as defined in ss. 4975(e)(7) of the Internal Revenue Code of 1986, as amended,
or other employee stock ownership plan to purchase shares of any class of its
capital stock;
A-14
<PAGE> 20
(B) create, incur, assume or suffer to exist any
mortgage, deed of trust, pledge, lien, security interest, or other charge or
encumbrance (including the lien or security title of a conditional vendor) of
any nature (other than ad valorem taxes), upon or with respect to any of its or
any subsidiary's properties or notes receivable, other than such mortgages,
deeds, pledges, liens, security interests, charges and encumbrances as presently
exist and those approved hereafter unanimously by the Board of Directors;
(C) assume, guarantee, endorse or otherwise become
directly or contingently liable for any obligation or indebtedness other than
such liabilities as presently exist or are incurred in the ordinary course of
business;
(D) sell, assign, lease or otherwise dispose of any of
its assets, including its receivables, other than in the ordinary course of
business;
(E) make any loan or advance to any employee of the
Corporation or any subsidiary thereof except (i) the payment of salaries (which,
in the case of officers, shall be approved in advance by the Board of
Directors), (ii) advances for reasonable travel expenses in connection with the
Corporation's business, (iii) the acceptance of promissory notes approved in
advance by the Board of Directors given for the purchase of the Corporation's
capital stock, and (iv) loans to officers approved in advance by the Board of
Directors;
(F) own, or permit any subsidiary of the Corporation to
own, any stock or other securities of any corporation, partnership, association
or other form of business entity except the securities of wholly owned
subsidiaries of the Corporation or such subsidiary; or
(G) amend the provisions of this Subsection (f)(1).
(2) Actions Requiring Separate Series Super-Majority
Approval of Preferred Stock. In addition to any other rights provided by law, so
long as any shares of the Preferred Stock shall be outstanding, except where the
vote or written consent of the holders of a greater number of shares is required
by law or by the Articles of Incorporation, without first obtaining the
affirmative vote or written consent of the holders of at least two-thirds
(66 2/3%) of the total number of shares of the affected series of Preferred
Stock outstanding, voting as a separate class, the Corporation shall not:
(A) amend or repeal any provision of, or add any
provision to, the Corporation's Articles of Incorporation or Bylaws, or file any
certificate of designations, preferences, limitations and relative rights of any
series of preferred stock, if such action would alter or change the preferences,
rights, privileges or powers of, or restrictions provided for the benefit of
(except the relative priority on a liquidation, dissolution or winding up or a
Sale or Merger), such series of Preferred Stock;
(B) increase or decrease the authorized number
of shares of such series Preferred Stock; or
(C) amend the provisions of this Subsection
(f)(2).
A-15
<PAGE> 21
(3) Separate Series Approval of Merger or Reorganization.
In addition to any other rights provided by law, so long as no less than
2,000,000 shares (such number to be adjusted for any stock dividends,
combinations or splits with respect to such shares occurring after the Original
Series C Issue Date) of any of the Preferred Stock are then outstanding, except
where the vote or written consent of the holders of a greater number of shares
is required by law or by the Articles of Incorporation, without first obtaining
the affirmative vote or written consent of the holders of a majority of the
shares of Series A Preferred Stock outstanding, the holders of a majority of the
shares of Series B Preferred Stock outstanding, and the holders of a majority of
the shares of Series C Preferred Stock outstanding, voting as separate classes,
the Corporation shall not:
(A) enter into any agreement, commitment or plan
regarding a Sale or Merger (as defined in Section (b) hereof); or
(B) amend the provisions of this subsection
(f)(3).
(g) Notices. Any notice required by the provisions hereof to be
given to the holders of shares of Preferred Stock shall be deemed given on the
third business day following (and not including) the date on which such notice
is deposited in the United States Mail, first-class, postage prepaid, and
addressed to each holder of record at his address appearing on the books of the
Corporation.
(h) Filing of Purchase Agreement. The Series C Purchase Agreement
shall be kept on file at the principal office of the Corporation for inspection
by any shareholder of the Corporation or other person having a proper business
purpose.
A-16
<PAGE> 22
ANNEX A
DESIGNATIONS OF PREFERENCES, LIMITATIONS,
AND RELATIVE RIGHTS OF JUNIOR CONVERTIBLE
PREFERRED STOCK OF T/R SYSTEMS, INC.
Pursuant to authority granted in the articles of incorporation, as
amended (the "Articles of Incorporation"), of T/R Systems, Inc. (the
"Corporation") and Section 14-2-602 of the Georgia Business Corporation Code,
the Board of Directors of the Corporation has been authorized to issue in series
a total of 12,000,000 shares of preferred stock, par value $0.01, (the
"Preferred Stock") and to designate by resolution the preferences, limitations
and relative rights of each series established. To date, the Corporation has
designated 5,000,000 shares of Series A Preferred Stock, par value $0.01 per
share (the "Series A Preferred"), 3,000,000 shares of Series B Preferred Stock,
par value $0.01 per share (the "Series B Preferred") and 1,500,000 shares of
Series C Preferred Stock, $0.01 par value per share ("Series C Preferred"; the
Series A Preferred, Series B Preferred and Series C Preferred collectively, the
"Series Preferred Stock"). By resolution of the Corporation's Board of
Directors, the Corporation has established and fixed the relative preferences,
powers, limitations and relative rights of 222,222 shares of Preferred Stock
designated the "Junior Convertible Preferred Stock," par value $0.01 (the
"Junior Convertible Preferred Stock").
The relative preferences, powers, limitations and rights granted to and
imposed upon the Junior Convertible Preferred are as follows:
ARTICLE VII. Designation of the Shares. There shall be shares of
preferred stock designated as "Junior Convertible Preferred Stock." Each share
of such series shall be referred to herein as a "Junior Convertible Share." The
authorized number of such Junior Convertible Shares is two hundred twenty-two
thousand two hundred twenty-two (222,222).
ARTICLE VIII. Dividends. The holders of record of the Junior
Convertible Preferred Stock shall be entitled to receive, when and if declared
by the Board, out of funds legally available therefor, dividends paid in cash,
stock or otherwise. When dividends become so payable, the Board shall declare
such dividends and cause them to be paid, to the full extent of any funds
legally available therefor. In the event that the Corporation shall pay on the
Corporation's common stock, par value $.01 per share (the "Common Stock"), any
dividend whether in cash, property or otherwise, the Corporation shall pay a
dividend on the Junior Convertible Shares in an amount per share which is equal
to that which holders of the Junior Convertible Shares would have been entitled
had they converted such shares into Common Stock immediately prior to the
payment of such dividend.
ARTICLE IX. Liquidation Preference. In the event of any liquidation,
dissolution or winding-up of the Corporation, either voluntary or involuntary (a
"Liquidation"), the holders of shares of the Junior Convertible Preferred Stock
then issued and outstanding shall be entitled to be paid out of the assets of
the Corporation available for distribution to its shareholders, whether from
capital, surplus or earnings, before any payment shall be made to the holders of
shares of the Common Stock but after
B-1
<PAGE> 23
and junior to any payment as shall be required to be made to the holders of
shares of Series Preferred Stock pursuant to the preferences, rights and
designations of such Series Preferred Stock, an amount equal to four dollars and
fifty cents ($4.50) per share, which sum is subject to appropriate adjustment
for any stock split, reverse stock split, stock dividend or similar event in
respect of the Junior Convertible Preferred Stock. If, upon any Liquidation of
the Corporation, the assets of the Corporation available for distribution to its
shareholders shall be insufficient to pay the holders of shares of the Junior
Convertible Preferred Stock and the holders of any other series of Preferred
Stock of the Corporation with a liquidation preference equal to the liquidation
preference of the Junior Convertible Preferred Stock the full amounts to which
they shall respectively be entitled, the holders of shares of the Junior
Convertible Preferred Stock and the holders of any other series of Preferred
Stock of the Corporation with a liquidation preference equal to the liquidation
preference of the Junior Convertible Preferred Stock shall receive all of the
assets of the Corporation available for distribution and each such holder of
shares of the Junior Convertible Preferred Stock and the holders of any other
series of Preferred Stock of the Corporation with a liquidation preference equal
to the liquidation preference of the Junior Convertible Preferred Stock shall
share ratably in any distribution in accordance with the amounts due such
shareholders. After payment shall have been made to the holders of shares of the
Junior Convertible Preferred Stock of the full amount to which they shall be
entitled, as aforesaid, the holders of shares of the Junior Convertible
Preferred Stock shall be entitled to no further distributions thereon and the
holders of shares of the Common Stock and of shares of any other series of stock
of the Corporation shall be entitled to share, according to their respective
rights and preferences, in all remaining assets of the Corporation available for
distribution to its shareholders.
A merger or consolidation of the Corporation with or into any other
corporation, or a sale, lease, exchange, or transfer of all or any part of the
assets of the Corporation which shall not in fact result in the liquidation (in
whole or in part) of the Corporation and the distribution of its assets to its
shareholders shall not be deemed to be a voluntary or involuntary liquidation
(in whole or in part), dissolution, or winding-up of the Corporation.
ARTICLE X. Conversion of Junior Convertible Preferred Stock. The
holders of Junior Convertible Preferred Stock shall have the following
conversion rights:
(a) Optional. Each share of Junior Convertible Preferred Stock
shall be convertible, at the option of the holder thereof, at any time after the
date of issuance of such share at the office of the Corporation or any transfer
agent for the Junior Convertible Preferred Stock, into Common Stock at the
initial conversion rate of one (1) fully paid and nonassessable share of Common
Stock for each share of Junior Convertible Preferred Stock, subject, however, to
the adjustments described below. (The number of shares of Common Stock into
which a share of Junior Convertible Preferred Stock may be converted is
hereinafter referred to as the "Conversion Rate.") Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of the surrender of the shares of Junior Convertible Preferred Stock to be
converted in accordance with the procedures described below. The Corporation
shall pay to the holder thereof promptly following such surrender all declared
or accrued but unpaid dividends on the shares of Junior Convertible Preferred
Stock so converted to, and including, the date of such conversion; provided,
however, that the Corporation may, at its option, in lieu of making a full cash
payment of all such declared or accrued but unpaid dividends, make payment
thereof in that number of whole shares of Common Stock calculated by dividing
the total of such declared or accrued but unpaid dividends due such holder by
the fair market
B-2
<PAGE> 24
value per share of the Common Stock, as determined in good faith by the
Corporation's Board of Directors.
(b) Automatic.
1. The Corporation shall notify each holder of
Junior Convertible Preferred Stock at least ninety (90) days prior to the
anticipated effective date of a registration statement filed by the Corporation
under the federal Securities Act of 1933, as amended, covering the underwritten
offer and sale of Common Stock to the public (such offering being referred to
hereafter as an "Initial Public Offering"). Upon the closing of, but effective
immediately prior to, the first sale in an Initial Public Offering, each and
every share of outstanding Junior Convertible Preferred Stock held by all
holders of Junior Convertible Preferred Stock shall automatically be converted
into Common Stock, at the then effective Conversion Rate; provided that such
conversion shall be conditioned upon the Corporation paying all declared or
accrued but unpaid dividends on the outstanding Junior Convertible Preferred
Stock to each holder to and including the date of such conversion; provided,
further, that the Corporation may, at its option, in lieu of making a full cash
payment of all such declared or accrued but unpaid dividends, make payment
thereof in that number of whole shares of Common Stock calculated by dividing
the total of such declared or accrued and unpaid dividends due such holder by
the offering price per share in the Initial Public Offering. Such conversion
shall be automatic, without need for any further action by the holders of shares
of Junior Convertible Preferred Stock and regardless of whether the certificates
representing such shares are surrendered to the Corporation or its transfer
agent; provided, however, that the Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such conversion
unless certificates evidencing such shares of Junior Convertible Preferred Stock
so converted are surrendered to the Corporation in accordance with the
procedures described in Subsection (D)(3) below. Upon the conversion of the
Junior Convertible Preferred Stock pursuant to this Subsection (D)(2)(A), the
Corporation shall promptly send written notice thereof, by registered or
certified mail, return receipt requested and postage prepaid, by hand delivery
or by overnight delivery, to each holder of record of Junior Convertible
Preferred Stock at his or its address then shown on the records of the
Corporation, which notice shall state that certificates evidencing shares of
Junior Convertible Preferred Stock must be surrendered at the office of the
Corporation (or of its transfer agent for the Common Stock, if applicable) in
the manner described in Subsection (D)(3) below.
2. Immediately prior to the closing date of an
agreement, in which the Corporation is a party, regarding a Sale or Merger (as
defined herein) of the Corporation, each and every share of outstanding Junior
Convertible Preferred Stock held by all holders of Junior Convertible Preferred
Stock shall automatically be converted into Common Stock, at the then effective
Conversion Rate; provided that such conversion shall be conditioned upon the
Corporation paying all declared or accrued but unpaid dividends on the
outstanding Junior Convertible Preferred Stock to each holder to and including
the date of such conversion; provided, further, that the Corporation may, at its
option, in lieu of making a full cash payment of all such declared or accrued
but unpaid dividends, make payment thereof in that number of whole shares of
Common Stock calculated by dividing the total of such declared or accrued and
unpaid dividends due such holder by the fair market value per share of the
Common Stock, as determined in good faith by the Corporation's Board of
Directors. Such conversion shall be automatic, without need for any further
action by the holders of shares of Junior Convertible Preferred Stock and
regardless of whether the
B-3
<PAGE> 25
certificates representing such shares are surrendered to the Corporation or its
transfer agent; provided, however, that the Corporation shall not be obligated
to issue certificates evidencing the shares of Common Stock issuable upon such
conversion unless certificates evidencing such shares of Junior Convertible
Preferred Stock so converted are surrendered to the Corporation in accordance
with the procedures described in Subsection (D)(3) below. Upon the conversion of
the Junior Convertible Preferred Stock pursuant to this Subsection (D)(2)(B),
the Corporation shall promptly send written notice thereof, by registered or
certified mail, return receipt requested and postage prepaid, by hand delivery
or by overnight delivery, to each holder of record of Junior Convertible
Preferred Stock at his or its address then shown on the records of the
Corporation, which notice shall state that certificates evidencing shares of
Junior Convertible Preferred Stock must be surrendered at the office of the
Corporation (or of its transfer agent for the Common Stock, if applicable) in
the manner described in Subsection (D)(3) below.
For purposes of these designations, a "Sale or Merger" shall mean any of the
following:
(i) the merger, reorganization or consolidation
of the Corporation or such subsidiary or subsidiaries of the
Corporation the assets of which constitute all or
substantially all the assets of the business of the
Corporation and its subsidiaries taken as a whole into or with
another corporation in which the shareholders of the
Corporation or such subsidiaries immediately preceding such
merger, reorganization or consolidation (solely by virtue of
their shares or other securities of the Corporation or such
subsidiaries) shall own less than fifty percent (50%) of the
voting securities of the surviving corporation;
(ii) the sale, transfer or lease (but not
including a transfer or lease by pledge or mortgage to a bona
fide lender), whether in a single transaction or pursuant to a
series of related transactions, of all or substantially all
the assets of the Corporation, whether pursuant to a single
transaction or a series of related transactions or plan (which
assets shall include for these purposes fifty percent (50%) or
more of the outstanding voting interests of such of the
Corporation's subsidiaries the assets of which constitute all
or substantially all the assets of the Corporation and its
subsidiaries taken as a whole); or
(iii) the sale, transfer or lease (but not
including a transfer or lease by pledge or mortgage to a bona
fide lender), whether in a single transaction or pursuant to a
series of related transactions, of all or substantially all
the assets of such of the Corporation's subsidiaries the
assets of which constitute all or substantially all of the
assets of the Corporation and such subsidiaries taken as a
whole.
3. No fractional shares of Common Stock shall
be issued upon conversion of Junior Convertible Preferred Stock, and any shares
of Junior Convertible Preferred Stock surrendered for conversion that would
otherwise result in a fractional share of Common Stock shall be redeemed at the
then effective Conversion Price per share, payable as promptly as possible when
funds are legally available therefor.
(c) Mechanics of Conversion. Before any holder of Junior
Convertible Preferred Stock shall be entitled to receive certificates
representing the shares of Common Stock into which shares
B-4
<PAGE> 26
of Junior Convertible Preferred Stock are converted in accordance with
Subsections (D)(1) or (D)(2) above, and any dividends to be paid thereunder,
such holder shall surrender the certificate or certificates for such shares of
Junior Convertible Preferred Stock, duly endorsed, at the office of the
Corporation or of any transfer agent for the Junior Convertible Preferred Stock,
and shall give written notice to the Corporation at such office of the name or
names in which such holder wishes the certificate or certificates for shares of
Common Stock to be issued, if different from the name shown on the books and
records of the Corporation. Said conversion notice shall also contain such
representations as may reasonably be required by the Corporation to the effect
that the shares to be received upon conversion are not being acquired and will
not be transferred in any way that might violate the then applicable laws. The
Corporation shall, as soon as practicable thereafter and in no event later than
five (5) business days after the delivery of said certificates, issue and
deliver at such office to such holder of Junior Convertible Preferred Stock, or
to the nominee or nominees of such holder as provided in such notice, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid, together with all dividends, if any,
to be paid with respect to the Junior Convertible Preferred Stock converted. The
person or persons entitled to receive the shares of Common Stock issuable upon a
conversion pursuant to Subsections (D)(1) or (D)(2) shall be treated for all
purposes as the record holder or holders of such shares of Common Stock as of
the effective date of conversion specified in such section. All certificates
issued upon the exercise or occurrence of the conversion shall contain a legend
governing restrictions upon such shares imposed by law or agreement of the
holder or his or its predecessors.
(d) Reservation of Stock Issuable Upon Conversion. The Corporation
shall reserve and keep available out of its authorized but unissued shares of
Common Stock, such number of its shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding shares of the
Junior Convertible Preferred Stock; provided, however, that there is available
such number of authorized shares of Common Stock after assuming and giving
effect to the conversion of any outstanding convertible preferred shares of
other series and the exercise of all options which are exercisable into Common
Stock, as shall permit conversion of all then outstanding shares of Junior
Convertible Preferred Stock.
(e) Adjustment to Conversion Price.
a. If, prior to the conversion of all shares of
Junior Convertible Preferred Stock, the number of outstanding shares of Common
Stock is increased by a stock split, stock dividend, or other similar event, the
Conversion Price shall be proportionately reduced, or if the number of
outstanding shares of Common Stock is decreased by a combination or
reclassification of shares, or other similar event, the Conversion Price shall
be proportionately increased.
b. If, prior to the conversion of all shares of
Junior Convertible Preferred Stock, there shall be any merger, consolidation,
exchange of shares, recapitalization, reorganization, or other similar event
that does not constitute a Sale or Merger as defined above, as a result of which
shares of Common Stock of the Corporation shall be changed into the same or a
different number of shares of the same or another class or classes of stock or
securities of the Corporation or another entity, then the holders of Junior
Convertible Preferred Stock shall thereafter have the right to purchase and
receive upon conversion of shares of Junior Convertible Preferred Stock, upon
the basis and upon the terms and conditions specified herein and in lieu of the
shares of Common Stock immediately theretofore issuable upon conversion, such
shares of stock and/or securities as may be
B-5
<PAGE> 27
issued or payable with respect to or in exchange for the number of shares of
Common Stock immediately theretofore purchasable and receivable upon the
conversion of shares of Junior Convertible Preferred Stock held by such holders
had such merger, consolidation, exchange of shares, recapitalization or
reorganization not taken place, and in any such case appropriate provisions
shall be made with respect to the rights and interests of the holders of the
Junior Convertible Preferred Stock to the end that the provisions hereof
(including, without limitation, provisions for adjustment of the Conversion
Price and of the number of shares issuable upon conversion of the Junior
Convertible Preferred Stock) shall thereafter be applicable, as nearly as may be
practicable in relation to any shares of stock or securities thereafter
deliverable upon the exercise hereof. The Corporation shall not effect any
transaction described in this subsection unless the resulting successor or
acquiring entity (if not the Corporation) assumes by written instrument and
obligation to deliver to the holders of the Junior Convertible Preferred Stock
such shares of stock and/or securities as, in accordance with the foregoing
provisions, the holders of the Junior Convertible Preferred Stock may be
entitled to purchase.
c. If any adjustment under this subsection
would create a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded and
the number of shares of Common Stock issuable upon conversion be the next higher
number of shares.
ARTICLE XI. Voting. The holders of Junior Convertible Preferred Stock
shall not have voting rights. However, the shares of Common Stock into which the
Junior Convertible Preferred Stock is convertible shall, upon issuance, have all
of the same voting rights as other issued and outstanding shares of Common Stock
of the Corporation.
ARTICLE XII. Status of Converted Stock. In the event any shares of
Junior Convertible Preferred Stock shall be converted as contemplated by this
designation, the shares so converted shall be canceled, shall return to the
status of authorized but unissued Preferred Stock of no designated class or
series, and shall not be issuable by the Corporation as Junior Convertible
Preferred Stock.
B-6
<PAGE> 1
Exhibit 3.2
AMENDED AND RESTATED BYLAWS
OF
T/R SYSTEMS, INC.
November 1, 1992
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I Offices 1
Section 1 Registered Office 1
Section 2 Principal Office 1
Section 3 Other Offices 1
ARTICLE II Meetings of Shareholders 1
Section 1 Place of Meetings 1
Section 2 Annual Meetings 1
Section 3 Special Meetings 1
Section 4 Shareholder Lists 2
Section 5 Notice of Meetings 2
Section 6 Quorum and Adjournment 3
Section 7 Voting 3
Section 8 Proxies 4
Section 9 Judges of Election 4
Section 10 Action Without Meetings 4
ARTICLE III Directors 5
Section 1 Powers 5
Section 2 Number 5
Section 3 Vacancies and Newly Created Directorships 5
Section 4 Meetings 6
Section 5 Annual Meeting 6
Section 6 Regular Meetings 6
Section 7 Special Meetings 6
Section 8 Quorum 6
Section 9 Fees and Compensation 6
Section 10 Meetings by Telephonic Communication 7
Section 11 Committees 7
Section 12 Action Without Meetings 7
Section 13 Removal 8
ARTICLE IV Officers 8
Section 1 Appointment and Salaries 8
Section 2 Removal and Resignation 8
Section 3 Chairman 8
Section 4 President 9
Section 5 Vice President 9
</TABLE>
<PAGE> 3
TABLE OF CONTENTS
(continued)
<TABLE>
<S> <C> <C>
Section 6 Secretary and Assistant Secretary 9
Section 7 Treasurer 9
Section 8 Assistant Officers 10
ARTICLE V Seal 10
ARTICLE VI Form of Stock Certificate 11
ARTICLE VII Representation of Shares of Other Corporations 11
ARTICLE VIII Transfers of Stock 12
ARTICLE IX Lost, Stolen or Destroyed Certificates 12
ARTICLE X Record Date 12
ARTICLE XI Registered Shareholders 13
ARTICLE XII Fiscal Year 13
ARTICLE XIII Amendments 13
ARTICLE XIV Dividends 13
ARTICLE XV Indemnification and Insurance 14
Section 1 Right to Indemnification 14
Section 2 Right of Claimant to Bring Suit 15
Section 3 Non-Exclusivity of Rights 15
Section 4 Insurance 16
Section 5 Expenses as a Witness 16
Section 6 Indemnity Agreements 16
OFFICER'S CERTIFICATE OF T/R SYSTEMS, INC. 17
</TABLE>
<PAGE> 4
AMENDED AND RESTATED BYLAWS
OF
T/R SYSTEMS, INC.
(a Georgia corporation)
ARTICLE I.
Offices
Section 1. Registered Office. The registered office of the
Corporation shall be in the State of Georgia, and the name of the resident
agent in charge thereof is the agent named in the Articles of Incorporation
until changed by the Board of Directors (the "Board").
Section 2. Principal Office. The principal office for the
transaction of the business of the Corporation shall be at such place as may be
established by the Board. The Board is granted full power and authority to
change said principal office from one location to another.
Section 3. Other Offices. The Corporation may also have an office
or offices at such other places, either within or without the State of Georgia,
as the Board may from time to time designate or the business of the Corporation
may require.
ARTICLE II.
Meetings of Shareholders
Section 1. Place of Meetings. Meetings of shareholders shall be
held at such time and place, within or without the State of Georgia, as shall
be stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2. Annual Meetings. Annual meetings of the shareholders of
the Corporation for the purpose of electing directors and for the transaction
of such other proper business as may come before such meetings may be held at
such time, date and place as the Board shall determine by resolution.
Section 3. Special Meetings. Special meetings of the shareholders
of the Corporation for any purpose or purposes may be called at any time by the
1
<PAGE> 5
Board, or by a committee of the Board that has been duly designated by the
Board and whose powers and authority, as provided in a resolution of the Board
or in the Bylaws of the Corporation, include the power to call such meetings,
and shall be called by the Chairman, President or Secretary at the request in
writing of two-thirds of the Board of Directors, or at the request in writing
of shareholders owning two-thirds of the entire capital stock of the
Corporation issued and outstanding and entitled to vote but such special
meetings may not be called by any other person or persons; provided, however,
that if and to the extent that any special meeting of shareholders may be
called by any other person or persons specified in any provisions of the
Articles of Incorporation or any amendment thereto, then such special meeting
may also be called by the person or persons in the manner, at the times and for
the purposes so specified. Business transacted at any special meeting of
shareholders shall be limited to the purposes stated in the notice.
Section 4. Shareholder Lists. The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least ten days
before every meeting of shareholders, a complete list of shareholders entitled
to vote at the meeting, arranged in alphabetical order and showing the address
of each shareholder and the number of shares registered in the name of each
shareholder. Such list shall be open to the examination of any shareholder, for
any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting or at the place of the meeting, and the list shall also
be available at the meeting during the whole time thereof, and may be inspected
by any shareholder who is present.
Section 5. Notice of Meetings. Notice of each meeting of
shareholders, whether annual or special, stating the place, date and hour of
the meeting and, in the case of a special meeting, the purpose or purposes for
which such meeting has been called, shall be given to each shareholder of
record entitled to vote at such meeting not less than ten nor more than sixty
days before the date of the meeting. Such notice shall be given to the
shareholders by the Secretary, or in the case of the Secretary's absence or
refusal or inability to act, by any other officer of the Corporation, and may
be given by mail, by telecopy, by telephone or by personal service, or by any
combination thereof as to different shareholders. If mailed, such notice shall
be deemed to have been given when deposited in the United States mail,
addressed to the shareholder at his address as it appears in the stock record
books of the Corporation, with postage thereon prepaid. Notice by other
permitted methods shall be deemed to have been given when personally delivered
or when transmitted to the telephone or telecopy number previously supplied to
the
2
<PAGE> 6
Secretary by the shareholder. Except as otherwise expressly required by law,
notice of any adjourned meeting of the shareholders need not be given if the
time and place thereof are announced at the meeting at which the adjournment is
taken.
Whenever any notice is required to be given under the provisions of
any applicable law or of the Articles of Incorporation or of these Bylaws, a
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto. Notice of any meeting of shareholders shall be deemed
waived by any shareholder who shall attend such meeting in person or by proxy,
except a shareholder who shall attend such meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened.
Section 6. Quorum and Adjournment. The holders of two-thirds of the
capital stock issued and outstanding and entitled to vote thereat, present in
person or represented by proxy, shall constitute a quorum for holding all
meetings of shareholders, except as otherwise provided by applicable law or by
the Articles of Incorporation; provided, however, that the shareholders present
at a duly called or held meeting at which a quorum is present may continue to
transact business until adjournment notwithstanding the withdrawal of enough
shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least two-thirds of the shares required to
constitute a quorum. If it shall appear that such quorum is not present or
represented at any meeting of shareholders, the Chairman of the meeting shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each shareholder of record
entitled to vote at the meeting. The Chairman of the meeting may determine that
a quorum is present based upon any reasonable evidence of the presence in
person or by proxy of shareholders holding two-thirds of the outstanding votes,
including without limitation, evidence from any record of shareholders who have
signed a register indicating their presence at the meeting.
Section 7. Voting. In all matters, when a quorum is present at any
meeting, the vote of the holders of two-thirds of the capital stock having
voting power present in person or represented by proxy shall decide any
question brought
3
<PAGE> 7
before such meeting, unless the question is one upon which by express provision
of applicable law or of the Articles of Incorporation, a different vote is
required in which case such express provision shall govern and control the
decision of such question. Such vote may be viva voce or by written ballot;
provided, however, that the Board may, in its discretion, require a written
ballot for any vote; and further provided, that all elections for directors
must be by written ballot upon demand made by a shareholder at any election and
before the voting begins.
Unless otherwise provided in the Articles of Incorporation each
shareholder shall at every meeting of the shareholders be entitled to one vote
in person or by proxy for each share of the capital stock having voting power
held by such shareholder.
This provision of these Bylaws has been adopted by vote of the
shareholders and may not be altered, amended or repealed by the Board of
Directors except as otherwise provided by applicable law or by the Articles of
Incorporation.
Section 8. Proxies. Each shareholder entitled to vote at a meeting
of shareholders may authorize in writing another person or persons to act for
such holder by proxy, but no proxy shall be voted or acted upon after eleven
months from its date, unless the person executing the proxy specifies therein
the period of time for which it is to continue in force.
Section 9. Judges of Election. The Board may appoint a Judge or
Judges of Election for any meeting of shareholders. Such Judges shall decide
upon the qualification of the voters and report the number of shares
represented at the meeting and entitled to vote, shall conduct the voting and
accept the votes and when the voting is completed shall ascertain and report
the number of shares voted respectively for and against each position upon
which a vote is taken by ballot. The Judges need not be shareholders, and any
officer of the corporation may be a Judge on any position other than a vote for
or against a proposal in which such person shall have a material interest.
Section 10. Action Without Meetings. Any action required to be
taken at a meeting of the shareholders, or any action which may be taken at a
meeting of the shareholders, may be taken without a meeting if written consent,
setting forth the action so taken shall be signed by all the shareholders
entitled to vote with respect to the subject matter thereof or, if so provided
in the Articles of Incorporation, by shareholders who would be entitled to vote
at a meeting holding
4
<PAGE> 8
shares having voting power to cast not less than the minimum number (or
numbers, in the case of voting by groups) of votes that would be necessary to
authorize or take the action at a meeting at which all shareholders entitled to
vote were present and voted. The action must be evidenced by one or more
written consents describing the action taken, signed by the shareholders
entitled to take action without a meeting and delivered to the Corporation for
inclusion in the minutes or filing with the corporate records. Any action taken
by less than all of the shareholders entitled to vote on the action, all voting
shareholders on the record date who did not participate in taking the action
shall be given written notice of the action not more than ten days after the
taking of action without a meeting.
ARTICLE III.
Directors
Section 1. Powers. The Board shall have the power to manage or
direct the management of the property, business and affairs of the Corporation,
and except as expressly limited by law, to exercise all of its corporate
powers. The Board may establish procedures and rules, or may authorize the
Chairman of any meeting of shareholders to establish procedures and rules, for
the fair and orderly conduct of any meeting including, without limitation,
registration of the shareholders attending the meeting, adoption of an
agenda, establishing the order of business at the meeting, recessing and
adjourning the meeting for the purposes of tabulating any votes and receiving
the result thereof, the timing of the opening and closing of the polls, and the
physical layout of the facilities for the meeting.
Section 2. Number. The Board shall consist of one or more members
in such number as shall be determined from time to time by resolution adopted
by the vote of two-thirds of the Board or by the vote of the holders of
two-thirds of the capital stock having voting power present in person or
represented by proxy at the annual meeting. Directors need not be shareholders,
and each director shall serve until such person's successor is elected and
qualified or until such person's death, retirement, resignation or removal.
Section 3. Vacancies and Newly Created Directorships. Any newly
created directorship resulting from an increase in the number of directors may
be filled by two-thirds of the Board of Directors then in office, provided that
a quorum is present, and any other vacancy on the Board of Directors may be
filled by two-thirds of the Board of Directors then in office, even if less
than a quorum, or by a sole remaining director.
5
<PAGE> 9
Section 4. Meetings. The Board may hold meetings, both regular and
special, either within or outside the State of Georgia.
Section 5. Annual Meeting. The Board shall meet as soon as
practicable after each annual election of directors.
Section 6. Regular Meetings. Regular meetings of the Board shall be
held without call or notice at such time and place as shall from time to time
be determined by resolution of the Board.
Section 7. Special Meetings. Special meetings of the Board may be
called at any time, and for any purpose permitted by law, by the Chairman or
the President, or by the Secretary on the written request of any two members of
the Board unless the Board consists of only one director in which case the
special meeting shall be called on the written request of the sole director,
which meetings shall be held at the time and place designated by the person or
persons calling the meeting. Notice of the time, place and purpose of any such
meeting shall be given to the Directors by the Secretary, or in case of the
Secretary's absence or refusal or inability to act, by any other officer. Any
such notice may be given by mail, by telecopy, by telephone, by personal
service, or by any combination thereof as to different Directors. If the notice
is by mail, then it shall be deposited in a United States Post Office at least
five days before the time of the meeting; if by telephone, by telecopy or by
personal service, at least two days before the time of the meeting.
Section 8. Quorum. At all meetings of the Board, the majority of
the whole Board shall be necessary and sufficient to constitute a quorum for
the transaction of business. The act of two-thirds of the Directors present at
any meeting at which there is a quorum shall be the act of the Board, except as
may be otherwise specifically provided by applicable law, the Articles of
Incorporation or by these Bylaws. Any meeting of the Board may be adjourned to
meet again at a stated day and hour. Even though no quorum is present, as
required in this Section, a majority of the Directors present at any meeting of
the Board, either regular or special, may adjourn from time to time until a
quorum be had. Notice of any adjourned meeting need not be given.
Section 9. Fees and Compensation. Each Director and each member of
a committee of the Board shall receive such fees and reimbursement of expenses
incurred on behalf of the Corporation or in attending meetings as the Board may
6
<PAGE> 10
from time to time determine. No such payment shall preclude any Director from
serving the Corporation in any other capacity and receiving compensation
therefor.
Section 10. Meetings by Telephonic Communication. Members of the
Board or any committee thereof may participate in a regular or special meeting
of such Board or committee by any means of communication by which all persons
participating in the meeting can hear each other. Participation in a meeting
pursuant to this Section shall constitute presence in person at such meeting.
Section 11. Committees. The Board may designate committees, each
committee to consist of one or more of the Directors of the Corporation. The
Board may designate one or more Directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. Upon the absence or disqualification of a member of a committee,
if the Board has not designated one or more alternates (or if such alternate(s)
are then absent or disqualified), the member or members thereof present at any
meeting and not disqualified from voting, whether or not such member or members
constitute a quorum, may unanimously appoint another member of the Board to act
at the meeting in the place of any such absent or disqualified member or
alternate. Any such committee, to the extent provided in the resolution of the
Board, shall have and may exercise all the powers and authority of the Board in
the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers that may
require it; but no such committee shall have the power or authority in
reference to: (a) approving or proposing to shareholders action that is
required to be approved by shareholders; (b) adopting an agreement of merger or
consolidation not requiring shareholder approval; (c) adopting, repealing or
amending the Bylaws of the Corporation; (d) filling vacancies on the Board; or
(e) taking any other action prohibited by law. Each committee shall have such
name as may be determined from time to time by resolution adopted by the Board.
Each committee shall keep minutes of its meetings and report to the Board when
required.
Section 12. Action Without Meetings. Unless otherwise restricted by
applicable law or by the Articles of Incorporation or by these Bylaws, any
action required or permitted to be taken at any meeting of the Board or of any
committee thereof may be taken without a meeting if all members of the Board or
of such committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of the proceedings of the Board
or committee.
7
<PAGE> 11
Section 13. Removal. Unless otherwise restricted by the Articles of
Incorporation or by law, any Director or the entire Board may be removed, with
or without cause, by the holders of two-thirds of shares entitled to vote at a
meeting called for the purpose of removing such Director(s) and the meeting
notice must state that one of the purposes of such meeting is the removal of
such Director(s).
ARTICLE IV.
Officers
Section 1. Appointment and Salaries. The officers of the
Corporation shall be appointed by the Board and shall be a Chairman, President,
one or more Vice Presidents, a Secretary and a Treasurer. The Board, the
Chairman or the President may appoint such other officers (including Assistant
Secretaries and Assistant Treasurers) as the Board, the Chairman or the
President may deem necessary or desirable. The officers shall hold their
offices for such terms and shall exercise such powers and perform such duties
as shall be determined from time to time by the Board. The Board shall fix the
salaries of all officers appointed by it. Unless prohibited by applicable law
or by the Articles of Incorporation or by these Bylaws, one person may be
elected or appointed to serve in more than one official capacity. Any vacancy
occurring in any office of the Corporation shall be filled by the Board.
Section 2. Removal and Resignation. Any officer may be removed,
either with or without cause, by the Board or, in the case of an officer not
appointed by the Board, by the Chairman or the President. Any officer may
resign at any time by giving notice to the Board, the Chairman, the President
or Secretary. Any such resignation shall take effect at the date of receipt of
such notice or at any later time specified therein and, unless otherwise
specified in such notice, the acceptance of the resignation shall not be
necessary to make it effective.
Section 3. Chairman. The Chairman, together with the President,
shall have supervision over and may exercise general executive powers
concerning all of the operations and business of the Corporation, with the
authority from time to time to delegate to other officers such executive and
other powers and duties as he may deem advisable. The Chairman shall preside at
all meetings of the shareholders and of the Board of Directors and shall have
such other powers and duties as may from time to time be assigned to him by the
Board of Directors. In the absence of the Chairman, the President shall preside
at all meetings of the shareholders and of the Board, unless the Board appoints
another person who need
8
<PAGE> 12
not be a shareholder, officer or director of the Corporation, to preside at a
meeting of shareholders.
Section 4. President. The President, together with the Chairman,
shall have supervision over and may exercise general executive powers
concerning all of the operations and business of the Corporation, with the
authority from time to time to delegate to other officers such executive and
other powers and duties as he may deem advisable. The President shall be the
general manager of the Corporation and shall have supervision over the day to
day operations of the business of the Corporation and shall perform such other
duties as may from time to time be delegated to the President by the Chairman.
Section 5. Vice President. In the absence of the Chairman or the
President, or in the event of the Chairman's or the President's inability or
refusal to act, the Vice President (or if there be more than one Vice
President, the Vice Presidents in the order of their rank or, if of equal rank,
then in the order designated by the Board, the Chairman, or the President or,
in the absence of any designation, then in the order of their appointment)
shall perform the duties of the Chairman or the President and when so acting,
shall have all the powers of and be subject to all the restrictions upon the
Chairman or the President. The Vice President shall perform such other duties
and have such other powers as the Board may from time to time prescribe.
Section 6. Secretary and Assistant Secretary. The Secretary shall
attend all meetings of the Board (unless the Board shall otherwise determine)
and all meetings of the shareholders and record all the proceedings of the
meetings of the Corporation and of the Board in a book to be kept for that
purpose and shall perform like duties for the committees when required. The
Secretary shall give, or cause to be given, notice of all meetings of
shareholders and special meetings of the Board. The Secretary shall have
custody of the corporate seal of the Corporation and shall (as well as any
Assistant Secretary) have authority to affix the same to any instrument
requiring it and to attest it. The Secretary shall perform such other duties
and have such other powers as the Board, the Chairman or the President may from
time to time prescribe.
Section 7. Treasurer. The Treasurer shall have custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all monies and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board. The
Treasurer may
9
<PAGE> 13
disburse the funds of the Corporation as may be ordered by the Board, the
Chairman or the President, taking proper vouchers for such disbursements, and
shall render to the Board at its regular meetings, or when the Board so
requires, an account of transactions and of the financial condition of the
Corporation. The Treasurer shall perform such other duties and have such other
powers as the Board, the Chairman or the President may from time to time
prescribe.
If required by the Board, the Treasurer and Assistant Treasurers,
if any, shall give the Corporation a bond (which shall be renewed at such times
as specified by the Board) in such sum and with such surety or sureties as
shall be satisfactory to the Board for the faithful performance of the duties
of such person's office and for the restoration to the Corporation, in case of
such person's death, resignation, retirement or removal from office, of all
books, papers, vouchers, money and other property of whatever kind in such
person's possession or under such person's control belonging to the
Corporation.
Section 8. Assistant Officers. An assistant officer shall, in the
absence of the officer to whom such person is an assistant or in the event of
such officer's inability or refusal to act (or, if there be more than one such
assistant officer, the assistant officers in the order designated by the Board,
the Chairman or the President or, in the absence of any designation, then in
the order of their appointment), perform the duties and exercise the powers of
such officer. An assistant officer shall perform such other duties and have
such other powers as the Board, the Chairman or the President may from time to
time prescribe.
ARTICLE V.
Seal
It shall not be necessary to the validity of any instrument
executed by any authorized officer or officers of the Corporation that the
execution of such instrument be evidenced by the corporate seal, and all
documents, instruments, contracts and writings of all kinds signed on behalf of
the Corporation by any authorized officer or officers shall be as effectual and
binding on the Corporation without the corporate seal, as if the execution of
the same had been evidenced by affixing the corporate seal thereto. The Board
may give general authority to any officer to affix the seal of the Corporation
and to attest the affixing by signature.
10
<PAGE> 14
ARTICLE VI.
Form of Stock Certificate
Every holder of stock in the Corporation shall be entitled to have
a certificate signed by, or in the name of, the Corporation by the Chairman or
the President or a Vice President, and by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary certifying the number of
shares owned in the Corporation. Any or all of the signatures on the
certificate may be a facsimile. If any officer, transfer agent, or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
the issue.
If the Corporation shall be authorized to issue more than one class
of stock or more than one series of any class, a reference on the certificate
to the state of incorporation shall be deemed a reference to the Articles of
Incorporation and the provisions thereof governing the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Alternatively, such powers,
designations, preferences and relative, participating, optional or other
special rights and such qualifications, limitations or restrictions shall be
set forth in full or summarized on the face or back of the certificate that the
Corporation shall issue to represent such class or series of stock. Except as
otherwise provided in section 14-2-625 of the Georgia Business Corporation
Code, in lieu of the foregoing requirements, there may be set forth on the face
or back of the certificate that the Corporation will furnish without charge to
each shareholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights.
ARTICLE VII.
Representation of Shares of Other Corporations
The Chairman or the President or any other officer or officers
authorized by the Board, the Chairman or the President are each authorized to
vote, represent and exercise on behalf of the Corporation all rights incident
to any and all shares of any other corporation or corporations standing in the
name of the Corporation. The foregoing authority may be exercised either by any
such officer in
11
<PAGE> 15
person or by any other person authorized so to do by proxy or power of attorney
duly executed by said officer.
ARTICLE VIII.
Transfers of Stock
Upon surrender of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
ARTICLE IX.
Lost, Stolen or Destroyed Certificates
The Board may direct a new certificate or certificates to be issued
in place of any certificate theretofore issued alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of the fact by the person
claiming the certificate to be lost, stolen or destroyed. When authorizing such
issue of a new certificate, the Board may, in its discretion and as a condition
precedent to the issuance, require the owner of such certificate or
certificates, or such person's legal representative, to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate.
ARTICLE X.
Record Date
The Board may fix in advance a date, which shall not be more than
sixty days nor less than ten days preceding the date of any meeting of
shareholders, nor more than 60 days prior to any other action, as a record date
for the determination of shareholders entitled to notice of or to vote at any
such meeting and any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise the rights in respect of any change, conversion or exchange of stock,
and in such case such shareholders, and only such shareholders as shall be
shareholders of record on the date so fixed shall be entitled to such notice
of, and to vote at, such meeting and any adjournment thereof, or to receive
payment of such dividend, or to receive such
12
<PAGE> 16
allotment of rights, or to exercise such rights, or to give such consent, as
the case may be, notwithstanding any transfer of any stock on the books of the
Corporation after any such record date fixed as aforesaid.
ARTICLE XI.
Registered Shareholders
The Corporation shall be entitled to treat the holder of record of
any share or shares of stock as the holder in fact thereof and shall not be
bound to recognize any equitable or other claim to or interest in such share on
the part of any other person, whether or not it shall have express or other
notice thereof, except as expressly provided by applicable law.
ARTICLE XII.
Fiscal Year
The fiscal year of the Corporation shall be fixed by resolution of
the Board.
ARTICLE XIII.
Amendments
Subject to any contrary or limiting provisions contained in these
Bylaws or the Articles of Incorporation, these Bylaws may be amended or
repealed, or new Bylaws may be adopted, by the affirmative vote at any regular
or special meeting of (a) the holders of two-thirds of the capital stock having
voting power present in person or represented by proxy of the Corporation, or
(b) by the affirmative vote of two-thirds, or (b) two-thirds of the full Board.
Any Bylaws adopted or amended by the shareholders may be amended or repealed by
the Board or the shareholders, unless the shareholders in amending or repealing
a particular Bylaw provide expressly that the Board may not amend or repeal
that Bylaw.
ARTICLE XIV.
Dividends
Section 1. Declaration. Dividends on the capital stock of the
Corporation, subject to the provisions of the Articles of Incorporation, if
any, may be
13
<PAGE> 17
declared by the Board at any regular or special meeting, pursuant to law, and
may be paid in cash, in property or in shares of the capital stock.
Section 2. Set Aside Funds. Before payment of any dividend, there
may be set aside out of any funds of the Corporation available for dividends
such sums as the Directors from time to time, in their absolute discretion,
think proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the Directors shall deem to be in the best interests
of the Corporation, and the Directors may modify or abolish any such reserve in
the manner in which it was created.
ARTICLE XV.
Indemnification and Insurance.
Section 1. Right to Indemnification. Except as otherwise provided
in the Articles of Incorporation or by law, 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 Corporation or is or was serving at the request of the Corporation 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 indemnified
and held harmless by the Corporation to the fullest extent permitted by the
laws of Georgia, as the same exist or may hereafter be amended, 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 provided in Section 2 hereof, the Corporation 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 Corporation.
The right to indemnification conferred in this Article shall be a contract
right and shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final
14
<PAGE> 18
disposition; provided, however, that, if the Georgia Business Corporation 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 Corporation 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 under this Section or
otherwise. The Corporation may, by action of its Board of Directors, provide
indemnification to employees and agents of the Corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
Section 2. Right of Claimant to Bring Suit. If a claim under
Section 1 of this Article is not paid in full by the Corporation within thirty
days after a written claim has been received by the Corporation, the claimant
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim and, if successful in whole or in part, the claimant
shall be entitled to be paid also the expense of prosecuting such claim. It
shall be a defense to any such action (other than an action brought to enforce
a claim for expenses incurred in defending any proceeding in advance of its
final disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has failed to meet a standard of
conduct which makes it permissible under Georgia law for the Corporation to
indemnify the claimant for the amount claimed. Neither the failure of the
Corporation (including the Board, independent legal counsel or its
shareholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is permissible in the circumstances
because he or she has met such standard of conduct, nor an actual determination
by the Corporation (including its Board of Directors, independent legal
counsel, or its shareholders) that the claimant has not met such standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has failed to meet such standard of conduct.
Section 3. Non-Exclusivity of Rights. The right to indemnification
and the payment of expenses incurred in defending a proceeding in advance of
its final disposition conferred in this Article shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
provision of the Articles of Incorporation, bylaw, agreement, vote of
shareholders or disinterested directors or otherwise.
15
<PAGE> 19
Section 4. Insurance. The Corporation may maintain insurance, at
its expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any such expense, liability or loss, whether or not
the Corporation would have the power to indemnify such person against such
expense, liability or loss under Georgia law.
Section 5. Expenses as a Witness. To the extent that any director,
officer, employee or agent of the Corporation is by reason of such position, or
a position with another entity at the request of the Corporation, a witness in
any action, suit or proceeding, he shall be indemnified against all costs and
expenses actually and reasonably incurred by him or her or on his or her behalf
in connection therewith.
Section 6. Indemnity Agreements. The Corporation may enter into
agreements with any director, officer, employee or agent of the Corporation
providing for indemnification to the full extent permitted by Georgia law.
16
<PAGE> 1
EXHIBIT 4.1
SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), made as of this
31st day of March, 1997, by and among FRANCIS A. ROWE, a resident of Georgia
("Rowe"); E. NEAL TOMPKINS, a resident of Georgia ("Tompkins"); MICHAEL W.
BARRY, JACK N. BARTHOLMAE, RICKY L. BERRY, KEITH J. BRADLEY, GREGORY A. CHATHAM,
DONALD F. GREENE, JAMES W. O'BRIEN, DANIEL SLAYTON, CHARLES K. THACKSTON,
MAURICE WHEATLEY, and PETER A. ZUBER, all residents of Georgia (collectively,
"Other Employees"; Rowe, Tompkins and Other Employees collectively being
referred to hereinafter as "Management"); SEVIN ROSEN FUND IV L.P., a Delaware
limited partnership ("SR4"); NORO-MOSELEY PARTNERS II, L.P., a Georgia limited
partnership ("NMP"); APERTURE ASSOCIATES, L.P., a Delaware limited partnership
("Aperture"); DAVID F. BELLET, a resident of New York, AS TRUSTEE OF THE PROFIT
SHARING PLAN DLJSC-CUSTODIAN FBO DAVID F. BELLET ("Bellet"); JAMES BESSEN, a
resident of Pennsylvania ("Bessen"); DAVID MICHAEL HOCKETT, a resident of
Indiana ("Hockett"); INTERWEST PARTNERS V, L.P., a Delaware limited partnership
("Interwest"); INTERWEST INVESTORS V, a Delaware limited partnership ("Interwest
Investors"); HARVEY B. CASH, a resident of Texas ("Cash"); CROWN ASSOCIATES III,
a Delaware limited partnership ("Crown"); CROWN GLYNN ASSOCIATES, a Delaware
limited partnership ("Crown Glynn"); THE CROWN TRUST, a New York trust ("Crown
Trust"); IRA FBO DAVID F. BELLET DLJSC as CUSTODIAN ("Bellet IRA"); JEFFREY S.
HAMREN, a New Jersey resident ("Hamren"), BENJAMIN BLOCK, a New Jersey resident
("Block"); MAVIS DAVIDSON, a New York resident ("Davidson"); DIETRICH R.
ERDMANN, a resident of Switzerland ("Erdmann"); STANFORD UNIVERSITY, a
California trust ("Stanford"); MICHAEL E. KOHLSDORF, a Georgia resident
("Kohlsdorf") and MICHAEL C. DALY, a Georgia resident ("Daly") (SR4, NMP,
Aperture, Hockett, Bellet, Bessen, Interwest, Interwest Investors, Cash, Crown,
Crown Glynn, Crown Trust, Bellet IRA, Hamren, Block, Davidson, Erdmann,
Stanford, Kohlsdorf and Daly collectively being referred to hereinafter as the
"Investors") and T/R SYSTEMS INC., a Georgia corporation (the "Company"); and
W I T N E S E T H:
WHEREAS, the Company, Management and the Investors (or their
predecessors-in-interest) are parties to that certain Registration Rights
Agreement dated as of March 4,
<PAGE> 2
1994, which was amended and restated by that certain Amended and Restated
Registration Rights Agreement among the Company, Management and certain of the
Investors dated as of January 31, 1996 (the "1996 Registration Rights
Agreement") in connection with the sale and issuance on such date of 2,961,585
shares of Series B Preferred Stock of the Company to certain of the Investors;
WHEREAS, in connection with the sale by the Company to certain of the
Investors of 1,111,111 shares of the Company's Series C Preferred Stock, the
parties to the 1996 Registration Rights Agreement desire to amend and restate
(in its entirety) such agreement and add additional Investors as parties to such
agreement as so amended and restated, to confirm and grant certain registration
rights with respect to securities of the Company owned by all of such parties;
NOW, THEREFORE, in consideration of the premises, as a condition to the
purchase of the above referenced shares of Series C Preferred Stock, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto do agree to amend and restate the 1996
Registration Rights Agreement in its entirety and to enter into the other
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, $.01 par value per share, of
the Company.
"Common Option Shares" shall mean all shares of Common Stock that may
be acquired by Holders by exercise of options granted by the Company, together
with any shares of Common Stock issued with respect to the foregoing upon any
stock split, stock dividend, recapitalization or similar event.
"Conversion Shares" shall mean as of any particular time the shares of
Common Stock that have been acquired by the holders of any of the Preferred
Shares as of such time upon conversion of such shares pursuant to Subsection
(d)(1), (d)(2)(A), or (d)(2)(B) of the Certificate of Designations establishing
the Preferences and Rights of each of the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock (such Certificate being
contained in the Company's Amended and Restated Articles of Incorporation), as
well as upon conversion pursuant to any of such subsections of any additional
shares of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock issued with respect to the same upon any stock split, stock
dividend, recapitalization or similar event, but excluding any Common Stock
acquired upon conversion of any Preferred Shares pursuant to Subsection
(d)(2)(C) of said Certificate of Designations.
- 2 -
<PAGE> 3
"First Initiating Holders" shall mean a Holder or Holders who in the
aggregate own Preferred Shares and Conversion Shares representing at least a
majority of the voting power of all then outstanding Preferred Shares and all
Conversion Shares.
"Holders" shall mean the Investors, members of Management and any other
person holding Registrable Securities to whom these registration rights have
been transferred pursuant to Section 1.10 hereof.
"Initial Public Offering" shall mean the effectiveness of the filing of
the first registration statement under the Securities Act that covers the offer
and sale to the public of Common Stock by the Company.
"Initiating Holders" shall mean either the First Initiating Holders or
the Subsequent Initiating Holders.
"Management's Common Stock" shall mean the shares of Common Stock owned
by Management as of the date of this Agreement together with any shares of
Common Stock issued with respect to the foregoing upon any stock split, stock
dividend, recapitalization or similar event.
"Other Stockholders" 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.
"Preferred Shares" as of any particular time shall mean shares of
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock
of the Company, all of the same, or any combination thereof, whenever issued;
together with all shares of Series A Preferred Stock, Series B Preferred Stock
or Series C Preferred Stock, if any, issued with respect to the foregoing upon
any stock split, stock dividend, recapitalization or similar event.
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 the Common Option Shares,
Management's Common Stock, all Conversion Shares, and all shares of Common Stock
issuable, yet not actually issued, upon conversion of the Preferred Shares.
"Registration Expenses" shall mean all expenses incurred by the Company
in complying with Sections 1.2 and 1.3 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).
- 3 -
<PAGE> 4
"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 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 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 Other Stockholders.
"Series A Preferred Stock" shall mean Series A Preferred Stock, $.01
par value per share, of the Company.
"Series B Preferred Stock" shall mean Series B Preferred Stock, $0.01
par value per share, of the Company.
"Series C Preferred Stock" shall mean Series C Preferred Stock, $.01
par value per share, of the Company.
"Subsequent Initiating Holder" shall mean a Holder or Holders who in
the aggregate own Preferred Shares and Conversion Shares representing at least
twenty-five percent (25%) of the voting power of all then outstanding Conversion
Shares and Preferred Shares.
1.2 Requested Registration.
(a) Demand Registration Rights. The First Initiating
Holders and the Subsequent Initiating Holders may make certain demands on the
Company to register all or a part of the Registrable Securities (each being
referred to hereinafter as a "Demand Registration") subject to the following
conditions:
(i) following the earlier of February 28, 1997,
or the date that is six (6) months after the Initial Public
Offering, the First Initiating Holders may make one demand on
the Company to register all or a portion of the Registrable
Securities -- provided such securities have an aggregate
offering price to the public of not less than fifteen million
dollars ($15,000,000) and a public offering price per share of
not less than $5.00 (as adjusted for changes in the capital
structure of the Company by stock split, stock dividend,
recapitalization, or the like occurring after the date of this
Agreement) (such registration upon effectiveness being
hereinafter referred to as the "First Demand Registration");
(ii) following the First Demand Registration, the
Subsequent Initiating Holders may make one demand on the
Company to register all or a part of the Registrable
Securities having an aggregate offering price to the public of
not less than fifteen million dollars ($15,000,000) and a
public
- 4 -
<PAGE> 5
offering price per share of $5.00 (as adjusted for
changes in the capital structure of the Company by stock
split, stock dividend, recapitalization, or the like occurring
after the date of this Agreement) (such registration upon
effectiveness being hereinafter referred to as the "Second
Demand Registration"); and
(iii) at any time after the date of this
Agreement, the Subsequent Initiating Holders may make up to
six (6) demands on the Company to register all or a part of
the Registrable Securities having an aggregate offering price
to the public of not less than five hundred thousand dollars
($500,000) on a Form S-3 Registration Statement under the
Securities Act ("Form S-3"), if such form is then available to
the Company, provided, however, that such demands shall not be
made so as to result in a registration in respect thereof more
frequently than once in a six (6)-month period.
(b) Request for Registration. In the event the Company
shall receive from the Initiating Holders a written request that the Company
effect a Demand Registration with respect to all or a part of the Registrable
Securities, other than a registration pursuant to Rule 415 under Regulation C
promulgated under the Securities Act, the Company shall:
(i) promptly give written notice of the proposed
registration to all other Holders; and
(ii) as soon as practicable, use its diligent
best efforts to effect such registration (including, without
limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualification under
applicable "blue sky" or other state securities laws, and
appropriate compliance with applicable regulations issued
under the Securities Act) as may be so requested and as would
permit or facilitate the sale and distribution of such portion
of such Registrable Securities as is specified in such
request, together with such portion of the Registrable
Securities of any Holder or Holders joining in such request as
is specified in a written request given within thirty (30)
days after receipt of such written notice from the Company;
provided that the Company shall not be obligated to take any
action to effect any such registration pursuant to this
Section 1.2:
(A) in any particular jurisdiction in
which the Company would be required to execute a
general consent to service of process in effecting
such registration, qualification or compliance unless
the Company is already subject to service in such
jurisdiction and except as may be required by the
Securities Act;
(B) during the period following an
Initial Public Offering that is contemplated by
Section 1.11 hereof, as such period may be extended
by request of the underwriter representative,
provided that the "market stand-off" effected by any
such extension is applicable against the persons
described in Section 1.11(b); or
- 5 -
<PAGE> 6
(C) in the case of a demand for
registration on Form S-3 in accordance with Section
1.2(a)(iii), if such form is not then available to
the Company for such purpose.
In the event the Company is not obligated to effect any request for
Demand Registration by virtue of the foregoing clauses (A) through (C), such
request shall not be deemed to be a demand for registration for purposes of
Section 1.2(a)(i), (ii) or (iii). Subject to the foregoing clauses (A) through
(C), the Company shall file a registration statement covering the Registrable
Securities so requested to be registered as soon as practicable after receipt of
the request or requests of the Initiating Holders; provided, however, that if
the Company shall furnish to such Initiating Holders a certificate signed by the
Chairman of the Board of the Company stating that in the good-faith judgment of
the Board of Directors of the Company it would be seriously detrimental to the
Company and its stockholders for such registration statement to be filed and it
is therefore essential to defer the filing of such registration statement, the
Company shall have the right to defer such filing for a period of not more than
one hundred twenty (120) days after receipt of the request of the Initiating
Holders.
The registration statement filed pursuant to the request of the
Initiating Holders may, subject to the provisions of Section 1.2(c) below,
include securities offered by the Company for its own account and/or other
securities of the Company that are held by Other Stockholders.
(c) Underwriting. If the Initiating Holders intend to
distribute the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request made
pursuant to Section 1.2(a) and the Company shall include such information in the
written notice referred to in Section 1.2(b)(i). The right of any Holder to
registration pursuant to Section 1.2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
the Initiating Holders and such Holder) to the extent provided herein.
If Management or Other Stockholders request inclusion in such
registration, the Initiating Holders shall, on behalf of all Holders other than
Management, offer to Management or such Other Stockholders to include the
securities held by them in the underwriting and may condition such offer on the
acceptance of the further applicable provisions of this Section 1. The Company
shall (together with all Holders and Other Stockholders proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form and containing customary terms reasonably acceptable to the
Initiating Holders, with the representative of the underwriter or underwriters
selected for such underwriting by the Company and reasonably acceptable to the
Initiating Holders; provided, however, that if the Company has not selected an
underwriter reasonably acceptable to the Initiating Holders within thirty (30)
days after the Company's receipt of the request for registration from the
Initiating Holders, then the Initiating Holders may select an underwriter
reasonably acceptable to the Company in connection with such registration.
Notwithstanding any other provision of this Section 1.2, if the underwriter
representative advises the Initiating Holders in writing that marketing
- 6 -
<PAGE> 7
factors require a limitation of the number of shares to be underwritten, the
securities of the Company held by Other Stockholders shall be excluded from such
registration to the extent so required by such limitation and, if a further
limitation on the number of shares is required, the securities of the Company
held by Management shall be excluded from such registration to the extent so
required by such limitation and, if a limitation on the number of shares is
still required, the Initiating Holders and the other Holders other than
Management shall be entitled to include shares of each Holder who requests
inclusion in such registration in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities that they had requested to be
included in such registration and the remainder of such shares shall be excluded
from such registration. The Company shall advise all holders of securities
requesting registration as to the number of shares of securities that may be
included in the registration and underwriting as allocated in the foregoing
manner. If any Other Stockholder or Holder who has requested inclusion in such
registration as provided above disapproves of the terms of the underwriting,
such person may elect to withdraw therefrom by written notice to the Company,
the underwriter and the Initiating Holders. The securities so withdrawn shall
also be withdrawn from registration. If the underwriter has not limited the
number of shares to be underwritten, the Company may include its securities for
its own account in such registration if the underwriter so agrees and if the
number of Registrable Securities and other securities of the Holders that would
otherwise have been included in such registration and underwriting will not be
limited thereby.
1.3 Company Registration.
(a) 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,
the Company shall:
(i) promptly give to each Holder written notice
thereof (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
(ii) 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 within fifteen (15) days after receipt of such
written notice from the Company, by any Holder or Holders,
except as set forth in Section 1.3(b) hereof.
(b) 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 Section 1.3(a)(i) hereof. In such event the right of
any Holder to registration pursuant to Section 1.3(i) 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 and (ii) shall terminate as to each Holder upon the availability of Rule
144(k) to such Holder and such Holder holding not more than one percent (1%) of
the outstanding Shares. All Holders
- 7 -
<PAGE> 8
proposing to distribute their securities through such underwriting shall
(together with the Company and Other Stockholders 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 1.3, if the
underwriter reasonably determines that marketing factors require a limitation on
the number of shares to be underwritten, the securities of the Company held by
Other Stockholders shall be first excluded from such registration to the extent
so required by such limitation, and, if a limitation on the number of shares is
still required, the number of shares that may be included in the registration
shall be allocated among the Holders 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 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 offered by the Company for
its own account. If any Holder or Other Stockholder disapproves of the terms of
any such underwriting, he 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.
1.4 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 Initiating Holders, the non-Initiating Holders and the Other
Stockholders of the securities so registered pro rata on the basis of the number
of their shares so registered; provided, however, that the Company shall not be
required to pay any Registration Expenses if, as a result of the withdrawal of a
request for registration by the Initiating Holders pursuant to Section 1.2
hereof, the registration statement does not become effective, in which case the
Initiating Holders, the non-Initiating Holders and Other Stockholders requesting
registration shall bear such Registration Expenses pro rata on the basis of the
number of their shares so included in the registration request (except for the
fees of any counsel for the Holders, which shall be borne only by the persons
whom such counsel represented, pro rata on the basis of the number of their
shares so included in the registration request); provided, further, that such
registration shall not be counted as a registration pursuant to Section
1.2(a)(i), (ii) or (iii) hereof; and provided, further, 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 stockholders, then such expenses shall be payable by the
selling stockholders pro rata, to the extent required by such jurisdiction.
1.5 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:
- 8 -
<PAGE> 9
(a) keep such registration effective for a period of one
hundred twenty (120) days or until the Holder or Holders have completed the
distribution described in the registration statement relating thereto, whichever
first occurs; and
(b) furnish such number of prospectuses and other
documents incident thereto as a Holder from time to time may reasonably request.
1.6 Indemnification.
(a) The Company shall indemnify each Holder, each of such
Holder's officers, directors and partners, and each person controlling (as
defined in paragraph (d) below) such Holder, with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement, 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, each of its officers,
directors and partners, and each person controlling such Holder, 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 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 in an instrument duly executed by the
Holder or underwriter seeking to be indemnified, where such information is
stated to be specifically for use in such prospectus, offering circular or
related document.
(b) Each Holder and Other Stockholder shall, if
securities held by him 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 legal counsel and independent
accountant of the Company, each underwriter, if any, of the Company's securities
covered by such a registration statement, each person who controls the Company
or such underwriter, and each other such Holder and Other Stockholder, each of
its officers, directors and partners and each person controlling such Holder or
Other Stockholder, 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 Stockholders, 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,
- 9 -
<PAGE> 10
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 Stockholder specifically for use therein;
provided, however, that the obligations of such Holder or Other Stockholder
hereunder shall be limited to an amount equal to the net proceeds to such Holder
or Other Stockholder of securities sold as contemplated herein.
(c) Each party entitled to indemnification under this
Section 1.6 (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, provided,
however, that the Indemnified Party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the Indemnifying Party, if
representation of such indemnified party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between such Indemnified Party and any other party represented by such
counsel in such proceeding. The failure of any Indemnified Party to give notice
as provided herein shall relieve the Indemnifying Party of its obligations under
this Section 1.6 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 it may have to any
Indemnified Party otherwise than under this Section 1.6. 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.
(d) For purposes of this Section 1.6, the term "control"
shall have the meaning ascribed thereto under the Securities Act.
1.7 Information by Holders and Other Stockholders. Each Holder or
Other Stockholder of securities included in any registration shall furnish to
the Company such information regarding such Holder or Other Stockholder and the
distribution proposed by such Holder or Other Stockholder 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.
1.8 Limitations on Registration of Issues of Securities. From and
after the date of this Agreement, without the consent of the holders of a
majority of the shares of Common Stock, on a fully converted basis, represented
by the then outstanding shares of Preferred Shares and Conversion Shares, the
Company shall not enter into any agreement with any holder or prospective holder
of any securities of the Company providing that such holder or prospective
holder may require the Company to initiate any registration of any
- 10 -
<PAGE> 11
securities of the Company, and shall not enter into any agreements with any
holder or prospective holder of any securities of the Company that, upon any
registration of any of its securities, the Company will include among the
securities that it then registers securities owned by such holder or prospective
holder. In any event, any registration rights given by the Company to any holder
or prospective holder of its securities shall be consistent with the
registration and other rights provided in this Agreement.
1.9 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 shares of Common Stock to the public without registration, the Company
shall:
(a) 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 one hundred and eighty (180)
days after the Initial Public Offering;
(b) 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
(c) so long as any Investor owns any Registrable
Securities, furnish to such Investor 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 after 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 Investor may reasonably request in
availing itself of any rule or regulation of the Commission allowing an Investor
to sell any such securities without registration.
1.10 Transfer of Registration Rights. The rights to cause the
Company to register securities of the Company under Sections 1.2 and 1.3 hereof
may be assigned by an Investor to (a) a purchaser of an aggregate of Conversion
Shares and Preferred Shares that together represent at least five hundred
thousand (500,000) shares of Common Stock on a fully converted basis and (b)
upon distribution by an Investor that is an entity of Preferred Shares or
Conversion Shares to the direct or indirect beneficial owners of the securities
of such Investor (including direct or indirect general or limited partners
thereof), together with the securities being transferred, provided that 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.
1.11 "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 (or other securities) of the Company, the Holders shall not sell
or otherwise transfer or dispose of any Common Stock (or other securities) of
the Company held by them during the period up to one hundred eighty (180) days
(or such lesser period as the Company's
- 11 -
<PAGE> 12
Board of Directors determines to be in the best interest of the Company)
following the effective date of a registration statement of the Company filed
under the Securities Act, provided that:
(a) such agreement apply only with respect to an
underwritten Initial Public Offering (whether such offering was initiated by the
Company or any Initiating Holders); and
(b) Other Stockholders selling securities pursuant to
such registration statement and all 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 by the law of
the State of Georgia.
2.2 Amendment. This Agreement may not be amended, supplemented or
otherwise modified except by an instrument in writing signed by Holders who in
the aggregate own more than two-thirds (66 2/3%) of the Common Stock represented
on a fully converted basis by the Preferred Shares and the Conversion Shares
then held by the Investors, provided that the consent of those members of
Management who are then still employed by the Company and then hold a majority
of the shares of Management's Stock and the Option Stock, collectively, shall be
required if the rights of Management would be adversely affected other than on a
pro rata basis with respect to the issuance following the date hereof of new
shares of Common Stock or securities convertible into or exchangeable for shares
of Common Stock as to which registration rights substantially similar to those
contained in this Agreement are granted; provided further that such amendment,
supplement or modification shall not be effective with respect to any person not
signing such instrument unless and until such person receives written notice of
such amendment, supplement or modification.
2.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
Investors and Management. The Company may not assign its rights hereunder.
2.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute one agreement, binding on the
parties hereto.
[SIGNATURES APPEAR ON SUCCEEDING PAGES]
- 12 -
<PAGE> 13
IN WITNESS WHEREOF, the parties have executed this Second Amended and
Restated Registration Rights Agreement on the date first written above.
MANAGEMENT:
/s/ Francis A. Rowe
---------------------------
FRANCIS A. ROWE
/s/ E. Neal Tompkins
---------------------------
E. NEAL TOMPKINS
/s/ Michael W. Barry
---------------------------
MICHAEL W. BARRY
/s/ Jack N. Bartholmae
---------------------------
JACK N. BARTHOLMAE
/s/ Ricky L. Berry
---------------------------
RICKY L. BERRY
/s/ Keith J. Bradley
---------------------------
KEITH J. BRADLEY
/s/ Gregory A. Chatham
---------------------------
GREGORY A. CHATHAM
/s/ Donald F. Greene
---------------------------
DONALD F. GREENE
/s/ James W. O'Brien
---------------------------
JAMES W. O'BRIEN
/s/ Charles K. Thackston
---------------------------
CHARLES K. THACKSTON
- 13 -
<PAGE> 14
/s/ Daniel Slayton
---------------------------
DANIEL SLAYTON
/s/ Maurice Wheatley
---------------------------
MAURICE WHEATLEY
/s/ Peter A. Zuber
---------------------------
PETER A. ZUBER
THE INVESTORS:
SEVIN ROSEN FUND IV L.P.
By: SRB Associates IV L.P.
Its General Partner
By: /s/ Charles H. Phipps
-------------------------
Charles H. Phipps
A General Partner
NORO-MOSELEY PARTNERS II, L.P.
By: Moseley and Company II
General Partner
By: /s/ Jack R. Kelly, Jr.
-------------------------
Jack R. Kelly, Jr.
General Partner
- 14 -
<PAGE> 15
APERTURE ASSOCIATES, L.P.
By: Horsley Bridge Partners, Inc.,
General Partner
By: /s/ N. Dan Reeve
-------------------
N. Dan Reeve
Managing Director
/s/ David Michael Hockett
------------------------
DAVID MICHAEL HOCKETT
/s/ David F. Bellet
-----------------------
DAVID F. BELLET as TRUSTEE
FOR THE PROFIT SHARING PLAN
DLJSC-CUSTODIAN FBO DAVID F. BELLET
/s/ James Bessen
-----------------------
JAMES BESSEN
- 15 -
<PAGE> 16
INTERWEST PARTNERS V, L.P.
By: Interwest Management Partners V,
L.P., General Partner
By: /s/ Philip T. Gianos
-----------------------
Philip T. Gianos,
A General Partner
INTERWEST INVESTORS V
By: /s/ Philip T. Gianos
---------------------------
Philip T. Gianos
/s/ Harvey B. Cash
--------------------------
HARVEY B. CASH Self-Directed IRA
- 16 -
<PAGE> 17
CROWN ASSOCIATES III,
A Limited Partnership
By: Crown Partners III,
General Partner
By: /s/ David F. Bellet
---------------------
David F. Bellet,
A General Partner
CROWN GLYNN ASSOCIATES,
A Limited Partnership
By: Crown Glynn Partners,
General Partner
By: /s/ David F. Bellet
---------------------
David F. Bellet,
A General Partner
THE CROWN TRUST
By: Neuberger & Berman Trust
Company, Trustee
By: /s/
---------------------
IRA FBO David F. Bellet
DLJSC as Custodian
By: /s/ David F. Bellet
-------------------------
/s/ Jeffrey S. Hamren
----------------------------
JEFFREY S. HAMREN
/s/ Benjamin Block
----------------------------
BENJAMIN BLOCK
- 17 -
<PAGE> 18
'
/s/ Mavis Davidson
------------------------------
MAVIS DAVIDSON
/s/ Dietrich R. Erdmann
------------------------------
DIETRICH R. ERDMANN
STANFORD UNIVERSITY
By: /s/ Carol Gilmer
---------------------------
Carol Gilmer, Assistant Secretary
to Board of Trustees
/s/ Michael E. Kohlsdorf
------------------------------
MICHAEL E. KOHLSDORF
/s/ Michael C. Daly
------------------------------
MICHAEL C. DALY
THE COMPANY:
T/R SYSTEMS, INC.
By: /s/ Michael E. Kohlsdorf
---------------------------
Title: CEO
----------------------
- 18 -
<PAGE> 19
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT,
SECOND AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT AND
SECOND AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT is made and entered into as of the 20th day of
June, 1997 by and between T/R Systems, Inc., a Georgia corporation, with its
principal offices in Norcross, Georgia (the "Company"); Francis A. Rowe, a
Georgia resident ("Rowe"); E. Neal Tompkins, a Georgia resident ("Tompkins");
Daniel Slayton, a Georgia resident ("Slayton"); Sevin Rosen Fund IV L.P., a
Delaware limited partnership ("SRIV"); Noro-Moseley Partners II, L.P., a Georgia
limited partnership ("NMP"); Aperture Associates, L.P., a Delaware limited
partnership ("Aperture"); Interwest V, L.P., a Delaware limited partnership
("Interwest"); and Interwest V, a Delaware limited partnership ("Interwest
Investors", and Interwest Investors together with SRIV, NMP, Aperture, and
Interwest are referred to herein as the "Principal Preferred Holders")
W I T N E S S E T H:
WHEREAS, the Company and certain shareholders of the Company
are parties to a certain Stock Purchase Agreement dated March 31, 1997 (the
"Stock Purchase Agreement") pursuant to which such shareholders, including the
Principal Preferred Holders, purchased shares of Series C Preferred Stock of the
Company ("Series C Preferred Stock");
WHEREAS, the Company desires to sell and the Purchaser desires
to acquire one hundred eleven thousand one hundred eleven (111,111) shares of
Series C Preferred Stock ("Purchased Shares"); and the Principal Preferred
Holders have consented to amendments to the Stock Purchase Agreement to
accommodate such sale and purchase;
WHEREAS, the parties hereto have consented to amend each of
the Company's Second Amended and Restated Shareholders' Agreement and Second
Amended and Restated Registration Rights Agreement, each dated March 31, 1997
(the "Shareholders' Agreement" and the "Registration Rights Agreement,"
respectively) coincident with the issuance of the Purchased Shares to Purchaser
and to make
<PAGE> 20
the Purchaser as a party thereto in order to provide the Purchaser the rights
therein afforded to holders of Series C Preferred Stock;
WHEREAS, the Stock Purchase Agreement provides that it may be
amended by the Company and by holders of at least a majority of the Company's
Series C Preferred Stock; and
WHEREAS, the Shareholders' Agreement provides that it may be
amended with the written consent of the holders of not less than three-quarters
of the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock, voting together as a single class, and those holders of common stock of
the Company who are parties to such Agreement voting as a class holding at least
three-quarters of such common shares;
WHEREAS, the Registration Rights Agreement of the Company
provides that it may be amended with the consent of holders of preferred stock
of the Company who hold more than two-thirds of such preferred stock of the
Company, measured on a fully diluted (into common shares) basis and with the
consent of certain holders of common stock;
WHEREAS, the parties hereto represent the requisite number of
parties necessary to effect an amendment to the three agreements which are
amended by virtue of this Agreement;
NOW, THEREFORE, BE IT AGREED AS FOLLOWS:
1. Authorization of Shares. Coincident with the
execution and delivery of this Agreement the Company shall adopt and file with
the Secretary of State of the State of Georgia Articles of Amendment to the
Amended and Restated Articles of Incorporation of the Company so as to increase
the designation of the number of shares of its Series C Preferred Stock, $0.01
par value per share, of the Company (the "Series C Preferred Stock") from
1,200,000 to 1,500,000.
2. Sale of Shares of Series C Preferred Stock.
Coincident with the execution and delivery of this Agreement, the Company shall
issue and sell to the Purchaser, and the Purchaser shall purchase from the
Company,the Purchased Shares at a purchase price of $2.25 per share (or an
aggregate purchase price of $249,999.75).
3. Amendment to Stock Purchase Agreement. The parties
hereto agree that this Agreement shall constitute an amendment to the Stock
Purchase Agreement such that Purchaser shall be deemed to be a party thereof for
all purposes so as to accommodate the purchase and sale of Series C Preferred
Stock and shall be entitled to rely on the representations and warranties made
therein by the
2
<PAGE> 21
Company and shall be the beneficiary of the covenants provided for therein by
the Company and shall be deemed generally and for all purposes to be a
"Purchaser" thereunder. The Company represents and warrants that the
representations and warranties provided in Article III thereof are true and
correct as of the date hereof in all material respects, giving effect to the
purchase and sale of Series C Preferred Stock provided for in such Stock
Purchase Agreement. The parties agree that the sale of the Purchased Stock
hereunder shall not be subject to the provisions of Section 7.4 of the Stock
Purchase Agreement.
4. Amendment to Shareholders' Agreement. The parties
hereto agree that the Purchaser shall be deemed to be a party to the
Shareholders' Agreement for all purposes and that such Agreement is amended to
permit same, with the Purchaser being deemed an Investor and Shareholder as
those terms are used therein, and being entitled to all rights and benefits
provided for therein by virtue of the foregoing amendments.
5. Amendment to Registration Rights Agreement. The
parties hereto agree that the Purchaser shall be deemed to be a party to the
Registration Rights Agreement for all purposes and that such Agreement is
amended to permit same, with the Purchaser being deemed an Investor and Holder
as those terms are used therein, and being entitled to all rights and benefits
provided for therein by virtue of the foregoing amendments.
6. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall constitute one agreement, binding on
the parties hereto.
IN WITNESS WHEREOF, the parties have executed or caused to be
executed this Agreement as of the day and year first written above.
T/R SYSTEMS, INC.
By: /s/ Michael E. Kohlsdorf
---------------------------------------
Michael E. Kohlsdorf
President and
Chief Executive Officer
/s/ Francis A. Rowe
------------------------------------------
FRANCIS A. ROWE
3
<PAGE> 22
/s/ E. Neal Tompkins
------------------------------------------
E. NEAL TOMPKINS
/s/ Daniel Slayton
------------------------------------------
DANIEL SLAYTON
SEVIN ROSEN FUND IV L.P.
By: SRB Associates IV L.P.,
Its General Partner
By: /s/ Charles H. Phipps
---------------------------------------
A General Partner
NORO-MOSELEY PARTNERS II, L.P.
By: Moseley and Company II,
General Partner
By: /s/
------------------------------------
A General Partner
APERTURE ASSOCIATES, L.P.
By: Horsley Bridge Partners, Inc.
General Partner
By: /s/ N. Dan Reeve
------------------------------------
N. Dan Reeve
Managing Director
4
<PAGE> 23
INTERWEST PARTNERS V, L.P.
By: Interwest Management Partners V,
L.P.
General Partner
By: /s/ Philip T. Gianos
--------------------------------
Phillip T. Gianos,
A General Partner
INTERWEST INVESTORS V
By: /s/ Philip T. Gianos
-------------------------------------
Phillip T. Gianos
FSC CORP.
By: /s/
-------------------------------------
5
<PAGE> 1
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), made as of this
29th day of June, 1998, 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;
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.
<PAGE> 2
"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.
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, 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.
- 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
- 3 -
<PAGE> 4
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 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,
- 4 -
<PAGE> 5
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 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
- 5 -
<PAGE> 6
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 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
- 6 -
<PAGE> 7
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 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 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: /s/ Mike Barry
--------------------------------------
Name: Mike Barry
-----------------------------------
(Please Print)
- 8 -
<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ Jack Bartholmae
--------------------------------
Name: Vice President Engineering
------------------------------
(Please Print)
- 9 -
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
-----------------------------------------
Title:
--------------------------------------
INVESTORS:
By: /s/ E. Neal Tompkins /s/ Sue A. Tompkins
-----------------------------------------
Name: E. Neal Tompkins Sue A. Tompkins
---------------------------------------
(Please Print)
- 9 -
<PAGE> 11
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ Ricky Berry
--------------------------------
Name: Ricky Berry
------------------------------
(Please Print)
- 9 -
<PAGE> 12
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ Keith J. Bradley
--------------------------------
Name: Keith J. Bradley
------------------------------
(Please Print)
- 9 -
<PAGE> 13
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ Gregory A. Chatham
--------------------------------
Name: Gregory A. Chatham
------------------------------
(Please Print)
- 9 -
<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ Jeff Contino
--------------------------------
Name: Jeff Contino
------------------------------
(Please Print)
- 9 -
<PAGE> 15
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ Marty Froescher
--------------------------------
Name: Marty Froescher
------------------------------
(Please Print)
- 9 -
<PAGE> 16
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ Donald F. Greene
--------------------------------
Name: Donald F. Greene
------------------------------
(Please Print)
- 9 -
<PAGE> 17
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ Mark Kilpatrick
--------------------------------
Name: Mark Kilpatrick
------------------------------
(Please Print)
- 9 -
<PAGE> 18
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
------------------------------------
Title:
---------------------------------
INVESTORS:
By: /s/ Shyi-Shyang Li
/s/ Liang-Jen Hsu
------------------------------------
Name: Shyi-Shyang Li
Liang-Jen Hsu
----------------------------------
(Please Print)
- 9 -
<PAGE> 19
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ James W. O'Brien
--------------------------------
Name: James W. O'Brien
------------------------------
(Please Print)
- 9 -
<PAGE> 20
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ Michael Raines
--------------------------------
Name: Michael Raines
------------------------------
(Please Print)
- 9 -
<PAGE> 21
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ Matthew D. Shumaker
--------------------------------
Name: Matthew D. Shumaker
------------------------------
(Please Print)
- 9 -
<PAGE> 22
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ Lam Siv
--------------------------------
Name: Lam Siv
------------------------------
(Please Print)
- 9 -
<PAGE> 23
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ Maurice S. Wheatley Jr.
--------------------------------
Name: Maurice S. Wheatley Jr.
------------------------------
(Please Print)
- 9 -
<PAGE> 24
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ Maurice Wheatley
--------------------------------
Name: Maurice Wheatley
------------------------------
(Please Print)
- 9 -
<PAGE> 25
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
/s/ Steven Beauregard
By: /s/ Kristine Beauregard
--------------------------------
Name: Kristine & Steven Beauregard
------------------------------
(Please Print)
- 9 -
<PAGE> 26
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ Audrey Robinson
--------------------------------
Name: Audrey Robinson
------------------------------
(Please Print)
- 9 -
<PAGE> 27
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ Dan Slayton
--------------------------------
Name: Dan Slayton
------------------------------
(Please Print)
- 9 -
<PAGE> 28
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ C. Harold Gaffin
--------------------------------
Name: C. Harold Gaffin
------------------------------
(Please Print)
- 9 -
<PAGE> 29
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ Brenton E. Battles, Trustee
--------------------------------
Name: Brenton E. Battles, Trustee
------------------------------
(Please Print)
Battles Family Decedent's
Trust
UTA 6-22-89
- 9 -
<PAGE> 30
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ Stanley M. Bieniek
--------------------------------
Name: Stanley M. Bieniek
------------------------------
(Please Print)
- 9 -
<PAGE> 31
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ Martin C. Blyseth
--------------------------------
Name: Martin C. Blyseth
------------------------------
(Please Print)
- 9 -
<PAGE> 32
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ Murray D. Bradley, Jr.
--------------------------------
Name: Murray D. Bradley, Jr.
------------------------------
(Please Print)
- 9 -
<PAGE> 33
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ Peter M. Buccieri
--------------------------------
Name: Peter M. Buccieri
------------------------------
(Please Print)
- 9 -
<PAGE> 34
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ Robert Cherniak
--------------------------------
Name: Robert Cherniak
------------------------------
(Please Print)
- 9 -
<PAGE> 35
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ James M. Davin
--------------------------------
Name: /s/ James M. Davin
------------------------------
(Please Print)
- 9 -
<PAGE> 36
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ Jean C. Davis
--------------------------------
Name: Jean C. Davis
------------------------------
(Please Print)
- 9 -
<PAGE> 37
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ Armand Della Monica
--------------------------------
Name: Armand Della Monica
------------------------------
(Please Print)
- 9 -
<PAGE> 38
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ Joseph M. Deveney
--------------------------------
Name: Joseph M. Deveney
------------------------------
(Please Print)
- 9 -
<PAGE> 39
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ Gerald W. Dorn
--------------------------------
Name: Gerald W. Dorn II M.D.
------------------------------
(Please Print)
- 9 -
<PAGE> 40
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
/s/ Raymond F. Farrington
By: /s/ Eva D. Farrington
--------------------------------
Raymond F. Farrington
Name: Eva D. Farrington
------------------------------
(Please Print)
- 9 -
<PAGE> 41
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ John McBride
--------------------------------
Name: John McBride
------------------------------
(Please Print)
- 9 -
<PAGE> 42
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ Judy L. Michael
--------------------------------
Name: Judy L. Michael
------------------------------
(Please Print)
- 9 -
<PAGE> 43
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ J.B. Ruhl /s/ Lisa M. LeMaster
---------------------------------
Name: J.B. Ruhl / Lisa M. LeMaster
---------------------------------
(Please Print)
- 9 -
<PAGE> 44
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ Michael Sachs
--------------------------------
Name: Michael Sachs
------------------------------
(Please Print)
- 9 -
<PAGE> 45
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ Edward A. Stroud 2/10/98
--------------------------------
Name: Edward A. Stroud
------------------------------
(Please Print)
- 9 -
<PAGE> 46
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ Susan K. Dubras
--------------------------------
Name: Susan K. Dubras
------------------------------
(Please Print)
- 9 -
<PAGE> 47
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ Stephen D. Rowe
--------------------------------
Name: Stephen D. Rowe
------------------------------
(Please Print)
- 9 -
<PAGE> 48
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ Jay David Tompkins
--------------------------------
Name: Jay David Tompkins
------------------------------
(Please Print)
- 9 -
<PAGE> 49
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ Jennifer M. Tompkins
--------------------------------
Name: Jennifer M. Tompkins
------------------------------
(Please Print)
- 9 -
<PAGE> 50
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ Charles A. Ziering
263 Simon Willard Road
Concord, MA 01742-1625
--------------------------------
Name:
------------------------------
(Please Print)
- 9 -
<PAGE> 51
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first written above.
THE COMPANY:
T/R SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
INVESTORS:
By: /s/ Dennis Bosserman
--------------------------------
Name: Dennis Bosserman
------------------------------
(Please Print)
- 9 -
<PAGE> 1
EXHIBIT 10.1
- -------------------------------------------------------------------------------
T/R SYSTEMS, INC.
1992 STOCK OPTION PLAN
ON MARCH 16, 1992
- -------------------------------------------------------------------------------
<PAGE> 2
T/R SYSTEMS, INC.
1992 STOCK OPTION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
I. DEFINITIONS 1
1.1 Definitions 1
II. THE PLAN 3
2.1 Purpose 3
2.2 Administration 3
2.3 Participation 4
2.4 Stock Subject to the Plan 4
2.5 Grant of Options 4
2.6 Exercise of Options 5
III. OPTIONS 5
3.1 Grants 5
3.2 Option Price 5
3.3 Option Period 6
3.4 Exercise of Options 6
3.5 Limitations on Grant of Incentive Stock Options 6
IV. OTHER PROVISIONS 7
4.1 Rights of Eligible Employees, Participants and
Beneficiaries 7
4.2 Adjustments Upon Changes in Capitalization 7
4.3 Termination of Employment 8
4.4 Acceleration of Options 9
4.5 Government Regulations 9
4.6 Tax Withholding 10
4.7 Amendment, Termination and Suspension 10
4.8 Privileges of Stock Ownership; Nondistributive
Intent 11
4.9 Effective Date of the Plan 11
4.10 Term of the Plan 11
4.11 Governing Law 11
</TABLE>
<PAGE> 3
This Stock Option Agreement is dated as of March 16, 1992.
I. DEFINITIONS.
1.1 Definitions.
(a) "Award" shall mean an Option, which may be
designated as a Nonqualified Stock Option or an Incentive Stock Option granted
under this Plan.
(b) "Award Agreement" shall mean, as the case may be,
the Incentive Stock Option Award Agreement substantially in the form of Exhibit
A attached hereto and made a part herewith, setting forth the terms of an
Award, or the Non-Qualified Stock Option Award Agreement substantially in the
form of Exhibit 8 attached hereto and made a part herewith setting forth the
terms of an Award.
(c) "Award Date" shall mean the date upon which the
Committee took the action granting an Award or such later date as is prescribed
by the Committee.
(d) "Award Period" shall mean the period beginning on an
Award Date and ending on the expiration date of such Award.
(e) "Beneficiary" shall mean the person, persons, trust
or trusts entitled by will or the laws of descent and distribution to receive
the benefits specified under this Plan in the event of a Participant's death.
(f) "Board" shall mean the Board of Directors of the
Corporation.
(g) "Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time.
(h) "Common Stock" shall mean the Common Stock, no par
value, of the Corporation.
(i) "Commission" shall mean the Securities and Exchange
Commission.
(j) "Committee" shall mean the committee appointed by
the Board and consisting of three or more members or if no such committee has
been appointed, the Board.
(k) "Company" shall mean, collectively, the Corporation
and its Subsidiaries.
(1) "Corporation" shall mean T/R Systems, Inc., a
Georgia corporation, and its successors.
Page 1 of 11
<PAGE> 4
(m) "Eligible Employee" shall mean an officer or key
employee of the Company.
(n) "Event" shall mean approval by the stockholders of
the Corporation of (i) the dissolution or liquidation of the Corporation; (ii)
an agreement to merge or consolidate, or otherwise reorganize, with or into one
or more entities which are not Subsidiaries, as a result of which less than 50%
of the outstanding voting securities of the surviving or resulting entity are,
or are to be, owned by former stockholders of the Corporation; (iii) the sale
of substantially all of the Corporation's business and/or assets to a person or
entity which is not a Subsidiary; or (iv) a tender offer pursuant to which the
offeror acquires more than 50% of the Corporation's outstanding voting
securities.
(o) "Fair Market Value shall mean (i) the closing sales
price of the stock first preceding the time at which Fair Market Value is to be
determined on the national securities exchange having the greatest volume of
trading in the stock during the 30-day period immediately preceding that time
as reported in The Wall Street Journal; (ii) if the stock is not listed or
admitted to trade on any national securities exchange, the closing sales price
of the stock first preceding the time at which Fair Market Value is to be
determined, as quoted in the National Association of Securities Dealers
Automated Quotation (NASDAQ) National Market Reporting System, or any successor
system, as reported in The Wall Street Journal; (iii) if the stock is not
listed or admitted to trade on any national securities exchange and is not
quoted on the NASDAQ National Market Reporting System, the average of the
closing bid and asked sales prices of the stock on the over-the-counter market
first preceding the time at which Fair Market Value is to be determined, as
quoted on NASDAQ or such other national reporting service, as reported in The
Wall Street Journal; or (iv) if the stock is not listed or admitted to trade on
a national securities exchange, is not quoted on the NASDAQ National Market
Reporting System and if the bid and asked sales prices for the stock are not
furnished by the National Association of Securities Dealers, Inc. or a similar
organization, the Fair Market Value established by the Committee for purposes
of granting Options under the Plan based on such relevant facts, which may
include opinions of independent experts, as may be available to the Committee.
(p) "Incentive Stock Option" shall mean an option which
is designated as an incentive stock option within the meaning of Section 422 of
the Code, the award of which contains such provisions as are necessary to
comply with that section.
(q) "Nonqualified Stock Option" shall mean an option
which is designated as a Nonqualified Stock Option.
Page 2 of 11
<PAGE> 5
(r) "Option" shall mean an option to purchase Common
Stock under this Plan. An Option shall be designated by the Committee as a
Nonqualified Stock Option or an Incentive Stock Option.
(s) "Participant" shall mean an Eligible Employee who
has been awarded an Award.
(t) "Personal Representative" shall mean the person or
persons who, upon the disability or incompetence of a Participant, shall have
acquired on behalf of the Participant by legal proceeding or otherwise the
power to exercise the rights and receive the benefits specified in this Plan.
(u) "Plan" shall mean the T/R Systems, Inc. 1992 Stock
Option Plan, as amended from time to time in accordance herewith.
(v) "Securities Act" shall mean the Securities Act of
1933, as amended.
(w) "Subsidiary" shall mean any corporation or other
entity a majority or more of whose outstanding voting stock or voting power is
beneficially owned directly or indirectly by the Corporation.
II. THE PLAN
2.1 Purpose.
The purpose of this Plan is to promote the success of the
Company by providing an additional means to attract and retain key personnel
through added long term incentives for high levels of performance and for
significant efforts to improve the financial performance of the Company by
granting Awards.
2.2 Administration.
(a) This Plan shall be administered by the Committee.
Action of the Committee with respect to the administration of this Plan shall
be taken pursuant to a majority vote or the written consent of a majority of
its members. In the event action by the Committee is taken by written consent,
the action shall be deemed to have been taken at the time specified in the
consent or, if none is specified, at the time of the last signature. The
Committee may delegate administrative functions to individuals who are
officers or employees of the Company.
(b) Subject to the express provisions of this Plan, the
Committee shall have the authority to construe and interpret this Plan and any
agreements defining the rights and obligations of the Company and Participants
under this Plan, to further define the terms used in this Plan, to prescribe,
amend and rescind rules and
Page 3 of 11
<PAGE> 6
regulations relating to the administration of this Plan, to determine the
duration and purposes of leaves of absence which may be granted to Participants
without constituting a termination of their employment for purposes of this
Plan and to make all other determinations necessary or advisable for the
administration of this Plan. The determinations of the Committee on the
foregoing matters shall be conclusive.
(c) Any action taken by, or inaction of, the
Corporation, any Subsidiary, the Board or the Committee relating to this Plan
shall be within the absolute discretion of that entity or body and shall be
conclusive and binding upon all persons. No member of the Board or Committee,
or officer of the Corporation or Subsidiary, shall be liable for any such
action or inaction of the entity or body, of another person or, except in
circumstances involving bad faith, of himself or herself. Subject only to
compliance with the express provisions hereof, the Board and Committee may act
in their absolute discretion in matters related to this Plan.
2.3 Participation.
Awards may be granted only to Eligible Employees. An
Eligible Employee who has been granted an Award may, if otherwise eligible, be
granted additional Awards if the Committee shall so determine. Members of the
Board who are not officers or employees of the Company shall not be eligible to
receive Awards.
2.4 Stock Subject to the Plan.
The stock to be offered under this Plan shall be shares of
the Corporation's authorized but unissued Common Stock. The aggregate amount of
Common Stock that may be issued or transferred pursuant to Awards granted under
this Plan shall not exceed 2,500,000 shares, subject to adjustment as set forth
in Section 4.2. If any Option shall lapse or terminate (either by its terms or
as a result of the repurchase by the Company of such Option) without having
been exercised in full, the unpurchased shares subject thereto shall again be
available for purposes of this Plan
2.5 Grant of Options.
Subject to the express provisions of the Plan, the Committee
shall determine from the class of Eligible Employees those individuals to whom
Options under the Plan shall be granted, the terms of Options (which need not
be identical) and the number of shares of Common Stock subject to each Option.
Each Option shall be subject to the terms and conditions set forth in the Plan
and such other terms and conditions established by the Committee as are not
inconsistent with the purpose and provisions of the Plan. The grant of an
Option is made on the Award Date.
Page 4 of 11
<PAGE> 7
2.6 Exercise of Options.
An Option shall be deemed to be exercised when the Secretary
or Assistant Secretary of the Corporation receives written notice of such
exercise from the Participant, together with payment of the purchase price made
in accordance with Section 3.2(a). Notwithstanding any other provision of this
Plan, the Committee may impose, by rule or in Award Agreements, such conditions
upon the exercise of Options (including, without limitation, vesting of
exercise rights and conditions limiting the time of exercise to specified
periods) as may be required to satisfy applicable regulatory requirements or as
may be deemed necessary or advisable by the Committee.
III. OPTIONS.
3.1 Grants.
One or more Options may be granted to any Eligible Employee.
Each Option so granted shall be designated by the Committee as either a
Nonqualified Stock Option or an Incentive Stock Option.
3.2 Option Price.
The purchase price per share of the Common Stock covered by
each Option shall be determined by the Committee, but in no event shall be less
than 85% of the Fair Market Value of the Common Stock on the date of grant and
in the case of Incentive Stock Options shall not be less than 100% (110% in the
case of a Participant who owns more than 10% of the total combined voting power
of all classes of stock of the Company) of the Fair Market Value of the Common
Stock on the date the Incentive Stock Option is granted. The purchase price of
any shares purchased shall be paid in full at the time of each purchase in one
or a combination of the following methods: (i) in cash, or by certified or
cashier's check payable to the order of the Corporation, (ii) if authorized by
the Committee or specified in the Option being exercised, by a promissory note
made by the Participant in favor of the Corporation, upon the terms and
conditions determined by the Committee, and secured by the Common Stock
issuable upon exercise in compliance with applicable law (including, without
limitation; state corporate law and federal margin requirements), or (iii) by
shares of Common Stock of the Corporation already owned by the Participant;
provided, however, the Committee may in its absolute discretion limit the
Participant's ability to exercise an Option by delivering shares, and any
shares delivered which were initially acquired upon exercise of a stock option
must have been owned by the Participant at least six months as of the date of
delivery. Shares of Common Stock used to satisfy the exercise price of an
Option shall be valued at their Fair Market Value on the date of exercise.
Page 5 of 11
<PAGE> 8
3.3 Option Period.
Each Option and all rights or obligations thereunder shall
expire on such date as shall be determined by the Committee, but not later than
10 years after the Award Date in the case of an Incentive Stock Option (five
years in the case of a person described in Section 3.5(c)), and shall be
subject to earlier termination as hereinafter provided or as provided in any
Award Agreement.
3.4 Exercise of Options.
Except as otherwise provided in Section 4.4, an Option may
become exercisable, in whole or in part, on the date or dates specified in the
Award Agreement which date(s) shall not be earlier than six months after the
Award Date and thereafter shall remain exercisable until the expiration or
earlier termination of the Participant's Option. The Committee may, at any time
after grant of the Option and from time to time, increase the number, of shares
purchasable at any time so long as the total number of shares subject to the
Option is not increased. No Option shall be exercisable except in respect of
whole shares, and fractional share interests shall be disregarded. Not less
than 1,000 shares of Common Stock may be purchased at one time unless the
number purchased is the total number at the time available for purchase under
the terms of the Option.
3.5 Limitations on Grant of Incentive Stock Options.
(a) The aggregate Fair Market Value (determined as of
the Award Date) of the Common Stock for which Incentive Stock Options may first
become exercisable by any Participant during any calendar year under this Plan,
together with that of Common Stock subject to incentive stock options first
exercisable (other than as a result of acceleration pursuant to Section 4.2 or
4.4) by such Participant under any other plan of the Corporation or any
Subsidiary, shall not exceed $100,000.
(b) There shall be imposed in the Award Agreement
relating to Incentive Stock Options such terms and conditions as are required
in order that the Option be an "incentive stock option" as that term is defined
in Section 422 of the Code.
(c) No Incentive Stock Option may be granted to any
person who, at the time the Incentive Stock Option is granted, owns shares of
outstanding Common Stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company, unless the exercise price of such
Option is at least 110% of the Fair Market Value of the stock subject to the
Option and such Option by its terms is not exercisable after the expiration of
five years from the date such Option is granted.
Page 6 of 11
<PAGE> 9
IV. OTHER PROVISIONS.
4.1 Rights of Eligible Employees, Participants and
Beneficiaries.
(a) Status as an Eligible Employee shall not be
construed as a commitment that any Award will be made under this Plan to an
Eligible Employee or to Eligible Employees generally.
(b) Nothing contained in this Plan (or in Award
Agreements or in any other documents related to this Plan or to Options) shall
confer upon any Eligible Employee or Participant any right to continue in the
employ of the Company or constitute any contract or agreement of employment, or
interfere in any way with the right of the Company to reduce such person's
compensation or to terminate the employment of such Eligible Employee or
Participant, with or without cause, but nothing contained in this Plan or any
document related thereto shall affect any other contractual right of any
Eligible Employee or Participant.
(c) Other than by will or the laws of descent and
distribution, no interest in this Plan or in any Option shall be subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge and any such attempted action shall be void and no such
benefit or interest shall be, in any manner, liable for, or subject to, debts,
contracts, liabilities, engagements or torts of any Eligible Employee,
Participant or Beneficiary. The Committee shall disregard any attempted
transfer, assignment or other alienation prohibited by the preceding sentence
and shall pay or deliver such cash or shares of Common Stock in accordance with
the provisions of this Plan.
(d) No Participant, Beneficiary or other person shall
have any right, title or interest in any fund or in any specific asset
(including shares of Common Stock) of the Company by reason of any Option
granted hereunder. Neither the provisions of this Plan (or of any documents
related hereto), nor the creation or adoption of this Plan, nor any action
taken pursuant to the provisions of this Plan shall create, or be construed to
create, a trust of any kind or a fiduciary relationship between the Company and
any Participant, Beneficiary or other person. To the extent that a Participant,
Beneficiary or other person acquires a right to receive an Option hereunder,
such right shall be no greater than the right of any unsecured general creditor
of the Company.
4.2 Adjustments Upon Changes in Capitalization.
(a) If the outstanding shares of Common Stock are
increased, decreased or changed into, or exchanged for, a different number or
kind of shares or securities of the Corporation through a reorganization or
merger in which the
Page 7 of 11
<PAGE> 10
Corporation is the surviving entity, or through a combination,
recapitalization, reclassification, stock split, stock dividend, stock
consolidation or otherwise, an appropriate adjustment shall be made in the
number and kind of shares that may be issued pursuant to Options. A
corresponding adjustment to the consideration payable with respect to Options
granted prior to any such change shall also be made. Any such adjustment,
however, shall be made without change in the total payment, if any, applicable
to the portion of the Option not exercised but with a corresponding adjustment
in the price for each share.
(b) Upon the dissolution or liquidation of the
Corporation, or upon a reorganization, merger or consolidation of the
Corporation with one or more corporations as a result of which the Corporation
is not the surviving corporation, the Plan shall terminate, and any outstanding
Options shall, subject to the provisions of Section 4.4, terminate and be
forfeited. Notwithstanding the foregoing, the Committee may provide in writing
in connection with, or in contemplation of, any such transaction for any or all
of the following alternatives (separately or in combinations): (i) for the
assumption by the successor corporation of the Options theretofore granted or
the substitution by such corporation for such Options of Options covering the
stock of the successor corporation, or a parent or subsidiary thereof, with
appropriate adjustments as to the number and kind of shares and prices; (ii)
for the continuance of the Plan by such successor corporation in which event
the Plan and the Options shall continue in the manner and under the terms so
provided; or (iii) for the payment in cash or shares of Common Stock in lieu of
and in complete satisfaction of such Awards.
(c) In adjusting Options to reflect the changes
described in this Section 4.2, or in determining that no such adjustment is
necessary, the Committee may rely upon the advise of independent counsel and
accountants of the Corporation, and the determination of the Committee shall be
conclusive. No fractional shares of stock shall be issued under this Plan on
account of any such adjustment.
4.3 Termination of Employment.
(a) If the Participant's employment by the Company
terminates as a result of disability, the Participant or Participant's Personal
Representative may subject to Section 4.3(a) exercise any Option to the extent
it shall have become exercisable; provided, however, that in the case of
Incentive Stock Options, the Participant or Participant's Personal
Representative must exercise an Option to the extent it shall have become
exercisable within one year of the termination of employment.
Page 8 of 11
<PAGE> 11
(b) If the Participant's employment by the Company
terminates as a result of death while the Participant is employed by the
Company (or in the case of Incentive Stock Options was last employed by the
Company within three months before his death), the Participant's Option shall
subject to Section 4.3(a) be exercisable by the Participant's Beneficiary as to
all or any part of the shares of Common Stock covered thereby to the extent
exercisable on the date of death (or earlier termination).
(c) In the event of termination of employment with the
Company for any reason, other than discharge for cause, the Committee may, in
its discretion, increase the portion of the Participant's Option available to
the Participant, or Participant's Beneficiary or Personal Representative, as
the case may be, upon such terms as the Committee shall determine.
(d) If an entity ceases to be a Subsidiary, such action
shall be deemed for purposes of this Section 4.3 to be a termination of
employment of each employee of that entity.
4.4 Acceleration of Options.
Unless prior to an Event the Board determines that, upon its
occurrence, there shall be no acceleration of options or determines those
Options which shall be accelerated and the extent to which they shall be
accelerated, upon the occurrence of an Event each option shall become
immediately exercisable to the full extent theretofore not exercisable;
provided, however, that Options shall not in any event be so accelerated to a
date less than six months after the Award Date. Acceleration of Options shall
comply with applicable regulatory requirements, including without limitation,
Section 422 of the Code. For purposes of this Section 4.4 only, the Board shall
mean the Board as constituted immediately prior to the Event.
4.5 Government Regulations.
This Plan, the granting of Options under this Plan and the
issuance or transfer of shares of Common Stock (and/or the Payment of money)
pursuant thereto are subject to all applicable federal and state laws, rules
and regulations and to such approvals by any regulatory or governmental agency
(including without limitation "no action" positions of the Commission) which
may, in the opinion of counsel for the Corporation, be necessary or advisable
in connection therewith. Without limiting the generality of the foregoing, no
Options may be granted under this Plan, and no shares shall be issued by the
Corporation, pursuant to any such Option, unless and until, in each such case,
all legal requirements applicable to the issuance have, in the opinion of
counsel to the Corporation, been complied with. In connection with any stock
issuance or transfer, the person acquiring the
Page 9 of 11
<PAGE> 12
shares shall, if requested by the Corporation, give assurances satisfactory to
counsel to the Corporation in respect of such matters as the Corporation may
deem desirable to assure compliance with all applicable legal requirements.
4.6 Tax Withholding.
Upon the disposition by a Participant or other person of
shares of Common Stock acquired pursuant to the exercise of an Incentive Stock
Option prior to satisfaction of the holding period requirements of Section 422
of the Code, or upon the exercise of a Nonqualified Stock Option, the company
shall have the right to require such Participant or such other person to pay by
cash, or certified or cashier's check payable to the Company, the amount of any
taxes which the Company may be required to withhold with respect to such
transactions. The above notwithstanding, in any case where a tax is required to
be withheld in connection with the issuance or transfer of shares of Common
Stock under this Plan, the Participant may elect, pursuant to such rules as.
the Committee may establish, to have the Company reduce the number of such
shares issued or transferred by the appropriate number of shares to accomplish
such withholding; provided, the Committee may impose such conditions on the
payment of any withholding obligation as may be required to satisfy applicable
regulatory requirements.
4.7 Amendment, Termination, and Suspension.
(a) The Board may, at any time, terminate or, from time
to time, amend, modify or suspend this Plan (or any part hereof). In addition,
the Committee may, from time to time, amend or modify any provision of this
Plan except Section 4.4 and, with the consent of the Participant, make such
modifications of the terms and conditions of such Participant's Option as it
shall deem advisable. The Committee, with the consent of the Participant,
may also amend the terms of any Option to provide that the Option price of the
shares remaining subject to the original Option shall be reestablished at a
price not less than 100% of the Fair Market Value of the Common Stock on the
effective date of the amendment. No modification of any other term or provision
of any Option which is amended in accordance with the foregoing shall be
required, although the Committee may, in its discretion, make such further
modifications of any such Option as are not inconsistent with or prohibited-by
the Plan. No Options may be granted during any suspension of this Plan or after
its termination.
(b) If an amendment would (i) increase the aggregate
number of shares which may be issued under this Plan, or (ii) modify the
requirements of eligibility for participation in this Plan, the amendment shall
be approved by the Board or the Committee and by a majority of the
stockholders.
Page 10 of 11
<PAGE> 13
(c) In the case of Options issued before the effective
date of any amendment, suspension or termination of this Plan, such amendment,
suspension or termination of the Plan shall not, without specific action of the
Board and consent of the Participant, in any way modify, amend, alter or impair
any rights or obligations under any Option previously granted under the Plan.
4.8 Privileges of Stock Ownership: Nondistributive Intent.
A Participant shall not be entitled to the privilege of
stock ownership as to any shares of Common Stock not actually issued to him.
Upon the issuance and transfer of shares to the Participant, unless a
registration statement is in effect under the Securities Act, relating to such
issued and transferred Common Stock and there is available for delivery a
prospectus meeting the requirements of Section 10 of the Securities Act, the
Common Stock may be issued and transferred to the Participant only if he
represents and warrants in writing to the Corporation that the shares are being
acquired for investment and not with a view to the resale or distribution
thereof. No shares shall be issued and transferred unless and until there shall
have been full compliance with any the applicable regulatory requirements
(including those of exchanges upon which any Common Stock of the Corporation
may be listed).
4.9 Effective Date of the Plan.
This Plan shall be effective upon its approval by the Board,
subject to approval by the stockholders of the Corporation within 12 months
from the date of such Board approval.
4.10 Term of the Plan.
Unless previously terminated by the Board, this Plan shall
terminate at the close of business on the tenth anniversary of the date the
Plan is approved by the Board, and no Options shall be granted under it
thereafter, but such termination shall not affect any Option theretofore
granted.
4.11 Governing Law.
This Plan and the documents evidencing Options and all other
related documents shall be governed by, and construed in accordance with, the
laws of the State of Georgia. If any provision shall be held by a court of
competent jurisdiction to be invalid and unenforceable, the remaining
provisions of this Plan shall continue to be fully effective.
Page 11 of 11
<PAGE> 14
EXHIBIT A
INCENTIVE STOCK
OPTION AWARD AGREEMENT
THIS AWARD AGREEMENT is dated as of the __________ day of
_________________, 1992, by and between T/R Systems, Inc., a Georgia
corporation (the "Corporation"), and __________________________________(the
"Participant").
W I T N E S S E T H:
WHEREAS, on 1992, pursuant to the Corporation's 1992 Stock Option
Plan (hereinafter, the term, "Plan" and such other capitalized terms as used
herein without definition having the meaning ascribed to them in the Plan), the
Committee of the Corporation's Board of Directors (the "Committee") has granted
to the Participant, effective as of _______________________ , 1992 (the "Award
Date") an incentive stock option ("Option" or "Award") to purchase all or any
part of the total number of shares of Common Stock of the Corporation upon the
terms and conditions hereinafter set forth; and
WHEREAS, the Participant and the Corporation desire to enter into a
written agreement in accordance with the Plan;
NOW THEREFORE, in consideration of the mutual promises and covenants
made herein and the mutual benefits to be derived herefrom, the parties hereto
agree as follows;
1. Grant of Option. The Corporation has granted to the
Participant as a matter of separate inducement and agreement in connection with
his employment, and not in lieu of any salary or other compensation for his
services, the right and option to purchase, in accordance with the Plan and on
the terms and conditions of the Plan and those hereinafter set forth, all or
any part of an aggregate of ___________________________ (_________) shares of
the Company's Common Stock at the exercise price per share set forth on
Schedule I attached hereto and incorporated herein by reference (the "Price"),
exercisable from time to time subject to the provisions of this Award Agreement
prior to the close of business on ____________ (the "Expiration Date"). Such
Price has been determined by the Committee in accordance with Section 3.2 of the
Plan.
2. Exercisability of option. Except as otherwise provided in
this Award Agreement, the Option may be exercised in accordance with the
vesting schedule set forth on Schedule I attached hereto and incorporated herein
by reference and the Option may only be exercised at any given time to the
extent the
Page 1 of 6
<PAGE> 15
Option has vested in accordance with Schedule I; provided, however, that the
Option may not be exercised as to less than 1,000 shares at any one time unless
the number of shares purchased is the total number at the time available for
purchase under the Option. The Option may be exercised only as to whole shares;
fractional share interests shall be disregarded except that they may be
accumulated.
3. Method of Exercise and Payment. Each exercise of any part of
the Option shall be by means of written notice of exercise duly delivered to
the Corporation, specifying the number of whole shares with respect to which
the Option is being exercised, together with any written statements required
pursuant to Section 10 below and payment of the Price in full (i) in cash or by
certified or cashier's check payable to the order of the Corporation, (ii) if
authorized by the Committee, by a promissory note made by the Participant in
favor of the Corporation, upon the terms and conditions determined by the
Committee, and secured by the Common Stock issuable upon exercise in compliance
with applicable law (including, without limitation, state corporate law and
federal margin requirements), or (iii) by shares of Common Stock of the
Corporation already owned by the Participant; provided, however, the Committee
may in its absolute discretion limit the Participant's ability to exercise the
Option by delivering shares, and any shares delivered which were initially
acquired upon exercise of a stock option must have been owned by the
Participant at least six months as of the date of delivery.
4. Continuance of Employment. Nothing contained in this Award
Agreement or in the Plan shall confer upon the Participant any right to
continue in the employ of the Corporation or constitute any contract or
agreement of employment. Nothing contained in this Award Agreement or in the
Plan shall interfere in any way with the right of the Corporation to (i)
terminate the employment of the Participant, or (ii) reduce the compensation
received by the Participant from the rate in existence on the Award Date
provided that nothing herein shall modify any written employment agreement as
may now exist or hereinafter be entered into between Participant and the
Corporation.
5. Effect of Termination of Relationship. If the Participant
ceases to be employed by the Corporation for any reason other than breach by
the Corporation of any written employment agreement in effect between the
Participant and the Corporation, the Option shall terminate to the extent not
vested. Notwithstanding the vesting schedule in Schedule I, if the Corporation
has breached any written employment agreement with the Participant, and as a
result Participant's employment is terminated, the Option shall become fully
vested upon such termination of employment. In no event may any Option be
exercised by any person after the Expiration Date.
Page 2 of 6
<PAGE> 16
6. Non-Assignability of Option. Interests in the Option shall
not be subject to sale, transfer, pledge, assignment or alienation other than
by will or the laws of descent and distribution regardless of any interest
therein of the Participant's spouse or such spouse's successor in interest.
7. Adjustments upon Specified Changes. As set forth in Section
4.2 of the Plan, upon the occurrence of specified events relating to the
Corporation's stock, adjustments will be made in the number and kind of shares
that may be issuable under an Option. In addition, upon the occurrence of
specified events relating to the Corporation, such as its dissolution or
liquidation, a reorganization, merger or consolidation in which it is not the
surviving corporation, or upon sale of all or substantially all of the
Corporation's property, unless provision is otherwise made and subject to the
provisions of Section 4.4 of the Plan, the Plan and any outstanding Options
will terminate.
8. Acceleration. Upon the occurrence of an Event, the Option
shall become immediately vested to the full extent theretofore not exercisable
unless prior to an Event the Board determines otherwise pursuant to Section 4.4
of the Plan. However, no Option shall be accelerated to a date less than six
months after the Award Date.
9. Participant not a Stockholder. Neither the Participant nor
any other person entitled to exercise the Option shall have any of the. rights
or privileges of a stockholder of the Corporation as to any shares of Common
Stock not actually issued and delivered to him. No adjustment will be made for
dividends or other rights for which the record date is prior to the date on
which such stock certificate or certificates are issued even if such record
date is subsequent to the date upon which notice of exercise was delivered and
the tender of payment was accepted.
10. Application of Securities Laws.
(a) No shares of Common Stock may be purchased pursuant
to the Option unless and until any then applicable requirements of the
Securities and Exchange Commission and any other regulatory agencies, including
any other state securities law commissioners having jurisdiction over the
Corporation or such issuance, and any exchanges upon which the Common Stock may
be listed, shall have been fully satisfied. The Participant represents, agrees
and certifies that if the Participant exercises the Option in whole or in part,
the Participant will acquire the Common Stock issuable upon such exercise for
the purpose of investment and not with a view to resale or distribution and
that, as a condition to each such exercise, he will furnish to the Corporation
a written statement to such effect, satisfactory in form and substance to the
Corporation.
Page 3 of 6
<PAGE> 17
(b) The Participant understands that the certificate or
certificates representing the Common Stock acquired pursuant to the option may
bear a legend referring to the fact that the Common Stock has not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and has not been qualified under any state securities laws and any limitations
under the Securities Act and state securities laws with respect to the transfer
of such Common Stock, and the Corporation may impose stop transfer instructions
to implement such limitations, if applicable. Any person or persons entitled to
exercise the Option under the provisions of Section 5 above shall be bound by
and obligated under the provisions of this Section 10 to the same extent as is
the Participant.
(c) The Committee may impose such conditions on an
Option or on its exercise or acceleration or on the payment of any withholding
obligation (including without limitation restricting the time of exercise to
specified periods) as may be required to satisfy applicable regulatory
requirements.
11. Notices. Any requests or notices to be given hereunder shall
be deemed given, and any elections or exercises to be made or accomplished
shall be deemed made or accomplished, upon actual delivery thereof to the
designated recipient, or three (3) days after deposit thereof in the United
States mail, registered, return receipt requested, and postage prepaid,
addressed, if to the Participant, at the address given beneath the
Participant's signature set forth below, and if to the Corporation, at the
executive offices of the Corporation.
12. Effect of Award Agreement. The Award Agreement shall be
assumed by, be binding upon and inure to the benefit of (i) any successor or
successors of the Corporation to the extent provided in Section 4.2(b) of the
Plan and (ii) any Beneficiary or Personal Representative of the Participant as
provided in Section 4.3 of the Plan.
13. Tax Withholding. The provisions of Section 4.6 of the Plan
are hereby incorporated and shall govern any withholding that the Corporation
employing the Participant is required to make with respect to an exercise of
the Option, as well as the Corporation's right to condition a transfer of
Common Stock upon compliance with the applicable withholding requirements of
federal, state and local authorities.
14. Terms of Plan Govern. The Option and this Award Agreement are
subject to, and the Corporation and the Participant agree to be bound by, all
of the terms and conditions of the Plan. The Participant acknowledges receipt
of a copy of the Plan, which is made a part hereof by this reference. The
rights of the Participant are subject to limitations, adjustments,
Page 4 of 6
<PAGE> 18
modifications, suspension and termination in certain circumstances and upon the
occurrence of certain conditions as set forth in the Plan.
15. Laws Applicable to Construction. The option has been granted,
executed and delivered as of the day and year first above written and the
interpretation, performance and enforcement of the Option and this Award
Agreement shall be governed by the laws of the State of Georgia.
16. Notice of Disposition. The Participant agrees to notify the
Corporation of any sale or other disposition of any shares of Common Stock
received upon exercise of the Option if such sale or disposition occurs within
two years after the Award Date or within one year after the date of exercise
of the Option.
IN WITNESS WHEREOF, the Corporation has caused this Award Agreement
to be-executed on its behalf by a duly authorized officer and the Participant
has hereunto set his hand as of the date and year first above written.
T/R SYSTEMS, INC.
By:
------------------------------------
Title:
------------------------------
PARTICIPANT
---------------------------------------
(Name)
---------------------------------------
(Address)
---------------------------------------
(City, State, Zip Code)
---------------------------------------
(Social Security Number)
Page 5 of 6
<PAGE> 19
SCHEDULE I
TO
INCENTIVE STOCK OPTION AWARD AGREEMENT
T/R Systems, Inc.
and
----------------------------
Dated: ____________
VESTING OF OPTION PERIOD AND EXERCISE PRICE
<TABLE>
<CAPTION>
Date Number of Shares Exercise Price Per Share
- ---- ---------------- ------------------------
<S> <C> <C>
</TABLE>
Page 6 of 6
<PAGE> 20
EXHIBIT B
NONQUALIFIED STOCK
OPTION AWARD AGREEMENT
THIS AWARD AGREEMENT is dated as of the ____ day of ________________,
1992, by and between T/R Systems, Inc., a Georgia corporation (the
"Corporation"), and _______________________________________(the "Participant").
W I T N E S S E T H:
WHEREAS, on __________, 1992, pursuant to the Corporation's 1992 Stock
Option Plan (hereinafter, the term, "Plan" and such other capitalized terms as
used herein without definition having the meaning ascribed to them in the Plan),
the Committee of the Corporation's Board of Directors (the "Committee") has
granted to the Participant, effective as of ________________________________,
1992 (the "Award Date") an incentive stock option ("Option" or "Award") to
purchase a11 or any part of the total number of shares of Common Stock of the
Corporation upon the terms and conditions hereinafter set forth; and
WHEREAS, the Participant and the Corporation desire to enter into a
written agreement in accordance with the Plan;
NOW THEREFORE, in consideration of the mutual promises and covenants
made herein and the mutual benefits to be derived herefrom, the parties hereto
agree as follows;
1. Grant of Option. The Corporation has granted to the
Participant as a matter of separate inducement and agreement in connection with
his employment, and not in lieu of any salary or other compensation for his
services, the right and option to purchase, in accordance with the Plan and on
the terms and conditions of the Plan and those hereinafter set forth, all or
any part of an aggregate of ________________________ (__________) shares of the
Company's Common Stock at the exercise price per share set forth on Schedule I
attached hereto and incorporated herein by reference (the "Price"), exercisable
from time to time subject to the provisions of this Award Agreement' prior to
the close of business on _________________ (the "Expiration Date"). Such Price
has been determined by the Committee in accordance with Section 3.2 of the
Plan.
2. Exercisability of Option. Except as otherwise provided in
this Award Agreement, the Option may be exercised in accordance with the
vesting schedule set forth on Schedule I attached hereto and incorporated
herein by reference and the Option may only be exercised at any given time to
the extent the
Page 1 of 6
<PAGE> 21
Option has vested in accordance with Schedule I; provided, however, that the
Option may not be exercised as to less than 1,000 shares at any one time unless
the number of shares purchased is the total number at the time available for
purchase under the Option. The Option may be exercised only as to whole shares;
fractional share interests shall be disregarded except that they may be
accumulated.
3. Method of Exercise and Payment. Each exercise of any part of
the Option shall be by means of written notice of exercise duly delivered to
the Corporation, specifying the number of whole shares with respect to which
the Option is being exercised, together with any written statements required
pursuant to Section 10 below and payment of the Price in full (i) in cash or by
certified or cashier's check payable to the order of the Corporation, (ii) if
authorized by the Committee, by a promissory note made by the Participant in
favor of the Corporation, upon the terms and conditions determined by the
Committee, and secured by the Common Stock issuable upon exercise in compliance
with applicable law (including, without limitation, state corporate law and
federal margin requirements), or (iii) by shares of Common Stock of the
Corporation already owned by the Participant; provided, however, the Committee
may in its absolute discretion limit the Participant's ability to exercise the
Option by delivering shares, and any shares delivered which were initially
acquired upon exercise of a stock option must have been owned by the
Participant at least six months as of the date of delivery.
4. Continuance of Employment. Nothing contained in this Award
Agreement or in the Plan shall confer upon the Participant any right to
continue in the employ of the Corporation or constitute any contract or
agreement of employment. Nothing contained in this Award Agreement or in the
Plan shall interfere in any way with the right of the Corporation to (i)
terminate the employment of the Participant, or (ii) reduce the compensation
received by the Participant from the rate in existence on the Award Date
provided that nothing herein shall modify any written employment agreement as
may now exist or hereinafter be entered into between Participant and the
Corporation.
5. Effect of Termination of Relationship. If the Participant
ceases to be employed by the Corporation for any reason other than breach by
the Corporation of any written employment agreement in effect between the
Participant and the Corporation, the Option shall terminate to the extent not
vested. Notwithstanding the vesting schedule in Schedule I, if the Corporation
has breached any written employment agreement with the Participant, and as a
result Participant's employment is terminated, the Option shall become fully
vested upon such termination of employment. In no event may any Option be
exercised by any person after the Expiration Date.
Page 2 of 6
<PAGE> 22
6. Non-Assignability of Option. Interests in the Option shall
not be subject to sale, transfer, pledge, assignment or alienation other than
by will or the laws of descent and distribution regardless of any interest
therein of the Participant's spouse or such spouse's successor in interest.
7. Adjustments upon Specified Changes. As set forth in Section
4.2 of the Plan, upon the occurrence of specified events relating to the
Corporation's stock, adjustments will be made in the number and kind of shares
that may be issuable under an Option. In addition, upon the occurrence of
specified events relating to the Corporation, such as its dissolution or
liquidation, a reorganization, merger or consolidation in which it is not the
surviving corporation, or upon sale of all or substantially all of the
Corporation's property, unless provision is otherwise made and subject to the
provisions of Section 4.4 of the Plan, the Plan and any outstanding Options
will terminate.
8. Acceleration. Upon the occurrence of an Event, the Option
shall become immediately vested to the full extent theretofore not exercisable
unless prior to an Event the Board determines otherwise pursuant to Section 4.4
of the Plan. However, no Option shall be accelerated to a date less than six
months after the Award Date.
9. Participant not a Stockholder. Neither the Participant nor
any other person entitled to exercise the Option shall have any of the rights
or privileges of a stockholder of the Corporation as to any shares of Common
Stock not actually issued and delivered to him. No adjustment will be made for
dividends or other rights for which the record date is prior to the date on
which such stock certificate or certificates are issued even if such record
date is subsequent to the date upon which notice of exercise was delivered and
the tender of payment was accepted.
10. Application of Securities Laws.
(a) No shares of Common Stock may be purchased pursuant
to the Option-unless and until any then applicable requirements of the
Securities and Exchange Commission and any other regulatory agencies, including
any other state securities law commissioners having jurisdiction over the
Corporation or such issuance, and any exchanges upon which the Common Stock may
be listed, shall have been fully satisfied. The Participant represents, agrees
and certifies that if the Participant exercises the Option in whole or in part,
the Participant will acquire the Common Stock issuable upon such exercise for
the purpose of investment and not with a view to resale or distribution and
that, as a condition to each such exercise, he will furnish to the Corporation
a written statement to such effect, satisfactory in form and substance to the
Corporation.
Page 3 of 6
<PAGE> 23
(b) The participant understands that the certificate or
certificates representing the Common Stock acquired pursuant to the Option may
bear a legend referring to the fact that the Common Stock has not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and has not been qualified under any state securities laws and any limitations
under the Securities Act and state securities laws with respect to the transfer
of such Common Stock, and the Corporation may impose stop transfer instructions
to implement such limitations, if applicable. Any person or persons entitled to
exercise the Option under the provisions of Section 5 above shall be bound by
and obligated under the provisions of this Section 10 to the same extent as is
the Participant.
(c) The Committee may impose such conditions on an
Option or on its exercise or acceleration or on the payment of any withholding
obligation (including without limitation restricting the time of exercise to
specified periods) as may be required to satisfy applicable regulatory
requirements.
11. Notices. Any requests or notices to be given hereunder shall
be deemed given, and any elections or exercises to be made or accomplished
shall be deemed made or accomplished, upon actual delivery thereof to the
designated recipient, or three (3) days after deposit thereof in the United
States mail, registered, return receipt requested, and postage prepaid,
addressed, if to the Participant, at the address given beneath the
Participant's signature set forth below, and if to the Corporation, at the
executive offices of the Corporation.
12. Effect of Award Agreement. The Award Agreement shall be
assumed by, be binding upon and inure to the benefit of (i) any successor or
successors of the Corporation to the extent provided in Section 4.2(b) of the
Plan and (ii) any Beneficiary or Personal Representative of the Participant as
provided in Section 4.3 of the Plan.
13. Tax Withholding. The provisions of Section 4.6 of the Plan
are hereby incorporated and shall govern any withholding that the Corporation
employing the Participant is required to make with respect to an exercise of
the Option, as well as the Corporation's right to condition a transfer of
Common Stock upon compliance with the applicable withholding requirements of
federal, state and local authorities.
14. Terms of Plan Govern. The Option and this Award Agreement
are subject to, and the Corporation and the Participant agree to be bound by,
all of the terms and conditions of the Plan. The Participant acknowledges
receipt of a copy of the Plan, which is made a part hereof by this reference.
The rights of the Participant are subject to limitations, adjustments,
Page 4 of 6
<PAGE> 24
modifications, suspension and termination in certain circumstances and upon the
occurrence of certain conditions as set forth in the Plan.
15. Laws Applicable to Construction. The Option has been granted,
executed and delivered as of the day and year first above written and the
interpretation, performance and enforcement of the Option and this Award
Agreement shall be governed by the laws of the State of Georgia.
15. Notice of Disposition. The Participant agrees to notify the
Corporation of any sale or other disposition of any shares of Common Stock
received upon exercise of the Option if such sale or disposition occurs within
two years after the Award Date or within one year after the date of exercise of
the Option.
IN WITNESS WHEREOF, the Corporation has caused this Award Agreement
to be executed on its behalf by a duly authorized officer and the Participant
has hereunto set his hand is of the date and year first above written.
T/R SYSTEMS, INC.
By:
------------------------------------
Title:
------------------------------
PARTICIPANT
---------------------------------------
(Name)
---------------------------------------
(Address)
---------------------------------------
(City, State, Zip Code)
---------------------------------------
(Social Security Number)
Page 5 of 6
<PAGE> 25
SCHEDULE I
TO
NONQUALIFIED STOCK OPTION AWARD AGREEMENT
T/R Systems, Inc.
and
-------------------------------
Dated: _____________
VESTING OF OPTION PERIOD AND EXERCISE PRICE
<TABLE>
<CAPTION>
Date Number of Shares Exercise Price Per Share
- ---- ---------------- ------------------------
<S> <C> <C>
</TABLE>
Page 6 of 6
<PAGE> 26
NOTICE OF EXERCISE
The undersigned hereby notifies T/R Systems, Inc. (the "Company") of
his election to exercise his stock option to purchase _________________________
(___________) shares of the Company's no-par value common stock pursuant to the
Stock Option Agreement (the "Agreement") between the undersigned and the
Company dated March 16, 1992.
Accompanying this Notice is (1) a certified or cashier's check in the
amount of $________________ payable to the Company, and/or (2) ________________
(___________________) shares of the Company's no-par value common stock
presently owned by the undersigned and duly endorsed or accompanied by stock
transfer powers, having an aggregate Fair Market Value (as defined in the T/R
Systems, Inc. 1992 Stock Option Plan) as of the date hereof of $______________,
such amounts being Equal, in the aggregate to the purchase price per share set
forth in Schedule I of the Agreement multiplied by the number of said shares
being hereby purchased (in each instance subject to appropriate adjustment
pursuant to Section 7 of the Agreement).
The undersigned hereby represents that he is purchasing the shares of
the Company's no-par value common stock specified in this Notice for purposes
of investment for his own account, and without any present intention to resell
or dispose of said shares or otherwise to participate directly or indirectly in
a distribution thereof, and hereby agrees that all certificates representing
said shares may be stamped with a restrictive legend to this effect.
The undersigned is a resident of __________________________________ .
IN WITNESS WHEREOF, the undersigned has set his hand and seal, this
__________________ day of ____________________________ 19______.
EMPLOYEE (OR HIS ADMINISTRATOR,
EXECUTOR OR PERSONAL REPRESENTATIVE)
------------------------------------------------
Name:
Position: (if other than employee)
<PAGE> 1
Exhibit 10.2
- -------------------------------------------------------------------------------
T/R SYSTEMS, INC.
1994 STOCK OPTION PLAN
ON MARCH 4, 1994
- -------------------------------------------------------------------------------
<PAGE> 2
T/R SYSTEMS, INC.
1994 STOCK OPTION PLAN
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
I. DEFINITIONS .................................................................... 1
1.1 Definitions ........................................................... 1
II. THE PLAN ...................................................................... 3
2.1 Purpose ............................................................... 3
2.2 Administration ........................................................ 3
2.3 Participation ......................................................... 4
2.4 Stock Subject to the Plan ............................................. 4
2.5 Grant of Options ...................................................... 4
2.6 Exercise of Options ................................................... 5
III. OPTIONS ........................................................................ 5
3.1 Grants ................................................................ 5
3.2 Option Price .......................................................... 5
3.3 Option Period ......................................................... 6
3.4 Exercise of Options ................................................... 6
3.5 Limitations an Grant of Incentive Stock Options ....................... 6
IV. OTHER PROVISIONS ............................................................... 7
4.1 Rights of Eligible Employees, Participants and
Beneficiaries ......................................................... 7
4.2 Adjustments Upon Changes in capitalization ............................ 8
4.3 Termination of Employment ............................................. 8
4.4 Acceleration of Options ............................................... 11
4.5 Government Regulations ................................................ 11
4.6 Tax Withholding ....................................................... 11
4.7 Amendment, Termination and Suspension ................................. 12
4.8 Privileges of Stock Ownership; Nondistributive
Intent ................................................................ 12
4.9 Effective Date of the Plan ............................................ 13
4.10 Term of the Plan ...................................................... 13
4.11 Governing Law ......................................................... 13
</TABLE>
<PAGE> 3
This Stock Option Plan is dated as of March 4, 1994.
I. DEFINITIONS.
1.1 Definitions.
(a) "Award" shall mean an Option, which may be designated as
a Nonqualified Stock Option or an Incentive Stock option granted under this
Plan.
(b) "Award Agreement" shall mean, as the case may be, the
Incentive Stock Option Award Agreement substantially in the form of Exhibit A
attached hereto and made a part herewith, setting forth the terms of an Award,
or the Non-Qualified Stock Option Award Agreement substantially in the form of
Exhibit B attached hereto and made a part herewith setting forth the terms of
an Award.
(c) "Award Date" shall mean the date upon which the Committee
took the action granting an Award or such later date as is prescribed by the
Committee.
(d) "Award Period" shall mean the period beginning on an
Award Date and ending on the expiration date of such Award.
(e) "Beneficiary" shall mean the person, persons, trust or
trusts entitled by will or the laws of descent and distribution to receive the
benefits specified under this Plan in the event of a Participant's death.
(f) "Board" shall mean the Board of Directors of the
Corporation.
(g) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(h) "Common Stock" shall mean the Common Stock, $.01 par
value, of the Corporation.
(i) "Commission" shall mean the Securities and Exchange
commission.
(j) "Committee" shall mean the committee appointed by the
Board and consisting of three or more members or if no such committee has been
appointed, the Board.
(k) "Company" shall mean, collectively, the Corporation and
its Subsidiaries.
(l) "Corporation" shall mean T/R Systems, Inc., a Georgia
corporation, and its successors.
1
<PAGE> 4
(m) "Eligible Employee" shall mean an officer or key employee
of the Company.
(n) "Event" shall mean approval by the stockholders of the
Corporation of (i) the dissolution or liquidation of the Corporation; (ii) an
agreement to merge or consolidate, or otherwise reorganize, with or into one or
more entities which are not Subsidiaries, as a result of which less than 50% of
the outstanding voting securities of the surviving or resulting entity are, or
are to be, owned by former stockholders of the Corporation; (iii) the sale of
substantially all of the Corporation's business and/or assets to a person or
entity which is not a Subsidiary; or (iv) a tender offer pursuant to which the
offeror acquires more than 50% of the Corporation's outstanding voting
securities.
(o) "Fair Market Value shall mean (i) the closing sales price
of the stock first preceding the time at which Fair Market Value is to be
determined on the national securities exchange having the greatest volume of
trading in the stock during the 30-day period immediately preceding that time
as reported in The Wall Street Journal; (ii) if the stock is not listed or
admitted to trade on any national securities exchange, the closing sales price
of the stock first preceding the time at which Fair Market Value is to be
determined, as quoted in the National Association of Securities Dealers
Automated Quotation (NASDAQ) National Market Reporting System, or any successor
system, as reported in The Wall Street Journal; (iii) if the stock is not
listed or admitted to trade an any national securities exchange and is not
quoted on the NASDAQ National Market Reporting System, the average of the
closing bid and asked sales prices of the stock on the over-the-counter market
first preceding the time at which Fair Market Value is to be determined, as
quoted on NASDAQ or such other national reporting service, as reported in The
Wall Street Journal; or (iv) if the stock is not listed or admitted to trade on
a national securities exchange, is not quoted on the NASDAQ National Market
Reporting System and if the bid and asked sales prices for the stock are not
furnished by the National Association of Securities Dealers, Inc. or a similar
organization, the Fair Market Value established by the Committee for purposes
of granting Options under the Plan based on such relevant facts, which may
include opinions of independent experts, as may be available to the Committee.
(p) "Incentive Stock Option" shall mean an option which is
designated as an incentive stock option within the meaning of Section 422 of
the Code, the award of which contains such provisions as are necessary to
comply with that section.
(q) "Nonqualified Stock Option" shall mean an option which is
designated as a Nonqualified Stock Option.
2
<PAGE> 5
(r) Option" shall mean an option to purchase Common Stock
under this Plan. An Option shall be designated by the Committee as a
Nonqualified Stock Option or an Incentive Stock Option.
(s) "Participant" shall mean an Eligible Employee who has
been awarded an Award.
(t) "Personal Representative" shall mean the person or
persons who, upon the disability or incompetence of a Participant, shall have
acquired on behalf of the Participant by legal proceeding or otherwise the
power to exercise the rights and receive the benefits specified in this Plan.
(u) "Plan" shall mean the T/R System, Inc. 1994 Stock Option
Plan, as amended from time to time in accordance herewith.
(v) "Securities Act" shall mean the Securities Act of 1933,
as amended.
(w) "Subsidiary" shall mean any corporation or other entity a
majority or more of whose outstanding voting stock or voting power is
beneficially owned directly or indirectly by the Corporation.
II. THE PLAN
2.1 Purpose.
The purpose of this Plan is to promote the success of the
Company by providing an additional means to attract and retain key personnel
through added long term incentives for high levels of performance and for
significant efforts to improve the financial performance of the Company by
granting Awards.
2.2 Administration.
(a) This Plan shall be administered by the Committee. Action
of the Committee with respect to the administration of this Plan shall be taken
pursuant to a majority vote or the written consent of a majority of its
members. In the event action by the Committee is taken by written consent, the
action shall be deemed to have been taken at the time specified in the consent
or, if none is specified, at the time of the last signature. The Committee may
delegate administrative functions to individuals who are officers or employees
of the Company.
(b) Subject to the express provisions of this Plan, the
Committee shall have the authority to construe and interpret this Plan and any
agreements defining the rights and obligations of the
3
<PAGE> 6
Company and Participants under this Plan, to further define the terms used in
this Plan, to prescribe, amend and rescind rules and regulations relating to the
administration of this Plan, to determine the duration and purposes of leaves of
absence which may be granted to Participants without constituting a termination
of their employment for purposes of this Plan and to make all other
determinations necessary or advisable for the administration of this Plan. The
determinations of the Committee on the foregoing matters shall be conclusive.
(c) Any action taken by, or inaction of, the Corporation, any
Subsidiary, the Board or the Committee relating to this Plan shall be within
the absolute discretion of that entity or body and shall be conclusive and
binding upon all persons. No member of the Board or Committee, or officer of
the Corporation or Subsidiary, shall be liable for any such action or inaction
of the entity or body, of another person or, except in circumstances involving
bad faith, of himself or herself. Subject only to compliance with the express
provisions hereof, the Board and Committee may act in their absolute discretion
in matters related to this Plan.
2.3 Participation.
Awards may be granted only to Eligible Employees. An Eligible
Employee who has been granted an Award may, if otherwise eligible, be granted
additional Awards if the Committee shall so determine. Members of the Board who
are not officers or employees of the Company shall not be eligible to receive
Awards.
2.4 Stock Subject to the Plan.
The stock to be offered under this Plan shall be shares of
the Corporation's authorized but unissued Common Stock. The aggregate amount of
Common Stock that may be issued or transferred pursuant to Awards granted under
this Plan shall not exceed 624,000 shares, subject to adjustment as set forth
in Section 4.2. If any Option shall lapse or terminate (either by its terms or
as a result of the repurchase by the Company of such option) without having
been exercised in full, the unpurchased shares subject thereto shall again be
available for purposes of this Plan.
2.5 Grant of Options.
Subject to the express provisions of the Plan, the Committee
shall determine from the class of Eligible Employees those individuals to whom
Options under the Plan shall be granted, the terms of Options (which need not
be identical) and the number of shares of Common Stock subject to each option.
Each Option shall be subject to the terms and conditions set forth in the Plan
and such other terms and conditions established by the Committee as
4
<PAGE> 7
are not inconsistent with the purpose and provisions of the Plan. The grant of
an Option is made on the Award Date.
2.6 Exercise of Options.
An Option shall be deemed to be exercised when the Secretary
or Assistant Secretary of the Corporation receives written notice of such
exercise from the Participant, together with payment of the purchase price made
in accordance with Section 3.2(a). Notwithstanding any other provision of this
Plan, the Committee may impose, by rule or in Award Agreements, such conditions
upon the exercise of Options (including, without limitation, vesting of
exercise rights and conditions limiting the time of exercise to specified
periods) as may be required to satisfy applicable regulatory requirements or as
may be deemed necessary or advisable by the Committee.
III. OPTIONS.
3.1 Grants.
One or more Options may be granted to any Eligible Employee.
Each Option so granted shall be designated by the Committee as either a
Nonqualified Stock Option or an Incentive Stock Option.
3.2 Option Price.
The purchase price per share of the Common Stock covered by
each Option shall be determined by the Committee, but in no event shall be less
than 85% of the Fair Market Value of the Common Stock on the date of grant and
in the case of Incentive Stock Options shall not be less than 100% (110% in the
case of a Participant who owns more than 10% of the total combined voting power
of all classes of stock of the Company) of the Fair Market Value of the Common
Stock on the date the incentive Stock Option is granted. The purchase price of
any shares purchased shall be paid in full at the time of each purchase in one
or a combination of the following methods: (i) in cash, or by certified or
cashier's check payable to the order of the Corporation, (ii) if authorized by
the committee or specified in the Option being exercised, by a promissory note
made by the Participant in favor of the Corporation, upon the terms and
conditions determined by the Committee, and secured by the Common Stock
issuable upon exercise in compliance with applicable law (including, without
limitation, state corporate law and federal margin requirements), or (iii) by
shares of Common Stock of the Corporation already owned by the Participant;
provided, however, the Committee may in its absolute discretion limit the
Participant's ability to exercise an Option by delivering shares, and any
shares delivered which were initially acquired upon exercise of a stock option
must have been owned by
5
<PAGE> 8
the Participant at least six months as of the date of delivery. Shares of
Common Stock used to satisfy the exercise price of an option shall be valued at
their Fair Market Value an the date of exercise.
3.3 Option Period.
Each Option and all rights or obligations thereunder shall
expire on such date as shall be determined by the Committee, but not later than
10 years after the Award Date in the case of an Incentive Stock Option (five
years in the case of a person described in Section 3.5(c)) , and shall be
subject to earlier termination as hereinafter provided or as provided in any
Award Agreement.
3.4 Exercise of Options.
Except as otherwise provided in Section 4.4, an Option may
become exercisable, in whole or in part, on the date or dates specified in the
Award Agreement which date(s) shall not be earlier than six months after the
Award Date and thereafter shall remain exercisable until the expiration or
earlier termination of the Participant's Option. The Committee may, at any time
after grant of the Option and from time to time, increase the number of shares
purchasable at any time so long as the total number of shares subject to the
Option is not increased. No Option shall be exercisable except in respect of
whole shares, and fractional share interests shall be disregarded. Not less
than 1,000 shares of Common Stock may be purchased at one time unless the
number purchased is the total number at the time available for purchase under
the terms of the Option.
3.5 Limitations on Grant of Incentive Stock Options.
(a) The aggregate Fair Market Value (determined as of the
Award Date) of the Common Stock for which Incentive Stock Options may first
become exercisable by any Participant during any calendar year under this Plan,
together with that of Common Stock subject to incentive stock options first
exercisable (other than as a result of acceleration pursuant to Section 4.2 or
4.4) by such Participant under any other plan of the Corporation or any
Subsidiary, shall not exceed $100,000.
(b) There shall be imposed in the Award Agreement relating to
Incentive Stock Options such terms and conditions as are required in order that
the Option be an "incentive stock option" as that term is defined in Section
422 of the Code.
(c) No incentive Stock Option may be granted to any person
who, at the time the Incentive Stock Option is granted, owns shares of
outstanding Common Stock possessing more than 10% of the
6
<PAGE> 9
total combined voting power of all classes of stock of the Company, unless the
exercise price of such Option is at least 110% of the Fair Market Value of the
stock subject to the Option and such Option by its terms is not exercisable
after the expiration of five years from the date such Option is granted.
IV. OTHER PROVISIONS.
4.1 Rights of Eligible Employees, Participants and Beneficiaries.
(a) Status as an Eligible Employee shall not be construed as
a commitment that any Award will be made under this Plan to an Eligible
Employee or to Eligible Employees generally.
(b) Nothing contained in this Plan (or in Award Agreements or
in any other documents related to this Plan or to Options) shall confer upon
any Eligible Employee or Participant any right to continue in the employ of the
Company or constitute any contract or agreement of employment, or interfere in
any way with the right of the Company to reduce such person's compensation or
to terminate the employment of such Eligible Employee or Participant, with or
without cause, but nothing contained in this Plan or any document related
thereto shall affect any other contractual right of any Eligible Employee or
Participant.
(c) other than by will or the laws of descent and
distribution, no interest in this Plan or in any option shall be subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge and any such attempted action shall be void and no such
benefit or interest shall be, in any manner, liable for, or subject to, debts,
contracts, liabilities, engagements or torts of any Eligible Employee,
Participant or Beneficiary. The Committee shall disregard any attempted
transfer, assignment or other alienation prohibited by the preceding sentence
and shall pay or deliver such cash or shares of Common Stock in accordance with
the provisions of this Plan.
(d) No Participant, Beneficiary or other person shall have
any right, title or interest in any fund or in any specific asset (including
shares of Common Stock) of the Company by reason of any option granted
hereunder. Neither the provisions of this Plan (or of any documents related
hereto), nor the creation or adoption of this Plan, nor any action taken
pursuant to the provisions of this Plan shall create, or be construed to
create, a trust of any kind or a fiduciary relationship between the Company and
any Participant, Beneficiary or other person. To the extent that a Participant,
Beneficiary or other person acquires a right to receive an option hereunder,
such right shall be no greater than the right of any unsecured general creditor
of the Company.
7
<PAGE> 10
4.2 Adjustments Upon Changes in Capitalization.
(a) If the outstanding shares of Common Stock are increased,
decreased or changed into, or exchanged for, a different number or kind of
shares or securities of the corporation through a reorganization or merger in
which the Corporation is the surviving entity, or through a combination,
recapitalization, reclassification, stock split, stock dividend, stock
consolidation or otherwise, an appropriate adjustment shall be made in the
number and kind of shares that may be issued pursuant to Options. A
corresponding adjustment to the consideration payable with respect to Options
granted prior to any such change shall also be made. Any such adjustment,
however, shall be made without change in the total payment, if any, applicable
to the portion of the Option not exercised but with a corresponding adjustment
in the price for each share.
(b) Upon the dissolution or liquidation of the Corporation,
or upon a reorganization, merger or consolidation of the Corporation with one
or more corporations as a result of which the Corporation is not the surviving
corporation, the Plan shall terminate, and any outstanding Options shall,
subject to the provisions of Section 4.4, terminate and be forfeited.
Notwithstanding the foregoing, the Committee may provide in writing in
connection with, or in contemplation of, any such transaction for any or all of
the following alternatives (separately or in combinations): (i) for the
assumption by the successor corporation of the Options theretofore granted or
the substitution by such corporation for such Options of options covering the
stock of the successor corporation, or a parent or subsidiary thereof, with
appropriate adjustments as to the number and kind of shares and prices; (ii)
for the continuance of the Plan by such successor corporation in which event
the Plan and the Options shall continue in the manner and under the terms so
provided; or (iii) for the payment in cash or shares of Common Stock in lieu
of and in complete satisfaction of such Awards.
(c) In adjusting Options to reflect the changes described in
this Section 4.2, or in determining that no such adjustment is necessary, the
Committee may rely upon the advise of independent counsel and accountants of
the Corporation, and the determination of the Committee shall be conclusive. No
fractional shares of stock shall be issued under this Plan on account of any
such adjustment.
4.3 Termination of Employment.
(a) In the event any Participant's employment by the Company
terminates for any reason, whether voluntarily or involuntarily and whether for
cause or not for cause, and at any time following such termination, the
Participant (the "Terminating
8
<PAGE> 11
Participant") becomes employed by any person or entity that performs or markets
services or sells or markets products substantially similar to any services or
products sold or marketed by the Company at the time such subsequent employment
commences (a "Competitor"), then the company shall have the right and option to
elect to purchase, and the Terminating Participant shall sell in the event
such option is exercised, all, but not less than all, the Stock then. held by
such Participant within ten (10) days of the date on which such subsequent
employment becomes known to the Company, by the Company tendering to the
Participant in exchange for such Stock, an amount equal to the Fair Market
Value (as such term is defined in Subsection 4.3(b) below) of each share of
Stock then owned by Participant.
(b) Fair Market Value Defined. For the purposes of this
Section 4.3 the term "Fair Market Value" per share of Stock shall mean either
(i) in the event that any third party makes a bona fide, written
offer to the Terminating Participant within the period specified
for election of the Company to purchase the Terminating
Participant's Stock, which offer is binding, subject only to the
purchase rights granted by this Section 4.3, and a copy of such
written offer is delivered to the Company, the price per share
specified in such written offer. In the event that such a written
offer is received during such period, the Company shall be entitled
to ten (10) additional days following receipt by the Company
thereof in which to exercise the right granted it in this Section
4.3.
or
(ii) in the absence of a bona fide offer as described in clause
(i) above, the fair market value of a share of Common Stock as
determined by the Board of Directors of the Company in the exercise
of its good faith judgment with the concurrence of at lease one of
the directors nominated by the holders of Series A Preferred;
provided, however, that if the Board is unable to make such
determination, or if the Board makes such determination and the
Terminating Participant disagrees therewith by delivering notice of
such disagreement to the Company within ten (10) business days
after the Board's determination thereof is communicated to the
Terminating Participant (such notice to specify the Terminating
Participant's determination of such fair market value), then the
Fair Market Value shall be determined by one appraiser chosen by
the Company and the Terminating Participant, who shall determine
the value of the Terminating Participant's Stock for these
9
<PAGE> 12
purposes without applying any discount for illiquidity or minority
interest. In the event that the parties are unable to agree upon such
an appraiser, the parties agree that the American Arbitration
Association shall be employed to choose an appraiser, and such person
shall determine the Fair Market Value of the Terminating Participant's
Stock for these purposes. In the event the appraisal process is
utilized, the party whose valuation of the Terminating Participant's
Stock less closely approximated the value selected pursuant to the
above described appraisal process, measured by dollar amounts and not
by percentages, shall pay all costs of the appraisal process.
(c) Payment of Purchase Price. The purchase price for any Stock
acquired pursuant to Section 4.3 shall be paid, at the option of the Company,
wholly in cash or by delivery at the closing of such purchase of one-third of
such price in cash together with a promissory note requiring the payment of the
principal in two (2) equal annual installments commencing one (1) year after
the purchase, and secured by the Stock so purchased, with simple interest
payable quarterly in arrears at the applicable federal rate (as defined in
Section 1274 of the Internal Revenue Code of 1986, as amended) as in effect as
of the date of the closing of the purchase.
(d) If the Participant's employment by the Company terminates as a
result of disability, the Participant or Participant's Personal Representative
may subject to Section 4.3(a) exercise any Option to the extent it shall have
become exercisable; provided, however, that in the case of Incentive Stock
Options, the Participant or Participant's Personal Representative must exercise
an Option to the extent it shall have become exercisable within one year of the
termination of employment.
(e) If the Participant's employment by the Company terminates as a
result of death while the Participant is employed by the Company (or in the
case of Incentive Stock Options was last employed by the Company within three
months before his death), the Participant's Option shall subject to Section
4.3(a) be exercisable by the Participant's Beneficiary as to all or any part of
the shares of Common Stock covered thereby to the extent exercisable on the
date of death (or earlier termination).
(f) In the event of termination of employment with the Company for
any reason, other than discharge for cause, the committee may, in its
discretion, increase the portion of the Participant's Option available to the
Participant, or participant's Beneficiary or Personal Representative, as the
case may be, upon such terms as the Committee shall determine.
10
<PAGE> 13
(g) if an entity ceases to be a Subsidiary, such action shall be
deemed for purposes of this Section 4.3 to be a termination of employment of
each employee of that entity.
4.4 Acceleration of Options.
Unless prior to an Event the Board determines that, upon its
occurrence, there shall be no acceleration of Options or determines those
Options which shall be accelerated and the extent to which they shall be
accelerated, upon the occurrence of an Event each option shall become
immediately exercisable to the full extent theretofore not exercisable;
provided, however, that Options shall not in any event be so accelerated to a
date less than six months after the Award Date. Acceleration of Options shall
comply with applicable regulatory requirements, including without limitation,
Section 422 of the Code. For purposes of this Section 4.4 only, the Board shall
mean the Board as constituted immediately prior to the Event.
4.5 Government Regulations.
This Plan, the granting of Options under this Plan and the
issuance or transfer of shares of Common Stock (and/or the payment of money)
pursuant thereto are subject to all applicable federal and state laws, rules
and regulations and to such approvals by any regulatory or governmental agency
(including without limitation "no action" positions of the Commission) which
may, in the opinion of counsel for the Corporation, be necessary or advisable
in connection therewith. Without limiting the generality of the foregoing, no
Options may be granted under this Plan, and no shares shall be issued by the
Corporation, pursuant to any such Option, unless and until, in each such case,
all legal requirements applicable to the issuance have, in the opinion of
counsel to the Corporation, been complied with. in connection with any stock
issuance or transfer, the person acquiring the shares shall, if requested by
the Corporation, give assurances satisfactory to counsel to the Corporation in
respect of such matters as the Corporation may deem desirable to assure
compliance with all applicable legal requirements.
4.6 Tax Withholding.
Upon the disposition by a Participant or other person of
shares of Common Stock acquired pursuant to the exercise of an Incentive Stock
Option prior to satisfaction of the holding period requirements of Section 422
of the Code, or upon the exercise of a Nonqualified Stock Option, the company
shall have the right to require such Participant or such other person to pay by
cash, or certified or cashier's check payable to the Company, the amount of any
taxes which the Company may be required to withhold with respect to such
transactions. The above notwithstanding, in any
11
<PAGE> 14
case where a tax is required to be withheld in connection with the issuance or
transfer of shares of Common Stock under this Plan, the Participant may elect,
pursuant to such rules as the committee may establish, to have the Company
reduce the number of such shares issued or transferred by the appropriate number
of shares to accomplish such withholding; provided, the Committee may impose
such conditions on the payment of any withholding obligation as may be required
to satisfy applicable regulatory requirements.
4.7 Amendment, Termination, and Suspension.
(a) The Board may, at any time, terminate or, from time to
time, amend, modify or suspend this Plan (or any part hereof) . In addition,
the Committee may, from time to time, amend or modify any provision of this
Plan except Section 4.4 and, with the consent of the Participant, make such
modifications of the terms and conditions of such Participant's Option as it
shall deem advisable. The Committee, with the consent of the Participant, may
also amend the terms of any Option to provide that the Option price of the
shares remaining subject to the original Option shall be reestablished at a
price not less than 100% of the Fair Market Value of the Common Stock on the
effective date of the amendment. No modification of any other term or provision
of any Option which is amended in accordance with the foregoing shall be
required, although the Committee may, in its discretion, make such further
modifications of any such Option as are not inconsistent with or prohibited by
the Plan. No Options may be granted during any suspension of this Plan or after
its termination.
(b) if an amendment would (i) increase the aggregate number
of shares which may be issued under this Plan, or (ii) modify the requirements
of eligibility for participation in this Plan, the amendment shall be approved
by the Board or the Committee and by a majority of the stockholders.
(c) In the case of Options issued before the effective date
of any amendment, suspension or termination of this Plan, such amendment,
suspension or termination of the Plan shall not, without specific action of the
Board and consent of the Participant, in any way modify, amend, alter or impair
any rights or obligations under any Option previously granted under the Plan.
4.8 Privileges of Stock Ownership; Nondistributive Intent.
A Participant shall not be entitled to the privilege of stock
ownership as to any shares of Common Stock not actually issued to him. Upon the
issuance and transfer of shares to the Participant, unless a registration
statement is in effect under the Securities Act, relating to such issued and
transferred Common Stock and there is available for delivery a prospectus
meeting the requirements of Section 10 of the Securities Act, the Common Stock
12
<PAGE> 15
may be issued and transferred to the Participant only if he represents and
warrants in writing to the Corporation that the shares are being acquired for
investment and not with a view to the resale or distribution thereof. No shares
shall be issued and transferred unless and until there shall have been full
compliance with any the applicable regulatory requirements (including those of
exchanges upon which any Common Stock of the Corporation may be listed).
4.9 Effective Date of the Plan.
This Plan shall be effective upon its approval by the Board,
subject to approval by the stockholders of the Corporation within 12 months
from the date of such Board approval.
4.10 Term of the Plan.
Unless previously terminated by the Board, this Plan shall
terminate at the close of business on the tenth anniversary of the date the
Plan is approved by the Board, and no Options shall be granted under it
thereafter, but such termination shall not affect any Option theretofore
granted.
4.11 Governing Law.
This Plan and the documents evidencing options and all other
related documents shall be governed by, and construed in accordance with, the
laws of the State of Georgia. If any provision shall be held by a court of
competent jurisdiction to be invalid and unenforceable, the remaining
provisions of this Plan shall continue to be fully effective.
13
<PAGE> 16
NOTICE OF EXERCISE
The undersigned hereby notifies T/R Systems, Inc. (the "Company") of
his or her election to exercise their stock option to purchase
________________________ ( ______________ ) shares of the Company's $.01 par
value common stock pursuant to the Stock Option Agreement (the "Agreement")
between the undersigned and the Company dated _____ day of _________________,
199___.
Accompanying this Notice is (1) a certified or cashier's check in the
amount of $_____________ payable to the Company, and/or (2)
________________________ ( ______________ ) shares of the Company's $.01 par
value common stock presently owned by the undersigned and duly endorsed or
accompanied by stock transfer powers, having an aggregate Fair Market Value (as
defined in the T/R Systems, Inc. 199___ Stock Option Plan) as of the date hereof
of $ ___________ , such amounts being equal, in the aggregate to the purchase
price per share set forth in Schedule I of the Agreement multiplied by the
number of said shares being hereby purchased (in each instance subject to
appropriate adjustment pursuant to Section 7 of the Agreement).
The undersigned hereby represents that he or she is purchasing the
shares of the Company's $.01 par value common stock specified in this Notice
for purposes of investment for his or her own account, and without any present
intention to resell or dispose of said shares or otherwise to participate
directly or indirectly in a distribution thereof, and hereby agrees that all
certificates representing said shares may be stamped with a restrictive legend
to this effect.
The undersigned is a resident of _______________________________ .
IN WITNESS WHEREOF, the undersigned has set his or her hand and seal,
this _________ day of _________________ , 199 ____ .
EMPLOYEE (OR HIS OR HER ADMINISTRATOR,
EXECUTOR OR PERSONAL REPRESENTATIVE)
-----------------------------------------
Name:
Position: (if other than employee)
<PAGE> 1
EXHIBIT 10.3
- -------------------------------------------------------------------------------
T/R SYSTEMS, INC
1994 ASSOCIATES STOCK OPTION PLAN
OCTOBER 25, 1994
- -------------------------------------------------------------------------------
<PAGE> 2
T/R SYSTEMS, INC.
1994 ASSOCIATES STOCK OPTION PLAN
SECTION 1. Purpose.
The T/R Systems, Inc. 1994 Associates Stock Option Plan (the "Plan") is
intended to provide a means for T/R Systems, Inc. (the "Company") to attract
and retain qualified nonemployee associates and to encourage such persons to
become owners of common stock of the Company in order to increase their
interest in the Company's long-term success.
SECTION 2. Definitions.
For purposes of the Plan, the following terms shall be defined as set
forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Company" means T/R Systems, Inc., a corporation organized under
the laws of the State of Georgia, or any successor corporation.
(c) "Fair Market Value" shall mean (i) the closing sales price of the
stock first preceding the time at which Fair Market Value is to be determined
on the national securities exchange having the greatest volume of trading in
the stock during the 30-day period immediately preceding that time as reported
in The Wall Street Journal; (ii) if the stock is not listed or admitted to
trade on any national securities exchange, the closing sales price of the stock
first preceding the time at which Fair Market Value is to be determined, as
quoted in the National Association of Securities Dealers Automated Quotation
(NASDAQ) National Market Reporting System, or any successor system, as reported
in The Wall Street Journal; (iii) if the stock is not listed or admitted to
trade on any national securities exchange and is not quoted on the NASDAQ
National Market Reporting System, the average of the closing bid and asked
sales prices of the stock on the over-the courter market first preceding the
time at which Fair Market Value is to be determined, as quoted on NASDAQ or
such other national reporting service, as reported in The Wall Street Journal;
or (iv) if the stock is not listed or admitted to trade on a national
securities exchange, is not quoted on the NASDAQ National Market Reporting
System and if the bid and asked sales prices for the stock are not
Page 1
<PAGE> 3
furnished by the National Association of Securities Dealers, Inc. or a similar
organization, the Fair Market Value established by the Board for purposes of
granting Options under the Plan based on such relevant facts, which may include
opinions of independent experts, as may be available to the Board.
(d) "Associate" means a person who is not an employee of the Company
or any Subsidiary and who is either (i) a member of the Board, or (ii) is
designated by the Board as an Associate of the Company by reason of his
relationship to the Company as a consultant or advisor. An Associate who is a
member of the Board shall be deemed to cease to be an Associate, for all
purposes hereunder, on the date on which he ceases to be a member of the Board.
An Associate who is an Associate due to his designation as such by the Board by
reason of his relationship to the Company as a consultant or advisor shall be
deemed to cease to be an Associate, for all purposes hereunder, should the
Board determine in its sole discretion that due to the cessation or curtailment
of his relationship with the Company as an advisor or consultant that he no
longer be deemed an Associate hereunder.
(e) "Optionee" means an Associate who has been granted a Stock Option
under the Plan.
(f) "Plan" means the T/R Systems, Inc. 1994 Associates Stock Option
Plan as hereinafter amended from time to time.
(g) "Stock" or "Shares" means the common stock of the Company, par
value $.01 per share.
(h) "Stock Option" or "Option" means any option to purchase shares of
Stock granted pursuant to Section 5.
(i) "Stock Option Agreement" means a written document evidencing an
Option grant by the Company to the Optionee.
(j) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns stock
possessing 50% or more of the total combined voting power of all classes of
stock of one of the other corporations in the chain.
SECTION 3. Administration.
The Plan shall be administered by the Board. The Board shall have the
authority to adopt, alter and repeal such administrative rules, guidelines and
practices governing the Plan as it shall,
Page 2
<PAGE> 4
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any Stock Option granted and any agreements, notifications or other
documents relating thereto; and to otherwise supervise the administration of
the Plan.
All decisions made by the Board pursuant to the provisions hereof
shall be made in the Board's sole discretion and shall be final and binding on
all persons. No member of the Board shall be liable for any such decisions made
in good faith.
SECTION 4. Stock Subject to Plan.
The number of shares of Stock that may be issued under the Plan shall
be determined as follows:
(a) Maximum Number. The maximum number of shares of Stock reserved and
available for distribution pursuant to Stock Options hereunder shall be 50,000
shares. Such shares may consist, in whole or in part, of authorized and
unissued shares or treasury shares. If any Stock Option granted hereunder
expires or terminates without having been exercised in full, the shares
remaining subject to such Option shall again be available for distribution in
connection with future awards under the Plan.
(b) Adjustments. If the outstanding shares of Stock are increased,
decreased or changed into, or exchanged for, a different number or kind of
shares or securities of the Company through a reorganization or merger in which
the Company is the surviving entity, or through a combination,
recapitalization, reclassification, stock split, stock dividend, stock
consolidation or otherwise, an appropriate adjustment shall be made in the
number and kind of shares that may be issued pursuant to Options. A
corresponding adjustment to the consideration payable with respect to Options
granted prior to any such change shall also be made. Any such adjustment,
however, shall be made without change in the total payment, if any, applicable
to the portion of the Option not exercised but with a corresponding adjustment
in the price for each share.
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
the Plan shall terminate, and any outstanding Options shall terminate and be
forfeited. Notwithstanding the foregoing, the Board may provide in writing in
connection with, or in contemplation of, any such transaction for any or all of
the following alternatives (separately or in combinations): (i) for the
assumption by the successor corporation
PAGE 3
<PAGE> 5
of the Options theretofore granted or the substitution by such corporation for
such options of options covering the stock of the successor corporation, or a
parent or subsidiary thereof, with appropriate adjustments as to the number and
kind of shares and prices; (ii) for the continuance of the Plan by such
successor corporation in which event the Plan and the Options shall continue in
the manner and under the terms so provided; or (iii) for the payment in cash or
shares of Stock in lieu of and in complete satisfaction of such Options.
In adjusting Options to reflect the changes described in this Section
4(b), or in determining that no such adjustment is necessary, the Board may
rely upon the advice of independent counsel and accountants of the Company, and
the determination of the Board shall be conclusive. No fractional shares of
stock shall be issued under this Plan on account of any such adjustment.
SECTION 5. Grant of Options.
Subject to the express provisions of this Plan, the Board shall
determine those individuals to whom Stock Options under the Plan shall be
granted, the terms of Stock Options (which need, not be identical) and the
number of shares of Stock subject to each Option. Each option shall be subject
to the terms and conditions set forth in the Plan and such other terms and
conditions established by the Board as are not inconsistent with the purpose
and provisions of the Plan.
SECTION 6. Stock Option Agreement.
Each grant under Section 5 above shall be evidenced by a Stock Option
Agreement in substantially the form of Exhibit A hereto. The terms of each such
Stock Option Agreement shall be as follows:
(a) Right to Exercise. The Option (until terminated as hereafter
provided) shall become exercisable, in whole or in part, as determined by the
Board, on the date or dates specified in the Option Agreement which date(s)
shall not be earlier than six months after the Option Date and thereafter shall
remain exercisable until the expiration or earlier termination of the
Optionee's Option.
(b) Exercise. The exercise price of the Option shall be determined by
the Board on the date the option is granted. The exercise price shall be
payable (i) in cash or by check acceptable to the Company, (ii) by actual or
constructive transfer to the Company of shares of nonforfeitable, unrestricted
Stock having a Fair Market Value at the time of exercise equal to the option
price, or (iii) by a combination of such methods of payment.
Page 4
<PAGE> 6
(c) Termination. The Option shall terminate on the earliest of the
following dates:
(i) Three months after the date on which the Optionee ceases to be
an Associate of the Company (during which period the option shall be exercisable
only to the extent exercisable on the date of termination), unless he or she
ceases to be an Associate of the Company by reason of death;
(ii) One year after the death of the Optionee if the Optionee dies
while an Associate of the Company; or
(iii) Ten years from the date on which the Option was granted.
(d) Nontransferability. The Option shall not be transferable by the
Optionee otherwise than by will or the laws of descent and distribution and be
exercisable during the lifetime of the optionee only by him or her or by his or
her guardian or legal representative.
(e) Rights as Stockholder. The Optionee shall have the rights of a
stockholder with respect to the Stock subject to the 0ption only to the extent
that the Optionee has exercised the Option in accordance with its terms. The
Option shall not be exercisable if such exercise would involve a violation of
any applicable Federal or state securities law.
SECTION 7. General Provisions.
(a) The Board may require a person purchasing Stock pursuant to a
Stock Option under the Plan to represent and to agree with the Company in
writing that such person is acquiring the shares without a view to distribution
thereof. The certificates for such shares may include any legend which the
Board deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Stock or other securities delivered
under the Plan shall be subject to such stop-transfer orders and other
restrictions as the Board may deem advisable under the rules, regulations and
other requirements of the Securities and Exchange Commission, any stock
exchange upon which the Stock is then listed and any applicable Federal or
state securities law, and the Board may cause a legend or legends to be put on
any such certificates to make appropriate reference to such restrictions.
Page 5
<PAGE> 7
(b) The Plan and all awards made and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of Georgia.
(c) The Company shall not be required to issue any fractional share of
Stock pursuant to this Plan. The Board may provide for the elimination of
fractions or for the settlement of fractions for cash.
SECTION 8. Amendment of the Plan.
The Board may suspend or terminate the Plan at any time and may amend
the Plan from time to time in any respect the Board may deem to be in the best
interests of the Company.
SECTION 9. Effective Date of Plan.
The Plan shall be effective on the date of its adoption by the Board,
subject to the approval of the Plan by a majority of the votes cast by the
holders of the Company's Stock. Any grants made under the Plan prior to such
approval shall be effective when made but shall be conditional upon, and
subject to, such stockholder approval.
SECTION 10. Term of Plan.
No Stock Option shall be granted pursuant to the Plan on or after the
tenth anniversary of the effective date of the Plan, but Options granted prior
to such tenth anniversary may extend beyond that date.
Page 6
<PAGE> 8
EXHIBIT A
T/R SYSTEMS, INC.
STOCK OPTION AGREEMENT
FOR
ASSOCIATES
T/R Systems, Inc. (the "Company") pursuant to its 1994 Associates
Stock Option Plan (the "Plan") has this day granted to __________________
__________________________________ (the "0ptionee"), an option (the "Option")
to purchase ______________ shares of the Company's common stock, par value $.01
per share (the "Stock") at the price of $______________ per share, subject to
the terms and conditions hereinafter set forth.
1. Right to Exercise. Except as otherwise provided in this Agreement,
the Option may be exercised in accordance with the vesting schedule set forth
on Schedule I attached hereto and incorporated herein by reference and the
Option may only be exercised at any given time to the extent the Option has
vested in accordance with Schedule I.
2. Exercise. The option price shall be payable (a) in cash or by check
acceptable to the Company, (b) by actual or constructive transfer to the
Company of shares of nonforfeitable, unrestricted Stock, having a Fair Market
Value at the time of exercise equal to the option price, or (c) by a
combination of such methods of payment. Shares of stock acquired by exercise of
the Option are referred to herein as the "Option Stock."
3. Termination. This Option shall terminate on the earliest of the
following dates:
(A) Three months after the date on which the Optionee ceases
to be an Associate of the Company (during which period the Option shall be
exercisable only to the extent exercisable on the date of termination in
accordance with the provisions of paragraph 1 hereof), unless he or she ceases
to be an Associate of the Company by reason of death;
(B) One year after the death of the Optionee if the Optionee
dies while an Associate of the Company; or
(C) Ten years from the date on which this Option was
granted.
Page 7
<PAGE> 9
The status of an Optionee as an "Associate", and the termination of
his or her status as an Associate, shall be determined solely by reference to
the express provisions of the Plan governing same.
4. Nontransferability. This Option is not transferable by the Optionee
otherwise than by will or the laws of descent and distribution, and is
exercisable during the lifetime of the Optionee only by him or her or by his or
her guardian or legal representative.
5. Rights as Stockholder. The Optionee shall have the rights of
stockholder with respect to the Stock subject to this Option only to the extent
that the Optionee has exercised this Option in accordance with its terms. This
Option shall not be exercisable if such exercise would involve a violation of
any applicable Federal or state securities law.
6. Right of First Refusal.
(a) In the event the Optionee proposes to sell, transfer or otherwise
dispose of any of his shares of Option Stock, the Company shall have a right of
first refusal to purchase all, but not less than all, the shares of Option
Stock that such Optionee (for purposes of this Section 6, the "Selling
Optionee") proposes to transfer to any person other than to the Company by way
of redemption, repurchase or the like (the "Right of First Refusal").
(b) Before effecting any proposed transfer of Option Stock subject to
Section 6(a) above, the Selling Optionee shall give written notice to the
Company describing fully the proposed transfer, including the number of shares
of Option Stock proposed to be transferred, the proposed transferee and the
proposed transfer price (the "Transfer Notice"). The Transfer Notice shall
contain an accurate summary of the proposed transferee's offer, which must be a
bona fide written offer that is binding on the proposed transferee, subject
only to the Right of First Refusal. At any time within the ten (10)-day period
immediately following the receipt of the Transfer Notice, the Company may elect
to purchase the shares of Option Stock subject to the Transfer Notice, at the
price per share set forth in the Transfer Notice, by delivering to the Selling
Optionee notice of such election within such ten (10)-day period.
(c) The closing of the sale and purchase of shares of the Selling
Optionee's Option Stock pursuant to exercise of the Right of First Refusal
shall be held at the offices of the Company on a
Page 8
<PAGE> 10
date and at a time Chosen by the Company no later than thirty (30) days from
delivery of the Transfer Notice.
(d) If the Company fails to purchase, within the ten (10)-day period
immediately following receipt of the Transfer Notice, all the Option Stock of
the Selling Optionee upon the terms set forth therein, or elects to purchase
all such Option Stock within such period, but fails to close the purchase
thereof within the period specified in Section 6(c) therefor, then the Company
may not purchase any of such Option Stock and the Selling Optionee may, not
later than one hundred twenty (120) days following delivery of the Transfer
Notice, conclude a transfer of all the shares of Option Stock of the Selling
Optionee on the terms and conditions described in the Transfer Notice. Any
proposed transfer on terms and conditions materially different from those
described in the Transfer Notice (including a lower purchase price), as well as
any proposed transfer by the Selling Participant after the expiration of such
120-day period, shall again be subject to the Right of First Refusal and shall
require compliance by the Selling Optionee with the procedures described in
this Section 6.
(e) In the event the consideration proposed to be paid the Selling
Optionee as described in the Transfer Notice includes non-cash consideration,
the Transfer Notice shall state the fair market value thereof. The Company may
be written notice to the Selling Optionee challenge such valuation, in which
case the value thereof shall be determined by averaging the values set by the
Transfer Notice and by the Company, provided that the difference between such
values is within ten percent (10%) of the higher value. If such difference is
not equal to or less than such 10% amount, then the Selling Optionee and the
Company shall agree upon one appraiser, who shall determine the fair market
value of the non-cash consideration for these purposes. In the event that such
parties are unable to agree upon such an appraiser, the parties agree that the
American Arbitration Association shall be employed to choose an appraiser, and
such person shall choose from the two values selected by the Company and the
Selling Optionee the value he deems to be closer to fair market value, and such
value shall be the fair market value of the non-cash consideration for these
purposes. In the event the appraisal process is utilized, the party whose
valuation of the non-cash consideration was not selected by the appraiser shall
pay all costs of the appraisal process.
(f) This Section 6 shall apply only during such times as the Company
is not subject to the reporting requirements of the federal Securities Exchange
Act of 1934, as amended, and while it is so subject the provisions of this
Section 6 shall be suspended, and of no force or effect.
Page 9
<PAGE> 11
7. Incorporation of Plan. This Option is granted pursuant to the Plan,
a copy of which is attached hereto. This award is subject to all of the terms
and provisions of the Plan, including without limitation the provision making
this award subject to the approval of the stockholders of the Company, which
are incorporated herein by reference. In the event of any conflict between the
terms of this Agreement and the terms of the Plan, the terms of the Plan shall
govern and control.
8. Choice of Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia.
Dated this _________________ day of ___________________, 199_____.
T/R SYSTEMS, INC.
By:
---------------------------
Title:
Accepted and agreed to:
- ----------------------------------
Date:
---------------------------
PAGE 10
<PAGE> 12
SCHEDULE I
VESTING OF OPTION PERIOD
VESTING DATE NUMBER OF SHARES VESTED
T/R SYSTEMS, INC.
By:
-------------------------------
Title:
----------------------------
Date:
-----------------------------
Accepted and agreed to:
- ----------------------------------
Date:
---------------------------
Page 11
<PAGE> 1
EXHIBIT 10.4
- --------------------------------------------------------------------------------
T/R SYSTEMS, INC.
1995 STOCK OPTION PLAN
- --------------------------------------------------------------------------------
<PAGE> 2
T/R SYSTEMS, INC.
1995 STOCK OPTION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
I. DEFINITIONS......................................................... 1
1.1 Definitions.............................................. 1
II. THE PLAN............................................................ 3
2.1 Purpose.................................................. 3
2.2 Administration........................................... 3
2.3 Participation............................................ 4
2.4 Stock Subject to the Plan................................ 4
2.5 Grant of Options......................................... 4
2.6 Exercise of Options...................................... 4
III. OPTIONS............................................................. 5
3.1 Grants................................................... 5
3.2 Option Price............................................. 5
3.3 Option Period............................................ 5
3.4 Exercise of Options...................................... 6
3.5 Limitations on Grant of Incentive Stock Options.......... 6
IV. OTHER PROVISIONS.................................................... 6
4.1 Rights of Eligible Employees, Participants and
Beneficiaries............................................ 6
4.2 Adjustments Upon Changes in Capitalization............... 7
4.3 Option to Purchase Stock Upon Termination of
Employment............................................... 8
4.4 Termination of Service................................... 10
4.5 Acceleration of Options.................................. 11
4.6 Government Regulations................................... 11
4.7 Tax Withholding.......................................... 12
4.8 Amendment, Termination, and Suspension................... 12
4.9 Privileges of Stock Ownership; Nondistributive
Intent................................................... 13
4.10 Effective Date of the Plan............................... 13
4.11 Term of the Plan......................................... 13
4.12 Governing Law............................................ 13
</TABLE>
i
<PAGE> 3
I. DEFINITIONS.
1.1 Definitions.
(a) "Award" shall mean an Option, which may be designated
as a Nonqualified Stock Option or an Incentive Stock Option granted under this
Plan.
(b) "Award Agreement" shall mean a written agreement
evidencing the grant of Options by the Corporation to a Participant, which
agreement shall identify whether the Options granted are Incentive Stock Options
or Nonqualified Stock Options.
(c) "Award Date" shall mean the date upon which the
Committee took the action granting an Award or such later date as is prescribed
by the Committee.
(d) "Award Period" shall mean the period beginning on an
Award Date and ending on the expiration date of such Award.
(e) "Beneficiary" shall mean the person, persons, trust
or trusts entitled by will or the laws of descent and distribution to receive
the benefits specified under this Plan in the event of a Participant's death.
(f) "Board" shall mean the Board of Directors of the
Corporation.
(g) "Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time.
(h) "Common Stock" or "Stock" shall mean the Common
Stock, $.01 par value, of the Corporation.
(i) "Commission" shall mean the Securities and Exchange
Commission.
(j) "Committee" shall mean the committee appointed by the
Board and consisting of three or more members or if no such committee has been
appointed, the Board.
(k) "Company" shall mean, collectively, the Corporation
and its Subsidiaries.
(l) "Corporation" shall mean T/R Systems, Inc., a Georgia
corporation, and its successors.
(m) "Eligible Employee" shall mean an officer or key
employee of the Company.
(n) "Event" shall mean approval by the stockholders of
the Corporation of (i) the dissolution or liquidation of the Corporation; (ii)
an agreement to merge or consolidate, or otherwise reorganize, with or into one
or more entities which are
1
<PAGE> 4
not Subsidiaries, as a result of which less than 50% of the outstanding voting
securities of the surviving or resulting entity are, or are to be, owned by
former stockholders of the Corporation; (iii) the sale of substantially all of
the Corporation's business and/or assets to a person or entity which is not a
Subsidiary; or (iv) a tender offer pursuant to which the offeror acquires more
than 50% of the Corporation's outstanding voting securities.
(o) "Fair Market Value" shall mean (i) the closing sales
price of the Common Stock first preceding the time at which Fair Market Value is
to be determined on the national securities exchange having the greatest volume
of trading in the stock during the 30-day period immediately preceding that time
as reported in The Wall Street Journal; (ii) if the stock is not listed or
admitted to trade on any national securities exchange, the closing sales price
of the Common Stock first preceding the time at which Fair Market Value is to be
determined, as quoted in the National Association of Securities Dealers
Automated Quotation (NASDAQ) National Market Reporting System, or any successor
system, as reported in The Wall Street Journal; (iii) if the Common Stock is not
listed or admitted to trade on any national securities exchange and is not
quoted on the NASDAQ National Market Reporting System, the average of the
closing bid and asked sales prices of the stock on the over-the-counter market
first preceding the time at which Fair Market Value is to be determined, as
quoted on NASDAQ or such other national reporting service, as reported in The
Wall Street Journal; or (iv) if the Common Stock is not listed or admitted to
trade on a national securities exchange, is not quoted on the NASDAQ National
Market Reporting System and if the bid and asked sales prices for the stock are
not furnished by the National Association of Securities Dealers, Inc. or a
similar organization, the Fair Market Value established by the Committee for
purposes of granting Options under the Plan based on such relevant facts, which
may include opinions of independent experts, as may be available to the
Committee.
(p) "Incentive Stock Option" shall mean an option which
is designated as an incentive stock option within the meaning of Section 422 of
the Code, the award of which contains such provisions as are necessary to comply
with that section.
(q) "Nonqualified Stock Option" shall mean an option
which is designated as a Nonqualified Stock Option.
(r) "Option" shall mean an option to purchase Common
Stock under this Plan. An Option shall be designated by the Committee as a
Nonqualified Stock Option or an Incentive Stock Option.
(s) "Option Stock" shall mean shares of Common Stock
acquired upon exercise of an Option.
(t) "Participant" shall mean an Eligible Employee who has
been awarded an Award.
2
<PAGE> 5
(u) "Personal Representative" shall mean the person or
persons who, upon the disability or incompetence of a Participant, shall have
acquired on behalf of the Participant by legal proceeding or otherwise the power
to exercise the rights and receive the benefits specified in this Plan.
(v) "Plan" shall mean the T/R Systems, Inc. 1995 Stock
Option Plan, as amended from time to time in accordance herewith.
(w) "Securities Act" shall mean the Securities Act of
1933, as amended.
(x) "Subsidiary" shall mean any corporation or other
entity a majority or more of whose outstanding voting stock or voting power is
beneficially owned directly or indirectly by the Corporation.
II. THE PLAN
2.1 Purpose.
The purpose of this Plan is to promote the success of the
Company by providing an additional means to attract and retain key personnel
through added long term incentives for high levels of performance and for
significant efforts to improve the financial performance of the Company by
granting Awards.
2.2 Administration.
(a) This Plan shall be administered by the Committee.
Action of the Committee with respect to the administration of this Plan shall be
taken pursuant to a majority vote or the written consent of a majority of its
members. In the event action by the Committee is taken by written consent, the
action shall be deemed to have been taken at the time specified in the consent
or, if none is specified, at the time of the last signature. The Committee may
delegate administrative functions to individuals who are officers or employees
of the Company.
(b) Subject to the express provisions of this Plan, the
Committee shall have the authority to construe and interpret this Plan and any
agreements defining the rights and obligations of the Company and Participants
under this Plan, to further define the terms used in this Plan, to prescribe,
amend and rescind rules and regulations relating to the administration of this
Plan, to determine the duration and purposes of leaves of absence which may be
granted to Participants without constituting a termination of their employment
for purposes of this Plan and to make all other determinations necessary or
advisable for the administration of this Plan. The determinations of the
Committee on the foregoing matters shall be conclusive.
(c) Any action taken by, or inaction of, the Corporation,
any Subsidiary, the Board or the Committee relating to
3
<PAGE> 6
this Plan shall be within the absolute discretion of that entity or body and
shall be conclusive and binding upon all persons. No member of the Board or
Committee, or officer of the Corporation or Subsidiary, shall be liable for any
such action or inaction of the entity or body, of another person or, except in
circumstances involving bad faith, of himself or herself. Subject only to
compliance with the express provisions hereof, the Board and Committee may act
in their absolute discretion in matters related to this Plan.
2.3 Participation.
Awards may be granted only to Eligible Employees. An Eligible
Employee who has been granted an Award may, if otherwise eligible, be granted
additional Awards if the Committee shall so determine. Members of the Board who
are not officers or employees of the Company shall not be eligible to receive
Awards.
2.4 Stock Subject to the Plan.
The stock to be offered under this Plan shall be shares of the
Corporation's authorized but unissued Common Stock. The aggregate amount of
Common Stock that may be issued or transferred pursuant to Awards granted under
this Plan shall not exceed 1,650,000 shares, subject to adjustment as set forth
in Section 4.2. If any Option shall lapse or terminate (either by its terms or
as a result of the repurchase by the Company of such Option) without having been
exercised in full, the unpurchased shares subject thereto shall again be
available for purposes of this Plan.
2.5 Grant of Options.
Subject to the express provisions of the Plan, the Committee
shall determine from the class of Eligible Employees those individuals to whom
Options under the Plan shall be granted, the terms of Options (which need not be
identical) and the number of shares of Common Stock subject to each Option. Each
Option shall be subject to the terms and conditions set forth in the Plan and
such other terms and conditions established by the Committee as are not
inconsistent with the purpose and provisions of the Plan. The grant of an Option
is made on the Award Date. Each Option shall be evidenced by minutes of a
meeting of the Committee or the written consent of the Committee, and by an
Award Agreement dated as of the date of grant and executed by the Corporation
and the Optionee.
2.6 Exercise of Options.
An Option shall be deemed to be exercised when the Secretary
or Assistant Secretary of the Corporation receives written notice of such
exercise from the Participant, together with payment of the purchase price made
in accordance with Section 3.2(a). Notwithstanding any other provision of this
Plan, the Committee may impose, by rule or in Award Agreements, such
4
<PAGE> 7
conditions upon the exercise of Options (including, without limitation, vesting
of exercise rights and conditions limiting the time of exercise to specified
periods) as may be required to satisfy applicable regulatory requirements or as
may be deemed necessary or advisable by the Committee.
III. OPTIONS.
3.1 Grants.
One or more Options may be granted to any Eligible Employee.
Each Option so granted shall be designated by the Committee as either a
Nonqualified Stock Option or an Incentive Stock Option.
3.2 Option Price.
The purchase price per share of the Common Stock covered by
each Option shall be determined by the Committee, but in no event shall be less
than 85% of the Fair Market Value of the Common Stock on the date of grant and
in the case of Incentive Stock Options shall not be less than 100% (110% in the
case of a Participant who owns more than 10% of the total combined voting power
of all classes of stock of the Company) of the Fair Market Value of the Common
Stock on the date the Incentive Stock Option is granted. The purchase price of
any shares purchased shall be paid in full at the time of each purchase in one
or a combination of the following methods: (i) in cash, or by certified or
cashier's check payable to the order of the Corporation, (ii) if authorized by
the Committee or specified in the Option being exercised, by a promissory note
made by the Participant in favor of the Corporation, upon the terms and
conditions determined by the Committee, and secured by the Common Stock issuable
upon exercise in compliance with applicable law (including, without limitation,
state corporate law and federal margin requirements), or (iii) by shares of
Common Stock of the Corporation already owned by the Participant; provided,
however, the Committee may in its absolute discretion limit the Participant's
ability to exercise an Option by delivering shares. Shares of Common Stock used
to satisfy the exercise price of an Option shall be valued at their Fair Market
Value on the date of exercise.
3.3 Option Period.
Each Option and all rights or obligations thereunder shall
expire on such date as shall be determined by the Committee, but not later than
10 years after the Award Date in the case of an Incentive Stock Option (five
years in the case of a person described in Section 3.5(c)), and shall be subject
to earlier termination as hereinafter provided or as provided in any Award
Agreement.
5
<PAGE> 8
3.4 Exercise of Options.
Except as otherwise provided in Section 4.4, an Option may
become exercisable, in whole or in part, on the date or dates specified in the
Award Agreement which date(s) shall not be earlier than six months after the
Award Date and thereafter shall remain exercisable until the expiration or
earlier termination of the Participant's Option. The Committee may, at any time
after grant of the Option and from time to time, increase the number of shares
purchasable at any time so long as the total number of shares subject to the
Option is not increased. No Option shall be exercisable except in respect of
whole shares, and fractional share interests shall be disregarded. Not less than
1,000 shares of Common Stock may be purchased at one time unless the number
purchased is the total number at the time available for purchase under the terms
of the Option.
3.5 Limitations on Grant of Incentive Stock Options.
(a) The aggregate Fair Market Value (determined as of the
Award Date) of the Common Stock for which Incentive Stock Options may first
become exercisable by any Participant during any calendar year under this Plan,
together with that of Common Stock subject to incentive stock options first
exercisable (other than as a result of acceleration pursuant to Section 4.2 or
4.4) by such Participant under any other plan of the Corporation or any
Subsidiary, shall not exceed $100,000.
(b) There shall be imposed in the Award Agreement
relating to Incentive Stock Options such terms and conditions as are required in
order that the Option be an "incentive stock option" as that term is defined in
Section 422 of the Code.
(c) No Incentive Stock Option may be granted to any
person who, at the time the Incentive Stock Option is granted, owns shares of
outstanding Common Stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company, unless the exercise price of such
Option is at least 110% of the Fair Market Value of the stock subject to the
Option and such Option by its terms is not exercisable after the expiration of
five years from the date such Option is granted.
IV. OTHER PROVISIONS.
4.1 Rights of Eligible Employees, Participants and Beneficiaries.
(a) Status as an Eligible Employee shall not be construed
as a commitment that any Award will be made under this Plan to an Eligible
Employee or to Eligible Employees generally.
(b) Nothing contained in this Plan (or in Award
Agreements or in any other documents related to this Plan or to Options) shall
confer upon any Eligible Employee or Participant any
6
<PAGE> 9
right to continue in the employ of the Company or constitute any contract or
agreement of employment, or interfere in any way with the right of the Company
to reduce such person's compensation or to terminate the employment of such
Eligible Employee or Participant, with or without cause, but nothing contained
in this Plan or any document related thereto shall affect any other contractual
right of any Eligible Employee or Participant.
(c) Other than by will or the laws of descent and
distribution, no interest in this Plan or in any Option shall be subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge and any such attempted action shall be void and no such
benefit or interest shall be, in any manner, liable for, or subject to, debts,
contracts, liabilities, engagements or torts of any Eligible Employee,
Participant or Beneficiary. The Committee shall disregard any attempted
transfer, assignment or other alienation prohibited by the preceding sentence
and shall pay or deliver such cash or shares of Common Stock in accordance with
the provisions of this Plan.
(d) No Participant, Beneficiary or other person shall
have any right, title or interest in any fund or in any specific asset
(including shares of Common Stock) of the Company by reason of any Option
granted hereunder. Neither the provisions of this Plan (or of any documents
related hereto), nor the creation or adoption of this Plan, nor any action taken
pursuant to the provisions of this Plan shall create, or be construed to create,
a trust of any kind or a fiduciary relationship between the Company and any
Participant, Beneficiary or other person. To the extent that a Participant,
Beneficiary or other person acquires a right to receive an Option hereunder,
such right shall be no greater than the right of any unsecured general creditor
of the Company.
4.2 Adjustments Upon Changes in Capitalization.
(a) If the outstanding shares of Common Stock are
increased, decreased or changed into, or exchanged for, a different number or
kind of shares or securities of the Corporation through a reorganization or
merger in which the Corporation is the surviving entity, or through a
combination, recapitalization, reclassification, stock split, stock dividend,
stock consolidation or otherwise, an appropriate adjustment shall be made in the
number and kind of shares that may be issued pursuant to Options. A
corresponding adjustment to the consideration payable with respect to Options
granted prior to any such change shall also be made. Any such adjustment,
however, shall be made without change in the total payment, if any, applicable
to the portion of the Option not exercised but with a corresponding adjustment
in the price for each share.
(b) Upon the dissolution or liquidation of the
Corporation, or upon a reorganization, merger or consolidation of the
Corporation with one or more corporations as a result of which the Corporation
is not the surviving corporation, the Plan shall
7
<PAGE> 10
terminate, and any outstanding Options shall, subject to the provisions of
Section 4.5, terminate and be forfeited. Notwithstanding the foregoing, the
Committee may provide in writing in connection with, or in contemplation of, any
such transaction for any or all of the following alternatives (separately or in
combinations): (i) for the assumption by the successor corporation of the
Options theretofore granted or the substitution by such corporation for such
Options of Options covering the stock of the successor corporation, or a parent
or subsidiary thereof, with appropriate adjustments as to the number and kind of
shares and prices; (ii) for the continuance of the Plan by such successor
corporation in which event the Plan and the Options shall continue in the manner
and under the terms so provided; or (iii) for the payment in cash or shares of
Common Stock in lieu of and in complete satisfaction of such Awards.
(c) In adjusting Options to reflect the changes described
in this Section 4.2, or in determining that no such adjustment is necessary, the
Committee may rely upon the advice of independent general counsel and
accountants of the Corporation, and the determination of the Committee shall be
conclusive. No fractional shares of stock shall be issued under this Plan on
account of any such adjustment.
4.3 Option to Purchase Stock Upon Termination of Employment.
(a) In the event any Participant's employment by the
Company terminates for any reason, whether voluntarily or involuntarily and
whether for cause or not for cause, or whether by death or disability, and if at
such time of termination the Common Stock is not then registered with the
Securities and Exchange Commission pursuant to and under the Securities Exchange
Act of 1934, as amended, then the Company shall have the right and option to
elect to purchase, and the Participant whose employment has terminated (the
"Terminating Participant") shall sell in the event such option is exercised,
all, but not less than all, the Option Stock then held by such Participant, or
later acquired by the Terminating Participant upon the exercise of the Option.
This option to acquire Common Stock must be exercised by the Company within
ninety (90) days of any such termination of employment (or within ninety (90)
days of any subsequent exercise of the Option by the Terminating Participant) by
the Company tendering to the Participant in exchange for such Common Stock, an
amount equal to the Fair Market Value (as such term is defined in Subsection
4.3(b) below) of each share of Common Stock so purchased.
(b) For the purposes of this Section 4.3 the term "Fair
Market Value" per share of Stock shall mean either:
(i) in the event that any third party makes a
bona fide, written offer to the Terminating
Participant within the period specified for
election of the Company to
8
<PAGE> 11
purchase the Terminating Participant's
Stock, which offer is binding, subject only
to the purchase rights granted by this
Section 4.3, and a copy of such written
offer is delivered to the Company, the price
per share specified in such written offer.
In the event that such a written offer is
received within ten (10) days prior to the
expiration of such period, the Company shall
be entitled to ten (10) additional days
following receipt by the Company thereof in
which to exercise the right granted it in
this Section 4.3.
or
(ii) in the absence of a bona fide offer as
described in clause (i) above, the fair
market value of a share of Common Stock as
determined by the Board of Directors of the
Company in the exercise of its good faith
judgment with the concurrence of at least
one of the directors nominated by the
holders of Series A Preferred Stock or
Series B Preferred Stock; provided, however,
that if the Board is unable to make such
determination, or if the Board makes such
determination and the Terminating
Participant disagrees therewith by
delivering notice of such disagreement to
the Company within ten (10) business days
after the Board's determination thereof is
communicated to the Terminating Participant
(such notice to specify the Terminating
Participant's determination of such fair
market value), then the Fair Market Value
shall be determined by one appraiser chosen
by the Company and the Terminating
Participant, who shall determine the value
of the Terminating Participant's Stock for
these purposes without applying any discount
for illiquidity or minority interest. In the
event that the parties are unable to agree
upon such an appraiser, the parties agree
that the American Arbitration Association
shall be employed to choose an appraiser,
and such person shall determine the Fair
Market Value of the Terminating
Participant's Stock for these purposes. In
the event the appraisal process is utilized,
the party whose valuation of the Terminating
Participant's Stock less
9
<PAGE> 12
closely approximated the value selected
pursuant to the above described appraisal
process, measured by dollar amounts and not
by percentages, shall pay all costs of the
appraisal process.
(c) The purchase price for any Stock acquired pursuant to
Section 4.3 shall be paid, at the option of the Company, wholly in cash or by
delivery at the closing of such purchase of one-third of such price in cash
together with a promissory note requiring the payment of the principal in two
(2) equal annual installments commencing one (1) year after the purchase, and
secured by the Stock so purchased, with simple interest payable quarterly in
arrears at the applicable federal rate (as defined in Section 1274 of the
Internal Revenue Code of 1986, as amended) as in effect as of the date of the
closing of the purchase.
(d) If an entity ceases to be a Subsidiary, such action
shall be deemed for purposes of this Section 4.3 and for Section 4.4 to be a
termination of employment of each employee of that entity.
4.4 Termination of Service.
(a) Except as otherwise provided in paragraph (b) below,
in the event of termination of the employment of a Participant by the Company
for any reason, voluntarily or involuntarily, any Option held by such
Participant, to the extent not theretofore exercised, shall forthwith terminate
unless the Committee, in its sole discretion, provides in the Award Agreement
that the Option shall be exercisable after such termination (but only to the
extent of the number of shares of Stock with respect to which the Option may be
exercised at the date of his termination of employment), and provided further,
that in no event shall any Award Agreement provide for the extension of the
period during which the Option may be exercised beyond the earlier of (i) the
expiration of the period of exercisability of such Option as specified in the
Award Agreement, or (ii) twelve (12) months from the date of termination.
(b) In the event any Participant dies while he is an
employee of the Company, or his employment by the Company terminates by reason
of disability, any Option held by him may be exercised (but only to the extent
of the number of shares with respect to which the Option may be exercised at the
time of his death or termination of employment by reason of disability) by him
or his legatee or legatees under his will, or by his personal representative or
distributees, within twelve (12) months following the date of his termination of
employment due to death or disability, or such shorter period as may be
specified in the Award Agreement, but in no event after the expiration of the
period of exercisability of such Option as specified in the Award Agreement.
10
<PAGE> 13
If an Option granted hereunder shall be exercised by
the legal representative of a deceased or disabled Participant, or by a person
who acquired an Option granted hereunder by bequest or inheritance by reason of
the death of any Participant, written notice of such exercise shall be
accompanied by a certified copy of letters testamentary or equivalent proof of
the right of such legal representative or other person to exercise such Option.
4.5 Acceleration of Options.
Unless prior to an Event the Board determines that, upon its
occurrence, there shall be no acceleration of Options or determines those
Options which shall be accelerated and the extent to which they shall be
accelerated, upon the occurrence of an Event each Option shall become
immediately exercisable to the full extent theretofore not exercisable.
Acceleration of Options shall comply with applicable regulatory requirements,
including without limitation, Section 422 of the Code. For purposes of this
Section 4.5 only, the Board shall mean the Board as constituted immediately
prior to the Event.
4.6 Government Regulations.
This Plan, the granting of Options under this Plan and the
issuance or transfer of shares of Common Stock (and/or the payment of money)
pursuant thereto are subject to all applicable federal and state laws, rules and
regulations and to such approvals by any regulatory or governmental agency
(including without limitation "no action" positions of the Commission) which
may, in the opinion of counsel for the Corporation, be necessary or advisable in
connection therewith. Without limiting the generality of the foregoing, no
Options may be granted under this Plan, and no shares shall be issued by the
Corporation, pursuant to any such Option, unless and until, in each such case,
all legal requirements applicable to the issuance have, in the opinion of
counsel to the Corporation, been complied with. In connection with any stock
issuance or transfer, the person acquiring the shares shall, if requested by the
Corporation, give assurances satisfactory to counsel to the Corporation in
respect of such matters as the Corporation may deem desirable to assure
compliance with all applicable legal requirements.
4.7 Tax Withholding.
Upon the disposition by a Participant or other person of
shares of Common Stock acquired pursuant to the exercise of an Incentive Stock
Option prior to satisfaction of the holding period requirements of Section 422
of the Code, or upon the exercise of a Nonqualified Stock Option, the Company
shall have the right to require such Participant or such other person to pay by
cash, or certified or cashier's check payable to the Company, the amount of any
taxes which the Company may be required to withhold with respect to such
transactions. The above notwithstanding, in any case where a tax is required to
be withheld in connection with the
11
<PAGE> 14
issuance or transfer of shares of Common Stock under this Plan, the Participant
may elect, pursuant to such rules as the Committee may establish, to have the
Company reduce the number of such shares issued or transferred by the
appropriate number of shares to accomplish such withholding; provided, the
Committee may impose such conditions on the payment of any withholding
obligation as may be required to satisfy applicable regulatory requirements.
4.8 Amendment, Termination, and Suspension.
(a) The Board may, at any time, terminate or, from time
to time, amend, modify or suspend this Plan (or any part hereof). In addition,
the Committee may, from time to time, amend or modify any provision of this Plan
except Section 4.5 and, with the consent of the Participant, make such
modifications of the terms and conditions of such Participant's Option as it
shall deem advisable. The Committee, with the consent of the Participant, may
also amend the terms of any Option to provide that the Option price of the
shares remaining subject to the original Option shall be reestablished at a
price not less than 100% of the Fair Market Value of the Common Stock on the
effective date of the amendment. No modification of any other term or provision
of any Option which is amended in accordance with the foregoing shall be
required, although the Committee may, in its discretion, make such further
modifications of any such Option as are not inconsistent with or prohibited by
the Plan. No Options may be granted during any suspension of this Plan or after
its termination.
(b) If an amendment would (i) increase the aggregate
number of shares which may be issued under this Plan, or (ii) modify the
requirements of eligibility for participation in this Plan, the amendment shall
be approved by the Board or the Committee and by a majority of the stockholders.
(c) In the case of Options issued before the effective
date of any amendment, suspension or termination of this Plan, such amendment,
suspension or termination of the Plan shall not, without specific action of the
Board and consent of the Participant, in any way modify, amend, alter or impair
any rights or obligations under any Option previously granted under the Plan.
4.9 Privileges of Stock Ownership; Nondistributive Intent.
A Participant shall not be entitled to the privilege of stock
ownership as to any shares of Common Stock not actually issued to him. Upon the
issuance and transfer of shares to the Participant, unless a registration
statement is in effect under the Securities Act, relating to such issued and
transferred Common Stock and there is available for delivery a prospectus
meeting the requirements of Section 10 of the Securities Act, the Common Stock
may be issued and transferred to the Participant only if he represents and
warrants in writing to the Corporation that the shares are being acquired for
investment and not with a view to the resale or distribution thereof. No shares
shall be issued and
12
<PAGE> 15
transferred unless and until there shall have been full compliance with all of
the applicable regulatory requirements (including those of exchanges upon which
the Common Stock may be listed).
4.10 Effective Date of the Plan.
This Plan shall be effective upon its approval by the Board,
subject to approval by the stockholders of the Corporation within 12 months from
the date of such Board approval.
4.11 Term of the Plan.
Unless previously terminated by the Board, this Plan shall
terminate at the close of business on the tenth anniversary of the date the Plan
is approved by the Board, and no Options shall be granted under it thereafter,
but such termination shall not affect any Option theretofore granted.
4.12 Governing Law.
This Plan and the documents evidencing Options and all other
related documents shall be governed by, and construed in accordance with, the
laws of the State of Georgia. If any provision shall be held by a court of
competent jurisdiction to be invalid and unenforceable, the remaining provisions
of this Plan shall continue to be fully effective.
13
<PAGE> 1
Exhibit 10.6
LOAN AND SECURITY AGREEMENT
$1,000,000 WORKING CAPITAL LINE
PROVIDED BY
SILICON VALLEY BANK
TO
T/R SYSTEMS, INC.
OCTOBER 17,1997
<PAGE> 2
This LOAN AND SECURITY AGREEMENT is entered into as of OCTOBER
17,1997, by and between SILICON VALLEY BANK, a California-chartered bank with
its principal place of business at 3003 Tasman Drive, Santa Clara, CA 95054 and
with a loan production office located at Wellesley Office Park, 40 William
Street, Suite 350, Wellesley, MA 02181, doing business under the name Silicon
Valley East ("Bank"), and T/R SYSTEMS, INC., a Georgia corporation with its
principal place of business at 5985 Financial Drive, Norcross, Georgia 30071
("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. As used in this Agreement, the following
terms shall have the following definitions:
"Accounts" means all presently existing and hereafter
arising accounts, contract rights, and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods (including, without
limitation, the licensing of software and other technology) or the rendering of
services by Borrower, whether or not earned by performance, and any and all
credit insurance, guaranties, and other security therefor, as well as all
merchandise returned to or reclaimed by Borrower and Borrower's Books relating
to any of the foregoing.
"Advance" or "Advances" means a loan advance under
the Committed Revolving Line.
"Affiliate" means, with respect to any Person, any
Person that owns or controls directly or indirectly such Person, any Person
that controls or is controlled by or is under common control with such Person,
and each of such Person's senior executive officers, directors, partners and,
for any Person that is a limited liability company, such Persons, managers and
members.
"Bank Expenses" means all reasonable costs or
expenses (including reasonable attorneys' fees and expenses) incurred in
connection with the preparation, negotiation, administration, and enforcement
of the Loan Documents; and Bank's reasonable attorneys' fees and expenses
incurred in amending, enforcing or defending the Loan Documents, (including
fees and expenses of appeal or review, or those incurred in any Insolvency
Proceeding) whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and
records including, without limitation: ledgers; records concerning Borrower's
assets or liabilities, the Collateral, business operations or financial
condition; and all computer programs, or tape files, and the equipment,
containing such information.
"Borrowing Base" means an amount equal to EIGHTY
percent (80%) of Eligible Accounts, as determined by Bank with reference to the
most recent Borrowing Base Certificate delivered by Borrower.
"Business Day" means any day that is not a Saturday,
Sunday, or other day on which banks in the State of California are authorized
or required to close.
"Closing Date" means the date of this Agreement.
"Code" means the Massachusetts Uniform Commercial
Code.
<PAGE> 3
"Collateral" means the property described on Exhibit
A attached hereto.
"Committed Revolving Line" means a credit extension
of up to ONE MILLION AND NO/100THS Dollars ($1,000,000).
"Contingent Obligation" means, as applied to any
Person, any direct or indirect liability, contingent or otherwise, of that
Person with respect to (i) any indebtedness, lease, dividend, letter of credit
or other obligation of another, including, without limitation, any such
obligation directly or indirectly guaranteed, endorsed, co-made or discounted
or sold with recourse by that Person, or in respect of which that Person is
otherwise directly or indirectly liable; (ii) any obligations with respect to
undrawn letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or
other agreement or arrangement designated to protect a Person against
fluctuation in interest rates, currency exchange rates or commodity prices;
provided, however, that the term "Contingent Obligation" shall not include
endorsements for collection or deposit in the ordinary course of business. The
amount of any Contingent Obligation shall be deemed to be an amount equal to
the stated or determined amount of the primary obligation in respect of which
such Contingent Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof as determined by
such Person in good faith; provided, however, that such amount shall not in any
event exceed the maximum amount of the obligations under the guarantee or other
support arrangement.
"Copyrights" means any and all copyright rights,
copyright applications, copyright registrations and like protections in each
work or authorship and derivative work thereof, whether published or
unpublished and whether or not the same also constitutes a trade secret, now or
hereafter existing, created, acquired or held.
"Credit Extension" means each Advance, Letter of
Credit, or any other extension of credit by Bank for the benefit of Borrower
hereunder.
"Current Assets" means, as of any applicable date,
all amounts that should, in accordance with GAAP, be included as current assets
on the consolidated balance sheet of Borrower and its Subsidiaries as at such
date.
"Current Liabilities" means, as of any applicable
date, all amounts that should, in accordance with GAAP be included as current
liabilities on the consolidated balance sheet of Borrower and its Subsidiaries,
as at such date, plus, to the extent not already included therein, all
outstanding Credit Extensions made under this Agreement and all Indebtedness
that is payable upon demand or within one year from the date of determination
thereof unless such Indebtedness is renewable or extendable at the option of
Borrower or any Subsidiary to a date more than one year from the date of
determination, but excluding Subordinated Debt.
"Eligible Accounts" means those Accounts that arise
in the ordinary course of Borrower's business that comply with all of Borrower's
representations and warranties to Bank set forth in Section 5.4; provided, that
standards of eligibility may be fixed and revised from time to time by Bank in
Bank's reasonable judgment and upon thirty (30) days prior notification thereof
to Borrower in accordance with the provisions hereof. Unless otherwise agreed
to by Bank in writing, Eligible Accounts shall not include the following:
(a) Accounts that the account debtor has failed
to pay within ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor,
fifty percent (50%) of whose Accounts the account debtor has failed to pay
within ninety (90) days of invoice date;
(c) Accounts with respect to an account debtor,
including Affiliates, whose total obligations to Borrower exceed twenty-five
percent (25%) of all Accounts, to the extent such obligations exceed the
aforementioned percentage, except as approved in writing by Bank;
<PAGE> 4
\
(d) Accounts with respect to which the account
debtor does not have its principal place of business in the United States;
(e) Accounts with respect to which the account
debtor is a federal, state, or local governmental entity or any department,
agency, or instrumentality thereof,
(f) Accounts with respect to which Borrower is
liable to the account debtor, but only to the extent of any amounts owing to
the account debtor (sometimes referred to as "contra" accounts, e.g. accounts
payable, customer deposits, credit accounts etc.);
(g) Accounts generated by demonstration or
promotional equipment, or with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and hold,
or other terms by reason of which the payment by the account debtor may be
conditional;
(h) Accounts with respect to which the account
debtor is an Affiliate, officer, employee, or agent of Borrower;
(i) Accounts with respect to which the account
debtor disputes liability or makes any claim with respect thereto as to which
Bank believes, in its sole discretion, that there may be a basis for dispute
(but only to the extent of the amount subject to such dispute or claim), or is
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business; and
(j) Accounts the collection of which Bank
reasonably determines to be doubtful.
"Eligible Foreign Accounts" means Accounts with
respect to which the account debtor does not have its principal place of
business in the United States and that are: (1) covered by credit insurance in
form and amount, and by an insurer satisfactory to Bank less the amount of any
deductible(s) which may be or become owing thereon; or (2) supported by one or
more letters of credit either advised or negotiated through Bank or in favor of
Bank as beneficiary, in an amount and of a tenor, and issued by a financial
institution, acceptable to Bank; or (3) that Bank approves on a case-by-case
basis.
"Eligible Inventory" means that portion of Borrower's
Inventory that is located at Borrower's principal place of business or such
other locations as are permitted under Section 7.10 and that complies with the
representations and warranties set forth in Section 5.5, but shall in any event
exclude used, returned or obsolete Inventory.
"Equipment" means all present and future machinery,
equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and
attachments in which Borrower has any interest.
"ERISA" means the Employment Retirement Income
Security Act of 1974, as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles
as in effect in the United States from time to time.
"Indebtedness" means (a) all indebtedness for
borrowed money or the deferred purchase price of property or services,
including without limitation reimbursement and other obligations with respect
to surety bonds and letters of credit, (b) all obligations evidenced by notes,
bonds, debentures or similar instruments, (c) all capital lease obligations and
(d) all Contingent Obligations.
"Insolvency Proceeding" means any proceeding
commenced by or against any person or entity under any provision of the United
States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency
law, including assignments for the benefit of creditors, formal or informal
moratoria, compositions, extension generally with its creditors, or proceedings
seeking reorganization, arrangement, or other relief.
<PAGE> 5
"Inventory" means all present and future inventory in
which Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and
any documents of title representing any of the above.
"Investment" means any beneficial ownership of
(including stock, partnership interest or other securities) any Person, or any
loan, advance or capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as
amended, and the regulations thereunder.
"Letter of Credit" means a letter of credit or
similar undertaking issued by Bank pursuant to Section 2.1.2.
"Letter of Credit Reserve" has the meaning set forth
in Section 2.1.2.
"Lien" means any mortgage, lien, deed of trust,
charge, pledge, security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement,
any note or notes executed by Borrower, and any other present or future
agreement entered into between Borrower and/or for the benefit of Bank in
connection with this Agreement, all as amended, extended or restated from time
to time.
"Mask Works" means all mask work or similar rights
available for the protection of semiconductor chips, now owned or hereafter
acquired;
"Material Adverse Effect" means a material adverse
effect on (i) the business operations or condition (financial or otherwise) of
Borrower and its Subsidiaries taken as a whole or (ii) the ability of Borrower
to repay the Obligations or otherwise perform its obligations under the Loan
Documents.
"Maturity Date" means the Revolving Maturity Date.
"Negotiable Collateral" means all of Borrower's
present and future letters of credit of which it is a beneficiary, notes,
drafts, instruments, securities, documents of title, and chattel paper.
"Obligations" means all debt, principal, interest,
Bank Expenses and other amounts owed to Bank by Borrower pursuant to this
Agreement or any other agreement, whether absolute or contingent, due or to
become due, now existing or hereafter arising, including any interest that
accrues after the commencement of an Insolvency Proceeding and including any
debt, liability, or obligation owing from Borrower to others that Bank may have
obtained by assignment or otherwise.
"Patents" means all patents, patent applications and
like protections including without limitation improvements, divisions,
continuations, renewals, reissues, extensions and continuations-in-part of the
same.
"Payment Date" means the SIXTEENTH (16th) calendar
day of each month commencing on the first such date after the Closing Date and
ending on the Revolving Maturity Date.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank
arising under this Agreement or any other Loan Document;
<PAGE> 6
(b) Indebtedness existing on the Closing Date and
disclosed in the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the
ordinary course of business; and
(e) Indebtedness secured by Permitted Liens.
"Permitted Investment" means:
(a) Investments existing on the Closing Date
disclosed in the Schedule; and
(b) (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency or any
State thereof maturing within one (1) year from the date of acquisition
thereof, (ii) commercial paper maturing no more than one (1) year from the date
of creation thereof and currently having the highest rating obtainable from
either Standard & Poor's Corporation or Moody's Investors Service, Inc., and
(iii) certificates of deposit maturing no more than one (1) year from the date
of investment therein issued by Bank.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and
disclosed in the Schedule or arising under this Agreement or the other Loan
Documents;
(b) Liens for taxes, fees, assessments or other
governmental charges or levies, either not delinquent or being contested in
good faith by appropriate proceedings and as to which adequate reserves are
maintained on Borrower's Books in accordance with GAAP, provided the same have
no priority over any of Bank's security interests;
(c) Liens (i) upon or in any Equipment acquired or
held by Borrower or any of its Subsidiaries to secure the purchase price of
such Equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such Equipment, or (ii) existing on such equipment at the time
of its acquisition, provided that the Lien is confined solely to the property
so acquired and improvements thereon, and the proceeds of such equipment;
(d) Liens on Equipment leased by Borrower or any
Subsidiary pursuant to an operating lease in the ordinary course of business
(including proceeds thereof and accessions thereto) incurred solely for the
purpose of financing the lease of such Equipment (including Liens pursuant to
leases permitted pursuant to Section 7.1 and Liens arising from UCC financing
statements regarding leases permitted by this Agreement).
(e) Liens incurred in connection with the
extension, renewal or refinancing of the indebtedness secured by Liens of the
type described in clauses (a) through (d) above, provided that any extension,
renewal or replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase.
"Person" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit
corporation, firm, joint stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per
annum, most recently announced by Bank, as its "prime rate," whether or not
such announced rate is the lowest rate available from Bank.
"Quick Assets" means, as of any applicable date, the
consolidated cash, cash equivalents, accounts receivable and investments with
maturities of fewer than 90 days of Borrower determined in accordance with
GAAP.
<PAGE> 7
"Responsible Officer" means each of the Chief
Executive Officer, the President, the Chief Financial Officer and the
Controller of Borrower.
"Revolving Maturity Date" means OCTOBER 16, 1998.
"Schedule" means the schedule of exceptions attached
hereto, if any.
"Subordinated Debt" means any debt incurred by
Borrower that is subordinated to the debt owing by Borrower to Bank on terms
acceptable to Bank (and identified as being such by Borrower and Bank).
"Subsidiary" means with respect to any Person,
corporation, partnership, company association, joint venture, or any other
business entity of which more than fifty percent (50%) of the voting stock or
other equity interests is owned or controlled, directly or indirectly, by such
Person or one or more Affiliates of such Person.
"Tangible Net Worth" means as of any applicable date,
the consolidated total assets of Borrower and its Subsidiaries minus, without
duplication, (i) the sum of any amounts attributable to (a) goodwill, (b)
intangible items such as unamortized debt discount and expense, patents, trade
and service marks and names, copyrights and research and development expenses
except prepaid expenses, and (c) all reserves not already deducted from assets,
and (ii) Total Liabilities.
"Total Liabilities" means as of any applicable date,
any date as of which the amount thereof shall be determined, all obligations
that should, in accordance with GAAP be classified as liabilities on the
consolidated balance sheet of Borrower, including in any event all
Indebtedness, but specifically excluding Subordinated Debt.
"Trademarks" means any trademark and service mark
rights, whether registered or not, applications to register and registrations
of the same and like protections, and the entire goodwill of the business of
Assignor connected with and symbolized by such trademarks.
1.2 Accounting and Other Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP and all
calculations and determinations made hereunder shall be made in accordance with
GAAP. When used herein, the term "financial statements" shall include the notes
and schedules thereto. The terms "including"/ "includes" shall always be read
as meaning "including (or includes) without limitation", when used herein or in
any other Loan Document.
2. LOAN AND TERMS OF PAYMENT
2.1 Credit Extensions. Borrower promises to pay to the
order of Bank, in lawful money of the United States of America, the aggregate
unpaid principal amount of all Credit Extensions made by Bank to Borrower
hereunder. Borrower shall also pay interest on the unpaid principal amount of
such Credit Extensions at rates in accordance with the terms hereof.
2.1.1 Revolving Advances.
(a) Subject to and upon the terms and
conditions of this Agreement, Bank agrees to make Advances to Borrower in an
aggregate outstanding amount not to exceed (i) the Committed Revolving Line or
the Borrowing Base, whichever is less, minus (ii) the face amount of all
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit). Subject to the terms and conditions of this Agreement, amounts
borrowed pursuant to this Section 2.1 may be repaid and reborrowed at any time
during the term of this Agreement.
(b) Whenever Borrower desires an Advance,
Borrower will notify Bank by facsimile transmission or telephone no later than
3:00 p.m. Pacific time, on the Business Day that the Advance is to be made.
Each such notification shall be promptly confirmed by a Payment/Advance Form in
substantially the
<PAGE> 8
form of Exhibit B hereto. Bank is authorized to make Advances under this
Agreement, based upon instructions received from a Responsible Officer or a
designee of a Responsible Officer, or without instructions if in Bank's
discretion such Advances are necessary to meet Obligations which have become
due and remain unpaid. Bank shall be entitled to rely on any telephonic notice
given by a person who Bank reasonably believes to be a Responsible Officer or a
designee thereof, and Borrower shall indemnify and hold Bank harmless for any
damages or loss suffered by Bank as a result of such reliance. Bank will credit
the amount of Advances made under this Section 2.1 to Borrower's deposit
account.
(c) The Committed Revolving Line shall
terminate on the Revolving Maturity Date, at which time all Advances under this
Section 2.1 and other amounts due under this Agreement (except as otherwise
expressly specified herein) shall be immediately due and payable.
2.1.2 Letters of Credit.
(a) Subject to the terms and conditions of
this Agreement, Bank agrees to issue or cause to be issued Letters of Credit
for the account of Borrower in an aggregate outstanding face amount not to
exceed (i) the lesser of the Committed Revolving Line or the Borrowing Base,
whichever is less, minus (ii) the then outstanding principal balance of the
Advances; provided that the face amount of outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit and any Letter of Credit
Reserve) shall not in any case exceed FIVE HUNDRED THOUSAND AND NO/100THS
Dollars ($500,000). Each Letter of Credit shall have an expiry date no later
than one hundred eighty (180) days after the Revolving Maturity Date provided
that Borrower's Letter of Credit reimbursement obligation shall be secured by
cash on terms acceptable to Bank at any time after the Revolving Maturity Date
if the term of this Agreement is not extended by Bank. All Letters of Credit
shall be in form and substance acceptable to Bank in its sole discretion and
shall be subject to the terms and conditions of Bank's form of standard
Application and Letter of Credit Agreement.
(b) The obligation of Borrower to
immediately reimburse Bank for drawings made under Letters of Credit shall be
absolute, unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement and such Letters of Credit, under
all circumstances whatsoever. Borrower shall indemnify, defend, protect and
hold Bank harmless from any loss, cost, expense or liability, including,
without limitation, reasonable attorneys' fees, arising out of or in connection
with any Letters of Credit.
(c) Borrower may request that Bank issue a
Letter of Credit payable in a currency other than United States Dollars. If a
demand for payment is made under any such Letter of Credit, Bank shall treat
such demand as an Advance to Borrower of the equivalent of the amount thereof
(plus cable charges) in United States currency at the then prevailing rate of
exchange in San Francisco, California, for sales of that other currency for
cable transfer to the country of which it is the currency.
(d) Upon the issuance of any Letter of
Credit payable in a currency other than United States Dollars, Bank shall
create a reserve under the Committed Revolving Line for Letters of Credit
against fluctuations in currency exchange rates, in an amount equal to ten
percent (10%) of the face amount of such Letter of Credit. The amount of such
reserve may be amended by Bank from time to time to account for fluctuations in
the exchange rate. The availability of funds under the Committed Revolving Line
shall be reduced by the amount of such reserve for so long as such Letter of
Credit remains outstanding.
2.2 Overadvances. If, at any time or for any reason, the
amount of Obligations owed by Borrower to Bank pursuant to Section 2.1.1 and
2.1.2 of this Agreement is greater than the lesser of (i) the Committed
Revolving Line or (ii) the Borrowing Base, Borrower shall immediately pay to
Bank, in cash, the amount of such excess.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rate. Except as set forth in Section
2.3(b), any Credit Extensions shall bear interest, on the average daily balance
thereof, at a per annum rate equal to ONE (1.0) percentage point above the
Prime Rate.
<PAGE> 9
(b) Default Rate. All Obligations shall bear
interest, from and after the occurrence of an Event of Default, at a rate equal
to five (5) percentage points above the interest rate applicable immediately
prior to the occurrence of the Event of Default.
(c) Payments. Interest hereunder shall be due and
payable on each Payment Date. Borrower hereby authorizes Bank to debit any
accounts with Bank, including, without limitation, Account Number
___________________ for payments of principal and interest due on the
Obligations and any other amounts owing by Borrower to Bank. Bank will notify
Borrower of all debits which Bank has made against Borrower's accounts. Any
such debits against Borrowers accounts in no way shall be deemed a set-off. Any
interest not paid when due shall be compounded by becoming a part of the
Obligations, and such interest shall thereafter accrue interest at the rate
then applicable hereunder.
(d) Computation. In the event the Prime Rate is
changed from time to time hereafter, the applicable rate of interest hereunder
shall be increased or decreased effective as of 12:01 a.m. on the day the Prime
Rate is changed, by an amount equal to such change in the Prime Rate. All
interest chargeable under the Loan Documents shall be computed on the basis of
a three hundred sixty (360) day year for the actual number of days elapsed.
2.4 Crediting Payments. Prior to the occurrence of an
Event of Default, Bank shall credit a wire transfer of funds, check or other
item of payment to such deposit account or Obligation as Borrower specifies.
After the occurrence of an Event of Default, the receipt by Bank of any wire
transfer of funds, check, or other item of payment, whether directed to
Borrower's deposit account with Bank or to the Obligations or otherwise, shall
be immediately applied to conditionally reduce Obligations, but shall not be
considered a payment in respect of the Obligations unless such payment is of
immediately available federal funds or unless and until such check or other
item of payment is honored when presented for payment. Notwithstanding anything
to the contrary contained herein, any wire transfer or payment received by Bank
after 12:00 noon Pacific time shall be deemed to have been received by Bank as
of the opening of business on the immediately following Business Day. Whenever
any payment to Bank under the Loan Documents would otherwise be due (except by
reason of acceleration) on a date that is not a Business Day, such payment
shall instead be due on the next Business Day, and additional fees or interest,
as the case may be, shall accrue and be payable for the period of such
extension.
2.5 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. A Facility Fee equal to FIVE
THOUSAND Dollars ($5,000), which fee shall be due on the Closing Date and shall
be fully earned and non-refundable;
(b) Financial Examination and Appraisal Fees.
Bank's customary fees and out-of-pocket expenses for Bank's audits of Borrowers
Accounts, and for each appraisal of Collateral and financial analysis and
examination of Borrower performed from time to time by Bank or its agents, in
accordance with Section 6.3(ii);
(c) Bank Expenses. Upon demand from Bank,
including, without limitation, upon the date hereof, all Bank Expenses incurred
through the date hereof, including reasonable attorneys' fees and expenses not
in excess of $2,500, and, after the date hereof, all Bank Expenses, including
reasonable attorneys' fees and expenses, as and when they become due.
2.6 Additional Costs. In case any law, regulation, treaty
or official directive or the interpretation or application thereof by any court
or any governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law):
(a) subjects Bank to any tax with respect to
payments of principal or interest or any other amounts payable hereunder by
Borrower or otherwise with respect to the transactions contemplated hereby
(except for taxes on the overall net income of Bank imposed by the United
States of America or any political subdivision thereof);
<PAGE> 10
(b) imposes, modifies or deems applicable any
deposit insurance, reserve, special deposit or similar requirement against
assets held by, or deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with
respect to its performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to,
among other loans, the Obligations, Bank shall notify Borrower thereof.
Borrower agrees to pay to Bank the amount of such increase in cost, reduction
in income or additional expense as and when such cost, reduction or expense is
incurred or determined, upon presentation by Bank of a statement of the amount
and setting forth Bank's calculation thereof, all in reasonable detail, which
statement shall be deemed true and correct absent manifest error.
2.7 Term. Except as otherwise set forth herein, this
Agreement shall become effective on the Closing Date and, subject to Section
12.7, shall continue in full force and effect for a term ending on the
Revolving Maturity Date. Notwithstanding the foregoing, Bank shall have the
right to terminate its obligation to make Credit Extensions under this
Agreement immediately and without notice upon the occurrence and during the
continuance of an Event of Default. Notwithstanding termination of this
Agreement, Bank's lien on the Collateral shall remain in effect for so long as
any Obligations are outstanding.
3. CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Credit Extension. The
obligation of Bank to make the initial Credit Extension is subject to the
condition precedent that Bank shall have received, in form and substance
satisfactory to Bank, the following:
(a) this Agreement and the Revolving Promissory
Note each duly executed by Borrower;
(b) a certificate of the Secretary of Borrower with
respect to charter, bylaws, incumbency and resolutions authorizing the
execution and delivery of this Agreement;
(c) financing statements (Forms UCC-1);
(d) insurance certificate;
(e) payment of the fees and Bank Expenses then due
specified in Section 2.5 hereof,
(f) completion of Bank's first audit of Borrower's
Accounts; and
(g) such other documents, and completion of such
other matters, as Bank may reasonably deem necessary or appropriate, but not
including an opinion of Borrower's counsel.
3.2 Conditions Precedent to all Credit Extensions. The
obligation of Bank to make each Credit Extension, including the initial Credit
Extension, is further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance
Form as provided in Section 2.1; and
(b) the representations and warranties contained in
Section 5 shall be true and correct in all material respects on and as of the
date of such Payment/Advance Form and on the effective date of each Credit
Extension as though made at and as of each such date, and no Event of Default
shall have occurred and be continuing, or would result from such Credit
Extension. The making of each Credit Extension shall be deemed to be a
representation and warranty by Borrower on the date of such Credit Extension as
to the accuracy of the facts referred to in this Section 3.2(b).
<PAGE> 11
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower grants and
pledges to Bank a continuing security interest in all presently existing and
hereafter acquired or arising Collateral in order to secure prompt payment of
any and all Obligations and in order to secure prompt performance by Borrower
of each of its covenants and duties under the Loan Documents. Except as set
forth in the Schedule, such security interest constitutes a valid, first
priority security interest in the presently existing Collateral, and will
constitute a valid, first priority security interest in Collateral acquired
after the date hereof. Borrower acknowledges that Bank may place a "hold" on
any Deposit Account pledged as Collateral to secure the Obligations.
Notwithstanding termination of this Agreement, Bank's Lien on the Collateral
shall remain in effect for so long as any Obligations are outstanding.
4.2 Delivery of Additional Documentation Required.
Borrower shall from time to time execute and deliver to Bank, at the request of
Bank, all Negotiable Collateral, all financing statements and other documents
that Bank may reasonably request, in form satisfactory to Bank, to perfect and
continue perfected Bank's security interests in the Collateral and in order to
fully consummate all of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers,
employees, or agents) shall have the right, upon reasonable prior notice, from
time to time during Borrower's usual business hours, to inspect Borrower's
Books and to make copies thereof and to check, test, and appraise the
Collateral in order to verify Borrower's financial condition or the amount,
condition of, or any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each
Subsidiary is a corporation duly existing and in good standing under the laws
of its state of incorporation and qualified and licensed to do business in, and
is in good standing in, any state in which the conduct of its business or its
ownership of property requires that it be so qualified.
5.2 Due Authorization: No Conflict. The execution,
delivery, and performance of the Loan Documents are within Borrower's powers,
have been duly authorized, and are not in conflict with nor constitute a breach
of any provision contained in Borrower's Articles/Certificate of Incorporation
or Bylaws, nor will they constitute an event of default under any material
agreement to which Borrower is a party or by which Borrower is bound. Borrower
is not in default under any agreement to which it is a party or by which it is
bound, which default could have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and
indefeasible title to the Collateral, free and clear of Liens, except for
Permitted Liens.
5.4 Bona Fide Eligible Accounts. The Eligible Accounts
are bona fide existing obligations. The service or property giving rise to such
Eligible Accounts has been performed or delivered to the account debtor or to
the account debtor's agent for immediate shipment to and unconditional
acceptance by the account debtor. Borrower has not received notice of actual or
imminent Insolvency Proceeding of any account debtor whose accounts are
included in any Borrowing Base Certificate as an Eligible Account.
5.5 Merchantable Inventory. All Inventory is in all
material respects of good and marketable quality, free from all material
defects.
5.6 Name: Location of Chief Executive Office. Except as
disclosed in the Schedule, Borrower has not done business and will not without
at least thirty (30) days prior written notice to Bank do business under any
name other than that specified on the signature page hereof. The chief
executive office of Borrower is located at the address indicated in Section 10
hereof.
<PAGE> 12
5.7 Litigation. Except as set forth in the Schedule,
there are no actions or proceedings pending, or, to Borrower's knowledge,
threatened by or against Borrower or any Subsidiary before any court or
administrative agency in which an adverse decision could have a Material
Adverse Effect or a material adverse effect on Borrower's interest or Bank's
security interest in the Collateral.
5.8 No Material Adverse Change in Financial Statements.
All consolidated financial statements related to Borrower and any Subsidiary
that have been delivered by Borrower to Bank fairly present in all material
respects Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has not been a material adverse change in the consolidated financial condition
of Borrower since the date of the most recent of such financial statements
submitted to Bank on or about the Closing Date.
5.9 Solvency. The fair saleable value of Borrower's
assets (including goodwill minus disposition costs) exceeds the fair value of
its liabilities; the Borrower is not left with unreasonably small capital after
the transactions contemplated by this Agreement; and Borrower is able to pay
its debts (including trade debts) as they mature.
5.10 Regulatory Compliance. Borrower and each Subsidiary
has met the minimum funding requirements of ERISA with respect to any employee
benefit plans subject to ERISA. No event has occurred resulting from Borrower's
failure to comply with ERISA that is reasonably likely to result in Borrower's
incurring any liability that could have a Material Adverse Effect. Borrower is
not an "investment company" or a company controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940. Borrower is
not engaged principally, or as one of its important activities, in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulations G, T and U of the Board of Governors of the
Federal Reserve System). Borrower has complied with all the provisions of the
Federal Fair Labor Standards Act. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it; violation of which could have a Material
Adverse Effect.
5.11 Environmental Condition. None of Borrower's or any
Subsidiary's properties or assets has ever been used by Borrower or any
Subsidiary or, to the best of Borrower's knowledge, by previous owners or
operators, in the disposal of, or to produce, store, handle, treat, release, or
transport, any hazardous waste or hazardous substance other than in accordance
with applicable law; to the best of Borrower's knowledge, none of Borrower's
properties or assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a hazardous waste or
hazardous substance disposal site, or a candidate for closure pursuant to any
environmental protection statute; no lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by Borrower or any Subsidiary: and neither Borrower nor any
Subsidiary has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal, state or other
governmental agency concerning any action or omission by Borrower or any
Subsidiary resulting in the release, or other disposition of hazardous waste or
hazardous substances into the environment.
5.12 Taxes. Borrower and each Subsidiary has filed or
caused to be filed all tax returns required to be filed on a timely basis, and
has paid, or has made adequate provision for the payment of, all taxes
reflected therein
5.13 Subsidiaries. Borrower does not own any stock,
partnership interest or other equity securities of any Person, except for
Permitted Investments.
5.14 Government Consents. Borrower and each Subsidiary has
obtained all consents, approvals and authorizations of, made all declarations
or filings with, and given all notices to, all governmental authorities that
are necessary for the continued operation of Borrower's business as currently
conducted.
5.15 Full Disclosure. No representation, warranty or other
statement made by Borrower in any certificate or written statement furnished to
Bank contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained in such
certificates or statements not misleading.
<PAGE> 13
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of
all outstanding Obligations, and for so long as Bank may have any commitment to
make a Credit Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each
of its Subsidiaries' corporate existence and good standing in its jurisdiction
of incorporation and maintain qualification in each jurisdiction in which 'the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrowers business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall
cause each Subsidiary to meet, the minimum funding requirements of ERISA with
respect to any employee benefit plans subject to ERISA. Borrower shall comply,
and shall cause each Subsidiary to comply, with all statutes, laws, ordinances
and government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
6.3 Financial Statements, Reports, Certificates. (i)
Borrower shall deliver to Bank:
(a) as soon as available, but in any event within
twenty five (25) days after the end of each month, a company prepared
consolidated balance sheet and income statement covering Borrower's
consolidated operations during such period, in a form and certified by an
officer of Borrower reasonably acceptable to Bank;
(b) as soon as available, but in any event within
one hundred twenty (120) days after the end of Borrower's fiscal year, audited
consolidated financial statements of Borrower prepared in accordance with GAAP,
consistently applied, together with an unqualified opinion on such financial
statements of an independent certified public accounting firm reasonably
acceptable to Bank;
(c) within five (5) days of filing, copies of all
statements, reports and notices sent or made available generally by Borrower to
its security holders or to any holders of Subordinated Debt and all reports on
Form 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission;
(d) promptly upon receipt of notice thereof, a
report of any legal actions pending or threatened against Borrower or any
Subsidiary that could result in damages or costs to Borrower or any Subsidiary
of One Hundred Thousand Dollars ($100,000) or more;
(e) such budgets, sales projections, operating
plans or other financial information as Bank may reasonably request from time
to time.
(f) within fifteen (15) days after the last day of
each month quarter, a Borrowing Base Certificate signed by a Responsible
Officer in substantially the form of Exhibit C hereto, together with aged
listings of accounts receivable.
(g) within twenty five (25) days after the last day
of each month quarter, with the monthly quarterly financial statements, a
Compliance Certificate signed by a Responsible Officer in substantially the
form of Exhibit D hereto.
(ii) Bank shall have a right from time to time hereafter
to audit Borrower's Accounts at Borrower's expense, provided that such audits
will be conducted no more often than every twelve (12) months unless an Event
of Default has occurred and is continuing.
6.4 Inventory: Returns. Borrower shall keep all Inventory
in good and marketable condition. free from all material defects. Returns and
allowances, if any, as between Borrower and its account debtors shall be on the
same basis and in accordance with the usual customary practices of Borrower, as
they exist at
<PAGE> 14
the time of the execution and delivery of this Agreement. Borrower shall
promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than One
Hundred Thousand Dollars ($100,000).
6.5 Taxes. Borrower shall make, and shall cause each
Subsidiary to make, due and timely payment or deposit of all material federal,
state, and local taxes, assessments, or contributions required of it by law,
and will execute and deliver to Bank, on demand, appropriate certificates
attesting to the payment or deposit thereof; and Borrower will make, and will
cause each Subsidiary to make, timely payment or deposit of all material tax
payments and withholding taxes required of it by applicable laws, including,
but not limited to, those laws concerning F.I.C.A., F.U.T.A., state disability,
and local, state, and federal income taxes, and will, upon request, furnish
Bank with proof satisfactory to Bank indicating that Borrower or a Subsidiary
has made such payments or deposits; provided that Borrower or a Subsidiary need
not make any payment if the amount or validity of such payment is (i) contested
in good faith by appropriate proceedings , (ii) is reserved against (to the
extent required by GAAP) by Borrower and (iii) no lien other than a Permitted
Lien results.
6.6 Insurance.
(a) Borrower, at its expense, shall keep the
Collateral insured against loss or damage by fire, theft, explosion,
sprinklers, and all other hazards and risks, and in such amounts, as ordinarily
insured against by other owners in similar businesses conducted in the
locations where Borrower's business is conducted on the date hereof. Borrower
shall also maintain insurance relating to Borrower's ownership and use of the
Collateral in amounts and of a type that are customary to businesses similar to
Borrower's.
(b) All such policies of insurance shall be in such
form, with such companies, and in such amounts as are reasonably satisfactory
to Bank. All such policies of property insurance shall contain a lender's loss
payable endorsement, in a form satisfactory to Bank, showing Bank as an
additional loss payee thereof and all liability insurance policies shall show
the Bank as an additional insured, and shall specify that the insurer must give
at least twenty (20) days notice to Bank before canceling its policy for any
reason. At Bank's request, Borrower shall deliver to Bank certified copies of
such policies of insurance and evidence of the payments of all premiums
therefor. All proceeds payable under any such policy shall, at the option of
Bank, be payable to Bank to be applied on account of the Obligations.
6.7 Principal Depository. Borrower shall maintain its
principal depository and operating accounts with Bank.
6.8 Quick Ratio. Borrower shall maintain, as of the last
day of each calendar month, a ratio of Quick Assets to Current Liabilities less
deferred revenues of at least 2.0 to 1.0.
6.9 Tangible Net Worth. Borrower shall maintain, as of
the last day of each calendar month, a Tangible Net Worth of not less than FOUR
MILLION SIX HUNDRED THOUSAND AND NO/100THS Dollars ($4,600,000).
6.10 Further Assurances. At any time and from time to time
Borrower shall execute and deliver such further instruments and take such
further action as may reasonably be requested by Bank to effect the purposes of
this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Credit
Extension hereunder shall be available and until payment in full of the
outstanding Obligations or for so long as Bank may have any commitment to make
any Advances, Borrower will not do any of the following without Bank's prior
written consent, which consent may be given or withheld in Bank's sole
discretion:
7.1 Dispositions. Convey, sell, lease, transfer or
otherwise dispose of (collectively, a "Transfer"), or permit any of its
Subsidiaries to Transfer, all or any part of its business or property, other
than Transfers: (i) of inventory in the ordinary course of business, (ii) of
non-exclusive licenses and similar
<PAGE> 15
arrangements for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business, (iii) that constitute payment of normal and usual
operating expenses in the ordinary course of business, or (iv) of worn-out or
obsolete Equipment.
7.2 Changes in Business. Ownership, or Management,
Business Locations. Engage in any business, or permit any of its Subsidiaries
to engage in any business, other than the businesses currently engaged in by
Borrower and any business substantially similar or related thereto (or
incidental thereto), or suffer a change in Borrower's ownership, other than a
public offering of the capital stock of Borrower, or management. Borrower will
not, without at least thirty (30) days prior written notification to Bank,
relocate its chief executive office. Borrower will notify Bank within sixty
(60) after Borrower has added any new offices or business locations.
7.3 Mergers or Acquisitions. Merge or consolidate, or
permit any of its Subsidiaries to merge or consolidate, with or into any other
business organization, or acquire, or permit any of its Subsidiaries to
acquire, all or substantially all of the capital stock or property of another
Person.
7.4 Indebtedness. Create, incur, assume or be or remain
liable with respect to any Indebtedness, or permit any Subsidiary so to do,
other than Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to
exist any Lien with respect to any of its property, or assign or otherwise
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other
distribution or payment on account of or in redemption, retirement or purchase
of any capital stock other than dividends payable solely in capital stock of
Borrower.
7.7 Investments. Directly or indirectly acquire or own,
or make any Investment in or to any Person, or permit any of its Subsidiaries
so to do, other than Permitted Investments.
7.8 Transactions with Affiliates. Directly or indirectly
enter into or permit to exist any material transaction with any Affiliate of
Borrower except for transactions that are in the ordinary course of Borrower's
business, upon fair and reasonable terms that are no less favorable to Borrower
than would be obtained in an arm's length transaction with a non-affiliated
Person.
7.9 Subordinated Debt. Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent.
7.10 Inventory. Store the Inventory with a bailee,
warehouseman, or similar party unless Bank has received a pledge of any
warehouse receipt covering such Inventory. Except for Inventory sold in the
ordinary course of business and except for such other locations as Bank may
approve in writing, Borrower shall keep the Inventory only at the location set
forth in Section 10 hereof and such other locations of which Borrower gives
Bank prior written notice and as to which Borrower signs and files a financing
statement where needed to perfect Bank's security interest.
7.11 Compliance. Become an "investment company" or a
company controlled by an "investment company," within the meaning of the
Investment Company Act of 1940, or become principally engaged in, or undertake
as one of its important activities, the business of extending credit for the
purpose of purchasing or carrying margin stock, or use the proceeds of any
Advance for such purpose; fail to meet the minimum funding requirements of
ERISA; permit a Reportable Event or Prohibited Transaction, as defined in
ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or
violate any other law or regulation, which violation could have a Material
Adverse Effect or a material adverse effect on the Collateral or the priority
of Bank's Lien on the Collateral; or permit any of its Subsidiaries to do any
of the foregoing.
<PAGE> 16
7.12. Negative Pledge of Intellectual Property. Borrower
shall not, without Bank's prior written consent which consent shall not be
unreasonably withheld, sell, transfer, assign, mortgage, pledge, lease, grant a
security interest in, or encumber any of Borrowers intellectual property,
including, without limitation, the following:
(a) Any and all copyright rights, copyright
applications, copyright registrations and the like protections in each work of
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held;
(b) Any and all trade secrets, and any and all
intellectual property rights in computer software and computer software
products now or hereafter existing, created, acquired or held;
(c) Any and all design rights which may be
available to Borrower now or hereafter existing, created, acquired or held;
(d) All patents, patent applications and like
protections including, without limitation, improvements, divisions,
continuations, renewals, reissues, extensions and continuations-in-part of the
same, including without limitation the patents and patent applications;
(e) Any trademark and service mark rights, whether
registered or not, applications to register and registrations of the same and
like protections, and the entire good will of the business of Borrower
connected with and symbolized by such trademarks;
(f) Any and all claims for damages by way of past,
present and future infringements of any of the rights included above, with the
right, but not the obligation, to sue for and collect such damages for said use
or infringement of the intellectual property rights identified above;
(g) All licenses or other right to use any of the
Copyrights, Patents or Trademarks, and all license fees and royalties arising
from such use to the extent permitted by such license or rights;
(h) All amendments, extensions, renewals and
extensions of any of the Copyrights, Trademarks or Patents; and
(i) All proceeds and products of the foregoing,
including without limitation all payments under insurance or any indemnity or
warranty payable in respect of any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an
Event of Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay, when due,
any of the Obligations.
8.2 Covenant Default.
(a) If Borrower fails to perform any obligation
under Sections 6.3, 6.6, 6.7, 6.8 or 6.9 or violates any of the covenants
contained in Article 7 of this Agreement, or
(b) If Borrower falls or neglects to perform, keep,
or observe any other material term, provision, condition, covenant, or
agreement contained in this Agreement, in any of the Loan Documents, or in any
other present or future agreement between Borrower and Bank and as to any
default under such other term, provision, condition, covenant or agreement that
can be cured, has failed to cure such default within ten (10) days after the
occurrence thereof provided, however, that if the default cannot by its nature
be cured within the ten (10) day period or cannot after diligent attempts by
Borrower be cured within such ten (10) day period, and such default is likely
to be cured within a reasonable time, then Borrower shall have an additional
reasonable period (which shall not in any case exceed thirty (30) days) to
attempt to cure such default, and within such
<PAGE> 17
reasonable time period the failure to have cured such default shall not be
deemed an Event of Default (provided that no Advances will be required to be
made during such cure period);
8.3 Material Adverse Change. If there (i) occurs an event
having a Material Adverse Effect or (ii) is a material impairment of the value
of the Collateral which is not covered by adequate insurance or the perfection
or priority of Bank's security interests in the Collateral;
8.4 Attachment. If any material portion of Borrower's
assets is attached, seized, subjected to a writ or distress warrant, or is
levied upon, or comes into the possession of any trustee, receiver or person
acting in a similar capacity and such attachment, seizure, writ or distress
warrant or levy has not been removed, discharged or rescinded within ten (10)
days, or if Borrower is enjoined, restrained, or in any way prevented by court
order from continuing to conduct all or any material part of its business
affairs, or if a judgment or other claim becomes a lien or encumbrance upon any
material portion of Borrower's assets, or if a notice of lien, levy, or
assessment is filed of record with respect to any of Borrower's assets by the
United States Government, or any department, agency, or instrumentality
thereof, or by any state, county, municipal, or governmental agency, and the
same is not paid within ten (10) days after Borrower receives notice thereof,
provided that none of the foregoing shall constitute an Event of Default where
such action or event is stayed or an adequate bond has been posted pending a
good faith contest by Borrower (provided that no Credit Extensions will be
required to be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an
Insolvency Proceeding is commenced by Borrower, or if an Insolvency Proceeding
is commenced against Borrower and is not dismissed or stayed within 45 days
(provided that no Advances will be made prior to the dismissal of such
Insolvency Proceeding);
8.6 Other Agreements. If there is a default in any
agreement to which Borrower is a party with a third party or parties resulting
in a right by such third party or parties, whether or not exercised, to
accelerate the maturity of any Indebtedness in an amount in excess of One
Hundred Thousand Dollars ($100,000) or that could have a Material Adverse
Effect:
8.7 Subordinated Debt. If Borrower makes any payment on
account of Subordinated Debt, except to the extent such payment is allowed
under any subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment
of money in an amount, individually or in the aggregate, of at least Fifty
Thousand Dollars ($50,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of twenty (20) days (provided that no
Credit Extensions will be made prior to the satisfaction or stay of such
judgment); or
8.9 Misrepresentations. If any material misrepresentation
or material misstatement exists now or hereafter in any warranty or
representation set forth herein or in any certificate or writing delivered to
Bank by Borrower or any Person acting on Borrower's behalf pursuant to this
Agreement or to induce Bank to enter into this Agreement or any other Loan
Document.
9. BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies. Upon the occurrence and during
the continuance of an Event of Default, Bank may, at its election, without
notice of its election and without demand, do any one or more of the following,
all of which are authorized by Borrower
(a) Declare all Obligations, whether evidenced by
this Agreement, by any of the other Loan Documents, or otherwise, immediately
due and payable (provided that upon the occurrence of an Event of Default
described in Section 8.5 all Obligations shall become immediately due and
payable without any action by Bank);
(b) Cease advancing money or extending credit to or
for the benefit of Borrower under this Agreement or under any other agreement
between Borrower and Bank;
<PAGE> 18
(c) Demand that Borrower (i) deposit cash with Bank
in an amount equal to the amount of any Letters of Credit remaining undrawn, as
collateral security for the repayment of any future drawings under such Letters
of Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii)
pay in advance all Letters of Credit fees scheduled to be paid or payable over
the remaining term of the Letters of Credit;
(d) Settle or adjust disputes and claims directly
with account debtors for amounts, upon terms and in whatever order that Bank
reasonably considers advisable;
(e) Without notice to or demand upon Borrower, make
such payments and do such acts as Bank considers necessary or reasonable to
protect its security interest in the Collateral. Borrower agrees to assemble
the Collateral if Bank so requires, and to make the Collateral available to
Bank as Bank may designate. Borrower authorizes Bank to enter the premises
where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise any
encumbrance, charge, or lien which in Bank's determination appears to be prior
or superior to its security interest and to pay all expenses incurred in
connection therewith. With respect to any of Borrower's premises, Borrower
hereby grants Bank a license to enter such premises and to occupy the same,
without charge in order to exercise any of Bank's rights or remedies provided
herein, at law, in equity, or otherwise;
(f) Without notice to Borrower set off and apply to
the Obligations any and all (i) balances and deposits of Borrower held by Bank,
or (ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(g) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Collateral. Bank is hereby granted a non-exclusive,
royalty-free license or other right, solely pursuant to the provisions of this
Section 9.1, to use, without charge, Borrower's labels, patents, copyrights,
mask works, rights of use of any name, trade secrets, trade names, trademarks,
service marks, and advertising matter, or any property of a similar nature, as
it pertains to the Collateral, in completing production of, advertising for
sale, and selling any Collateral and, in connection with Bank's exercise of its
rights under this Section 9.1, Borrower's rights under all licenses and all
franchise agreements shall inure to Bank's benefit;
(h) Sell the Collateral at either a public or
private sale, or both, by way of one or more contracts or transactions, for
cash or on terms, in such manner and at such places (including Borrower's
premises) as Bank determines is commercially reasonable, and apply the proceeds
thereof to the Obligations in whatever manner or order it deems appropriate;
(i) Bank may credit bid and purchase at any public
sale, or at any private sale as permitted by law; and
(j) Any deficiency that exists after disposition of
the Collateral as provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence
and during the continuance of an Event of Default, Borrower hereby irrevocably
appoints Bank (and any of Bank's designated officers, or employees) as
Borrower's true and lawful attorney to: (a) send requests for verification of
Accounts or notify account debtors of Bank's security interest in the Accounts;
(b) endorse Borrower's name on any checks or other forms of payment or security
that may come into Bank's possession; (c) sign Borrower's name on any invoice or
bill of lading relating to any Account, drafts against account debtors,
schedules and assignments of Accounts, verifications of Accounts, and notices
to account debtors; (d) make, settle, and adjust all claims under and decisions
with respect to Borrower's policies of insurance; and (e) settle and adjust
disputes and claims respecting the accounts directly with account debtors, for
amounts and upon terms which Bank determines to be reasonable; (f) to file, in
its sole discretion, one or more financing or continuation statements and
amendments thereto, relative to any of the Collateral without the signature of
Borrower where permitted by law; provided Bank may exercise such power of
attorney to sign the name of Borrower on any of the documents described in
Section 4.2 regardless of whether an Event of Default has occurred. The
appointment of Bank as Borrower's
<PAGE> 19
attorney in fact, and each and every one of Bank's rights and powers, being
coupled with an interest, is irrevocable until all of the Obligations have been
fully repaid and performed and Bank's obligation to provide advances hereunder
is terminated.
9.3 Accounts Collection. Upon the occurrence and during
the continuance of an Event of Default, Bank may notify any Person owing funds
to Borrower of Bank's security interest in such funds and verify the amount of
such Account. Borrower shall collect all amounts owing to Borrower for Bank,
receive in trust all payments as Bank's trustee, and if requested or required
by Bank, immediately deliver such payments to Bank in their original form as
received from the account debtor, with proper endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts
or furnish any required proof of payment due to third persons or entities, as
required under the terms of this Agreement, then Bank may do any or all of the
following: (a) make payment of the same or any part thereof, (b) set up such
reserves under the Committed Revolving Line as Bank deems necessary to protect
Bank from the exposure created by such failure; or (c) obtain and maintain
insurance policies of the type discussed in Section 6.6 of this Agreement, and
take any action with respect to such policies as Bank deems prudent. Any
amounts so paid or deposited by Bank shall constitute Bank Expenses, shall be
immediately due and payable, and shall bear interest at the then applicable
rate hereinabove provided, and shall be secured by the Collateral. Any payments
made by Bank shall not constitute an agreement by Bank to make similar payments
in the future or a waiver by Bank of any Event of Default under this Agreement.
9.5 Bank's Liability for Collateral. So long as Bank
complies with reasonable banking practices, Bank shall not in any way or manner
be liable or responsible for: (a) the safekeeping of the Collateral; (b) any
loss or damage thereto occurring or arising in any manner or fashion from any
cause; (c) any diminution in the value thereof; or (d) any act or default of
any carrier, warehouseman, bailee, forwarding agency, or other person
whomsoever. All risk of loss, damage or destruction of the Collateral shall be
borne by Borrower.
9.6 Remedies Cumulative. Bank's rights and remedies under
this Agreement, the Loan Documents, and all other agreements shall be
cumulative. Bank shall have all other rights and remedies not expressly set
forth herein as provided under the Code, by law, or in equity. No exercise by
Bank of one right or remedy shall be deemed an election, and no waiver by Bank
of any Event of Default on Borrower's part shall be deemed a continuing waiver.
No delay by Bank shall constitute a waiver, election, or acquiescence by it. No
waiver by Bank shall be effective unless made in a written document signed on
behalf of Bank and then shall be effective only in the specific instance and
for the specific purpose for which it was given.
9.7 Demand: Protest. Borrower waives demand, protest,
notice of protest, notice of default or dishonor, notice of payment and
nonpayment, notice of any default, nonpayment at maturity, release, compromise,
settlement, extension, or renewal of accounts, documents, instruments, chattel
paper, and guarantees at any time held by Bank on which Borrower may in any way
be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other agreement entered
into in connection herewith shall be in writing and (except for financial
statements and other informational documents which may be sent by first-class
mail, postage prepaid) shall be personally delivered or sent by a recognized
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to Borrower or to Bank, as the case may be, at
its addresses set forth below:
If to Borrower T/R Systems, Inc.
5985 Financial Drive
Norcross, GA 30071
Attn: Lyle Newkirk, CFO
FAX: (770) 448-3202
<PAGE> 20
12.6 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties on separate counterparts, each
of which, when executed and delivered, shall be deemed to be an original, and
all of which, when taken together, shall constitute but one and the same
Agreement.
12.7 Survival. All covenants, representations and
warranties made in this Agreement shall continue in full force and effect so
long as any Obligations remain outstanding. The obligations of Borrower to
indemnify Bank with respect to the expenses, damages, losses, costs and
liabilities described in Section 12.2 shall survive until all applicable
statute of limitations periods with respect to actions that may be brought
against Bank have run.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as a sealed instrument as of the date first set forth above.
<TABLE>
<S> <C>
"Borrower" "Bank"
T/R SYSTEMS, INC. SILICON VALLEY BANK, doing business
as SILICON VALLEY EAST
By: /s/ Michael E. Kohlsdorf By: /s/ Gerard F. Benson
------------------------------------ ------------------------------------------
Michael E. Kohlsdorf, President, CEO Gerard F. Benson
By: /s/ Lyle Newkirk SILICON VALLEY BANK
------------------------------------
Lyle Newkirk, CFO By: /s/
---------------------------------------
Title: AVP
------------------------------------
(Signed in Santa Clara County, California)
</TABLE>
19
<PAGE> 21
EXHIBIT A
The Collateral shall consist of all right, title and interest of
Borrower in and to the following:
(a) All goods and equipment now owned or hereafter acquired,
including, without limitation, all machinery, fixtures, vehicles (including
motor vehicles and trailers), and any interest in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including,
without limitation, all merchandise, raw materials, parts, supplies, packing
and shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any of
the foregoing and any documents of title representing any of the above, and
Borrower's Books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or
hereafter acquired, including, without limitation, goodwill, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, claims, literature, reports, catalogs, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract
rights, royalties, license rights and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods, the licensing of technology
or the rendering of services by Borrower, whether or not earned by performance,
and any and all credit insurance, guaranties, and other security therefor, as
well as all merchandise returned to or reclaimed by Borrower and Borrower's
Books relating to any of the foregoing;
(e) All documents, cash, deposit accounts, securities, letters of
credit, certificates of deposit, instruments and chattel paper now owned or
hereafter acquired and Borrower's Books relating to the foregoing; and
(f) Any and all claims, rights and interests in any of the above
and all substitutions for, additions and accessions to and proceeds thereof.
Notwithstanding the foregoing, the Collateral shall not be deemed to
include any copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; any patents,
trademarks, servicemarks and applications therefor; any trade secret rights,
including any rights to unpatented inventions, know-how, operating manuals,
license rights and agreements and confidential information, now owned or
hereafter acquired; or any claims for damages by way of any past, present and
future infringement of any of the foregoing.
21
<PAGE> 22
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE: _______________________
FAX #: (408) __________________ TIME: _____________________
FROM: __________________________________________________________________________
BORROWER'S NAME
FROM: __________________________________________________________________________
AUTHORIZED SIGNER'S NAME
________________________________________________________________________________
AUTHORIZED SIGNATURE
PHONE: _________________________________________________________________________
FROM ACCOUNT # _________________________ TO ACCOUNT # __________________________
<TABLE>
<CAPTION>
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
- -------------------------- ---------------------
<S> <C>
PRINCIPAL INCREASE (ADVANCE) $
--------------------------------------
PRINCIPAL PAYMENT (ONLY) $
--------------------------------------
INTEREST PAYMENT (ONLY) $
--------------------------------------
PRINCIPAL AND INTEREST (PAYMENT) $
--------------------------------------
OTHER INSTRUCTIONS: ____________________________________________________________
</TABLE>
All representations and warranties of Borrower stated in the Loan and Security
Agreement dated as of October 17, 1997 are true, correct and complete in all
material respects as of the date of the telephone request for and Advance
confirmed by this Advance Request; provided, however, that those representations
and warranties expressly referring to another date shall be true, correct and
complete in all material respects as of such date.
BANK USE ONLY:
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
- ---------------------------------------------
Authorized Requester
-----------------------------------------
Authorized Signature (Bank)
Phone # _________________________________
22
<PAGE> 23
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of March 31, 1998,
by and between T/R Systems, Inc., a Georgia corporation ("Borrower") whose
address is 5985 Financial Drive, Norcross, Georgia 30071, and Silicon Valley
Bank, a California-chartered bank ("Bank") with its principal place of business
at 3003 Tasman Drive, Santa Clara, California 95054 and with a loan production
office located at 3343 Peachtree Road, N.E., Suite 312, Atlanta, Georgia 30326.
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which
may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to,
among other documents, a Loan and Security Agreement, dated October 17, 1997,
as may be further amended from time to time (the "Loan Agreement"). The Loan
Agreement provides for, among other things, a Committed Revolving Line in the
original principal amount of One Million Dollars ($1,000,000) (the "Committed
Revolving Line"). Defined terms used herein without definition shall have the
same meaning ascribed thereto in the Loan Agreement. The purpose of this Loan
Modification Agreement is to create a Committed Equipment Line in the original
principal amount of Two Hundred Fifty Thousand and No/100 Dollars ($250,000)
(the "Committed Equipment Line"), upon the terms and conditions set forth
herein.
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Committed
Revolving Line and Committed Equipment Line is secured by the Collateral as
described in the Loan Agreement. Hereinafter, the above-described security
documents, together with all other documents securing repayment of the
Committed Revolving Line and Committed Equipment Line shall be referred to as
the "Security Documents". Hereinafter, the Loan Agreement, the Security
Documents, together with all other documents evidencing or securing the
Committed Revolving Line, shall be referred to as the "Existing Loan
Documents".
3. DESCRIPTION OF CHANGE IN TERMS
A. Modification to Revolving Facility.
1. In accordance with the modifications to the Loan
Agreement set forth below, the Bank shall establish
the Committed Revolving Line on behalf of Borrower.
B. Modifications to Loan Agreement.
1. The following definitions shall be added in the
appropriate place, based upon alphabetical order, to
Section 1 "Definitions and Construction" of the Loan
Agreement:
"Committed Equipment Line" means a Credit Extension of up to
Two Hundred Fifty Thousand and No/100 Dollars ($250,000) for
the purchase of equipment.
1
<PAGE> 24
"Equipment Advance" has the meaning set forth in
Section 2.1.3.
"Equipment Availability End Date" has the meaning
set forth in Section 2.1.3.
"Equipment Maturity Date" means the maturity date
for the repayment by monthly amortization of the
Committed Equipment Line, which shall be August 31,
2001."
2. The definition of "Credit Extension" in Section 1,
"Definitions and Construction" of the Loan Agreement
is deleted in its entirety and replaced with the
following:
"Credit Extension" means each Advance, Equipment
Advance, Letter of Credit, or other extension of
credit by Bank for the benefit of Borrower
hereunder."
3. The definition of "Payment Date" in Section 1,
"Definitions and Construction" of the Loan Agreement
is deleted in its entirety and replaced with the
following:
"Payment Date" means the SIXTEENTH (16th) calendar
day of each month commencing on the first such date
after the Closing Date and ending on the Revolving
Maturity Date as to the Committed Revolving Line and
the Equipment Maturity Date as to the Committed
Equipment Line."
4. Section 2.1, "Credit Extensions" of the Loan
Agreement is amended by adding the following Section
2.1.3 thereto:
"2.1.3 Equipment Advances.
(a) Subject to and upon the terms and
conditions of this Agreement, at any time from the date
hereof through September 30, 1998 (the "Equipment
Availability End Date"), Bank agrees to make advances (each
an "Equipment Advance" and collectively, the "Equipment
Advances") to Borrower in an aggregate outstanding amount not
to exceed the Committed Equipment Line. To evidence the
Equipment Advance or Equipment Advances, Borrower shall
deliver to Bank, at the time of each Equipment Advance
request, an invoice for the equipment to be purchased. The
Equipment Advances shall be used only to purchase equipment
purchased on or after January 1, 1998 and shall not exceed
One-Hundred Percent (100%) of the invoice amount of such
equipment approved from time to time by Bank, excluding
taxes, shipping, warranty charges, freight discounts and
installation expense. Software may, however, constitute up to
twenty-five percent (25%) of the aggregate of all Equipment
Advances.
2
<PAGE> 25
(b) Interest shall accrue from the date of
each Equipment Advance at the per annum rate equal to one and
one-half (1.5) percentage points above the Prime Rate and
shall be payable monthly for each month through the month in
which the Equipment Availability End Date falls. Any
Equipment Advances that are outstanding on the Equipment
Availability End Date will be payable in thirty-six (36)
equal monthly installments of principal and interest,
beginning on the Payment Date of the month following the
Equipment Availability End Date and ending on the Equipment
Maturity Date, at which time all unpaid Equipment Advances,
interest accrued thereon and all other charges, shall be due
and payable in full. Equipment Advances, once repaid, may not
be reborrowed.
(c) When Borrower desires to obtain an
Equipment Advance, Borrower shall notify Bank (which notice
shall be irrevocable) by facsimile transmission to be
received no later than 3:00 p.m. Eastern time one (1)
Business Day before the day on which the Equipment Advance is
to be made. Such notice shall be substantially in the form of
Exhibit B. The notice shall be signed by a Responsible
Officer or its designee and include a copy of the invoice for
the equipment to be financed.
(d) In addition to the facility fee set forth
in Section 2.5(a) hereof, Borrower shall pay a facility fee
for the Committed Equipment Line equal to Two Thousand Five
Hundred and No/100 Dollars ($2,500.00), which fee shall be
due on the date of the Loan Modification Agreement and shall
be fully earned and non-refundable."
5. Section 2.3(a) of the Loan Agreement is amended by
deleting the reference to "Credit Extensions"
therein and replacing it with the term "Advances."
6. The first sentence of Section 2.7 of the Loan
Agreement is deleted in its entirety and replaced
with the following:
"Except as otherwise set forth herein, this
Agreement shall become effective on the Closing Date
and, subject to 12.7, shall continue in full force
and effect until all Obligations are paid in full."
7. Section 6.3(f) of the Loan Agreement is amended by
deleting the reference to "fifteen (15) days"
therein and replacing it with "twenty (20) days."
8. Section 10 of the Loan Agreement is hereby amended
by deleting the current address for notice to the
Bank and inserting the following:
3
<PAGE> 26
<TABLE>
<S> <C>
"If to Bank: Silicon Valley Bank
3343 Peachtree Road, N.E.
Suite 312
Atlanta, Georgia 30326
Attn: Gerry Benson
Fax: (404) 261-2202"
</TABLE>
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described above.
5. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrants
to Bank as follows:
(a) Borrower has adequate corporate power and authority to execute
and deliver this Loan Modification Agreement and the other documents executed
and/or delivered in connection herewith (collectively, the "Modification
Documents") and to perform its respective obligations hereunder and thereunder,
and under the Existing Loan Documents, as amended hereby. Each of this Loan
Modification Agreement and the other Modification Documents has been duly
authorized, executed and delivered by Borrower, and does not contravene any
law, rule or regulation applicable to Borrower or any of the terms of its
Certificate of Incorporation or bylaws, or any other indenture, agreement or
undertaking to which Borrower is a party. This Loan Modification Agreement and
the other Modification Documents effectively amend the Existing Loan Documents
in accordance with the terms hereof and thereof. Borrower's obligations
hereunder and under the other Modification Documents, and under the Loan
Agreement and the other Existing Loan Documents, each as amended hereby and
thereby, constitute legally valid and binding obligations of Borrower
enforceable against Borrower in accordance with their respective terms, except
as enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, or other similar laws affecting the rights of creditors generally
and by equitable principles.
(b) All of the representations and warranties made by Borrower in
the Loan Agreement and the other Existing Loan Documents are true and correct
on the date hereof as if made on and as of the date hereof and are so repeated
herein, except that representations and warranties of financial statements or
conditions as of an earlier date relate solely to such earlier date.
(c) Upon the execution and delivery of this Loan Modification
Agreement and the satisfaction of the conditions precedent set forth in Section
6 hereof, no Event of Default shall exist and be continuing.
6. CONDITIONS PRECEDENT.
(a) The agreements contained herein and the amendments
contemplated hereby shall not be effective unless each of the following
conditions precedent is satisfied:
4
<PAGE> 27
(1) All of the representations and warranties made by
Borrower in Section 5 hereof shall be true and correct;
(2) Bank shall receive in form and substance satisfactory
to Bank, a Certificate of the President of Borrower as to the satisfaction of
the condition specified in clause (1) of this Section 6(a);
(3) Bank shall have received, in form and substance
satisfactory to Bank, such other documents as Bank shall deem necessary and/or
appropriate;
(4) Borrower's payment of the facility fee for the
Committed Equipment Line; and
(5) Execution and delivery of an Equipment Promissory
Note in the principal amount of $250,000.
Upon satisfaction of each of the conditions precedent set forth in this Section
6(a), the agreements contained herein and the amendments contemplated hereby
shall be deemed effective as of the date hereof.
(b) From and after the satisfaction of the conditions precedent
set forth in Section 6(a) hereof, Bank's obligations to make any Credit
Extensions to Borrower under the Loan Agreement and the other Loan Documents
shall be subject to the additional conditions that (i) all of the
representations and warranties made by Borrower herein, whether directly or
incorporated herein by reference, shall be true and correct immediately prior
to the time of the proposed Credit Extensions as if made at and as of such
time, except that representations and warranties of financial statements or
conditions as of an earlier date relate solely to such earlier date, and (ii)
no Event of Default, or event or condition which, with notice or lapse of time,
or both, would constitute an Event of Default, would occur after giving effect
to the making of such Credit Extension. From and after the satisfaction of the
conditions precedent set forth in Section 6(a) hereof, each request by Borrower
for a Credit Extension under the Loan Agreement and the other Loan Documents
shall be deemed to be a representation and warranty by Borrower that all of the
conditions precedent in this Section 7(b) have been met.
7. NO DEFENSES OF BORROWER. Borrower agrees that it has no defenses
against the obligations to pay any amounts under the Obligations, including,
but not limited to, the Committed Revolving Line and Committed Equipment Line.
8. CONTINUING VALIDITY. Borrower understands and agrees that in modifying
the Existing Loan Documents, Bank is relying upon Borrower's representations,
warranties, and agreements, as set forth in the Existing Loan Documents and
herein, and Borrower hereby ratifies and affirms all such representations and
warranties as if fully restated herein. Except as expressly modified pursuant
to this Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Bank's agreement to
modification of the Existing Loan Documents pursuant to this Loan Modification
Agreement in no way shall obligate Bank to
5
<PAGE> 28
make any future amendments or modifications to the Existing Loan Documents.
Nothing in this Loan Modification Agreement shall constitute a novation or
satisfaction of the Borrower's Obligations to Bank. It is the intention of Bank
and Borrower to retain as liable parties all makers and endorsers of Existing
Loan Documents, unless the party is expressly released by Bank in writing. No
maker, endorser, or guarantor will be released by virtue of this Loan
Modification Agreement. The terms of this paragraph apply not only to this Loan
Modification Agreement, but also to all subsequent loan modification
agreements.
9. MISCELLANEOUS. This Loan Modification Agreement shall be considered a
"Loan Document" under and as defined in the Loan Agreement. This Loan
Modification Agreement shall be governed by and construed in accordance with
the laws of The Commonwealth of Massachusetts (without giving effect to the
conflicts of law principles thereof), and shall take effect as a sealed
instrument under such laws. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH
ITS PROPERTIES, UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF ANY STATE OR
FEDERAL COURT OF COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN
ANY ACTION, SUIT OR PROCEEDING OF ANY KIND AGAINST IT WHICH ARISES OUT OF OR BY
REASON OF THIS AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT
AVAIL ITSELF OF THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, BORROWER
ACCEPTS JURISDICTION OF THE COURTS AND VENUE IN SANTA CLARA COUNTY, CALIFORNIA.
BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH
PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
6
<PAGE> 29
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER: BANK:
T/R SYSTEMS, INC. SILICON VALLEY BANK, doing
business as SILICON VALLEY
EAST
By: /s/ Lyle W. Newkirk By: /s/ Gerard F. Benson
-------------------------------- --------------------------------
Name: Lyle W. Newkirk Name: Gerard F. Benson
------------------------------ ------------------------------
Title: VP & CFO Title: AVP
----------------------------- -----------------------------
SILICON VALLEY BANK
By: /s/
--------------------------------
Name:
------------------------------
Title: VP
-----------------------------
(Signed in Santa Clara, CA)
7
<PAGE> 30
SECOND
LOAN MODIFICATION AGREEMENT
This Second Loan Modification Agreement is entered into as of October
16, 1998, by and between T/R Systems, Inc., a Georgia corporation ("Borrower")
whose address is 1300 OakBrook Parkway, Norcross, Georgia 30093 and Silicon
Valley Bank, a California-chartered bank ("Lender"), with its principal place of
business at 3003 Tasman Drive, Santa Clara, California 95054 and with a loan
production office located at 3343 Peachtree Road, N.E., Suite 312, Atlanta,
Georgia 30326.
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness
which may be owing by Borrower to Lender, Borrower is indebted to Lender
pursuant to, among other documents, a Loan and Security Agreement dated October
17, 1997, as amended by a Loan Modification Agreement dated March 31, 1998
between Borrower and Lender and as may be amended further from time to time
(the "Loan Agreement"). The Loan Agreement provides for, among other things, a
Committed Revolving Line in the original principal amount of One Million
Dollars ($1,000,000) (the "Committed Revolving Line") and a Committed Equipment
Line in the original principal amount of Two Hundred Fifty Thousand Dollars
($250,000) (the "Committed Equipment Line").
The purpose of this Second Loan Modification Agreement is to increase
the maximum principal available under the Committed Revolving Line and to make
such other modifications, upon the terms and conditions set forth herein.
Capitalized terms used but not otherwise defined herein shall have the
same meaning as in the Loan Agreement. Hereinafter, all indebtedness owing by
Borrower to Lender shall be referred to as the "Indebtedness."
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the
Indebtedness is secured by the Collateral as described in the Loan Agreement.
Hereinafter, above-described security documents, together with all other
documents securing payment of the Indebtedness shall be referred to as the
"Security Documents." Hereinafter, the Security Documents, together with all
other documents evidencing or securing the Indebtedness shall be referred to as
the "Existing Loan Documents."
3. DESCRIPTION OF CHANGE IN TERMS.
A. Modification to Revolving Facility.
(1) The Committed Revolving Line is hereby
renewed, and the maturity date is extended
from October 16, 1998 to October 15, 1999.
The Committed Revolving Line shall be and
is hereby increased from One Million
Dollars ($1,000,000) to Two Million Dollars
($2,000,000).
<PAGE> 31
B. Modifications to Loan Agreement.
(1) The definition of "Committed Revolving
Line" in the Loan Agreement is amended by
deleting "One Million Dollars ($1,000,000)"
and simultaneously inserting in lieu
thereof "Two Million Dollars ($2,000,000)."
(2) The definition of "Revolving Maturity Date"
in the Loan Agreement is deleted and is
replaced with the following:
"'Revolving Maturity Date' means October
15, 1999."
(3) Section 2.2 is hereby amended by deleting
it in its entirety and replacing it with
the following:
Section 2.2 Overadvances. If, at any time
or for any reason, (i) the amount owed by
Borrower to Bank pursuant to Sections 2.1.1
and 2.1.2 exceeds the lesser of the
Committed Revolving Line or the Borrowing
Base or (ii) the amount owed by Borrower to
Bank pursuant to Section 2.3 exceeds the
Committed Equipment Line, then Borrower
shall immediately pay to Bank, in cash, the
amount of such excess.
(4) Section 6.3(a) of the Loan Agreement is
amended by deleting the reference to
"twenty-five (25) days" and replacing it
with "thirty (30) days."
(5) Section 6.3(f) and 6.3(g) of the Loan
Agreement, as amended, are deleted in their
entirety and replaced with the following:
(f) Within twenty (20) days
after the last day of each month, Borrower
shall deliver to Bank a Borrowing Base
Certificate signed by a Responsible Officer
in substantially the form of Exhibit C
hereto, together with aged listings of
accounts receivable.
(g) Within thirty (30) days
after the last day of each month, Borrower
shall deliver to Bank with the monthly
financial statements a Compliance
Certificate signed by a Responsible Officer
in substantially the form of Exhibit D
hereto.
(6) Section 6.7 of the Loan Agreement, as
amended, shall be deleted in its entirety
and replaced with the following:
"Borrower shall maintain with Bank at all
times (a) a demand deposit account ("DDA")
with a balance of no less than $30,000,
2
<PAGE> 32
and (b) a money market account with a
balance of no less than $200,000."
(7) Section 6.8 of the Loan Agreement, as
amended, is deleted and replaced with the
following:
"6.8 Quick Ratio. Borrower shall maintain,
as of the last day of each calendar month,
a ratio of Quick Assets to Current
Liabilities less deferred revenues of at
least 1.50 to 1.00."
(8) Section 6.9 of the Loan Agreement, as
amended, is deleted and replaced with the
following:
"6.9 Tangible Net Worth. At all times
after the hereof, Borrower shall maintain,
as of the last day of each calendar month,
a Tangible Net Worth of not less than
$4,500,000."
(9) A copy of the new Compliance Certificate of
Borrower is attached hereto as Exhibit "A."
(10) Section 10 of the Loan Agreement, as
amended, is hereby amended by deleting the
current address for notice to Borrower and
inserting the following:
T/R Systems, Inc.
1300 Oak Brook Parkway
Norcross, Georgia 30093
Attn: President
Fax: (770) 448-3202
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby
amended wherever necessary to reflect the changes described above.
5. PAYMENT OF LOAN FEE. Borrower shall pay to Lender an annual
loan fee in the amount of Ten Thousand Dollars ($10,000) for the Committed
Revolving Line (the "Loan Fees").
6. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Lender as follows:
(a) Borrower has adequate corporate power and authority
to execute and deliver this Second Loan Modification Agreement and the other
documents executed and/or delivered in connection herewith (collectively, the
"Modification Documents") and to perform its respective obligations hereunder
and thereunder, and under the Existing Loan Documents, as amended hereby. Each
of this Second Loan Modification Agreement and the other Modification
3
<PAGE> 33
Documents has been duly authorized, executed and delivered by Borrower, and
does not contravene any law, rule or regulation applicable to Borrower or any
of the terms of its Articles of Incorporation or bylaws, or any other
indenture, agreement or undertaking to which Borrower is a party. This Second
Loan Modification Agreement and the other Modification Documents effectively
amend the Existing Loan Documents in accordance with the terms hereof and
thereof. Borrower's obligations hereunder and under the other Modification
Documents, and under the Loan Agreement and the other Existing Loan Documents,
each as amended hereby and thereby, constitute legally valid and binding
obligations of Borrower enforceable against Borrower in accordance with their
respective terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, or other similar laws affecting the
rights of creditors generally and by equitable principles.
(b) All of the representations and warranties made by
Borrower in the Loan Agreement and the other Existing Loan Documents are true
and correct on the date hereof as if made on and as of the date hereof and are
so repeated herein, except that representations and warranties of financial
statements or conditions as of an earlier date relate solely to such earlier
date.
(c) Upon the execution and delivery of this Second Loan
Modification Agreement and the satisfaction of the conditions precedent set
forth in Section 7 hereof, no default shall exist and be continuing.
7. CONDITIONS PRECEDENT.
(a) The agreements contained herein and the amendments
contemplated hereby shall not be effective unless each of the following
conditions precedent is satisfied:
(1) All of the representations and warranties
made by Borrower in Section 6 hereof shall
be true and correct;
(2) Lender shall receive in form and substance
satisfactory to Lender, a Certificate of
the President of Borrower as to the
satisfaction of the condition specified in
clause (1) of this Section 7(a);
(3) Lender shall have received, in form and
substance satisfactory to Lender, such
other documents as Lender shall deem
necessary and/or appropriate;
(4) Borrower's payment of the Loan Fees;
(5) Execution and delivery of an Amended and
Restated Committed Revolving Line Note in
the principal amount of $2,000,000 having a
maturity date of October 15, 1999;
4
<PAGE> 34
(6) Delivery of a corporate resolution
authorizing the renewal and extension of
the Committed Revolving Line; and
(7) Delivery of a current certificate of good
standing of Borrower issued by the State of
Georgia.
Upon satisfaction of each of the conditions precedent set forth in this Section
7(a), the agreements contained herein and the amendments contemplated hereby
shall be deemed effective as of the date hereof.
(b) From and after the satisfaction of the conditions
precedent set forth in Section 7(a) hereof, Lender's obligations to make any
Advances to Borrower under the Loan Agreement and the other Loan Documents
shall be subject to the additional conditions that (i) all of the
representations and warranties made by Borrower herein, whether directly or
incorporated herein by reference, shall be true and correct immediately prior
to the time of the proposed Advance as if made at and as of such time, except
that representations and warranties of financial statements or conditions as of
an earlier date relate solely to such earlier date, and (ii) no Event of
Default, or event or condition which, with notice or lapse of time, or both,
would constitute an Event of Default, would occur after giving effect to the
making of such Advance. From and after the satisfaction of the conditions
precedent set forth in Section 7(a) hereof, each request by Borrower for an
Advance under the Loan Agreement and the other Loan Documents shall be deemed
to be a representation and warranty by Borrower that all of the conditions
precedent in this Section 7(b) have been met.
8. NO DEFENSES OF BORROWER. Borrower agrees that it has no
defenses against the obligations to pay any amounts under the Indebtedness,
including, but not limited to, the Committed Revolving Line.
9. CONTINUING VALIDITY. Borrower understands and agrees that in
modifying the Existing Loan Documents, Lender is relying upon Borrower's
representations, warranties, and agreements, as set forth in the Existing Loan
Documents and herein, and Borrower hereby ratifies and affirms all such
representations and warranties as if fully restated herein. Except as expressly
modified pursuant to this Second Loan Modification Agreement, the terms of the
Existing Loan Documents remain unchanged and in full force and effect. Lender's
agreement to modification of the Existing Loan Documents pursuant to this
Second Loan Modification Agreement in no way shall obligate Lender to make any
future amendments or modifications to the Existing Loan Documents. Nothing in
this Second Loan Modification Agreement shall constitute a novation or
satisfaction of the Borrower's Indebtedness to Lender. It is the intention of
Lender and Borrower to retain as liable parties all makers and endorsers of
Existing Loan Documents, unless the party is expressly released by Lender in
writing. No maker, endorser, or guarantor will be released by virtue of this
Second Loan Modification Agreement. The terms of this paragraph apply not only
to this Second Loan Modification Agreement, but also to all subsequent loan
modification agreements.
5
<PAGE> 35
10. MISCELLANEOUS. This Second Loan Modification Agreement shall
be considered a "Loan Document" as defined in the Loan Agreement. This Agreement
shall be governed by, and construed in accordance with, the internal laws of The
Commonwealth of Massachusetts, without regard to principles of conflicts of law.
BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT
OR PROCEEDING OF ANY KIND AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS
AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF
THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, BORROWER ACCEPTS JURISDICTION
OF THE COURTS AND VENUE IN SANTA CLARA COUNTY, CALIFORNIA. BORROWER AND BANK
EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY
RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND
WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
This Second Loan Modification Agreement is executed as of the date
first written above.
BORROWER: LENDER:
T/R SYSTEMS, INC. SILICON VALLEY BANK, doing
business as SILICON VALLEY
EAST
By: /s/ Lyle W. Newkirk By: /s/
------------------------------- --------------------------------
Name: Lyle W. Newkirk Name:
----------------------------- ------------------------------
Title: Vice President: CFO Title: SVP
---------------------------- -----------------------------
SILICON VALLEY BANK
By: /s/ Amy B. Young
----------------------------------
Name: Amy B. Young
------------------------------
Title: Vice President
------------------------------
(signed in Santa Clara, CA)
6
<PAGE> 36
EXHIBIT A
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK ("Bank")
FROM: T/R SYSTEMS, INC. ("Borrower")
The undersigned authorized Responsible Officer of T/R Systems, Inc.
hereby certifies that in accordance with the terms and conditions of the Loan
and Security Agreement dated as of October 12, 1997 between Borrower and Bank,
as amended by that certain Modification Agreement dated March 31, 1998 and that
certain Second Loan Modification Agreement dated October 16, 1998 by and
between Borrower and Bank and as may be amended from time to time (the
"Agreement"), (i) Borrower is in complete compliance for the period ending
____________________ with all required covenants except as noted below, (ii) all
representations and warranties of Borrower stated in the Agreement are true and
correct in all material respects as of the date hereof, and (iii) no Event of
Default, and no event which with notice or lapse of time, or both, would
constitute an Event of Default, has occurred and is continuing. Attached
herewith are the required documents supporting the above certification. The
Officer further certifies that these are prepared in accordance with General
Accepted Accounting Principles (GAAP) and are consistently applied from one
period to the next except as explained in an accompanying letter or footnotes.
The Officer expressly acknowledges that no borrowings may be requested by the
Borrower at any time or date of determination that Borrower is not in
compliance with any of the terms of the Agreement, and that such compliance is
determined not just at the date this certificate is delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
- ------------------ -------- --------
<S> <C> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 120 days Yes No
A/R Aging Monthly within 20 days Yes No
A/R Audit Annual Yes No
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
- ------------------ -------- ---------- --------
<S> <C> <C> <C>
Maintain on a Monthly Basis:
Minimum Quick Ratio 1.5:1.0 ______:1.0 Yes No
Minimum Tangible Net Worth $4,500,000 $_________ Yes No
</TABLE>
COMMENTS REGARDING EXCEPTIONS: SEE ATTACHED
BANK USE ONLY
Received By:
----------------------
Date:
-----------------------------
Verified:
-------------------------
Date:
-----------------------------
T/R SYSTEMS, INC. Compliance Status: Yes No
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE> 37
AMENDED AND RESTATED
REVOLVING PROMISSORY NOTE
$2,000,000.00 October 16, 1998
FOR VALUE RECEIVED, the undersigned, T/R SYSTEMS, INC., a Georgia
corporation ("Borrower"), promises to pay to the order of Silicon Valley Bank,
a California-chartered bank ("Bank"), at such place as the holder hereof may
designate, in accordance with the Loan and Security Agreement dated October 17,
1997, as amended by that certain Loan Modification Agreement dated as of March
31, 1998 and that certain Second Loan Modification Agreement as of the date
hereof between Borrower and Bank (as amended, modified or supplemented from
time to time in accordance with its terms, the "Loan Agreement") the principal
sum of Two Million Dollars ($2,000,000.00) or such lesser amount as may
constitute the unpaid principal amount of the Advances made by Bank to
Borrower, in lawful money of the United States, and to pay interest in like
money at such office or place from the date hereof to the date of payment in
full hereof (whether by acceleration or otherwise) on the unpaid principal
balance hereof at a rate per annum which shall be equal to one percentage point
(1.00) in excess of the Prime Rate (as hereinafter defined) in effect from time
to time, which interest rate shall change as the Prime Rate changes. Interest
shall be payable monthly in arrears on the sixteenth (16th) calendar day of
each month, commencing on November 16, 1998 until maturity, and thereafter on
demand. Interest shall be calculated on the basis of actual days elapsed over a
360-day year. The unpaid principal amount of this Note, and accrued interest
thereon, shall be payable on the Revolving Maturity Date, under and as defined
in the Loan Agreement referred to hereinabove or earlier as hereinafter
provided. Bank's computation of amounts outstanding hereunder from time to time
shall be, as between Bank and Borrower, final, conclusive and binding for all
purposes, absent manifest error.
"Prime Rate" shall mean the rate which Bank announces from time to
time as its prime rate, as in effect from time to time. The Prime Rate is a
reference rate and does not necessarily represent the lowest or best rate
actually charged to any customer. Bank may make commercial loans or other loans
at rates of interest at, above or below the Prime Rate.
This Note is issued pursuant to the Loan Agreement and is subject to
and governed by the terms and conditions thereof. Capitalized terms used but not
defined herein shall have the meaning set forth in the Loan Agreement.
Reference is made to the Loan Agreement for provisions regarding mandatory and
optional payments and prepayments hereof, acceleration of the maturity hereof
by Bank upon the happening of certain stated events, and rates of interest
after default.
This Note is secured by the Loan Agreement, certain of the other Loan
Documents, the Collateral and the other agreements and instruments referred to
in the Loan Agreement, all as more particularly described and provided therein,
and is entitled to the benefits thereof.
<PAGE> 38
Borrower hereby waives diligence, demand, presentment, protest and
notice of any kind, and assents to the extension of the time of payment,
release, surrender or substitution of security, or forbearance or other
indulgence, without notice. Borrower agrees to pay all amounts of principal,
interest and fees under this Note without offset, deduction, claim,
counterclaim, defense or recoupment, all of which, except offsets, recoupments
or counterclaims which could not, by reason of any applicable federal or state
procedural laws, be interposed, pleaded or alleged in any other action, are
hereby waived by Borrower.
This Note may not be changed, modified or terminated orally, but only
by an agreement in writing signed by Borrower or any successor or assign of
Borrower, and Bank or any holder hereof.
In the event Bank or any holder hereof shall retain or engage an
attorney to collect, enforce or protect its interests with respect to this
Note, Borrower shall pay all of the reasonable costs and expenses of such
collection, enforcement or protection, including reasonable attorneys' fees,
whether or not suit is instituted.
This Note shall be governed by and construed in accordance with the
laws of The Commonwealth of Massachusetts (without giving effect to the
conflicts of law principles thereof), and shall be binding upon the successors
and assigns of Borrower and insure to the benefit of Bank and its successors,
endorsees and assigns. If any term or provision of this Note shall be held
invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.
This Note is an amendment and restatement of that certain Revolving
Promissory Note dated October 17, 1997 ("Original Note") by Borrower payable to
Bank. It is not intended and shall not be construed to be a novation of the
Original Note or the indebtedness evidenced thereby.
This Note shall take effect as an instrument under seal in The
Commonwealth of Massachusetts.
T/R SYSTEMS, INC.
By: /s/ Michael E. Kohlsdorf
------------------------------------
Title: President / CEO
----------------------------------
ATTEST: /s/ Lyle Newkirk, CFO
----------------------------
Secretary
[CORPORATE SEAL]
2
<PAGE> 39
CERTIFICATE OF OFFICER
I, the undersigned, the duly elected President of T/R SYSTEMS, INC., a
Georgia corporation (the "Company" does hereby certify that:
(a) All representations and warranties of the Company which are
contained in Section 6 of the Second Loan Modification
Agreement of even date herewith (the "Second Modification
Agreement") by and between the Company and Silicon Valley
Bank (the "Bank") are true and correct on and as of the date
hereof.
(b) The Company has performed and complied in all material
respects with all terms and conditions set forth in the
Second Modification Agreement and the other documents
executed or delivered in connection therewith required to be
performed or complied with by the Company on or prior to the
date hereof, and the consummation of the transactions to be
effected on the date hereof shall not result in an Event of
Default, or an event which with notice or passage of time or
both would become an Event of Default.
Except as otherwise indicated, capitalized terms used herein shall
have the respective meanings ascribed to such terms in the Loan and Security
Agreement dated as of October 17, 1997 between the Company and the Bank, as
amended by that certain Loan Modification Agreement dated March 31, 1998 by and
between the Company and the Bank, as amended by the Second Modification
Agreement and as amended from time to time and in effect as of the date hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 16th day of
October, 1998.
/s/ Michael E. Kohlsdorf
----------------------------------------
Michael E. Kohlsdorf, President
<PAGE> 40
T/R SYSTEMS, INC.
CERTIFICATE OF SECRETARY
I, the undersigned, the duly elected Secretary of T/R SYSTEMS, INC., a
Georgia corporation (the "Company") hereby certify that:
1. Attached hereto as Exhibit A is a true and correct copy of
each amendment to the Articles of Incorporation of the
Company effected after March 31, 1998, which amendments have
been certified by the Secretary of State of Georgia. The
Articles of Incorporation, as so amended, are in full force
and effect on the date hereof, and no action has been taken
or is pending to further amend the same.
2. Attached hereto as Exhibit B is a true and correct copy of
each amendment to the bylaws of the Company effected after
March 31, 1998. The bylaws, as so amended, are in effect on
the date hereof, and no action has been taken or is pending
to further amend the same.
3. The Resolutions of the Board of Directors of the Company
contained in the Corporate Borrowing Resolutions executed
October 17, 1997 and March 31, 1998 by the Secretary of the
Company remain in full force and effect on the date hereof,
and have not been modified or revoked in any manner
whatsoever.
IN WITNESS WHEREOF, I have executed this Certificate this 16th day of
October, 1998.
/s/ Lyle Newkirk
------------------------------------
Secretary
The undersigned hereby certifies that the person executing the above
Certificate as Secretary of the Company is, on and as of the date hereof, the
duly elected qualified and acting Secretary of the Company, and the signature
of such person appearing above is such person's true signature.
/s/ Michael E. Kohlsdorf
------------------------------------
Michael E. Kohlsdorf, President,
CEO
<PAGE> 41
THIRD LOAN MODIFICATION AGREEMENT
This Third Loan Modification Agreement is entered into as of January
18, 1999, by and between T/R Systems, Inc., a Georgia corporation ("Borrower")
whose address is 1300 Oakbrook Drive, Norcross, Georgia 30093, and Silicon
Valley Bank, a California-chartered bank ("Bank") with its principal place of
business at 3003 Tasman Drive, Santa Clara, California 95054 and with a loan
production office located at 3343 Peachtree Road, N.E., Suite 312, Atlanta,
Georgia 30326.
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which
may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to,
among other documents, a Loan and Security Agreement, dated October 17, 1997,
as amended by a Loan Modification Agreement dated March 31, 1998 between
Borrower and Bank, a Second Loan Modification Agreement dated October 16, 1998
between Borrower and Bank, and as may be further amended from time to time (the
"Loan Agreement"). The Loan Agreement provides for, among other things, a
Committed Revolving Line in the original principal amount of Two Million
Dollars ($2,000,000) (the "Committed Revolving Line") and a Committed Equipment
Line in the original principal amount of Two Hundred Fifty Thousand Dollars
($250,000) (the "Committed Equipment Line"). Defined terms used herein without
definition shall have the same meaning ascribed thereto in the Loan Agreement.
The purpose of this Loan Modification Agreement is to make certain
modifications to the Committed Equipment Line.
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Committed
Revolving Line and Committed Equipment Line is secured by the Collateral as
described in the Loan Agreement. Hereinafter, the above-described security
documents, together with all other documents securing repayment of the
Committed Revolving Line and Committed Equipment Line shall be referred to as
the "Security Documents". Hereinafter, the Loan Agreement, the Security
Documents, together with all other documents evidencing or securing the
Committed Revolving Line, shall be referred to as the "Existing Loan
Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
A. Modification to Revolving Facility.
1. In accordance with the modifications to the Loan
Agreement set forth below, the Equipment
Availability End Date for the Committed Equipment
Line shall be and hereby is extended to December 31,
1998.
B. Modifications to Loan Agreement.
1. The definition of "Equipment Maturity Date" in
Section 1 "Definitions and Construction" of the Loan
Agreement is deleted and replaced with the
following:
<PAGE> 42
"Equipment Maturity Date" means the maturity date
for the repayment by monthly amortization of the
Committed Equipment Line, which shall be November
30, 2001."
2. The first sentence of Section 2.1.3 of the Loan
Agreement is hereby amended by deleting the first
sentence thereof and replacing it with the
following:
"2.1.3 Equipment Advances.
(a) Subject to and upon the terms and
conditions of this Agreement, at any time from the date
hereof through December 31, 1998 (the "Equipment Availability
End Date"), Bank agrees to make advances (each an "Equipment
Advance" and collectively, the "Equipment Advances") to
Borrower in an aggregate outstanding amount not to exceed the
Committed Equipment Line."
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described above.
5. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Bank as follows:
(a) Borrower has adequate corporate power and authority to execute and
deliver this Loan Modification Agreement and the other documents executed
and/or delivered in connection herewith (collectively, the "Modification
Documents") and to perform its respective obligations hereunder and thereunder,
and under the Existing Loan Documents, as amended hereby. Each of this Loan
Modification Agreement and the other Modification Documents has been duly
authorized, executed and delivered by Borrower, and does not contravene any
law, rule or regulation applicable to Borrower or any of the terms of its
Certificate of Incorporation or bylaws, or any other indenture, agreement or
undertaking to which Borrower is a party. This Loan Modification Agreement and
the other Modification Documents effectively amend the Existing Loan Documents
in accordance with the terms hereof and thereof. Borrower's obligations
hereunder and under the other Modification Documents, and under the Loan
Agreement and the other Existing Loan Documents, each as amended hereby and
thereby, constitute legally valid and binding obligations of Borrower
enforceable against Borrower in accordance with their respective terms, except
as enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, or other similar laws affecting the rights of creditors generally
and by equitable principles.
(b) All of the representations and warranties made by Borrower in the
Loan Agreement and the other Existing Loan Documents are true and correct on
the date hereof as if made on and as of the date hereof and are so repeated
herein, except that representations and warranties of financial statements or
conditions as of an earlier date relate solely to such earlier date.
2
<PAGE> 43
(c) Upon the execution and delivery of this Loan Modification
Agreement and the satisfaction of the conditions precedent set forth in Section
6 hereof, no Event of Default shall exist and be continuing.
6. CONDITIONS PRECEDENT.
(a) The agreements contained herein and the amendments
contemplated hereby shall not be effective unless each of the following
conditions precedent is satisfied:
(1) All of the representations and warranties made by
Borrower in Section 5 hereof shall be true and correct;
(2) Bank shall receive in form and substance satisfactory
to Bank, a Certificate of the President of Borrower as to the
satisfaction of the condition specified in clause (1) of this Section
6(a);
(3) Bank shall have received, in form and substance
satisfactory to Bank, such other documents as Bank shall deem
necessary and/or appropriate; and
(5) Execution and delivery of an Amended and Restated
Equipment Promissory Note in the principal amount of $250,000.
Upon satisfaction of each of the conditions precedent set forth in this Section
6(a), the agreements contained herein and the amendments contemplated hereby
shall be deemed effective as of the date hereof.
(b) From and after the satisfaction of the conditions precedent
set forth in Section 6(a) hereof, Bank's obligations to make any Credit
Extensions to Borrower under the Loan Agreement and the other Loan Documents
shall be subject to the additional conditions that (i) all of the
representations and warranties made by Borrower herein, whether directly or
incorporated herein by reference, shall be true and correct immediately prior
to the time of the proposed Credit Extensions as if made at and as of such
time, except that representations and warranties of financial statements or
conditions as of an earlier date relate solely to such earlier date, and (ii)
no Event of Default, or event or condition which, with notice or lapse of time,
or both, would constitute an Event of Default, would occur after giving effect
to the making of such Credit Extension. From and after the satisfaction of the
conditions precedent set forth in Section 6(a) hereof, each request by Borrower
for a Credit Extension under the Loan Agreement and the other Loan Documents
shall be deemed to be a representation and warranty by Borrower that all of the
conditions precedent in this Section 7(b) have been met.
7. NO DEFENSES OF BORROWER. Borrower agrees that it has no defenses
against the obligations to pay any amounts under the Obligations, including,
but not limited to, the Committed Revolving Line and Committed Equipment Line.
3
<PAGE> 44
8. CONTINUING VALIDITY. Borrower understands and agrees that in modifying
the Existing Loan Documents, Bank is relying upon Borrower's representations,
warranties, and agreements, as set forth in the Existing Loan Documents and
herein, and Borrower hereby ratifies and affirms all such representations and
warranties as if fully restated herein. Except as expressly modified pursuant
to this Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Bank's agreement to modification
of the Existing Loan Documents pursuant to this Loan Modification Agreement in
no way shall obligate Bank to make any future amendments or modifications to
the Existing Loan Documents. Nothing in this Loan Modification Agreement shall
constitute a novation or satisfaction of the Borrower's Obligations to Bank. It
is the intention of Bank and Borrower to retain as liable parties all makers
and endorsers of Existing Loan Documents, unless the party is expressly
released by Bank in writing. No maker, endorser, or guarantor will be released
by virtue of this Loan Modification Agreement. The terms of this paragraph
apply not only to this Loan Modification Agreement, but also to all subsequent
loan modification agreements.
9. MISCELLANEOUS. This Loan Modification Agreement shall be considered a
"Loan Document" under and as defined in the Loan Agreement. This Loan
Modification Agreement shall be governed by and construed in accordance with
the laws of The Commonwealth of Massachusetts (without giving effect to the
conflicts of law principles thereof), and shall take effect as a sealed
instrument under such laws. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH
ITS PROPERTIES, UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR
FEDERAL COURT OF COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN
ANY ACTION, SUIT OR PROCEEDING OF ANY KIND AGAINST IT WHICH ARISES OUT OF OR BY
REASON OF THIS AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT
AVAIL ITSELF OF THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, BORROWER
ACCEPTS JURISDICTION OF THE COURTS AND VENUE IN SANTA CLARA COUNTY, CALIFORNIA.
BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH
PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
4
<PAGE> 45
This Loan Modification Agreement is executed as of the date first
written above.
BORROWER: BANK:
T/R SYSTEMS, INC. SILICON VALLEY BANK, doing
business as SILICON VALLEY
EAST
By: /s/ Lyle W. Newkirk By: /s/ T. Vertin
--------------------------------- ------------------------
Name: Lyle W. Newkirk Name: T. Vertin
------------------------------- ----------------------
Title: VP, Secretary, Treasurer, CFO Title: SVP
------------------------------ ---------------------
SILICON VALLEY BANK
By:
------------------------
Name:
----------------------
Title:
---------------------
(signed in Santa Clara, CA)
5
<PAGE> 46
This Loan Modification Agreement is executed as of the date first
written above.
BORROWER: BANK:
T/R SYSTEMS, INC. SILICON VALLEY BANK, doing
business as SILICON VALLEY
EAST
By: /s/ Lyle W. Newkirk By: /s/ T. Vertin
--------------------------------- ------------------------
Name: Lyle W. Newkirk Name: T. Vertin
------------------------------- ----------------------
Title: VP, Secretary, Treasurer, CFO Title: SVP
------------------------------ ---------------------
SILICON VALLEY BANK
By: /s/ Michelle D. Giannini
-------------------------
Name: MICHELLE D. GIANNINI
----------------------
Title: ASST. VICE PRES.
---------------------
(signed in Santa Clara, CA)
5
<PAGE> 47
AMENDED AND RESTATED
EQUIPMENT LINE PROMISSORY NOTE
$250,000.00 Norcross, Georgia
January 18, 1999
FOR VALUE RECEIVED, the undersigned, T/R SYSTEMS, INC., a Georgia
corporation ("Borrower"), promises to pay to the order of Silicon Valley Bank,
a California-chartered bank ("Bank"), at such place as the holder hereof may
designate, in accordance with the Loan and Security Agreement dated as of
October 17, 1997, as amended by that certain Loan Modification Agreement dated
March 31, 1998, that certain Second Loan Modification Agreement dated October
16, 1998 and a Third Loan Modification Agreement of even date between Borrower
and Bank (as amended, modified or supplemented from time to time in accordance
with its terms, the "Loan Agreement") the principal sum of Two Hundred Fifty
Thousand Dollars ($250,000.00) or such lesser amount as may constitute the
unpaid principal amount of the Equipment Advances made by Bank to Borrower, in
lawful money of the United States, and to pay interest in like money at such
office or place from the date hereof to the date of payment in full hereof
(whether by acceleration or otherwise) on the unpaid principal balance hereof
at a rate per annum which shall be equal to one and one half percentage point
(1.50) in excess of the Prime Rate in effect from time to time, which interest
rate shall change as the Prime Rate changes. Interest on the unpaid Equipment
Advances shall be payable monthly on each Payment Date for each month through
the month in which the Equipment Availability End Date falls. Any Equipment
Advances that are outstanding on the Equipment Availability End Date will be
payable in thirty-six (36) equal monthly installments of principal and
interest, beginning on the Payment Date of the month following the Equipment
Availability End Date and ending on the Equipment Maturity Date, at which time
all unpaid principal hereunder, accrued interest and other charges shall be due
and payable in full. Interest shall be calculated on the basis of actual days
elapsed over a 360-day year. Bank's computation of amounts outstanding
hereunder from time to time shall be, as between Bank and Borrower, final,
conclusive and binding for all purposes, absent manifest error.
This Note is issued pursuant to, the Loan Agreement and is subject to
and governed by the terms and conditions thereof. Capitalized terms used but not
defined herein shall have the meaning set forth in the Loan Agreement.
Reference is made to the Loan Agreement for provisions regarding mandatory and
optional payments and prepayments hereof, acceleration of the maturity hereof
by Bank upon the happening of certain stated events, and rates of interest
after default.
This Note is secured by the Loan Agreement, certain of the other Loan
Documents, the Collateral and the other agreements and instruments referred to
in the Loan Agreement, all as more particularly described and provided therein,
and the holder of this Note is entitled to the benefits thereof.
<PAGE> 48
Borrower hereby waives diligence, demand, presentment, protest and
notice of any kind, and assents to extensions of the time of payment, release,
surrender or substitution of security, or forbearance or other indulgence,
without notice. Borrower agrees to pay all amounts of principal, interest and
fees under this Note without offset, deduction, claim, counterclaim, defense or
recoupment, all of which, except offsets, recoupments or counterclaims which
could not, by reason of any applicable federal or state procedural laws, be
interposed, pleaded or alleged in any other action, are hereby waived by
Borrower.
This Note may not be changed, modified or terminated orally, but only
by an agreement in writing signed by Borrower or any successor or assign of
Borrower, and Bank or any holder hereof.
In the event Bank or any holder hereof shall retain or engage an
attorney to collect, enforce or protect its interests with respect to this
Note, Borrower shall pay all of the reasonable costs and expenses of such
collection, enforcement or protection, including reasonable attorneys' fees,
whether or not suit is instituted.
This Note shall be governed by and construed in accordance with the
laws of The Commonwealth of Massachusetts (without giving effect to the
conflicts of law principles thereof), and shall be binding upon the successors
and assigns of Borrower and inure to the benefit of Bank and its successors,
endorsees and assigns If any term or provision of this Note shall be held
invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.
This Note is an amendment and restatement of that certain Equipment
Line Promissory Note dated March 31, 1998 ("Original Note") by Borrower payable
to Bank. It is not intended and this Note shall not be construed to be a
novation of the Original Note or the indebtedness evidenced thereby.
This Note shall take effect as an instrument under seal in The
Commonwealth of Massachusetts.
T/R SYSTEMS, INC.
By: /s/ Lyle W. Newkirk
------------------------------
Title:
ATTEST: /s/
--------------------
2
<PAGE> 49
[SILICON VALLEY BANK LOGO]
February 2, 1999
Lyle W. Newkirk
VP of Finance and CFO
T/R Systems, Inc.
1300 Oakbrook Drive
Norcross, GA 30093
Dear Lyle W. Newkirk:
Silicon Valley Bank hereby agrees to include in Eligible Accounts, as defined
in the Loan and Security Agreement dated October 17, 1997, as amended, the
foreign receivables from Minolta Co. LTD. Receivables from Minolta Co. LTD.
shall be deemed as eligible Accounts Receivables subject to existing advance
and standard eligibility requirements. We reserve the right to withdraw this
addition to Eligible Accounts upon prior written notice to you.
Cordially,
/s/ Gerry Benson
Gerry Benson
Vice President
Agreed and accepted this 2nd day of February 1999.
T/R Systems, Inc.
/s/ Lyle W. Newkirk
- -----------------------------------
Lyle Newkirk, VP of Finance and CFO
<PAGE> 1
EXHIBIT 10.7
[T/R Systems, Inc. Letterhead]
September 6, 1996
Mr. Michael Kohlsdorf
5900 Plantation Drive
Roswell, GA 30075
Dear Mike,
It is my pleasure to offer to you the position of President and Chief Executive
Officer of T/R Systems. All of the board of directors, including Frank and I,
are enthusiastic about your joining us and to your leadership role at T/R.
As we have discussed your annual salary will be $180,000. A corporate bonus plan
will developed whereby you can earn up to 50% of your base if the company
achieves its board approved plan. A bonus of $30,000 will be paid to you when
you become employed by the company.
A stock option of 600,000 shares of common stock, with an option price of $.50
will be granted to you. 200,000 shares of this option will be ISO and 400,000
shares will be non-qualified. The T/R Systems stock option plan includes a
cashless exercise feature to allow you to exercise options with stock already
held. These options will vest in 25% equal increments over 4 years.
Should you be asked to leave anytime during the first year of your employment,
your salary will be continued for 1 year from that date and your first
year's stock option shall vest.
We have discussed a change of control scenario and will fully resolve this item
shortly. At this time we can assure you that at least one half of your option
shares shall vest upon a change of control. However, in the event the business
is sold for at least $10 million, but not more than $40 million, within two
years (September 30, 1998) and you are no longer employed, then you will
participate in a $1 million pool set aside for certain key managers. Your
participation will be $500,000. Should you participate in the "pool" then the
salary continuation provision mentioned above will not be in effect.
You will be elected as a member of the board at the time you begin work at T/R
Systems.
We look forward to your joining T/R Systems and working together.
Sincerely,
/s/ E. Neal Tompkins /s/ Francis A. Rowe
- -------------------- -------------------------
E. Neal Tompkins Francis A. Rowe
President CEO and Vice Chairman
<PAGE> 2
[T/R Systems, Inc. Letterhead]
December 17, 1997
Mr. Michael Kohlsdorf
5900 Plantation Drive
Roswell, GA 30075
Dear Mike:
I refer you to the letter issued to you on September 6, 1996 on behalf of
T/R Systems, Inc. in respect of your employment (the "9/6/96 Letter").
Since the issuance of the 9/6/96 Letter your annual salary has been
increased, and you have been awarded additional stock options. You
participate in a corporate bonus plan as described in the 9/6/96 Letter.
As for the provision concerning the Company's termination of your
employment, it is extended so as to provide that should you be asked to
leave your employment at any time, your salary will be continued for one
year from such termination of employment and all of your options
scheduled to vest during such one-year period shall vest.
Also, as for the provision allowing for a participation benefit upon a
change of control, we extend the term of same so as to cover any change
of control prior to T/R's initial public offering (even if occurring
after 9/30/98).
Sincerely,
/s/ Charles H. Phipps
- -----------------------------
Charles H. Phipps,
Chairman of the Board
<PAGE> 1
EXHIBIT 10.8
T/R SYSTEMS, INC.
EMPLOYMENT AGREEMENT
WITH
E. NEAL TOMPKINS
DATED: SEPTEMBER 1, 1992
<PAGE> 2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
the 1st day of September, 1992, by and between T/R SYSTEMS, INC., a Georgia
corporation (the "Company") and E. NEAL TOMPKINS ("Executive").
W I T N E S S E T H:
WHEREAS, Executive is currently employed by the Company as the
Company's President; and
WHEREAS, the Company and Executive desire to continue Executive's
employment in such position all in accordance with the terms and conditions
hereof;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto hereby agree as follows:
1. Employment. The Company hereby continues to employ Executive
in the position described above and Executive accepts such continued employment.
Executive shall perform services for the Company for the period and upon the
terms and conditions set forth in this Agreement. Executive shall also hold such
positions with the Company or its affiliates as may be agreed upon, from time to
time, by the Company and Executive. Executive acknowledges the separate
consideration of One Hundred Dollars ($100.00), the sufficiency of which is
hereby acknowledged, for entering into this Agreement.
2. Term. Subject to the provisions for termination set forth
herein, the term of Executive's employment under this Agreement shall commence
as of the date hereof and shall continue up to and including August 31, 1997
(the "Initial Term"). As of August 31 of each year beginning August 31, 1997,
the term of this Agreement shall be extended for an additional one (1) year.
3. Position and Duties.
3.01 Service with the Company. During the term of this Agreement,
Executive shall continue to perform the employment duties being performed by
Executive as of the date hereof, along with such other reasonable employment
duties, commensurate with Executive's position, as the Board of Directors of the
Company shall, from time to time, assign to Executive.
1
<PAGE> 3
The Company shall not require Executive to perform duties which are not
commensurate with Executive's position. Executive also shall serve, for any
period for which he is elected, as a director of the Company without additional
compensation.
3.02 Performance of Duties. Executive shall serve the Company
faithfully and to the best of his ability devote full business time, attention,
skill and effort exclusively to the performance of the duties described in this
Agreement. Executive shall perform the duties hereunder at the Company's offices
in Atlanta, Georgia; provided, however, that Executive may be required to
undertake reasonable travel to other areas to perform duties on behalf of the
Company. The Company shall not, without Executive's consent, require Executive
to perform Executive's duties, on a regular basis, in any location which is in
excess of fifty (50) miles from the Company's present location at 6145A
Northbelt Parkway, Norcross, Georgia 30071.
4. Compensation; Benefits.
4.01 Base Salary. The Company shall pay to Executive as
compensation in full for all services to be rendered by Executive under this
Agreement a base salary ("Base Salary") to be paid in accordance with the
Company's normal payroll procedures and policies, reduced by applicable federal,
state and local withholding taxes. From the date hereof until such time as the
Company completes development of the demo model of the bi-level desktop printer
product, as described in the Company's Business Plan dated August 17, 1992, as
amended from time to time (the "Business Plan"), the Executive's Base Salary
shall be seventy thousand and no/100 dollars ($70,000) per annum. During the
period from completion of the demo model until such time as the completion of
the zero level prototype of the bi-level desktop printer product, as described
in the Business Plan, the Executive's base salary shall be eighty thousand and
no/100 dollars ($80,000) per annum. During the period from completion of the
zero level prototype until the initiation of shipment of the first production
units of the bi-level desktop printer product, as described in the Business
Plan, the Executive's Base Salary shall be ninety thousand and no/100 dollars
($90,000) per annum. During the period from initiation of shipment of the first
production units of the bi-level desktop printer product until the Company has
experienced net operating profits before taxes on a monthly basis for three
consecutive months, the Executive's Base Salary shall be one hundred and twenty
thousand and no/100 dollars ($120,000) per annum. After the Company has
experienced net operating profits before taxes on a monthly basis for three
consecutive months, the Executive's Base Salary shall be one hundred and fifty
thousand and no/100 dollars ($150,000) per annum. In subsequent years, the Base
Salary payable to Executive shall be reviewed by the Company's Board of
Directors,
2
<PAGE> 4
or the Compensation Committee of the Board of Directors, if any, at least
annually. In reviewing and setting Executive's Base Salary, the Board or the
Compensation Committee thereof, shall consider the cost of living, results of
operations, financial condition, prospects, salary levels for comparably sized
companies in the Company's industry for comparable executive positions and other
criteria deemed relevant by the Company in assessing Executive's performance.
The Base Salary payable to Executive after commencement of mass production of
the bi-level printer product will be increased or kept the same (but not
decreased) in accordance with the Company's regular procedures.
4.02 Incentive Compensation. In addition to the Base Salary
described in Section 4.01, the Company shall pay Executive an annual
performance-based bonus payment ("Incentive Compensation") payable to Executive
in cash not later than thirty (30) days after the audit of the books and
accounts of the Company for such annual period has been completed by the
Company's independent public accountants. The Incentive Compensation shall be
determined in accordance with the following:
(a) The Incentive Compensation shall equal to the product of (i)
Executive's Base Salary for each annual accounting period of the
Company, times (ii) the Applicable Percentage set forth in Section
4.02(b) below.
(b) The Applicable Percentage shall be based upon a comparison of
the Company's actual annual operating profit before taxes ("Actual
Profit"), as determined by the Company's independent public accounts,
for the annual period for which the Incentive compensation is being
calculated, to the budgeted annual operating profit before taxes (the
"Budgeted Profit") reflected in the annual budget submitted to and
adopted by the Board of Directors of the Company prior to the start of
the applicable fiscal year.
(c) The Applicable Percentage shall equal:
<TABLE>
<CAPTION>
Actual Profit to Applicable
Budgeted Profit Ratio Percentage
--------------------- ----------
<S> <C>
80%- 89% 10%
90%_ 99% 20%
100%-109% 40%
110%-119% 65%
120%-Over 90%
</TABLE>
3
3
<PAGE> 5
4.03 Participation in Benefit Plans. Executive shall be entitled to
participate in all employee qualified and nonqualified deferred compensation
plans or supplemental income plans or programs maintained by the Company,
including any Section 401(k) plan adopted by the Company, according to the terms
and conditions thereof. Executive shall also be entitled to participate in any
incentive stock option plan or nonqualified stock option plan, including the
Company's 1992 Stock Option Plan, established or maintained by the Company
according to the terms and conditions of any such plan. As of March 16, 1992,
the Company granted to Executive options to purchase four hundred and forty
thousand (440,000) shares of the common stock of the Company pursuant to the
Company's 1992 Stock Option Plan.
4.04 Insurance Programs. As soon as practicable during the term of
Executive's employment by the Company, as determined by the Board of Directors,
the Company shall, at its expense, provide Executive with all or the following
insurance benefits:
(a) group medical insurance, with no deductible covering Executive
and Executive's dependents;
(b) group dental insurance, with no deductible covering Executive
and Executive's dependents;
(c) life insurance coverage, insuring Executive's life, in an
amount not less than one hundred thousand and no/100 dollars
($100,000);
(d) long-term disability income insurance, insuring Executive,
with a benefit elimination period not to exceed ninety (90) days.
Upon termination of this Agreement, such insurance coverage shall
continue to be provided to Executive and Executive's dependents in accordance
with the provisions of Section 7 hereof.
4.05 Vacation and Sick Leave. Executive will be entitled to
participate in the vacation and sick leave benefit program of the Company to the
extent that his position, title, salary and other qualifications make him
eligible to participate. Vacation time and sick leave may not be accumulated
after the end of any year and, to the extent unused, shall have no economic
value to Executive. Executive's use of vacation time shall be subject to the
prior approval of the Company's Chief Executive Officer.
4
<PAGE> 6
4.06 Expenses. The Company will pay or reimburse Executive for all
reasonable and necessary out-of-pocket expenses incurred by Executive in the
performance of duties under this Agreement, subject to the presentment of
appropriate vouchers in accordance with the Company's policies.
4.07 Office Facilities. The Company shall provide Executive with a
furnished office, together with such staff, equipment and materials as may be
reasonably necessary for Executive to fulfill the duties under this Agreement.
5. Confidentiality; Return of Materials.
5.01 Consequences of Entrustment with Confidential Information.
Executive hereby acknowledges that Executive's position with the Company
requires considerable responsibility and trust, and, in reliance on Executive's
ethical responsibility and loyalty, the Company expects to entrust Executive
with highly sensitive confidential, restricted and proprietary information
involving Trade Secret Information (as hereinafter defined at Section 5.02).
Executive further acknowledges that it could prove difficult to isolate the
Trade Secret Information from business activities that Executive might consider
pursuing after termination of Executive's employment, and, in some instances,
Executive may not be able to compete with the Company in certain ways because of
the risk that the Company's Trade Secret Information might be compromised.
Executive acknowledges that Executive is legally and ethically responsible for
protecting and preserving the Company's proprietary rights for use only for the
Company's benefit, and these responsibilities may impose limitations on
Executive's ability to pursue some kinds of business opportunities that might
interest Executive after Executive's employment.
5.02 Definition of "Trade Secret" Information. For purposes of this
Agreement, "Trade Secret Information" means information the Company considers
proprietary, valuable and confidential and protectible under the Georgia Trade
Secrets Act of 1990, codified at O.C.G.A. ss. 10-1-760 et seq., whether or not
in written or tangible form, possessed by the Company and from which the Company
derives economic value, actual or potential, such information not being
generally known to, and not being readily ascertainable by proper means by,
other persons who can obtain economic value from its disclosure or use, and is
the subject of efforts that are reasonable under the circumstances to maintain
its secrecy.
5.03 Restrictions on Use and Disclosure of Trade Secret
Information. Except as authorized by the Company, Executive shall not, during
the term of this Agreement and for so long after the termination of employment
as the information or
5
<PAGE> 7
data remains Trade Secret Information, divulge, furnish or make accessible to
anyone or use in any way (other than in the ordinary course of business of the
Company) the Trade Secret Information.
5.04 Return of Materials. Upon the request of the Company and, in
any event, upon the termination of Executive's employment, Executive shall
return to the Company and leave at its disposal all copies of memoranda, notes,
records, drawings, manuals, computer programs, documentation, diskettes and
other documents or media, in Executive's possession or control, pertaining in
any way to the business, practices or techniques of the Company.
6. Restrictions on Competition.
6.01 Premises. The Company has invested prior to the date hereof
and expects to continue to invest considerable time, effort, and capital in
developing the business of the Company and enhancing the value and desirability
of the skills of its executives and technical personnel. Both this investment
and Executive's individual compensation reflect the Company's expectation of
receiving a considerable return from the exclusive use of Executive's services
and know-how in the future, free from any risk that the Company's competitors
may attempt to induce Executive to leave the Company and wrongfully gain the
benefit of the Company's investment. The partial restraint set forth in Section
6.02 hereof does not, and cannot, provide complete protection for the Company's
investment, development efforts, product strategy and proprietary information,
but the Company and Executive believe that, in combination with the other
provisions of this Agreement, it is a fair and reasonable measure permitted
under applicable law to protect the Company's interests, giving due regard to
both the interests of Executive and the interests of the Company. Executive
acknowledges that Executive's services as an employee of the Company will be of
a special, unique, extraordinary and intellectual character and that Executive's
position with the Company will place Executive in a position of confidence and
trust with respect to the operations of the Company. The Company and Executive
agree that the restrictions contained within Sections 5 and 6 are reasonable and
that the Company would not have entered into this Agreement but for these
restrictions.
6.02 Covenant Not to Compete; Solicit. In consideration of
Executive's employment hereunder, during the term of this Agreement and for a
period of one (1) year from the date of expiration or termination of this
Agreement (at any time for any reason) Executive shall not in the continental
United States, Europe or Japan: (i) directly or indirectly, for himself, as an
owner, consultant or employee, or as an
6
<PAGE> 8
independent contractor, engage in the business of developing printers utilizing
plain paper electrophotographic printer subsystems which, when integrated with
certain other components, create a printer capable of printing copies in full
color utilizing proprietary product architectures, designs and technologies;
(ii) attempt, directly or indirectly, to solicit, entice, persuade or induce any
employee of the Company to terminate his or her employment by the Company or to
become employed by any person, firm or corporation other than the Company, or
approach any such employee for any of the foregoing purposes or authorize and
assist in the taking of any such action by any third party; or (iii) attempt,
directly or indirectly, to solicit, entice, persuade or induce any customer or
client of the Company, with whom Executive had contact during Executive's
employment by the Company, to terminate or reduce its relationship with the
Company.
6.03 Tolling of Partial Restraint. The running of the one (1) year
period prescribed above shall be tolled and suspended by the length of time
Executive works in circumstances that a court of competent jurisdiction
subsequently finds to violate the terms of this partial restraint.
6.04 Injunctive Relief. Executive acknowledges that it would be
difficult to compensate the Company fully for damages for any violation of the
provisions of this Agreement, including, without limitation, the provisions of
Sections 5 and 6. Accordingly, the Company shall be entitled to injunctive
relief, both pendente lite and permanently, against Executive, Executive hereby
consents to any initiation by the Company in a court of competent jurisdiction
of any action to enjoin immediately any breach of this Agreement, and Executive
hereby releases the Company from the requirement of posting any bond in
connection with temporary or interlocutory injunctive relief, to the extent
permitted by law. This provision with respect to injunctive relief shall not,
however, diminish the right of the Company to claim and recover damages in
addition to injunctive relief.
6.05 Termination of Covenant Not to Compete; Solicit. The covenants
of Executive contained in Section 6.02 shall terminate immediately and be of no
further force and effect upon the happening of either of the following events:
At any time during the effective period of the covenants contained in Section
6.02 (i) the Company fails to fulfill any of its obligations to Executive under
Sections 8.03, 8.04, 8.05 or 8.06, or (ii) the Repurchase Option (as hereinafter
defined at Section 8.07) is not exercised and the value of the Company's common
stock is less than fifty percent (50%) of its value as of ninety (90) days prior
to Executive's termination. For purposes of this Section 6.05, "value" shall
mean the lesser of Appraised Value or Fair Market Value (both as hereinafter
defined at Section 8.07).
7
<PAGE> 9
7. Termination of Employment.
7.01 Total Disability. If Executive becomes "totally disabled"
during the term of this Agreement, the Company may terminate the employment of
Executive upon the expiration of twelve (12) consecutive months following the
determination of such disability as provided in this Section 7.01. During the
continuation of such disability for a period of up to twelve consecutive (12)
months from the date on which the disabling illness or injury occurred, the
Company shall continue to pay Executive all compensation due to Executive
pursuant to Section 4 hereof, including, without limitation, Incentive
Compensation. For purposes hereof, Executive shall be "totally disabled" within
the meaning of any disability insurance policy covering Executive. If Executive
has no such disability insurance, then Executive shall be "totally disabled,"
for purposes hereof, if, as a result of illness or injury, Executive is
incapable of performing any of the normal duties required by his employment and
performed by him before such incapacity. In the event Executive becomes totally
disabled:
(a) Executive, or Executive's personal representative, shall
notify the Company, in writing, of the occurrence of any illness or
injury rendering Executive totally disabled. The Company shall notify
Executive or such personal representative, in writing, of its
determination that Executive is not totally disabled or is totally
disabled and the commencement date of such disability. Any
determination that Executive is not totally disabled shall be made only
by a medical doctor who is neither employed by, nor affiliated with,
the Company or any affiliate of the Company.
(b) If Executive, or the personal representative, disputes such
determination, Executive, or the representative, shall so notify the
Company, in writing, within twenty (20) days after receiving the
Company's notice. In such event, Executive, or his representative,
shall, within fourteen (14) days after giving the Company such notice,
designate an independent medical doctor who, along with the medical
doctor previously designated by the Company, shall, within ten (10)
days, designate a third independent medical doctor. These three (3)
medical doctors shall thereupon determine, by majority vote, within
fifteen (15) days thereafter, whether Executive is totally disabled for
purposes hereof and the commencement date of such disability. Such
determination shall be binding on the parties. Each party shall pay the
cost
8
<PAGE> 10
of their own designated medical doctor and one-half (1/2) of the
expense of the third medical doctor.
(c) If the independent medical doctors determine that Executive
is totally disabled, the Company shall, within three (3) business days
thereafter, pay to Executive all amounts due to Executive under this
Section 7.01 through such date.
7.02 Other Circumstances. Executive's employment will be
terminated:
(a) at any time upon the mutual agreement of the parties; or
(b) upon Executive's death; or
(c) by the Company for "Cause" (as hereinafter defined at this
Section 7.02), provided the Company gives Executive thirty (30)
business days' written notice of its intention to terminate this
Agreement; or
(d) by the Company, without Cause, whether or not in connection
with a "Change in Control" (as hereinafter defined at this Section
7.02).
(e) by Executive after thirty (30) business days' written notice
to the Company of the Company's material breach of this Agreement
unless the Company cures such breach during the notice period; or
(f) by Executive for any reason after ninety (90) days written
notice to the Company.
Upon termination of Executive's employment, the provisions of Section 8
shall apply.
For purposes of this Section, "Cause" shall mean (i) Executive commits
a material breach of this Agreement, which breach is not cured by Executive
during the aforementioned thirty (30) day notice period; or (ii) Executive is
guilty of committing fraud against the Company or misappropriating the Company's
assets. "Change in Control" shall mean, with respect to the Company, that (i) a
person, including a "group" as determined in accordance with Section 13(d)(3) of
the Securities Exchange Act of 1934, (A) becomes the beneficial owner of a
majority (in number or value) of all or any class of the voting or beneficial
interest of the Company, whether with or without the approval, recommendation or
support of the Board of Directors of the Company as constituted prior to such
Change of Control; or (B) achieves possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of
9
<PAGE> 11
the Company through ownership of any class of the voting or beneficial interest
of the Company, trust powers, contract powers or otherwise; or (ii) as a result
of, or in connection with, any cash tender or exchange offer, merger or any
other business combination, sale of assets, public offering of the Company's
stock, sale of stock by the majority shareholders of the Company to any parties
other than employees of the Company, or contested election, or any combination
thereof, the persons who were the directors of the Company or its subsidiaries
before such event(s) shall cease to constitute a majority of the directors (of
such corporation or any successor thereto) thereafter.
7.03 Limitations. No compensation payable under Section 7.01 or
7.02 shall be due if Executive violates the provisions of Sections 5 or
6. The foregoing sentence is not a penalty, but is intended to
constitute liquidated damages to compensate the Company for damages,
which may be difficult to measure, suffered by the Company as a result
of such violations by Executive. Nothing contained in this Section 7
shall be deemed to limit the Company's ability to obtain equitable
relief.
8. Severance.
8.01 Death. If Executive's employment by the Company is terminated
pursuant to Section 7.02(b) as a result of Executive's death, the following
provisions shall apply:
(a) The Company shall pay to Executive's personal representative,
Executive's Base Salary, otherwise payable to Executive but for
Executive's death, through the end of the calendar month in which
Executive's death occurs.
(b) The Company shall pay to Executive's personal representative
the amount of Executive's Incentive Compensation which has been earned
but unpaid for Incentive Compensation calculation periods ending prior
to the date of Executive's death. The Company shall pay to Executive's
personal representative a pro rata share (based on the number of days
in the period during which Executive was alive) of Executive's
Incentive Compensation for the calculation period in which Executive
died provided that more than six (6) months of such calculation period
has elapsed as of Executive's death. Such amount shall be payable in
accordance with Section 4.02 following the end of the entire
calculation period. In the event that Executive's death occurs during
the first six (6) months of such Incentive Compensation calculation
period, no Incentive Compensation shall be payable with respect to
Executive for such period.
10
<PAGE> 12
(c) Upon Executive's death, (i) all stock options issued to
Executive under the 1992 Stock Option Plan, as amended, or successor
thereto, which have not been vested shall immediately vest; and (ii)
the Company, if funds are legally available therefor, or the Investors
(as hereinafter defined at Section 8.07), if the Company's funds are
not legally available therefor, shall have a Repurchase Option (as
hereinafter defined at Section 8.07) to acquire the Executive's options
on the following basis: (A) From the date of the Closing (as
hereinafter defined at Section 8.07) through December 31, 1993, at the
Investor Price (as hereinafter defined at Section 8.07); (B) from
January 1, 1994 through December 31, 1994, at the greater of (y) the
Appraised Value (as hereinafter defined at Section 8.07), or (z) 110%
of the Investor Price; (C) from January 1, 1995 through December 31,
1995, at the greater of (w) the Initial Public offering Share Price (as
hereinafter defined at Section 8.07), (x) the Fair Market Value (as
hereinafter defined at Section 8.07), (y) the Appraised Value (but only
if the Initial Public Offering has not occurred), or (z) 120% of the
Investor Price (but only if the Initial Public Offering has not
occurred); (D) from January 1, 1996 through December 31, 1996, at the
greater of (w) the Initial Public Offering Share Price, (x) the Fair
Market Value (y) the Appraised Value (but only if the Initial Public
Offering has not occurred), or (z) 135% of the Investor Price (but only
if the Initial Public Offering has not occurred); and (E) on and after
January 1, 1997, at the greater of (w) the Initial Public Offering
Share Price, (x) the Fair Market Value, (y) the Appraised Value (but
only if the Initial Public Offering has not occurred), or (z) 200% of
the Investor Price (but only if the Initial Public Offering has not
occurred). In the event the Repurchase option is not exercised,
Executive's personal representative shall thereafter have until the
expiration date(s) specified in the award agreement(s) conferring the
stock option(s) in which to exercise all remaining stock options
granted to Executive pursuant to the 1992 Stock Option Plan, as
amended, or successor thereto.
(d) Any automobile allowance payable to Executive shall be paid
through and including the last day of the calendar month in which
occurs Executive's death.
11
<PAGE> 13
8.02 Total Disability. In the event that Executive's employment by
the Company is terminated pursuant to Section 7.01 as a result of the
Executive's Total Disability, the following shall apply:
(a) The Company shall pay to Executive the amount of Executive's
Incentive Compensation, pursuant to Section 4.02, which has been earned
but unpaid for Incentive Compensation calculation periods ending prior
to the date of Executive's Total Disability. The Company shall pay to
Executive a pro rata share (based on the number of days before such
Total Disability) of Executive's Incentive Compensation for the
calculation period in which Executive became Totally Disabled provided
that more than six (6) months of such calculation period has elapsed.
Such amount shall be payable in accordance with Section 4.02 following
the end of the entire calculation period. In the event that Executive's
Total Disability occurs during the first six (6) months of such
Incentive Compensation calculation period, no Incentive Compensation
shall be payable with respect to Executive for such period.
(b) All stock options issued to Executive pursuant to the 1992
Stock Option Plan, as amended, or successor thereto, which have not
been vested shall immediately vest; and the Company, if funds are
legally available therefor, or the Investors, if the Company's funds
are not legally available therefor, shall have the right to exercise
the Repurchase Option on the following basis: (i) From the date of the
Closing through December 31, 1993, at the Investor Price; (ii) from
January 1, 1994 through December 31, 1994, at the greater of (A) the
Appraised Value, or (B) 110% of the Investor Price; (iii) from January
1, 1995 through December 31, 1995, at the greater of (A) the Initial
Public Offering Share Price, (B) the Fair Market Value, (C) the
Appraised Value (but only if the Initial Public offering has not
occurred), or (D) 120% of the Investor Price (but only if the Initial
Public Offering has not occurred); (iv) from January 1, 1996 through
December 31, 1996, at the greater of (A) the Initial Public Offering
Share Price, (B) the Fair Market Value (C) the Appraised Value (but
only if the Initial Public Offering has not occurred), or (D) 135% of
the Investor Price (but only if the Initial Public Offering has not
occurred); and (v) on and after January 1, 1997, at the greater of (A)
the Initial Public Offering Share Price, (B) the Fair Market Value, (C)
the Appraised Value (but only if the Initial Public Offering has not
occurred), or (D) 200% of the Investor Price (but only if the Initial
Public Offering has not occurred). In the event the
12
<PAGE> 14
Repurchase Option is not exercised, Executive shall thereafter have
until the expiration date(s) specified in the award agreement(s)
conferring the stock option(s) in which to exercise all remaining stock
options granted pursuant to the 1992 Stock Option Plan, as amended, or
successor thereto.
(c) The Company shall maintain any medical and dental coverage
provided to Executive pursuant to this Agreement until the expiration
of the Initial Term of this Agreement, as specified in Section 2
hereof, for Executive and Executive's dependents, or, if the Company's
benefit insurer does not permit such continuation, pay to Executive the
amount of the health insurance premium the Company would have paid to
provide such medical and dental coverage to Executive and Executive's
dependents. Nothing herein shall affect any rights to continuation
coverage of Executive or Executive's dependents with respect to any
insurance coverage as provided by law.
(d) The Company shall maintain life insurance coverage on
Executive's life, payable to Executive or, as designated by Executive,
Executive's beneficiaries for the remainder of the Initial Term of this
Agreement.
8.03 Termination without Cause or Due to Company Breach. In the event
that Executive's employment is terminated by the Company without Cause pursuant
to Section 7.02(d) or Executive's employment is terminated pursuant to Section
7.02(e) as a result of a breach by the Company of this Agreement, the following
provisions shall apply:
(a) The Company shall pay to Executive Executive's Base Salary
according to the Company's normal payroll procedures until the
expiration of the Initial Term of this Agreement.
(b) The Company shall pay to Executive the amount of Executive's
Incentive Compensation which has been earned but unpaid for Incentive
Compensation calculation periods ending prior to the date of
Executive's termination. The Company shall pay to Executive a pro rata
share (based on the number of days before such termination) of
Executive's Incentive Compensation for the calculation period in which
Executive's employment was terminated provided that more than six (6)
months of such calculation period has elapsed. Such amount shall be
payable in accordance with Section 4.02 following the end of the entire
calculation period. In the event that Executive's
13
<PAGE> 15
termination occurs during the first six (6) months of such Incentive
Compensation calculation period, no Incentive Compensation shall be
payable with respect to Executive for such period.
(c) All stock options issued to Executive pursuant to the 1992
Stock Option Plan, as amended, or successor thereto, which have not
been vested shall immediately vest; and the Company, if funds are
legally available therefor, or the Investors, if the Company's funds
are not legally available therefor, shall have the right to exercise
the Repurchase option on the following basis: (i) From the date of the
Closing through December 31, 1993, at the Investor Price; (ii) from
January 1, 1994 through December 31, 1994, at the greater of (A) the
Appraised Value, or (B) 110% of the Investor Price; (iii) from January
1, 1995 through December 31, 1995, at the greater of (A) the Initial
Public Offering Share Price, (B) the Fair Market Value, (C) the
Appraised Value (but only if the Initial Public Offering has not
occurred), or (D) 120% of the Investor Price (but only if the Initial
Public Offering has not occurred); (iv) from January 1, 1996 through
December 31, 1996, at the greater of (A) the Initial Public Offering
Share Price, (B) the Fair Market Value (C) the Appraised Value (but
only if the Initial Public Offering has not occurred), or (D) 135% of
the Investor Price (but only if the Initial Public offering has not
occurred); and (v) on and after January 1, 1997, at the greater of (A)
the Initial Public Offering Share Price, (B) the Fair Market Value, (C)
the Appraised Value (but only if the Initial Public Offering has not
occurred), or (D) 200% of the Investor Price (but only if the Initial
Public Offering has not occurred). In the event the Repurchase Option
is not exercised, Executive shall thereafter have until the expiration
date(s) specified in the award agreement(s) conferring the stock
option(s) in which to exercise all remaining stock options granted
pursuant to the 1992 Stock Option Plan, as amended, or successor
thereto.
(d) The Company shall maintain any medical and dental coverage
provided to Executive pursuant to this Agreement until the expiration
of the Initial Term of this Agreement, as specified in Section 2
hereof, for Executive and Executive's dependents, or, if the Company's
benefit insurer does not permit such continuation, pay to Executive the
amount of the health insurance premium the Company would have paid to
provide such medical and dental coverage to Executive and Executive's
dependents. Nothing herein shall
14
<PAGE> 16
affect any rights to continuation coverage of Executive or Executive's
dependents with respect to any insurance coverage as provided by law.
(e) The Company shall maintain life insurance coverage on
Executive's life, payable to Executive or, as designated by Executive,
Executive's beneficiaries for the remainder of the Initial Term of this
Agreement.
(f) The Company shall pay to Executive the amount of the Company
-funded retirement plan benefits which are forfeited by Executive due
to such termination of employment. Furthermore, the Company shall pay
to Executive each year an amount equal to the amount which would have
been paid by the Company, if any, with respect to Executive's
compensation to any employee qualified in non-qualified deferred
compensation plans or supplemental income plans or programs.
(g) In the event that any payments made to Executive pursuant to
this Section 8.03, in connection with a Change in Control, cause
Executive to be liable for any excise tax on "excess parachute
payments" under Sections 280G and 4999 of the Internal Revenue Code of
1986, as amended, the Company shall pay to Executive, in addition to
all other amounts payable to Executive pursuant to this Agreement, an
amount equal to the amount of the tax payable by the Executive pursuant
to Internal Revenue Code ss. 4999.
8.04 Voluntary Termination by Executive. In the event that
Executive voluntarily terminates employment pursuant to Section 7.02(f), the
following provisions shall apply:
(a) The Company shall pay to Executive Executive's Base Salary
through the effective date of termination of employment.
(b) The Company shall pay to Executive the amount of Executive's
Incentive Compensation which has been earned but unpaid for Incentive
compensation calculation periods ending prior to the date of
Executive's termination. The Company shall pay to Executive a pro rata
share (based on the number of days before such termination) of
Executive's Incentive Compensation for the calculation period in which
Executive terminated provided that more than six (6) months of such
calculation period has elapsed. Such amount shall be payable in
accordance with Section 4.02 following the end of the entire
calculation period. In the event that Executive's termination occurs
during
15
<PAGE> 17
the first six (6) months of such Incentive Compensation calculation
period, no Incentive Compensation shall be payable with respect to
Executive for such period.
(c) All unvested stock options issued to Executive pursuant to the
1992 Stock Option Plan, as amended, or successor thereto, shall be
forfeited. The Company, if funds are legally available therefor, or the
Investors, if the Company's funds are not legally available therefor,
shall have the right to exercise the Repurchase Option, with respect to
any vested options held by Executive, on the following basis: (i) From
the date of the Closing through December 31, 1993, at the Investor
Price; (ii) from January 1, 1994 through December 31, 1994, at the
greater of (A) the Appraised Value, or (B) 110% of the Investor Price;
(iii) from January 1, 1995 through December 31, 1995, at the greater of
(A) the Initial Public Offering Share Price, (B) the Fair Market Value,
(C) the Appraised Value (but only if the Initial Public Offering has
not occurred), or (D) 120% of the Investor Price (but only if the
Initial Public Offering has not occurred); (iv) from January 1, 1996
through December 31, 1996, at the greater of (A) the Initial Public
offering Share Price, (B) the Fair Market Value (C) the Appraised Value
(but only if the Initial Public Offering has not occurred), or (D) 135%
of the Investor Price (but only if the Initial Public Offering has not
occurred); and (v) on and after January 1, 1997, at the greater of (A)
the Initial Public offering Share Price, (B) the Fair Market Value, (C)
the Appraised Value (but only if the Initial Public Offering has not
occurred), or (D) 200% of the Investor Price (but only if the Initial
Public Offering has not occurred). In the event the Repurchase Option
is not exercised, Executive shall thereafter have until the expiration
date(s) specified in the award agreement(s) conferring the stock
option(s) in which to exercise all remaining vested stock options
granted to Executive pursuant to the 1992 Stock Option Plan, as
amended, or successor thereto.
(d) Insurance coverage provided to Executive shall terminate as
of the last day of the month in which Executive's employment
terminates. Nothing herein shall affect any rights to continuation
coverage of Executive or Executive's dependents with respect to any
insurance coverage as provided by law.
8.05 Termination for Cause. In the event that the Company
terminates Executive's employment for Cause pursuant to Section 7.02(c), the
following provisions shall apply:
16
<PAGE> 18
(a) The Company shall continue to pay to Executive Executive's
Base Salary through the last day of the month in which occurs
Executive's termination.
(b) The Company shall pay to Executive all Incentive Compensation
amounts earned prior to the date of termination with respect to annual
periods ending prior to the date of termination which amounts have not
yet been paid.
(c) All unvested stock options issued to Executive pursuant to the
1992 Stock Option Plan, as amended, or successor thereto, shall be
forfeited. The Company, if funds are legally available therefor, or the
Investors, if the Company's funds are not legally available therefor,
shall have the right to exercise the Repurchase Option, with respect to
any vested options held by Executive, on the following basis: (i) From
the date of the Closing through December 31, 1993, at the Investor
Price; (ii) from January 1, 1994 through December 31, 1994, at the
greater of (A) the Appraised Value, or (B) 110% of the Investor Price;
(iii) from January 1, 1995 through December 31, 1995, at the greater of
(A) the Initial Public Offering Share Price, (B) the Fair Market Value,
(C) the Appraised Value (but only if the Initial Public Offering has
not occurred), or (D) 120% of the Investor Price (but only if the
Initial Public Offering has not occurred); (iv) from January 1, 1996
through December 31, 1996, at the greater of (A) the Initial Public
Offering Share Price, (B) the Fair Market Value (C) the Appraised Value
(but only if the Initial Public offering has not occurred), or (D) 135%
of the Investor Price (but only if the Initial Public Offering has not
occurred); and (v) on and after January 1, 1997, at the greater of (A)
the Initial Public Offering Share Price, (B) the Fair Market Value, (C)
the Appraised Value (but only if the Initial Public Offering has not
occurred), or (D) 200% of the Investor Price (but only if the Initial
Public Offering has not occurred). In the event the Repurchase Option
is not exercised, Executive shall thereafter have until the expiration
date(s) specified in the award agreement(s) conferring the stock
option(s) in which to exercise all remaining vested stock options
granted to Executive pursuant to the 1992 Stock Option Plan, as
amended, or successor thereto.
(d) Insurance coverage provided to Executive shall terminate as of
the last day of the month in which Executive's employment terminates.
Nothing herein shall affect any rights to continuation coverage of
17
<PAGE> 19
Executive or Executive's dependents with respect to any insurance
coverage as provided by law.
(e) The Company shall pay to Executive the amount of the Company
-funded retirement plan benefits which are forfeited by Executive due
to such termination of employment. Furthermore, the Company shall pay
to Executive each year an amount equal to the amount which would have
been paid by the Company, if any, with respect to Executive's
compensation to any employee qualified in non-qualified deferred
compensation plans or supplemental income plans or programs.
8.06 Termination by Mutual Agreement. In the event that Executive's
employment is terminated by mutual agreement pursuant to Section 7.02(a), the
parties hereto shall structure a mutually acceptable severance benefits program
which shall be documented in a Termination Agreement to be executed by the
parties immediately prior to Executive's resignation from employment.
8.07 Definitions. For purposes of Section 8.01 (c), 8.02(b),
8.03(c), 8.04(c) and 8.05(c) hereof the following terms shall have the following
meanings:
(a) "Appraised Value" means the value of the capital stock of the
Company subject to stock options issued to Executive pursuant to the
1992 Stock Option Plan, as amended, or successor thereto, as determined
by a valuation analysis performed by an independent and nationally
recognized accounting, investment banking or valuation firm mutually
agreed upon by the Company and Executive (or Executive's personal
representative, as the case may be).
(b) "Closing" means the first date upon which the Company's
securities are first delivered to the Investors pursuant to a
securities purchase agreement.
(c) "Fair Market Value" means (i) the closing sales price of the
Company's common stock first preceding the time at which Fair Market
Value is to be determined on the national securities exchange having
the greatest volume of trading in the stock during the 30-day period
immediately preceding that time as reported in The Wall Street Journal;
(ii) if the stock is not listed or admitted to trade on any national
securities exchange, the closing sales price of the stock first
preceding the time at which Fair Market Value is to be determined, as
quoted in the National Association of Securities Dealers Automated
Quotation (NASDAQ)
18
<PAGE> 20
National Market Reporting System, or any successor system, as reported
in The Wall Street Journal; (iii) if the stock is not listed or
admitted to trade on any national securities exchange and is not quoted
on the NASDAQ National Market Reporting System, the average of the
closing bid and asked sales prices of the stock on the over-the-counter
market first preceding the time at which Fair Market Value is to be
determined, as quoted on NASDAQ or such other national reporting
service, as reported in The Wall Street Journal; or (iv) if the stock
is not listed or admitted to trade on a national securities exchange,
is not quoted on the NASDAQ National Market Reporting System and if the
bid and asked sales prices for the stock are not furnished by the
National Association of Securities Dealers, Inc. or a similar
organization, the Fair Market Value established by the Committee for
purposes of granting Options under the Plan based on such relevant
facts, which may include opinions of independent experts, as may be
available to the Committee.
(d) "Initial Public Offering Share Price" means a price per share
for the Company's common stock at least five times the Investor Price
and with the aggregate sales price of the public offering being not
less than ten million and no/100 dollars ($10,000,000).
(e) "Investor Price" means the average price that the Investors
pay for the securities of the Company.
(f) "Investors" means that initial group of nonemployee investors
which, pursuant to a securities purchase agreement, agrees, under
specified circumstances, to purchase equity in the Company for an
investment in excess of three million and no/100 dollars ($3,000,000).
(g) "Repurchase Option" means the right of the Company or the
Investors, as the case may be, to repurchase the options granted to
Executive pursuant to the Company's 1992 Stock Option Plan, as amended,
or successor thereto, as if the options had been exercised and the
underlying shares purchased by Executive.
9. Assignment. This Agreement shall not be assignable, in whole
or in part, by either party without the written consent of the other party,
except that the Company shall, without the consent of Executive, assign its
rights and obligations under this Agreement to any corporation, firm or other
business entity with or into which the Company may merge or consolidate, or to
which the Company may sell or transfer or transfer all or
19
<PAGE> 21
substantially all of its assets, or of which fifty (50%) percent or more of the
equity investment and of the voting control is owned, directly or indirectly,
by, or is under common ownership with the Company. After any such assignment by
the Company, the Company shall be discharged from all further liability
hereunder and such assignee shall thereafter be deemed to be the Company for the
purposes of all provisions of this Agreement including this Section 9.
10. Miscellaneous.
10.01 Governing Law. This Agreement is made under and shall be
governed by and construed in accordance with the laws of the State of Georgia.
10.02 Prior Agreements. This Agreement contains the entire agreement
of the parties relating to the subject matter hereof and supersedes all prior
agreements and understandings with respect to such subject matter, and the
parties hereto have made no agreements, representations or warranties relating
to the subject matter of this Agreement which are not set forth herein.
10.03 Amendments. No amendment or modification of this Agreement
shall be deemed effective unless made in writing signed by the parties hereto.
10.04 No Waiver. No term or condition of this Agreement shall be
deemed to have been waived, nor shall there be any estoppel to enforce any
provisions of this Agreement, except by a statement in writing signed by the
party against whom enforcement of the waiver or estoppel is sought. Any written
waiver shall not be deemed a continuing waiver unless specifically stated, shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
10.05 Severability. To the extent any provision of this Agreement
shall be invalid or unenforceable, it shall be considered deleted herefrom and
the remainder of such provision and of this Agreement shall be unaffected and
not in limitation of business activities covered by, any provision of this
Agreement be in excess of that which is valid and enforceable under applicable
law, then such provision shall be construed to cover only that duration, extent
or activities which may validly and enforceably be covered. Executive
acknowledges the uncertainty of the law in this respect and expressly stipulates
that this Agreement be given the construction which renders its provisions valid
and enforceable to the maximum extent (not exceeding its express terms) possible
under applicable law.
20
<PAGE> 22
10.06 Survival. The covenants contained in this Agreement shall
survive Executive's termination of employment, regardless of who causes the
termination and under what circumstances.
10.07 Attorneys' Fees. In the event that Executive deems it
reasonably necessary to seek legal counsel in order to enforce Executive's
rights under this Agreement, the Company shall reimburse, or pay on behalf of
Executive, all reasonable legal and accounting fees and expenses incurred by
Executive in connection with enforcing Executive's rights under this Agreement;
provided, that judgment is entered in Executive's favor against the Company.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the day and year first above written.
The Company:
T/R SYSTEMS, INC.,
a Georgia corporation
/s/ Donald F. Greur By: /s/ Francis A. Rowe
- ------------------------- -----------------------------------------
Unofficial Witness Francis A. Rowe,
Chairman
Attest: /s/ Francis A. Rowe
-------------------------------------
Secretary
(CORPORATE SEAL]
EXECUTIVE
/s/ Donald F. Greur By: /s/ E. Neal Tompkins
- ------------------------- -----------------------------------(SEAL)
Unofficial Witness E. Neal Tompkins
21
<PAGE> 1
EXHIBIT 10.9
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this "Agreement"), made as of the 4th
day of March, 1994, by and between T/R SYSTEMS, INC., a Georgia corporation
(the "Company"), and E. NEAL TOMPKINS, a resident of the State of Georgia (the
"Indemnitee");
W I T N E S E T H:
WHEREAS, the company desires to induce the Indemnitee to serve as a
director of the Company; and
WHEREAS, the Indemnitee is willing, subject to certain conditions,
including, without limitation, the execution and performance of this Agreement
by the Company, to serve as a director of the Company;
NOW, THEREFORE, in order to induce the Indemnitee to provide the
Services (as defined below), and in consideration of the premises, mutual
covenants and obligations contained herein, the Company and Indemnitee,
intending to be legally bound, hereby agree as follows:
1. Services. Effective on the date hereof, the Indemnitee
agrees to serve as a director of the Company and to provide the Company with
the benefit of his experience, insight, knowledge and reputation in order to
assist the Company in its management and governance of the Company, in each
case until the earliest to occur of the termination of this Agreement by
agreement of the Company and Indemnitee, the Indemnitee's resignation by
delivery of written notice thereof to the Board of Directors of the Company, or
Indemnitee's death. (The services described in this Section 1 are referred to
hereinafter as the "Services.")
2. Indemnification for Past and Future Services. The Company
shall indemnify and hold harmless the Indemnitee in the event he becomes a
party or is threatened to be made a party to any threatened, pending or
completed action, suit, claim or proceeding, or cause of action of whatever
nature and description (other than an action by or in the right of the Company,
with respect to which the applicable provisions of Georgia law shall apply and
the Company shall indemnify Indemnitee to the maximum extent permitted
thereby), whether known or unknown, whether
<PAGE> 2
accrued or contingent, whether existing now or in the future, whether civil,
administrative or investigative, whether sounding in contract, tort or equity
or arising out of or relating to his agreement hereunder to be a director, by
reason of the fact that he performed Services as a director, or, by agreement
of the Company and Indemnitee hereafter, officer, agent or employee of the
Company, or by reason of any action taken or alleged to have been taken or
omitted or alleged to have been omitted in such capacities (a "Proceeding"),
against any and all costs, charges, claims, losses, liabilities, expenses,
damages and, including without limitation, attorneys' and other fees and
expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by the Indemnitee in connection therewith (collectively,
"Expenses") and any appeal therefrom if the Indemnitee acted in a manner he
believed in good faith to be in or not opposed to the best interests of the
Company; provided, however, that the Company shall not be obligated under this
Section 2 to make any payment in connection with any action, claim or
proceeding against the Indemnitee to the extent based upon or attributable to
or in connection with any threatened, pending or completed criminal action,
suit, claim or proceeding ("Criminal Proceeding") unless the Indemnitee had no
reasonable cause to believe his conduct giving rise to the Criminal Proceeding
was unlawful.
The termination of any Proceeding by judgment, order, settlement or its
equivalent shall not, of itself, create a presumption that the Indemnitee did
not satisfy the foregoing standard of conduct to the extent applicable thereto.
The determination of whether the Indemnitee shall be entitled to
indemnification under this Section 2 shall be made in accordance with Section 4
hereof. If that determination is so made, it shall be binding upon the Company
and the Indemnitee for all purposes.
3. Advancement of Expenses Incurred in Defense of Proceeding.
The Company shall promptly pay all Expenses as and when incurred by the
Indemnitee in advance of the final disposition of the Proceeding in connection
with which they were incurred, following receipt by the Company of the notice
described in Section 7(a) hereof, together with an Affirmation and Undertaking
signed by Indemnitee in the form of Exhibit A attached hereto, upon delivery of
reasonable evidence of such Expenses. Such Undertaking obligates Indemnitee to
repay all amounts advanced in the event it shall ultimately be determined in
accordance with the procedures specified in Sections 4 and 6 hereof that
Indemnitee in not entitled to be indemnified by the Company as authorized in
Section 2 above. The Company shall not require any security for the
Undertaking.
2
<PAGE> 3
4. Certain Procedures Relating to Indemnification. For purposes
of pursuing his rights to indemnification under Section 2 hereof, the
Indemnitee (i) shall submit to the Company a sworn statement of a request for
indemnification substantially in the form of Exhibit B attached hereto and made
a part hereof (the "Indemnification Statement") and (ii) shall present to the
Company reasonable evidence of all Expenses for which payment is requested and
that are not subject to Section 5(b) hereof, with the Company receiving credit
for all Expenses advanced pursuant to Section 3 above. Submission of an
Indemnification Statement to the Company shall create a presumption that the
Indemnitee is entitled to indemnification under Section 2 hereof, and the
Company shall be deemed to have determined that the Indemnitee is entitled to
such indemnification unless, within thirty (30) calendar days after submission
of the Indemnification Statement, the Company shall determine by vote of a
majority of the Board of Directors of the Company, based upon clear and
convincing evidence (sufficient to rebut the foregoing presumption), and the
Indemnitee shall have received notice in writing within such period of such
determination, that the Indemnitee is not so entitled to indemnification, which
notice shall disclose with particularity the evidence in support of the
Company's determination. The foregoing notice shall be sworn to by all persons
who participated in the determination and voted to deny indemnification. Any
determination by the Company that the Indemnitee is not entitled to
indemnification and any failure to make the payments requested in the
Indemnification Statement shall be subject to judicial review as provided in
Section 6 hereof.
5. Subrogation; Duplication of Payments.
(a) Upon payment of any amounts under this Agreement to
which it is finally determined that Indemnitee is entitled, the Company shall
be subrogated to the extent of such amounts to all the rights of recovery of
the Indemnitee, who shall execute all papers required and shall do everything
that may be necessary to secure such rights, including the execution of such
documents necessary to enable the Company effectively to bring suit to enforce
such rights.
(b) The Company shall not be liable under this Agreement
to make any payment in connection with any claim made against the Indemnitee to
the extent the Indemnitee has actually received payment (under any insurance
policy or otherwise) of the amounts otherwise payable hereunder.
3
<PAGE> 4
6. Enforcement.
(a) If a claim for advancement of Expenses or
indemnification made to the Company pursuant to Section 3 or Section 4 hereof
is not paid in full by the Company within thirty (30) calendar days after
receipt by the Company of all documentation required by such section, the
Indemnitee may at any time thereafter bring suit against the Company to recover
the unpaid amount of the claim.
(b) In any action for indemnification pursuant to
Section 2 hereof, brought under Section 6(a) hereof, it shall be a defense to
the claim for indemnification that the Indemnitee has not met the standards of
conduct that constitute conditions to the Company's obligation to indemnify the
Indemnitee for the amount claimed, but the burden of proving such defense shall
be on the Company. The failure of the Company (including independent legal
counsel) to have made a determination prior to commencement of such action that
indemnification of the Indemnitee is proper in the circumstances because he has
met the applicable standard of conduct set forth in this Agreement shall not be
a defense to the action or create a presumption that the Indemnitee has not met
the applicable standard of conduct.
(c) It is the intent of the Company that the Indemnitee
not be required to incur the expenses associated with the enforcement of his
rights under this Agreement by litigation or other legal action because the
cost and expense thereof would substantially detract from the benefits intended
to be extended to the Indemnitee hereunder for the Indemnitee to serve as a
director. Accordingly, if it should appear to the Indemnitee that the Company
has failed to comply with any of its obligations under the Agreement, or in
the event that the Company or any other person takes any action to declare the
Agreement void or unenforceable, or institutes any action, suit or proceeding
designed (or having the effect of being designed) to deny, or to recover from,
the Indemnitee the benefits intended to be provided to the Indemnitee
hereunder, the Company irrevocably authorizes the Indemnitee from time to time
to retain counsel of his choice, at the expense of the Company as hereafter
provided, to represent the Indemnitee in connection with the initiation or
defense of any litigation or other legal action, whether by or against the
company, in any jurisdiction. The Company shall pay and be solely responsible
for any and all costs, charges and expenses, including without limitation
attorneys' and other fees and expenses, reasonably incurred by the Indemnitee
(i) as a result of the Company's failure to perform this Agreement or any
provision thereof, after the duty to perform has been established or (ii) as a
result of the Company or any person contesting the validity or enforceability
of this Agreement or any provision
4
<PAGE> 5
thereof as aforesaid, after such validity and enforceability have been
established.
7. Notification and Defense of Claim.
(a) Promptly after receipt by the Indemnitee of notice
of any pending or threatened Proceeding, the Indemnitee shall, if a claim in
respect thereof is to be made against the Company under this Agreement, notify
the Company of such threatened or pending Proceeding. To be effective, such
notice need only set forth the general basis upon which the Indemnitee became
aware of the Proceeding; provided, however, if the Indemnitee shall have been
personally served with a subpoena, summons, complaint, interrogatories or other
papers, documents or materials, a copy thereof shall be attached to such notice
and such notice shall be delivered to the Company within two (2) business days
of the date on which the Indemnitee was so served. No indemnification provided
for in Section 2 of this Agreement shall be available to the Indemnitee if he
fails to give an appropriate and timely notice and, as a direct result thereof,
the Company was unaware of the Proceeding to which such notice would have
related and was prejudiced by the failure to give such notice.
(b) With respect to any Proceeding as to which the
Indemnitee notifies the Company of the commencement thereof, the Company shall
be entitled to participate in the Proceeding at its own expense and, except as
otherwise provided below, to the extent the Company so desires, it may assume
the defense thereof with counsel mutually satisfactory to the Indemnitee and to
the Company. After notice from the Company to the Indemnitee of its election to
assume the defense thereof, the Company shall not be liable to the Indemnitee
under this Agreement or otherwise for any Expenses subsequently incurred by the
Indemnitee in connection with the defense of such Proceeding other than
reasonable costs of investigation or as otherwise provided below. The
Indemnitee shall have the right to employ his own counsel in such Proceeding,
but all Expenses related thereto incurred after notice from the Company of its
assumption of the defense shall be at the Indemnitee's expense unless: (i) the
employment of counsel by the Indemnitee has been authorized by the Company,
(ii) the Indemnitee has determined in good faith that there may be a conflict
of interest between the Indemnitee and the Company in the defense of the
Proceeding, or (iii) the Company shall not have employed counsel promptly to
assume the defense of such Proceeding; in each of which cases, after prompt
notice to the Company, all Expenses of the Proceeding shall be borne by the
Company and subject to payment pursuant to Sections 2, 3 and 4 of this
Agreement. The Company shall not be entitled to assume the defense of any
Proceeding brought by the Company against the
5
<PAGE> 6
Indemnitee or as to which the Indemnitee shall have made the determination
provided for in (ii) above.
(c) The Indemnitee shall do everything that the Company
reasonably believes is necessary to defend against, settle, or both, any such
Proceeding, including the execution of such documents necessary to enable the
Company to effectively defend against such Proceeding, and the Indemnitee shall
not make any admission without the Company's written consent unless the
Indemnitee shall have determined to undertake his own defense in such matter
and has waived the benefits of this Agreement.
(d) The Company shall not be liable to indemnify the
Indemnitee under this Agreement or otherwise for any amounts paid in settlement
of any Proceeding effected without the Company's written consent. The Company
shall not settle any Proceeding in any manner that would impose any penalty or
limitation on the Indemnitee without the Indemnitee's written consent. Neither
the Company nor the Indemnitee shall unreasonably withhold its or his consent
to any proposed settlement. The Company shall not be liable to indemnify the
Indemnitee under this Agreement with regard to any judicial award if the
Company was not given a reasonable and timely opportunity, at its expense, to
participate in the defense of such action; however, the Company's liability
hereunder shall not be excused if participation in the Proceeding by the
Company was barred by this Agreement.
9. Nonexclusivity and Severability.
(a) The right to indemnification provided by this
Agreement shall not be exclusive of any other rights to which the Indemnitee
may be entitled as to action in his capacity as a director, officer, employee,
or agent and the rights of Indemnitee hereunder shall continue after the
Indemnitee has ceased to be a director, officer, employee, or agent.
(b) The right to indemnification provided by this
Agreement is in addition to, and not in lieu of, any rights conferred under the
bylaws of the Company as they may be amended from time to time and the Georgia
Business Corporation Code as it may be amended from time to time.
(c) If any provision of this Agreement or the
application of any provision hereof to any person or circumstances is held
invalid, unenforceable or otherwise illegal, the remainder of this Agreement
and the application of such provision to other persons or circumstances shall
not be affected, and the provision so held to be invalid, unenforceable or
otherwise illegal shall be reformed to the extent (and only to the extent)
necessary to make it enforceable, valid and legal.
6
<PAGE> 7
(d) This Agreement is not an agreement of employment,
and Indemnitee acknowledges that the Company has no obligation to employ
Indemnitee in any capacity by virtue hereof.
10. Governing Law. This Agreement shall in all respects be
governed by and construed in accordance with (a) the provisions of the Georgia
Business Corporation Code and judicial decisions thereunder as they apply to
indemnification of officers, directors, employees and agents and (b) the
internal laws of the State of Georgia, without giving effect to the principles
of conflict of laws thereof, as such laws apply to contract formation,
construction, interpretation and performance. Each party represents and
warrants to the other that this Agreement has been duly executed and delivered
by such party or on such party's behalf and constitutes the valid and binding
obligation of such party, enforceable against it or him in accordance with its
terms.
11. Modification; Survival. Subject to Section 9(b) above, this
Agreement contains the entire agreement of the parties relating to the subject
matter hereof. This Agreement may be modified only by an instrument in writing
signed by all parties hereto that refers to this Agreement. The provisions of
this Agreement shall survive the death, disability, or incapacity of the
Indemnitee or the termination of the Indemnitee's service as a director,
officer, employee, or agent and shall inure to the benefit of the Indemnitee's
heirs, executors and administrators.
12. Notices. Unless expressly provided to the contrary, herein,
all notices or other communications required or permitted herein will be given
in writing (which may be in the form of an electronic facsimile transmission)
addressed as follows:
(a) If to the Company:
T/R Systems, Inc.
6145 Northbelt Parkway
Norcross, Georgia 30071
Attn: President
Fax No.: (404) 448-3202
(b) If to the Indemnitee:
E. Neal Tompkins
7755 Janann Way
Atlanta, Georgia 30360
Notice of change of address shall be effective only when provided in accordance
with this section. All notices complying with this
7
<PAGE> 8
section shall be deemed to have been received on the date of delivery or on the
third business day after mailing.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
T/R SYSTEMS, INC.
(the "Company")
By: /s/ Francis A. Rowe
----------------------------------------
Francis A. Rowe
Chairman
/s/ E. Neal Tompkins
--------------------------------------------
E. NEAL TOMPKINS
("Indemnitee")
8
<PAGE> 9
EXHIBIT A
AFFIRMATION AND UNDERTAKING
The Board of Directors
T/R Systems, Inc.
6145 Northbelt Parkway
Norcross, Georgia 30071
Gentlemen:
I am a defendant in ________________________________________, presently
pending in ______________________________________________[court], brought by
____________________________________________________________ against me and
____________________________________________[name others], by reason of the fact
that I was a director of T/R Systems, Inc. (the "Company") at the time of the
matters complained of. I hereby affirm my good faith belief that in my capacity
as a director of the Company with respect to the matters, actions or events from
which the foregoing proceeding arose, I acted in a manner I believed to be in,
or not opposed to, the best interests of the Company [add in the event the
proceeding specified is a criminal one: and I had no reasonable cause to believe
my conduct was unlawful].
Pursuant to that certain Indemnification Agreement between the Company and
me dated March 4, 1994, I am entitled to have the Company pay all expenses
incurred by me in the defense of the above described proceeding. Please accept
this letter as my undertaking to repay to the Company all expenses paid by it on
my behalf in advance of the final disposition of the above described action in
the event it shall ultimately be determined that I am not entitled to be
indemnified by the Company as authorized by said Indemnification Agreement, the
bylaws of the Company, or the Georgia Business Corporation Code.
Very truly yours,
-----------------------------------------
E. NEAL TOMPKINS
Dated:
-----------------------------------
9
<PAGE> 10
STATE OF )
-----------------
) SS
COUNTY OF )
-----------------
On ______________, 19__, before me, _______________________, a Notary
Public in and for said County and State, personally appeared E. Neal Tompkins,
personally known to me or proved to me on the basis of satisfactory evidence to
be the person whose name is subscribed to the within instrument and acknowledged
to me that he executed the same and that by his signature on such instrument
such person executed such instrument.
-------------------------------
Notary Public
My commission expires the __ day of ___________, 19__.
[NOTARIAL SEAL]
10
<PAGE> 11
EXHIBIT B
INDEMNIFICATION STATEMENT
STATE OF
-------------------------)
SS
COUNTY OF )
------------------------)
I, E. Neal Tompkins, being first duly sworn, do depose and say as follows:
1. This Indemnification Statement is submitted pursuant to that certain
Indemnification Agreement dated as of March 4, 1994, by and between T/R Systems,
Inc. (the "Company") and the undersigned.
2. I am requesting indemnification against costs, charges, claims, losses,
liabilities, expenses, and damages, including, without limitation, attorneys'
and other fees and expenses, judgments, fines and amounts paid in settlement,
all of which (collectively, "Expenses") have been or will be incurred by me in
connection with an actual or threatened civil, administrative or investigative
action, suit, claim or proceeding ("Proceeding") to which I am a party or am
threatened to be made a party, to the extent not previously paid or reimbursed
by the Company.
3. With respect to all matters related to any such Proceeding, I am
entitled to be indemnified as herein contemplated pursuant to the aforesaid
Indemnification Agreement.
4. Without limiting any other rights that I have or may have, I am
requesting indemnification against Expenses that have or may arise out of
___________________________________________________________________________
___________________________________________________________________________
______________________________________.
----------------------------------------
E. NEAL TOMPKINS
11
<PAGE> 12
On _____________, 19__, before me, __________________________, a Notary
Public in and for said County and State, personally appeared E. Neal Tompkins,
personally known to me or proved to me on the basis of satisfactory evidence to
be the person whose name is subscribed to the within instrument and acknowledged
to me that he executed the same and that by his signature on such instrument
such person executed such instrument.
------------------------------
Notary Public
My commission expires the __ day of _________, 19__.
[NOTARIAL SEAL]
12
<PAGE> 1
EXHIBIT 10.10
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this "Agreement"), made as of the 4th
day of March, 1994, by and between T/R SYSTEMS, INC., a Georgia corporation (the
"Company"), and FRANCIS A. ROWE, a resident of the State of Georgia (the
"Indemnitee");
WITNESSETH:
WHEREAS, the Company desires to induce the Indemnitee to serve as a
director of the Company; and
WHEREAS, the Indemnitee is willing, subject to certain conditions,
including, without limitation, the execution and performance of this Agreement
by the Company, to serve as a director of the Company;
NOW, THEREFORE, in order to induce the Indemnitee to provide the
Services (as defined below), and in consideration of the premises, mutual
covenants and obligations contained herein, the Company and Indemnitee,
intending to be legally bound, hereby agree as follows:
1. Services. Effective on the date hereof, the Indemnitee agrees to
serve as a director of the Company and to provide the Company with the benefit
of his experience, insight, knowledge and reputation in order to assist the
Company in its management and governance of the Company, in each case until the
earliest to occur of the termination of this Agreement by agreement of the
Company and Indemnitee, the Indemnitee's resignation by delivery of written
notice thereof to the Board of Directors of the Company, or Indemnitee's death.
(The services described in this Section 1 are referred to hereinafter as the
"Services.")
2. Indemnification for Past and Future Services. The Company shall
indemnify and hold harmless the Indemnitee in the event he becomes a party or is
threatened to be made a party to any threatened, pending or completed action,
suit, claim or proceeding, or cause of action of whatever nature and description
(other than an action by or in the right of the Company, with respect to which
the applicable provisions of Georgia law shall apply and the Company shall
indemnify Indemnitee to the maximum extent permitted thereby), whether known or
unknown, whether accrued or contingent, whether existing now or in the future,
whether civil, administrative or investigative, whether sounding in contract,
tort or equity or arising out of or relating to his agreement hereunder to be a
director, by reason of the fact that he performed Services as a director, or, by
agreement of the Company and Indemnitee hereafter, officer, agent or employee of
the Company, or by reason of any action taken or alleged to have
<PAGE> 2
been taken or omitted or alleged to have been omitted in such capacities (a
"Proceeding"), against any and all costs, charges, claims, losses, liabilities,
expenses, damages and, including without limitation, attorneys' and other fees
and expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by the Indemnitee in connection therewith (collectively,
"Expenses") and any appeal therefrom if the Indemnitee acted in a manner he
believed in good faith to be in or not opposed to the best interests of the
Company; provided, however, that the Company shall not be obligated under this
Section 2 to make any payment in connection with any action, claim or proceeding
against the Indemnitee to the extent based upon or attributable to or in
connection with any threatened, pending or completed criminal action, suit,
claim or proceeding ("Criminal Proceeding") unless the Indemnitee had no
reasonable cause to believe his conduct giving rise to the Criminal Proceeding
was unlawful.
The termination of any Proceeding by judgment, order, settlement or its
equivalent shall not, of itself, create a presumption that the Indemnitee did
not satisfy the foregoing standard of conduct to the extent applicable thereto.
The determination of whether the Indemnitee shall be entitled to indemnification
under this Section 2 shall be made in accordance with Section 4 hereof. If that
determination is so made, it shall be binding upon the Company and the
Indemnitee for all purposes.
3. Advancement of Expenses Incurred in Defense of Proceeding. The
Company shall promptly pay all Expenses as and when incurred by the Indemnitee
in advance of the final disposition of the Proceeding in connection with which
they were incurred, following receipt by the Company of the notice described in
Section 7(a) hereof, together with an Affirmation and Undertaking signed by
Indemnitee in the form of Exhibit A attached hereto, upon delivery of reasonable
evidence of such Expenses. Such Undertaking obligates Indemnitee to repay all
amounts advanced in the event it shall ultimately be determined in accordance
with the procedures specified in Sections 4 and 6 hereof that Indemnitee is not
entitled to be indemnified by the Company as authorized in Section 2 above. The
Company shall not require any security for the Undertaking.
4. Certain Procedures Relating to Indemnification. For purposes of
pursuing his rights to indemnification under Section 2 hereof, the Indemnitee
(i) shall submit to the Company a sworn statement of a request for
indemnification substantially in the form of Exhibit B attached hereto and made
a part hereof (the "Indemnification Statement") and (ii) shall present to the
Company reasonable evidence of all Expenses for which payment is requested and
that are not subject to Section 5(b) hereof, with the Company receiving credit
for all Expenses advanced pursuant to Section 3 above. Submission of an
Indemnification Statement to the Company shall create a presumption that the
Indemnitee is entitled to indemnification under Section 2 hereof, and the
2
<PAGE> 3
Company shall be deemed to have determined that the Indemnitee is entitled to
such indemnification unless, within thirty (30) calendar days after submission
of the Indemnification Statement, the Company shall determine by vote of a
majority of the Board of Directors of the Company, based upon clear and
convincing evidence (sufficient to rebut the foregoing presumption), and the
Indemnitee shall have received notice in writing within such period of such
determination, that the Indemnitee is not so entitled to indemnification, which
notice shall disclose with particularity the evidence in support of the
Company's determination. The foregoing notice shall be sworn to by all persons
who participated in the determination and voted to deny indemnification. Any
determination by the Company that the Indemnitee is not entitled to
indemnification and any failure to make the payments requested in the
Indemnification Statement shall be subject to judicial review as provided in
Section 6 hereof.
5. Subrogation; Duplication of Payments.
(a) Upon payment of any amounts under this Agreement to which
it is finally determined that Indemnitee is entitled, the Company shall be
subrogated to the extent of such amounts to all the rights of recovery of the
Indemnitee, who shall execute all papers required and shall do everything that
may be necessary to secure such rights, including the execution of such
documents necessary to enable the Company effectively to bring suit to enforce
such rights.
(b) The Company shall not be liable under this Agreement to
make any payment in connection with any claim made against the Indemnitee to the
extent the Indemnitee has actually received payment (under any insurance policy
or otherwise) of the amounts otherwise payable hereunder.
6. Enforcement.
(a) If a claim for advancement of Expenses or indemnification
made to the Company pursuant to Section 3 or Section 4 hereof is not paid in
full by the Company within thirty (30) calendar days after receipt by the
Company of all documentation required by such section, the Indemnitee may at any
time thereafter bring suit against the Company to recover the unpaid amount of
the claim.
(b) In any action for indemnification pursuant to Section 2
hereof, brought under Section 6(a) hereof, it shall be a defense to the claim
for indemnification that the Indemnitee has not met the standards of conduct
that constitute conditions to the Company's obligation to indemnify the
Indemnitee for the amount claimed, but the burden of proving such defense shall
be on the Company. The failure of the Company (including independent legal
counsel) to have made a determination prior to commencement of such action that
indemnification of the
3
<PAGE> 4
Indemnitee is proper in the circumstances because he has met the applicable
standard of conduct set forth in this Agreement shall not be a defense to the
action or create a presumption that the Indemnitee has not met the applicable
standard of conduct.
(c) It is the intent of the Company that the Indemnitee not be
required to incur the expenses associated with the enforcement of his rights
under this Agreement by litigation or other legal action because the cost and
expense thereof would substantially detract from the benefits intended to be
extended to the Indemnitee hereunder for the Indemnitee to serve as a director.
Accordingly, if it should appear to the Indemnitee that the Company has failed
to comply with any of its obligations under the Agreement, or in the event that
the Company or any other person takes any action to declare the Agreement void
or unenforceable, or institutes any action, suit or proceeding designed (or
having the effect of being designed) to deny, or to recover from, the Indemnitee
the benefits intended to be provided to the Indemnitee hereunder, the Company
irrevocably authorizes the Indemnitee from time to time to retain counsel of his
choice, at the expense of the Company as hereafter provided, to represent the
Indemnitee in connection with the initiation or defense of any litigation or
other legal action, whether by or against the Company, in any jurisdiction. The
Company shall pay and be solely responsible for any and all costs, charges and
expenses, including without limitation attorneys' and other fees and expenses,
reasonably incurred by the Indemnitee (i) as a result of the Company's failure
to perform this Agreement or any provision thereof, after the duty to perform
has been established or (ii) as a result of the Company or any person contesting
the validity or enforceability of this Agreement or any provision thereof as
aforesaid, after such validity and enforceability have been established.
7. Notification and Defense of Claim.
(a) Promptly after receipt by the Indemnitee of notice of any
pending or threatened Proceeding, the Indemnitee shall, if a claim in respect
thereof is to be made against the Company under this Agreement, notify the
Company of such threatened or pending Proceeding. To be effective, such notice
need only set forth the general basis upon which the Indemnitee became aware of
the Proceeding; provided, however, if the Indemnitee shall have been personally
served with a subpoena, summons, complaint, interrogatories or other papers,
documents or materials, a copy thereof shall be attached to such notice and such
notice shall be delivered to the Company within two (2) business days of the
date on which the Indemnitee was so served. No indemnification provided for in
Section 2 of this Agreement shall be available to the Indemnitee if he fails to
give an appropriate and timely notice and, as a direct result thereof, the
Company was unaware of the Proceeding to which such notice would have related
and was prejudiced by the failure to give such notice.
4
<PAGE> 5
(b) With respect to any Proceeding as to which the Indemnitee
notifies the Company of the commencement thereof, the Company shall be entitled
to participate in the Proceeding at its own expense and, except as otherwise
provided below, to the extent the Company so desires, it may assume the defense
thereof with counsel mutually satisfactory to the Indemnitee and to the Company.
After notice from the Company to the Indemnitee of its election to assume the
defense thereof, the Company shall not be liable to the Indemnitee under this
Agreement or otherwise for any Expenses subsequently incurred by the Indemnitee
in connection with the defense of such Proceeding other than reasonable costs of
investigation or as otherwise provided below. The Indemnitee shall have the
right to employ his own counsel in such Proceeding, but all Expenses related
thereto incurred after notice from the Company of its assumption of the defense
shall be at the Indemnitee's expense unless: (i) the employment of counsel by
the Indemnitee has been authorized by the Company, (ii) the Indemnitee has
determined in good faith that there may be a conflict of interest between the
Indemnitee and the Company in the defense of the Proceeding, or (iii) the
Company shall not have employed counsel promptly to assume the defense of such
Proceeding; in each of which cases, after prompt notice to the Company, all
Expenses of the Proceeding shall be borne by the Company and subject to payment
pursuant to Sections 2, 3 and 4 of this Agreement. The Company shall not be
entitled to assume the defense of any Proceeding brought by the Company against
the Indemnitee or as to which the Indemnitee shall have made the determination
provided for in (ii) above.
(c) The Indemnitee shall do everything that the Company
reasonably believes is necessary to defend against, settle, or both, any such
Proceeding, including the execution of such documents necessary to enable the
Company to effectively defend against such Proceeding, and the Indemnitee shall
not make any admission without the Company's written consent unless the
Indemnitee shall have determined to undertake his own defense in such matter and
has waived the benefits of this Agreement.
(d) The Company shall not be liable to indemnify the
Indemnitee under this Agreement or otherwise for any amounts paid in settlement
of any Proceeding effected without the Company's written consent. The Company
shall not settle any Proceeding in any manner that would impose any penalty or
limitation on the Indemnitee without the Indemnitee's written consent. Neither
the Company nor the Indemnitee shall unreasonably withhold its or his consent to
any proposed settlement. The Company shall not be liable to indemnify the
Indemnitee under this Agreement with regard to any judicial award if the Company
was not given a reasonable and timely opportunity, at its expense, to
participate in the defense of such action; however, the Company's liability
hereunder shall not be excused if participation in the Proceeding by the Company
was barred by this Agreement.
5
<PAGE> 6
9. Nonexclusivity and Severability.
(a) The right to indemnification provided by this Agreement
shall not be exclusive of any other rights to which the Indemnitee may be
entitled as to action in his capacity as a director, officer, employee, or agent
and the rights of Indemnitee hereunder shall continue after the Indemnitee has
ceased to be a director, officer, employee, or agent.
(b) The right to indemnification provided by this Agreement is
in addition to, and not in lieu of, any rights conferred under the bylaws of the
Company as they may be amended from time to time and the Georgia Business
Corporation Code as it may be amended from time to time.
(c) If any provision of this Agreement or the application of
any provision hereof to any person or circumstances is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and the
application of such provision to other persons or circumstances shall not be
affected, and the provision so held to be invalid, unenforceable or otherwise
illegal shall be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid and legal.
(d) This Agreement in not an agreement of employment, and
Indemnitee acknowledges that the Company has no obligation to employ Indemnitee
in any capacity by virtue hereof.
10. Governing Law. This Agreement shall in all respects be governed by
and construed in accordance with (a) the provisions of the Georgia Business
Corporation Code and judicial decisions thereunder as they apply to
indemnification of officers, directors, employees and agents and (b) the
internal laws of the State of Georgia, without giving effect to the principles
of conflict of laws thereof, as such laws apply to contract formation,
construction, interpretation and performance. Each party represents and warrants
to the other that this Agreement has been duly executed and delivered by such
party or on such party's behalf and constitutes the valid and binding obligation
of such party, enforceable against it or him in accordance with its terms.
11. Modification; Survival. Subject to Section 9(b) above, this
Agreement contains the entire agreement of the parties relating to the subject
matter hereof. This Agreement may be modified only by an instrument in writing
signed by all parties hereto that refers to this Agreement. The provisions of
this Agreement shall survive the death, disability, or incapacity of the
Indemnitee or the termination of the Indemnitee's service as a director,
officer, employee, or agent and shall inure to the benefit of the Indemnitee's
heirs, executors and administrators.
12. Notices. Unless expressly provided to the contrary herein, all
notices or other communications required or permitted
6
<PAGE> 7
herein will be given in writing (which may be in the form of an electronic
facsimile transmission) addressed as follows:
(a) If to the Company:
T/R Systems, Inc.
6145 Northbelt Parkway
Norcross, Georgia 30071
Attn: President
Fax No.: (404) 448-3202
(b) If to the Indemnitee:
Francis A. Rowe
4683 River Court
Duluth, Georgia 30136
Notice of change of address shall be effective only when provided in accordance
with this section. All notices complying with this section shall be deemed to
have been received on the date of delivery or on the third business day after
mailing.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first above written.
T/R SYSTEMS, INC.
(the "Company")
By: /s/ E. Neal Tompkins
-----------------------------------------
E. Neal Tompkins
President
/s/ Francis A. Rowe
-----------------------------------------
Francis A. Rowe
("Indemnitee")
7
<PAGE> 8
EXHIBIT A
AFFIRMATION AND UNDERTAKING
The Board of Directors
T/R Systems, Inc.
6145 Northbelt Parkway
Norcross, Georgia 30071
Gentlemen:
I am a defendant in ________________________________________, presently
pending in ___________________________________________[court], brought by
____________________________________________________ against me and
___________________________________________ [name others], by reason of the fact
that I was a director of T/R Systems, Inc. (the "Company") at the time of the
matters complained of. I hereby affirm my good faith belief that in my capacity
as a director of the Company with respect to the matters, actions or events from
which the foregoing proceeding arose, I acted in a manner I believed to be in,
or not opposed to, the best interests of the Company [add in the event the
proceeding specified is a criminal one: and I had no reasonable cause to believe
my conduct was unlawful].
Pursuant to that certain Indemnification Agreement between the Company and
me dated March 4, 1994, I am entitled to have the Company pay all expenses
incurred by me in the defense of the above described proceeding. Please accept
this letter as my undertaking to repay to the Company all expenses paid by it on
my behalf in advance of the final disposition of the above described action in
the event it shall ultimately be determined that I am not entitled to be
indemnified by the Company as authorized by said Indemnification Agreement, the
bylaws of the Company, or the Georgia Business Corporation Code.
Very truly yours,
-------------------------------------
FRANCIS A. ROWE
Dated:
-------------------------------
STATE OF )
---------------------------------
) SS
COUNTY OF )
--------------------------------
8
<PAGE> 9
On _____________, 19__, before me, ________________________________________
________________, a Notary Public in and for said County and State, personally
appeared Francis A. Rowe, personally known to me or proved to me on the basis of
satisfactory evidence to be the person whose name is subscribed to the within
instrument and acknowledged to me that he executed the same and that by his
signature on such instrument such person executed such instrument.
---------------------------------------
Notary Public
My commission expires the ____ day of ___________, 19__.
[NOTARIAL SEAL]
9
<PAGE> 10
EXHIBIT B
INDEMNIFICATION STATEMENT
STATE OF )
-------------------------
) SS
COUNTY OF )
-------------------------
I, Francis A. Rowe, being first duly sworn, do depose and say as follows:
1. This Indemnification Statement is submitted pursuant to that certain
Indemnification Agreement dated as of March 4, 1994, by and between T/R Systems,
Inc. (the ""Company") and the undersigned.
2. I am requesting indemnification against costs, charges, claims, losses,
liabilities, expenses, and damages, including, without limitation, attorneys'
and other fees and expenses, judgments, fines and amounts paid in settlement,
all of which (collectively, "Expenses") have been or will be incurred by me in
connection with an actual or threatened civil, administrative or investigative
action, suit, claim or proceeding ("Proceeding") to which I am a party or am
threatened to be made a party, to the extent not previously or reimbursed by the
Company.
3. With respect to all matters related to any such Proceeding, I am
entitled to be indemnified as herein contemplated pursuant to the aforesaid
Indemnification Agreement.
4. Without limiting any other rights that I have or may have, I am
requesting indemnification against Expenses that have or may arise out of
_________________________________________________________________________
_________________________________________________________________________
________________________________________.
------------------------------------
FRANCIS A. ROWE
10
<PAGE> 11
On _________________, 19__, before me, _____________________________________
_______________, a Notary Public in and for said County and State, personally
appeared Francis A. Rowe, personally known to me or proved to me on the basis
of satisfactory evidence to be the person whose name is subscribed to the
within instrument and acknowledged to me that he executed the same and that by
his signature on such instrument such person executed such instrument.
--------------------------------------
Notary Public
My commission expires the ____ day of __________, 19__.
[NOTARIAL SEAL]
11
<PAGE> 1
EXHIBIT 10.11
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this "Agreement"), made as of the 4th
day of March, 1994, by and between T/R SYSTEMS, INC., a Georgia corporation
(the "Company"), and CHARLES H. PHIPPS, a resident of the State of Texas (the
"Indemnitee");
W I T N E S S E T H:
WHEREAS, the Company desires to induce the Indemnitee to serve as a
director of the Company; and
WHEREAS, the Indemnitee is willing, subject to certain conditions,
including, without limitation, the execution and performance of this Agreement
by the Company, to serve as a director of the Company;
NOW, THEREFORE, in order to induce the Indemnitee to provide the
Services (as defined below), and in consideration of the premises, mutual
covenants and obligations contained herein, the Company and Indemnitee,
intending to be legally bound, hereby agree as follows:
1. Services. Effective on the date hereof, the Indemnitee agrees to
serve as a director of the Company and to provide the Company with the benefit
of his experience, insight, knowledge and reputation in order to assist the
Company in its management and governance of the Company, in each case until the
earliest to occur of the termination of this Agreement by agreement of the
Company and Indemnitee, the Indemnitee's resignation by delivery of written
notice thereof to the Board of Directors of the Company, or Indemnitee's death.
(The services described in this Section 1 are referred to hereinafter as the
"Services.")
2. Indemnification for Past and Future Services. The Company shall
indemnify and hold harmless the Indemnitee in the event he becomes a party or
is threatened to be made a party to any threatened, pending or completed
action, suit, claim or proceeding, or cause of action of whatever nature and
description (other than an action by or in the right of the Company, with
respect to which the applicable provisions of Georgia law shall
<PAGE> 2
apply and the Company shall indemnify Indemnitee to the maximum extent
permitted thereby), whether known or unknown, whether accrued or contingent,
whether existing now or in the future, whether civil, administrative or
investigative, whether sounding in contract, tort or equity or arising out of
or relating to his agreement hereunder to be a director, by reason of the fact
that he performed Services as a director, or, by agreement of the Company and
Indemnitee hereafter, officer, agent or employee of the Company, or by reason
of any action taken or alleged to have been taken or omitted or alleged to have
been omitted in such capacities (a "Proceeding"), against any and all costs,
charges, claims, losses, liabilities, expenses, damages and, including without
limitation, attorneys' and other fees and expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by the Indemnitee
in connection therewith (collectively, "Expenses") and any appeal therefrom if
the Indemnitee acted in a manner he believed in good faith to be in or not
opposed to the best interests of the Company; provided, however, that the
Company shall not be obligated under this Section 2 to make any payment in
connection with any action, claim or proceeding against the Indemnitee to the
extent based upon or attributable to or in connection with any threatened,
pending or completed criminal action, suit, claim or proceeding ("Criminal
Proceeding") unless the Indemnitee had no reasonable cause to believe his
conduct giving rise to the Criminal Proceeding was unlawful.
The termination of any Proceeding by judgment, order, settlement or its
equivalent shall not, of itself, create a presumption that the Indemnitee did
not satisfy the foregoing standard of conduct to the extent applicable thereto.
The determination of whether the Indemnitee shall be entitled to
indemnification under this Section 2 shall be made in accordance with Section 4
hereof. If that determination is so made, it shall be binding upon the Company
and the Indemnitee for all purposes.
3. Advancement of Expenses Incurred in Defense of Proceeding. The
Company shall promptly pay all Expenses as and when incurred by the Indemnitee
in advance of the final disposition of the Proceeding in connection with which
they were incurred, following receipt by the Company of the notice described in
Section 7(a) hereof, together with an Affirmation and Undertaking signed by
Indemnitee in the form of Exhibit A attached hereto, upon delivery of
reasonable evidence of such Expenses. Such Undertaking obligates Indemnitee to
repay all amounts advanced in the event it shall ultimately be determined in
accordance with the procedures specified in Sections 4 and 6 hereof that
Indemnitee is not entitled to be indemnified by the Company as authorized in
Section 2 above. The Company shall not require any security for the
Undertaking.
2
<PAGE> 3
4. Certain Procedures Relating to Indemnification. For purposes of
pursuing his rights to indemnification under Section 2 hereof, the Indemnitee
(i) shall submit to the Company a sworn statement of a request for
indemnification substantially in the form of Exhibit B attached hereto and made
a part hereof (the "Indemnification Statement") and (ii) shall present to the
Company reasonable evidence of all Expenses for which payment is requested and
that are not subject to Section 5(b) hereof, with the Company receiving credit
for all Expenses advanced pursuant to Section 3 above. Submission of an
Indemnification Statement to the Company shall create a presumption that the
Indemnitee is entitled to indemnification under Section 2 hereof, and the
Company shall be deemed to have determined that the Indemnitee is entitled to
such indemnification unless, within thirty (30) calendar days after submission
of the Indemnification Statement, the Company shall determine by vote of a
majority of the Board of Directors of the Company, based upon clear and
convincing evidence (sufficient to rebut the foregoing presumption), and the
Indemnitee shall have received notice in writing within such period of such
determination, that the Indemnitee is not so entitled to indemnification, which
notice shall disclose with particularity the evidence in support of the
Company's determination. The foregoing notice shall be sworn to by all persons
who participated in the determination and voted to deny indemnification. Any
determination by the Company that the Indemnitee is not entitled to
indemnification and any failure to make the payments requested in the
Indemnification Statement shall be subject to judicial review as provided in
Section 6 hereof.
5. Subrogation; Duplication of Payments.
(a) Upon payment of any amounts under this Agreement to which
it is finally determined that Indemnitee is entitled, the Company shall be
subrogated to the extent of such amounts to all the rights of recovery of the
Indemnitee, who shall execute all papers required and shall do everything that
may be necessary to secure such rights, including the execution of such
documents necessary to enable the Company effectively to bring suit to enforce
such rights.
(b) The Company shall not be liable under this Agreement to
make any payment in connection with any claim made against the Indemnitee to
the extent the Indemnitee has actually received payment (under any insurance
policy or otherwise) of the amounts otherwise payable hereunder.
6. Enforcement.
3
<PAGE> 4
(a) If a claim for advancement of Expenses or indemnification
made to the Company pursuant to Section 3 or Section 4 hereof is not paid in
full by the Company within thirty (30) calendar days after receipt by the
Company of all documentation required by such section, the Indemnitee may at
any time thereafter bring suit against the Company to recover the unpaid amount
of the claim.
(b) In any action for indemnification pursuant to Section 2
hereof, brought under Section 6(a) hereof, it shall be a defense to the claim
for indemnification that the Indemnitee has not met the standards of conduct
that constitute conditions to the Company's obligation to indemnify the
Indemnitee for the amount claimed, but the burden of proving such defense shall
be on the Company. The failure of the Company (including independent legal
counsel) to have made a determination prior to commencement of such action that
indemnification of the Indemnitee is proper in the circumstances because he has
met the applicable standard of conduct set forth in this Agreement shall not be
a defense to the action or create a presumption that the Indemnitee has not met
the applicable standard of conduct.
(c) It is the intent of the Company that the Indemnitee not
be required to incur the expenses associated with the enforcement of his rights
under this Agreement by litigation or other legal action because the cost and
expense thereof would substantially detract from the benefits intended to be
extended to the Indemnitee hereunder for the Indemnitee to serve as a director.
Accordingly, if it should appear to the Indemnitee that the Company has failed
to comply with any of its obligations under the Agreement, or in the event that
the Company or any other person takes any action to declare the Agreement void
or unenforceable, or institutes any action, suit or proceeding designed (or
having the effect of being designed) to deny, or to recover from, the
Indemnitee the benefits intended to be provided to the Indemnitee hereunder,
the Company irrevocably authorizes the Indemnitee from time to time to retain
counsel of his choice, at the expense of the Company as hereafter provided, to
represent the Indemnitee in connection with the initiation or defense of any
litigation or other legal action, whether by or against the Company, in any
jurisdiction. The Company shall pay and be solely responsible for any and all
costs, charges and expenses, including without limitation attorneys' and other
fees and expenses, reasonably incurred by the Indemnitee (i) as a result of the
Company's failure to perform this Agreement or any provision thereof, after the
duty to perform has been established or (ii) as a result of the Company or any
person contesting the validity or enforceability of this Agreement or any
provision thereof as aforesaid, after such validity and enforceability have
been established.
4
<PAGE> 5
7. Notification and Defense of Claim.
(a) Promptly after receipt by the Indemnitee of notice of any
pending or threatened Proceeding, the Indemnitee shall, if a claim in respect
thereof is to be made against the Company under this Agreement, notify the
Company of such threatened or pending Proceeding. To be effective, such notice
need only set forth the general basis upon which the Indemnitee became aware of
the Proceeding; provided, however, if the Indemnitee shall have been personally
served with a subpoena, summons, complaint, interrogatories or other papers,
documents or materials, a copy thereof shall be attached to such notice and
such notice shall be delivered to the Company within two (2) business days of
the date on which the Indemnitee was so served. No indemnification provided for
in Section 2 of this Agreement shall be available to the Indemnitee if he fails
to give an appropriate and timely notice and, as a direct result thereof, the
Company was unaware of the Proceeding to which such notice would have related
and was prejudiced by the failure to give such notice.
(b) With respect to any Proceeding as to which the Indemnitee
notifies the Company of the commencement thereof, the Company shall be entitled
to participate in the Proceeding at its own expense and, except as otherwise
provided below, to the extent the Company so desires, it may assume the defense
thereof with counsel mutually satisfactory to the Indemnitee and to the
Company. After notice from the Company to the Indemnitee of its election to
assume the defense thereof, the Company shall not be liable to the Indemnitee
under this Agreement or otherwise for any Expenses subsequently incurred by the
Indemnitee in connection with the defense of such Proceeding other than
reasonable costs of investigation or as otherwise provided below. The
Indemnitee shall have the right to employ his own counsel in such Proceeding,
but all Expenses related thereto incurred after notice from the Company of its
assumption of the defense shall be at the Indemnitee's expense unless: (i) the
employment of counsel by the Indemnitee has been authorized by the Company,
(ii) the Indemnitee has determined in good faith that there may be a conflict
of interest between the Indemnitee and the Company in the defense of the
Proceeding, or (iii) the Company shall not have employed counsel promptly to
assume the defense of such Proceeding; in each of which cases, after prompt
notice to the Company, all Expenses of the Proceeding shall be borne by the
Company and subject to payment pursuant to Sections 2, 3 and 4 of this
Agreement. The Company shall not be entitled to assume the defense of any
Proceeding brought by the Company against the Indemnitee or as to which the
Indemnitee shall have made the determination provided for in (ii) above.
5
<PAGE> 6
(c) The Indemnitee shall do everything that the Company reasonably
believes is necessary to defend against, settle, or both, any such Proceeding,
including the execution of such documents necessary to enable the Company to
effectively defend against such Proceeding, and the Indemnitee shall not make
any admission without the Company's written consent unless the Indemnitee shall
have determined to undertake his own defense in such matter and has waived the
benefits of this Agreement.
(d) The Company shall not be liable to indemnify the Indemnitee
under this Agreement or otherwise for any amounts paid in settlement of any
Proceeding effected without the Company's written consent. The Company shall
not settle any Proceeding in any manner that would impose any penalty or
limitation on the Indemnitee without the Indemnitee's written consent. Neither
the Company nor the Indemnitee shall unreasonably withhold its or his consent
to any proposed settlement. The Company shall not be liable to indemnify the
Indemnitee under this Agreement with regard to any judicial award if the
Company was not given a reasonable and timely opportunity, at its expense, to
participate in the defense of such action; however, the Company's liability
hereunder shall not be excused if participation in the Proceeding by the
Company was barred by this Agreement.
9. Nonexclusivity and Severability.
(a) The right to indemnification provided by this Agreement shall
not be exclusive of any other rights to which the Indemnitee may be entitled as
to action in his capacity as a director, officer, employee, or agent and the
rights of Indemnitee hereunder shall continue after the Indemnitee has ceased
to be a director, officer, employee, or agent.
(b) The right to indemnification provided by this Agreement is in
addition to, and not in lieu of, any rights conferred under the bylaws of the
Company as they may be amended from time to time and the Georgia Business
Corporation Code as it may be amended from time to time.
(c) If any provision of this Agreement or the application of any
provision hereof to any person or circumstances is held invalid, unenforceable
or otherwise illegal, the remainder of this Agreement and the application of
such provision to other persons or circumstances shall not be affected, and the
provision so held to be invalid, unenforceable or otherwise illegal shall be
reformed to the extent (and only to the extent) necessary to make it
enforceable, valid and legal.
6
<PAGE> 7
(d) This Agreement is not an agreement of employment, and
Indemnitee acknowledges that the Company has no obligation to employ Indemnitee
in any capacity by virtue hereof.
10. Governing Law. This Agreement shall in all respects be governed by
and construed in accordance with (a) the provisions of the Georgia Business
Corporation Code and judicial decisions thereunder as they apply to
indemnification of officers, directors, employees and agents and (b) the
internal laws of the state of Georgia, without giving effect to the principles
of conflict of laws thereof, as such laws apply to contract formation,
construction, interpretation and performance. Each party represents and
warrants to the other that this Agreement has been duly executed and delivered
by such party or on such party's behalf and constitutes the valid and binding
obligation of such party, enforceable against it or him in accordance with its
terms.
11. Modification; Survival. Subject to Section 9(b) above, this
Agreement contains the entire agreement of the parties relating to the subject
matter hereof. This Agreement may be modified only by an instrument in writing
signed by all parties hereto that refers to this Agreement. The provisions of
this Agreement shall survive the death, disability, or incapacity of the
Indemnitee or the termination of the Indemnitee's service as a director,
officer, employee, or agent and shall inure to the benefit of the Indemnitee's
heirs, executors and administrators.
12. Notices. Unless expressly provided to the contrary herein, all
notices or other communications required or permitted herein will be given in
writing (which may be in the form of an electronic facsimile transmission)
addressed as follows:
(a) If to the Company:
T/R Systems, Inc.
6145 Northbelt Parkway
Norcross, Georgia 30071
Attn: President
Fax No.: (404) 448-3202
(b) If to the Indemnitee:
Charles H. Phipps
Sevin Rosen Fund IV, L.P.
Two Galleria Tower
13455 Noel Road
Suite 1670, LB-5
Dallas, Texas 75240
7
<PAGE> 8
Notice of change of address shall be effective only when provided in accordance
with this section. All notices complying with this section shall be deemed to
have been received on the date of delivery or on the third business day after
mailing.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
T/R SYSTEMS, INC.
(the "Company")
By: /s/ Francis A. Rowe
----------------------------------
Francis A. Rowe
Chairman
/s/ Charles H. Phipps
----------------------------------
CHARLES H PHIPPS
("Indemnitee")
8
<PAGE> 9
EXHIBIT A
AFFIRMATION AND UNDERTAKING
The Board of Directors
T/R Systems, Inc.
6145 Northbelt Parkway
Norcross, Georgia 30071
Gentlemen:
I am a defendant in ______________________________, presently pending in
_____________________________________ [court], brought by ______________________
against me and ______________________ [name others], by reason of the fact that
I was a director of T/R Systems, Inc. (the "Company") at the time of the
matters complained of. I hereby affirm my good faith belief that in my capacity
as a director of the Company with respect to the matters, actions or events
from which the foregoing proceeding arose, I acted in a manner I believed to be
in, or not opposed to, the best interests of the Company [add in the event the
proceeding specified is a criminal one: and I had no reasonable cause to
believe my conduct was unlawful].
Pursuant to that certain Indemnification Agreement between the Company and
me dated March 4, 1994, I am entitled to have the Company pay all expenses
incurred by me in the defense of the above described proceeding. Please accept
this letter as my undertaking to repay to the Company all expenses paid by it
on my behalf in advance of the final disposition of the above described action
in the event it shall ultimately be determined that I am not entitled to be
indemnified by the Company as authorized by said Indemnification Agreement, the
bylaws of the Company, or the Georgia Business Corporation Code.
Very truly yours,
--------------------------
CHARLES H. PHIPPS
Dated:
--------------------
9
<PAGE> 10
STATE OF
------------------------------)
COUNTY OF ) SS
------------------------------)
On ______________________, 19__, before me, _____________________________,
a Notary Public in and for said County and State, personally appeared Charles
H. Phipps, personally known to me or proved to me on the basis of satisfactory
evidence to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same and that by his signature on such
instrument such person executed such instrument.
-----------------------------------------
Notary Public
My commission expires the ___ day of _________________, 19__.
[NOTARIAL SEAL]
10
<PAGE> 11
Exhibit B
INDEMNIFICATION STATEMENT
STATE OF )
-----------------------
) SS
COUNTY OF )
----------------------
I, Charles H. Phipps being first duly sworn, do depose and say as follows:
1. This Indemnification Statement is submitted pursuant to that certain
Indemnification Agreement dated as of March 4, 1994, by and between T/R
Systems, Inc. (the "Company") and the undersigned.
2. I am requesting indemnification against costs, charges, claims, losses,
liabilities, expenses, and damages, including, without limitation, attorneys'
and other fees and expenses, judgments, fines and amounts paid in settlement,
all of which (collectively, "Expenses") have been or will be incurred by me in
connection with an actual or threatened civil, administrative or investigative
action, suit, claim or proceeding ("Proceeding") to which I am a party or am
threatened to be made a party, to the extent not previously paid or reimbursed
by the Company.
3. With respect to all matters related to any such Proceeding, I am
entitled to be indemnified as herein contemplated pursuant to the aforesaid
Indemnification Agreement.
4. Without limiting any other rights that I have or may have, I am
requesting indemnification against Expenses that have or may arise out of
_______________________________________________________________________________
_______________________________________________________________________________.
------------------------------
CHARLES H. PHIPPS
11
<PAGE> 12
On ______________________, 19__, before me, _____________________________,
a Notary Public in and for said County and State, personally appeared Charles
H. Phipps, personally known to me or proved to me on the basis of satisfactory
evidence to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same and that by his signature on such
instrument such person executed such instrument.
-----------------------------------------
Notary Public
My commission expires the ___ day of _________________, 19__.
[NOTARIAL SEAL]
12
<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
---------------------------- -------------------------------
9
<PAGE> 10
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> 11
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> 12
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> 1
EXHIBIT 10.13
SUPPLY AGREEMENT
This SUPPLY AGREEMENT is entered into as of the 28th day of January, 1999,
by and between MINOLTA CO., LTD., a Japanese corporation having its principal
place of business at 3-13,2-Chrome, Azuchi-Machi, Chuo-ku, Osaka 541-8556, JAPAN
(hereinafter "MINOLTA"), and T/R SYSTEMS, INC., a Georgia, U.S.A. corporation
having its principal place of business at 1300 Oakbrook Drive, Norcross,
Georgia, U.S.A. 30093 (hereinafter "T/R").
RECITALS:
1 T/R has designed and developed, and currently assembles, distributes
and sells, a proprietary commercial printing system known as the
MICROPRESS(R) PressDirector(TM) ClusterServer(TM), which includes
Micropress(R) Release 4.5.
2 T/R has proprietary skills, know-how, technology, inclusive of trade
secrets and other know-how, and patent rights applicable to the
product architecture, development, design, assembly, manufacturing,
connectivity, production and distribution of the MICROPRESS(R)
commercial printing system.
3 As of March 31, 1998, the parties entered into a Development
Agreement (the "Development Agreement") whereby T/R agreed to
undertake and fulfill, subject to the terms and conditions thereof,
the "Development" as defined therein, and the parties agreed
to enter into mutually agreeable terms and conditions for the
purchase and related licensing of the "Controller" (as defined in the
Development Agreement) and associated products.
4 The parties intend this Agreement to constitute the agreement
contemplated by the terms of the Development Agreement to provide such
purchase and licensing so as to permit MINOLTA to complete the
assembly of MICROPRESS(R) commercial printing systems, with such
products to be distributed and sold by MINOLTA and either marked or
identified with trademarks owned, possessed or controlled by MINOLTA,
marked or identified with trademarks of a party other than MINOLTA or
for "private label" distribution. This method of distribution shall
involve the assembly of Systems by MINOLTA.
5 To accommodate the foregoing agreements, and to effect certain other
agreements and undertakings between T/R and MINOLTA, such parties
have entered into this Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
1. Definitions.
1.1 "Confidential Information" shall mean only the following information
including, but not limited to, technical or non-technical data, Know-how,
trade secrets, skills and processes, from which MINOLTA or T/R derives
economic value by such information not being generally known to, and not
being readily ascertainable by proper means, by third parties, disclosed in
any of the following method 1)~3):
<PAGE> 2
T/R - MINOLTA Supply Agreement Thursday, January 21, 1999
1) disclosure in written form which is clearly marked "Confidential" or
otherwise marked as such; or
2) disclosure through tangible object with a notice which is clearly
marked "Confidential" or otherwise marked as such; or
3) oral disclosure; provided, however, the disclosing party shall identify
so at the time of disclosure and send to the receiving party, within
thirty (30) days after such disclosure, documents clearly marked
"Confidential" or otherwise marked as such and referring to the date
and place of disclosure and describing such information to be deemed as
Confidential Information.
Only the information which meets all conditions provided in this Section
shall be deemed as Confidential Information and other information shall not
be deemed as Confidential Information in any case. Moreover, the following
information shall not be deemed as Confidential Information and the
Receiving Party shall have no obligation with respect to such information:
(a) information which becomes available to the public or to industry
without fault of the receiving party; or
(b) information which is already available to the public or to
industry at the time of disclosure; or
(c) information which is already in the possession of the receiving
party at the time of disclosure; or
(d) information which is subsequently rightfully received by the
receiving party from a third party without notice of restriction
on further disclosure; or
(e) information which is demonstrated to have been developed by an
employee of the receiving party independently of and without
reference to Confidential Information; or
(f) information which is disclosed to the third party by the
disclosing party without similar restriction on such third party.
1.2 "Customer" means any Person that acquires Systems from MINOLTA for its own
use or for sale, lease or other disposition.
1.3 "Deliverables" has the meaning set forth in Section 2 hereof.
1.4 "End User" means a Person that acquires a System directly from MINOLTA or
indirectly from a Customer of MINOLTA, and uses the System for any purpose.
1.5 "Know-how" means knowledge, information, inventions (other than those
embodied in the patent rights), trade secrets and systems used in the
design, development, manufacture, assembly, servicing or testing of the
MICROPRESS(R) commercial printing system.
1.6 "License" means the license granted by T/R to MINOLTA pursuant to this
Agreement.
1.7 "Licensed Intellectual Property Rights" means the Know-how, patent rights
and similar intellectual property owned by T/R and used in the design,
development, manufacture, assembly, servicing or testing of the System or
any portion thereof.
1.8 "MINOLTA Orders" has the meaning set forth in Section 5 hereof.
1.9 "Person" means any individual, partnership, joint venture, corporation,
trust, unincorporated organization, government, governmental agency or any
other entity.
1.10 "Subsidiary" means a corporation or other entity of which more than 50% of
the shares of the outstanding stock (representing the right to vote for the
election of directors or other managing authority) are now or hereafter
owned or controlled, directly or indirectly, by a party hereto, but such
corporation or other entity shall be deemed to be a Subsidiary only so long
as such ownership or control exists.
2
<PAGE> 3
T/R - MINOLTA Supply Agreement Thursday, January 21, 1999
1.11 "System" means the MicroPress(R) commercial printing systems to be
assembled by or for MINOLTA and incorporating the Deliverables, and known
generally as the "Minolta 62 ppm Monochrome Copier/Printer OEM
Micropress(R) Version", "Minolta Color Copier/Printer Micropress(R)
Version," or as used herein as context may require, any portion thereof.
1.12 "Technical Assistance" means the technical assistance to be provided by T/R
to MINOLTA as provided in Section 8 hereof.
1.13 "Territory" shall mean the entire world.
2. Completion of Development. After completion of the "Development" (as
defined in the Development Agreement), and the completion of acceptance
testing (as described in the Development Agreement as the "Acceptance") in
respect of the Controller (as defined in the Development Agreement), the
parties shall commence, pursuant to the terms and conditions of this
Agreement, the purchase and sale (and related licensing) of equipment and
software comprising the Controller and related software and other related
technology and communications hardware, more particularly described below
and specified in Attachment C or D (and which items are defined herein as
the "Deliverables"):
(a) The MICROPRESS(R) PressDirector ClusterServers, constituting
(and including) the Controller developed pursuant to the
Development Agreement;
(b) Technology and Software Packages, which shall include the
software in executable code and other technology, employing the
Licensed Intellectual Property Rights, and providing the
software and related technology principally required for
operation of the Systems to be distributed by MINOLTA pursuant to
this Agreement; and
(c) Printlinks communication hardware used in and constituting a part
of the Systems consisting of boards including print adaptors and
host adaptors.
2.2 Engineering changes shall be made in accordance with the procedure
specified in Attachment E attached hereto.
3. Purchase and Sale. During the term of this Agreement, and pursuant to the
terms and conditions hereof, T/R agrees to sell (and license as indicated
in Section 4 hereof), and MINOLTA agrees to purchase (and obtain a license
as provided for in Section 4 hereof in respect of) the Deliverables, in the
quantities and at the prices, and on the other terms provided for herein.
MINOLTA shall have the exclusive sales right in respect of those
Deliverables indicated as "Exclusive" on Attachment C, however nothing
contained herein will provide MINOLTA with any exclusive rights to similar
devices which do not include any proprietary and/or intellectual property
rights resulting from Development (as defined in the Development
Agreement). Coincident with the execution and delivery of this Agreement,
MINOLTA shall provide to T/R its first purchase order for the purchase of
Deliverables, in conformance with the terms of Section 5 hereof.
4. License.
4.1 Grant. Subject to the terms and conditions hereof, T/R hereby grants to
MINOLTA and MINOLTA hereby accepts from T/R a license entitling MINOLTA
during the term of this Agreement to use the Licensed Intellectual Property
Rights to complete the assembly of the Systems and to distribute, sell or
lease the Systems to Customers for use by End Users located in the
Territory.
4.2 No Sublicenses. This Agreement does not grant, license or permit (either
expressly or by implication) MINOLTA to transfer, assign, sell, give,
license, sub-license, or in any way permit the use of the Licensed
Intellectual Property Rights, by or to any Person, other than (i) any of
its Subsidiaries for the sole purpose of assembling the Systems, or any
components or subassemblies thereof; or (ii) any other
3
<PAGE> 4
T/R - MINOLTA Supply Agreement Thursday, January 21, 1999
third party under MINOLTA's supervision or by parties deemed qualified by
MINOLTA and under MINOLTA's authorization for the sole purpose of
assembling the Systems or any components or subassemblies thereof, for
supply only to MINOLTA. If MINOLTA becomes aware, or gains reasonable
suspicion, of the unauthorized use or exercise of the Licensed Intellectual
Property Rights by any Person, then MINOLTA shall forthwith notify T/R in
writing and cooperate with T/R, and at T/R's discretion, to abate or
terminate such unauthorized use or actions.
4.3 No Other Licenses. No license or right is granted under this Agreement by
T/R to MINOLTA by implication, estoppel or otherwise, except as expressly
set forth in this Agreement and MINOLTA may not use the corporate names,
trademarks, trade names, service marks, or logos of T/R without the prior
written consent of T/R.
4.4 Labeling. MINOLTA shall apply to the Systems assembled for sale by or for
MINOLTA to Customers a statement reasonably located and sized, identifying
the fact that the Systems are assembled under license from T/R and, as
applicable, are subject to patents or patents pending, and which shall
identify by number any issued patents which are part of the Patent Rights.
Such statement, and its proposed location and size, shall be submitted to
T/R by MINOLTA in advance of its use for pre-approval by T/R, which
approval may not be unreasonably withheld.
4.5 Limitation on Use. MINOLTA shall not use the Licensed Intellectual Property
Rights or any other T/R technology, for any purpose or purposes other than
those expressly permitted under the License.
5. Orders.
5.1 By the twentieth (20th) of each month, MINOLTA shall submit written
purchase orders (hereinafter "Order") to T/R in respect of the Deliverables
to be delivered to MINOLTA in the second (2nd) month following the ordering
month. All orders shall specify the quantities and descriptions of the
Deliverables, and requested delivery dates and shipping instructions. On
submitting Order, MINOLTA shall provide T/R with a forecast ("Forecast") of
quantities of Deliverables to be delivered to MINOLTA in each of the next
succeeding three (3) months. The quantity of Deliverables in Forecast for
delivery of; (i) the first (1st) month thereof may be increased or
decreased by not more than * percent (*%) when rolling into the Order,
(ii) the second (2nd) month thereof may be increased or decreased by not
more than * percent (*%) when rolling into next Forecast. The quantity of
Deliverables in Forecast for delivery of the third (3rd) month thereof is
non-binding.
5.2 Subject to supply therefore, and conformance of the purchase orders with
forms approved therefor from time to time by T/R, T/R shall accept any such
purchase order which is not in contravention of the terms of this
Agreement. Unless T/R gives a notice of any objection to the Order within
ten (10) days after receipt thereof, such Order shall be deemed to have
been accepted by T/R.
5.3 T/R shall make available to MINOLTA the spare parts or equivalent
replacements during the term of this Agreement and for a minimum of seven
years from the earlier of the date of termination of this Agreement, the
date of discontinuance of the item or the Deliverables or from delivery of
the last unit of equipment hereunder. The order procedures for "Spare
Parts" are subject to the Spare Parts ordering policies contained in
Attachment A.
5.4 The terms and conditions of this Agreement shall apply to all MINOLTA's
Orders submitted to T/R and supersede any different or additional terms
contained on MINOLTA's Orders. MINOLTA's Orders and T/R's acceptance shall
constitute an individual contract between MINOLTA and T/R under this
Agreement.
6. Shipment and Delivery. The Deliverables shall include, as appropriate,
certain documentation related thereto prepared by or for T/R. The
Deliverables shall be delivered by the twentieth (20th) of each month
according to Order and on the following conditions.
* Confidential information has been omitted and filed separately with the
Commission.
4
<PAGE> 5
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.
8
<PAGE> 9
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> 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.
1
<PAGE> 2
NOW, THEREFORE, the parties hereby agree as follows:
1. Definitions.
1.1 "Confidential Information" means information
disclosed by either party to the other during the term of this Agreement
including, but not limited to, technical or nontechnical data, Know-how, trade
secrets, skills and processes, designs, drawings, documentation, software
(regardless of form or media), machinery, prototypes, methods, concepts,
facilities, research, development and business activities, whether obtained or
disclosed orally or in writing or through observation, but excluding any such
information which (i) is publicly available through no fault of the receiving
party; (ii) is in the receiving party's possession free of any obligation of
confidence to the disclosing party at the time it was communicated to the
receiving party; (iii) is received independently from a third party who is free
to disclose such information; or (iv) is demonstrated to have been subsequently
and independently developed by the receiving party without the use of
Confidential Information of the disclosing party. Notwithstanding the
foregoing, in order to be considered Confidential Information, tangible
information must be marked with the words "confidential" or "secret" or with
words of similar import. Non-tangible information must be reduced to a writing
by the disclosing party, which writing must describe the information as
confidential or secret and must be delivered to the recipient party within
thirty (30) days of the date of disclosure. Notwithstanding the foregoing,
information supplied by T/R relating to the Systems and not so marked or
reduced to writing shall be presumed to be Confidential.
1.2 "Customer" means any Person that acquires Systems
from HKIS or its parent company for its own use or for sale, lease or other
disposition (e.g., an OEM or distributor).
1.3 "Deliverables" has the meaning set forth in Section
4 hereof.
1.4 "End User" means a Person that acquires a System
directly from HKIS or its parent company or indirectly from a Customer of HKIS
or its parent company, and uses the System for any purpose other than resale or
further distribution.
1.5 "Improvement" means any and all derivatives,
improvements or betterments of the T/R Intellectual Property Rights made by T/R
or any other Person, including all intellectual property rights pertaining
thereto, including patent rights, copyright rights, trade secrets, Know-how or
similar rights recognized under applicable law.
1.6 "Know-how" means knowledge, information, inventions
(other than those embodied in the Patent Rights), trade secrets and systems
used in the design, development, manufacture, assembly, servicing or testing of
the MICROPRESS(R) commercial printing system.
1.7 "T/R Intellectual Property Rights" means the
following rights, knowledge,
2
<PAGE> 3
know-how and similar intellectual property owned by T/R and used in the design,
development, manufacture, assembly, servicing or testing of the System or any
portion thereof:
(a) Patent Rights;
(b) Copyrights and applications therefor
(including the right to make derivative
works);
(c) Trade secrets;
(d) Know-how and any other proprietary
information; and
(e) All Improvements.
1.8 "HKIS Orders" has the meaning set forth in Section
7 hereof.
1.9 "Patent Rights" means all T/R domestic and foreign
patents (including applications therefor) and all divisions, continuations,
continuations-in-part, re-examinations and reissues or extensions thereof,
whether now or hereafter issued, containing a claim or claims in whole or in
part relating directly or indirectly to the design, development, use or
manufacture of the System or any portion thereof and the processes and methods
associated therewith, and all Improvements thereto that become the subject of a
patent application.
1.10 "Person" means any individual, partnership, joint
venture, corporation, trust, unincorporated organization, government,
governmental agency or any other entity.
1.11 "Subsidiary" means a corporation or other entity of
which more than 50% of the shares of the outstanding stock (representing the
right to vote for the election of directors or other managing authority) are
now or hereafter owned or controlled, directly or indirectly, by a party
hereto, but such corporation or other entity shall be deemed to be a Subsidiary
only so long as such ownership or control exists.
1.12 "System" means commercial printing systems to be
assembled for HKIS pursuant to the License and incorporating the Deliverables,
all as more particularly described on Schedule 2 hereto, or as used herein as
context may require, any portion thereof.
1.13 "Technical Assistance" means the technical
assistance to be provided by T/R to HKIS as provided in Section 3 hereof.
1.14 "Territory" shall mean the entire world.
2. System Distribution Rights.
3
<PAGE> 4
2.1 Rights and Appointment. Subject to the terms and
conditions hereof, T/R hereby grants to HKIS the right to market, sell, lease,
promote, advertise and otherwise distribute documentation (which may be
modified, reproduced and distributed) and Systems which Systems include
deliverables purchased from T/R hereunder, under HKIS', its parent company's or
their OEM's names. Such products may be sold to Customers who are not End Users
for resale to End Users. This right and appointment is non-exclusive, except to
the extent the Systems include Printers identified in Schedule 2.1, in which
case HKIS' appointment as distributor hereunder of such Systems is exclusive. It
is understood by both parties that Schedule 2.1 will be updated periodically by
mutual agreement.
2.2 Labeling; Use of MicroPress(R) Trademark. HKIS shall
apply to the Systems manufactured for sale by or for HKIS to Customers a
statement reasonably located and sized, identifying the fact that the Systems
were developed using and include T/R Intellectual Property Rights, proprietary
to T/R and, as applicable, are subject to patents or patents pending, and which
shall identify by number any issued patents which are part of the Patent Rights.
Such statement, and its proposed location and size, shall be submitted to T/R by
HKIS in advance of its use for pre-approval by T/R, which approval shall not be
unreasonably withheld. Furthermore, during the term hereof, HKIS may use the
trademark MicroPress(R), and T/R hereby grants a non-exclusive license to HKIS
for such purpose; however, HKIS may not continue to affix the trademark
MicroPress(R) to HKIS products after the effective date of termination or
cancellation of this Agreement. All usage of such trademark, including any
display thereof and the artwork comprising the same, and location and size,
thereof must be approved in advance by T/R, which approval shall not be
unreasonably withheld. This trademark may only be used on products assembled
with or incorporating the Deliverables purchased and licensed hereunder and for
promotion and advertising therefor in the Territory.
3. System Development and Technical Assistance. To effectuate
the purposes of this Agreement, upon the reasonable request by HKIS and subject
to the terms and conditions of the License, T/R, employing the T/R Intellectual
Property Rights, shall consult with HKIS during T/R's development and product
launch of Systems with respect to: (i) the design and operation of the Systems,
inclusive of the selection and design of print engine therefor; (ii) HKIS'
connectivity for the Systems; (iii) HKIS' initiation of distribution processes
for the Systems; (iv) HKIS' marketing plans and operations; (v) HKIS' current
and future device connectivity to the System; and (vi) similar matters related
thereto. System specifications are attached to Schedule 2 of this Agreement and
are incorporated by this reference. Each of T/R and HKIS will appoint and assign
a lead technical liaison to interact and support the technical interface between
T/R and HKIS. T/R and HKIS will meet quarterly to review the business activity
as to sales and marketing plans, service plans and future product plans. T/R
agrees to conduct one free "train-the-trainers" course for HKIS prior to the
product launch with respect to each System (i.e., one training course for each
type of Printer for which T/R designs a System), and additional training courses
as requested by HKIS for a price to be mutually agreed-upon by the parties. T/R
shall provide HKIS with post-launch technical support and maintenance in
accordance with section 9 of this Agreement and the post-release technical
support procedures attached hereto as Schedule 3, which are incorporated by
4
<PAGE> 5
this reference. T/R shall have no obligation to provide support directly to
HKIS' Customers. Development shall be conducted according to the milestone
project schedule attached hereto as Schedule 5.
4. Deliverables.
4.1 Defined. For each System purchased hereunder, T/R
shall deliver, in accordance with purchase orders issued by HKIS ("HKIS
Orders"), the servers, software, documentation in electronic form and related
technology and communications hardware more fully described in Schedule 2 (the
"Deliverables").
4.2 Delivery. The Deliverables shall include, as
appropriate, certain documentation related thereto prepared by or for T/R. The
Deliverables shall be delivered F.O.B. T/R's Norcross, Georgia, U.S.A.
facility. All risk of loss shall be conveyed and passed to HKIS upon delivery
of the Deliverables at T/R's facility to HKIS or its carrier or other agent. To
the extent any of the Deliverables includes T/R Intellectual Property Rights,
including without limitation, software, codes, Know-how, Patent Rights,
Licensed Intellectual Property Rights and other such rights, no title will pass
to HKIS (although End Users will be afforded a software license as provided in
Section 10.4 hereof). Title will pass to HKIS upon delivery as to server, other
hardware, media and other items included within the Deliverables which do not
constitute nor comprise T/R Intellectual Property Rights.
4.3 Third-Party Sourcing of PC Servers. Nothing herein
shall be construed to require HKIS to purchase PC Servers from T/R alone; HKIS
shall have the right to purchase from any third parties of its choosing PC
Servers for incorporation into Systems and Printers. T/R agrees to provide HKIS
with technical support in the selection of alternate PC Servers for use with
Systems pursuant to Section 3 of this Agreement at mutually agreed to
certification fees per server platform.
5. Fees and Prices
5.1 Technology Access Fee. In exchange for T/R's
appointment of HKIS pursuant to Section 2.1 hereof, and in part for T/R's
agreement to provide the Technical Assistance pursuant to Section 3 hereof, HKIS
shall pay T/R the one-time non-refundable technology access fee set forth in
Schedule 1 for each print device listed therein or later added hereto by
agreement of the parties. Such technology access fees shall be payable with
respect to each System in two equal installments, one-half due and payable
thirty (30) days from execution and delivery of this Agreement, with the
remaining one-half due and payable net payable thirty (30) days from HKIS'
acceptance of the production version of the System. Payment of technology
access fees for Systems designed for Printers added to Schedule 1 after the
effective date of the Agreement shall be payable in two equal installments,
one-half due and payable net thirty (30) days from the addition of the Printer
to Schedule 1, with the remaining one-half due and payable net thirty (30) days
from HKIS' acceptance of the production version of the System. Technology
access fees are
5
<PAGE> 6
for United States English version of the software user interface and
documentation. HKIS and its parent company shall have the right to acquire
access to additional language versions for the translation fees identified in
Schedule 1. HKIS and its parent company shall also have the right to make such
translations itself, or to have such translations made by a third party of
HKIS' selection. Acceptance criteria for the production version of the System
will be defined and mutually agreed to by the parties within thirty (30) days
of execution of this Agreement.
5.2 Equipment Purchase Price. Equipment purchase prices
for Deliverables shall be as provided on Schedule 2 (the "Price List") for the
term of this Agreement. T/R shall be entitled to add new options, servers,
software and equipment to the Price List after reviewing pricing with HKIS, and
HKIS shall be entitled to purchase such new Deliverables under the terms and
conditions of this Agreement. T/R may from time to time revise the Price List.
Any change in the Price List will be effective as to HKIS Orders received after
* (*) days of the issuance of such revision. T/R will give due consideration to
the input of HKIS when updating Price List changes to the extent that changes
will be mutually agreed to in advance.
5.3 Consulting, Training Compensation. As compensation
for post-launch consulting and training required to be provided in addition to
Technical Assistance pursuant to Section 3 hereof, HKIS shall pay T/R
consulting and/or training fees, set forth in Schedule 3. In addition, HKIS
shall reimburse T/R's travel and living expenses incurred in connection with
such consulting and training as reasonably incurred. The fees shall be subject
to adjustment only by the mutual written agreement of the parties.
6. Payments. Payments for technology access fees pursuant to
Section 5.1, for license fees and equipment purchase price amounts in respect
of the Deliverables pursuant to Section 5.2, for consulting and training
pursuant to Section 5.3 and for maintenance pursuant to Section 9 shall be due
and payable by HKIS net * (*) days from the date of invoice so long as the
date of invoice is no earlier than the date of delivery of the Deliverables or
service. A late payment charge of one and one half percent (1.5%) per month
shall be charged upon unpaid balances due for more than thirty (30) days,
provided that T/R has notified HKIS in writing of such delinquency. In the
event such a delinquency in payment by HKIS extends for more than thirty (30)
days from T/R's written notice thereof, T/R reserves the right to request
advance payment of HKIS Orders until the delinquency is remedied by HKIS. All
pricing and fees under this Agreement are exclusive of taxes. Except for taxes
based on T/R's net income, HKIS shall pay any national, federal, state, county,
local or other governmental taxes, fees or duties now or hereafter imposed on
the licensing, export, use or possession of the Deliverables or any other
transaction contemplated by this Agreement, as well as any penalties or
interest thereon. Notwithstanding anything in this Agreement to the contrary,
if, under any applicable law, HKIS is required to withhold tax or any other
amount from any payment to T/R, the amount due to T/R shall be increased to the
amount T/R would have received if no withholding had been required.
7. HKIS Orders.
* Confidential information has been omitted and filed separately with the
Commission.
6
<PAGE> 7
7.1 Monthly Forecasts and Periodic Purchase Orders.
Each month, HKIS shall submit to T/R a six-month, non-binding, rolling forecast
of its expected requirements. The first forecast will be submitted sixty (60)
days in advance of the first month's requirements. HKIS shall also issue
periodic written purchase orders ("HKIS Orders") to T/R for Deliverables. All
HKIS Orders shall specify: (a) the quantities and descriptions of the
Deliverables ordered; and (b) requested delivery dates and shipping
instructions.
7.2 Cancellation and Rescheduling. Monthly forecasts
shall specify forecasted order quantities by month with the first (most
current) month's purchase quantity being firm and noncancellable. Months "two"
and "three" of the monthly forecast may adjusted plus or minus *%;
additionally, HKIS shall have the right to reschedule for delivery up to *% of
the forecast for months two and three. Quantities so rescheduled may not be
further rescheduled, adjusted or cancelled by HKIS.
7.3 Order Acknowledgment and Acceptance/Rejection. The
terms and conditions of this Agreement shall apply to all HKIS Orders submitted
to T/R and supersede any different or additional terms contained on HKIS'
Orders or T/R's order acknowledgments or other similar documents. All orders
are subject to acceptance, which acceptance shall not be unreasonably withheld
by T/R, by issuance of an order acknowledgement or similar document.
Notwithstanding the foregoing, HKIS Orders conforming to the requirements of
this Agreement, which are not rejected by T/R within five (5) days of receipt,
shall be automatically be deemed accepted by T/R. Lead times for Deliverables
are specified in Schedule 2, and T/R shall not be required to deliver
Deliverables earlier than the specified lead time from the date of receiving
HKIS' Order. T/R shall use reasonable efforts to provide for timely delivery of
accepted HKIS Orders. Notwithstanding the foregoing, T/R shall not be
responsible for any expenses arising from a failure to deliver a quantity
specified in a HKIS Order which exceeds the previously-forecasted quantity by
more than * percent (*%), and in no event shall T/R be liable to
HKIS or any third party for consequential damages such as loss of sales. HKIS
shall be entitled to cancel or reschedule in whole or in part any Order which
T/R is late in delivering by providing written notice thereof to T/R prior to
actual delivery HKIS shall have the right to inspect Deliverables after
delivery by T/R and to reject nonconforming or defective Deliverables within
thirty (30) days of the date of delivery by requesting a Return Material
Authorization number from T/R and returning the defective or nonconforming
Deliverables to T/R, freight prepaid, F.O.B. HKIS' shipping dock. T/R shall, at
its sole option and expense, either repair or replace the defective
nonconforming Deliverables and return them to HKIS, freight prepaid, F.O.B.
T/R's shipping dock, Norcross, Georgia.
8. Purchase Commitments. HKIS has provided T/R with its volume
commitment for purchases of Systems for the first * (*) years of this
Agreement following first-customer-shipment availability of a HKIS-exclusive
System (set forth in Schedule 2), which committed requirements are set forth in
Schedule 4. HKIS provides this commitment in reliance upon the representations
of T/R that: (i) T/R is committed to maintaining a competitive position in
cluster printing solutions market, (ii) T/R is committed to providing
competitive functionality in its
* Confidential information has been omitted and filed separately with the
Commission.
7
<PAGE> 8
Systems, and (iii) T/R is committed to providing the marketing support that
HKIS reasonably requires to achieve its volume commitment (reasonably
consistent with the level of support T/R provides to its other OEM partners).
9. Maintenance and Post-Release Technical Support. T/R will
provide HKIS and its parent company (not HKIS Customers or End Users) with
software updates, bug fixes, software releases and post-release technical
support in accordance with the procedures set forth in Schedule 3 for an annual
maintenance charge to be determined by good faith negotiation and mutual
agreement of the parties within thirty (30) days of the execution and delivery
of this agreement, it being the intention of the parties that such fees and
charges shall be similar to those offered by T/R to other OEM's but tailored to
coordinate with maintenance to be offered by HKIS to its Customers.
10. Ownership and Proprietary Rights.
10.1 Ownership. T/R represents and warrants that it owns
all rights, title and interest in and to the T/R Intellectual Property Rights
and the Deliverables as are necessary to sell the Deliverables and to grant the
right and licenses granted by it under and pursuant to this Agreement. T/R
further represents and warrants that as of the Effective Date of this
Agreement, it does not know or have reason to believe that the Deliverables or
Systems, or components thereof including software and related documentation to
be provided by T/R hereunder infringe any U.S. or foreign patent, copyright,
intellectual property or other proprietary right of any party. T/R further
represents and warrants that it is not a party to any legal proceeding (and
knows of no claim against it) in which such infringement is alleged.
10.2 Proprietary Rights and Protection of Confidential
Information. The parties acknowledge that the Confidential Information provided
by the parties pursuant to this Agreement constitutes valuable trade secrets
and/or confidential information of the disclosing party, ownership of which is
not transferred by this Agreement. Ownership of all applicable copyrights,
trade secrets, patents and other intellectual property rights in the T/R
Intellectual Property Rights and the Deliverables shall remain vested in T/R.
Title to all T/R Intellectual Property Rights and any derivative works thereof
shall remain with T/R. No Confidential Information shall be disclosed to any
third party whatsoever without the prior express written approval of the
disclosing party, and all such Confidential Information shall be protected by
the recipient party with at least the same diligence, care and precaution that
the recipient party uses to protect its own confidential and trade secret
information, but in no event less than reasonable care. Except as otherwise
provided in a further written agreement between the parties, all tangible
Confidential Information (including without limitation all equipment and other
materials containing any Confidential Information) shall, immediately upon the
disclosing party's request, be returned to the disclosing party, including any
and all copies, translations, interpretations and adaptions thereof. Neither
party shall use or disclose the Confidential Information except as required to
fulfill the purposes of this Agreement. HKIS shall not remove T/R's copyright
notices, restricted rights legends or any other notices from the Deliverables
and such notices shall appear
8
<PAGE> 9
on all tapes, diskettes and other tangible media distributed by HKIS containing
the T/R Intellectual Property Rights or constituting the Deliverables.
10.3 Unauthorized Use or Copying. Except as expressly
permitted hereunder, HKIS shall not copy, modify or reproduce the Deliverables
in any way, nor shall it permit third parties to do so. HKIS agrees to provide
reasonably-requested cooperation to T/R, at T/R's expense as to out-of-pocket
expenses reasonably incurred by HKIS, in any action relating to enforcement of
T/R's proprietary rights.
10.4 End User License. Any software included in or with
the Systems is subject to license and not sale. HKIS shall distribute the
software pursuant to HKIS' standard software license agreement, the minimum
terms of which are attached hereto as Schedule 6. In jurisdictions in which an
enforceable copyright covering the software exists, such license agreement may
be enclosed in the packaging or start-up screen of the System or software (i.e.
a "shrink wrap" or "click-wrap" license). In all other jurisdictions, unless
otherwise agreed, HKIS will ensure that each End User signs a copy of such
Agreement prior to receipt of the Deliverables. T/R, or such other party from
which T/R has acquired the right to grant such license, shall retain full title
to the Software and all copies thereof. Neither HKIS nor its Customers shall
have access to or rights in the software source code. Except as otherwise
provided herein, neither HKIS nor its Customers or End Users shall have the
right to copy, modify, reverse engineer, or disassemble any software or part
thereof. HKIS shall make no representations or warranties on behalf of T/R.
HKIS shall bind T/R to no representations HKIS makes to its Customers or End
Users or other third parties regarding the Deliverables except as set forth in
the applicable documentation therefor provided by T/R. HKIS will be responsible
for all conversions, translations and localizations necessary for use of the
Deliverables by End Users in the various countries included within the
Territory. T/R will provide translation services on a per language basis at
fees specified in Schedule 1. Translated versions will be delivered after the
American English version in accordance with a jointly agreed schedule.
10.5 Third Party Software. To the extent the software
included within the Deliverables constitutes software or other technology
rights owned by a third party and licensed to T/R, such software is referenced
by the list contained in Schedule 7.
10.6 Security. The software included within the
Deliverables will be protected by a security mechanism known as a "dongle."
HKIS may copy the software for distribution with T/R supplying the "dongle" for
the software for each System. HKIS shall not disable or provide to have
disabled, the security mechanisms protecting the software.
10.7 Indemnification. Each party hereto (an
"Indemnitor") shall, at its expense, indemnify, defend and hold the other party
and its parent company, subsidiary company, and operating divisions
(collectively, the "Indemnitees") harmless in connection with any claim, or in
any suit or proceeding brought against or threatened against the Indemnitees or
for injuries, losses, damages and expenses directly incurred by them based or
arising from the failure of the
9
<PAGE> 10
Indemnitor to comply with any provisions of this Agreement or breach any
representation of warranties provided for herein. Indemnitor shall be given
sole control of the defense and settlement of such suit or proceeding.
Indemnitees shall have the right, at their sole expense, to participate in the
defense and settlement of any infringement suit or settlement thereof, and will
provide reasonable assistance to Indemnitor at Indemnitor's expense as to
out-of-pocket expenses reasonably incurred by Indemnitees as requested by
Indemnitor, in connection with such claim, suit or proceeding. Indemnitor shall
pay all costs (including reasonable attorney's fees) incurred by, all
settlements agreed to, and all damages awarded against Indemnitees in respect
of any such third party claim. If the sale or use of a Deliverable is enjoined
T/R shall, at its sole expense, promptly (1) procure for HKIS the right to
continue using the Deliverable (2) modify the Deliverable to avoid the claim of
infringement so long as it performs in accordance with the specifications or
(3) replace the Deliverable with a non-infringing compatible and functionally
equivalent product.
11. Warranty.
11.1 Limited Warranty. T/R represents and warrants: (i)
that all Deliverables provided to HKIS pursuant to this Agreement are in all
respects "Year 2000 Compliant" in accordance with the Year 2000 Certification
and Warranty contained in Schedule 8 of this Agreement; (ii) that for the lesser
of (a) * (*) months after delivery of the Deliverables to HKIS' End User, or (b)
* (*) months after delivery of the Deliverables by T/R to HKIS, the hardware
components of each Deliverable shall conform to the descriptions in Schedule 2,
perform substantially in accordance with the specifications, and be free of
defects in material and workmanship; and (iii) that with respect to software
provided under this Agreement, for * (*) days after delivery, the software and
media shall conform to the descriptions in Schedule 2, perform substantially in
accordance with the specifications, and be free of defects in material and
workmanship. T/R does not guarantee that operation of the software will be
uninterrupted or error free. T/R shall, without charge to HKIS, within fifteen
(15) days after receipt of returned Deliverables from HKIS, repair or replace
and return, freight prepaid by T/R, any Product which is determined to be
defective within this warranty period, provided:
(a) HKIS notifies T/R of the alleged defect prior to the
expiration of the respective warranty period;
(b) HKIS obtains a Return Material Authorization (RMA)
number from T/R before returning the defective
Deliverables to T/R, freight prepaid by HKIS; and
(c) The Product has not been damaged, subjected to
misuse, abnormal operation, improperly altered or
repaired or maintained in a manner which is
reasonably determined to have adversely affected
performance or reliability.
11.2 Safety Hazard. "Safety Hazard" shall mean any
mechanical, electrical, chemical or other feature of any Deliverables which is
demonstrated in a clear and convincing
* Confidential information has been omitted and filed separately with the
Commission.
10
<PAGE> 11
manner to create an immediate and substantial risk of injury to persons and/or
material damage to property, including to the Deliverables or to the
environment. In the event the parties determine that a Safety Hazard exists in
the Product, T/R shall: (a) expeditiously develop and implement changes
reasonably required to correct the Safety Hazard; (b) ensure that the
Deliverables as modified conforms to the Specifications; (c) as soon as possible
but not more than * (*) days after such determination, provide conforming
replacement parts or replacement Deliverables as necessary to correct the
failure in all affected Deliverables previously delivered to HKIS under this
Agreement and reimburse HKIS for the reasonable costs of repairing or replacing
the defective Deliverables in the installed base; and (d) implement corrective
measures eliminating the Safety Hazard in all new Deliverables delivered to
HKIS. T/R agrees to defend, indemnify and hold HKIS, its parent company,
subsidiary company, and operating divisions, harmless from and against all
liability, loss, damages, costs and expenses (including reasonable attorney's
fees) in connection with any claim that the Product contains a Safety Hazard.
11.3 Disclaimer of Warranties. EXCEPT FOR THE EXPRESS
WARRANTIES PROVIDED IN THIS AGREEMENT, THE DELIVERABLES ARE PROVIDED, AND THE
GRANT OF LICENSE AS TO THE LICENSED INTELLECTUAL PROPERTY RIGHTS IS MADE, "AS
IS." T/R SPECIFICALLY DISCLAIMS ALL OTHER WARRANTIES EXPRESSED OR IMPLIED,
INCLUDING BUT NOT LIMITED TO, IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE AS TO ANY TERMS OR SERVICES PROVIDED UNDER THIS
AGREEMENT.
11.4 Damage Limitations. IN NO EVENT SHALL EITHER PARTY
BE LIABLE FOR ANY LOST PROFITS OR ANY COLLATERAL, CONSEQUENTIAL, INDIRECT, OR
INCIDENTAL DAMAGES ARISING OUT OF OR CONNECTED IN ANY WAY WITH THIS AGREEMENT.
IN NO EVENT SHALL T/R'S LIABILITY FOR ANY CLAIM ARISING OUT OF THIS AGREEMENT
EXCEED THE AMOUNT PAID TO T/R BY HKIS DURING THE THIRTY SIX (36) MONTHS
PRECEDING THE DATE OF THE CLAIM MADE BY HKIS. NO CLAIM MAY BE BROUGHT BY HKIS
UNDER THIS AGREEMENT MORE THAN ONE (1) YEAR AFTER ACCRUAL OF SUCH CLAIM.
12. Supply Agreement. Subsequent to the execution and delivery
of this Agreement, HKIS agrees to supply to T/R two of the print devices for
use in development of the connectivity within 14 days of the date of execution
of this agreement and an additional eight of the print devices within fourteen
days of request by T/R for testing and training requirements for the
connectivity. These print devices will be provided at no charge to T/R. A
similar quantity will be provided at no charge to T/R for each different print
device HKIS request T/R to develop connectivity. HKIS will also provide the
Video Interface, technical documentation and reasonable technical support to
T/R for development of the connectivity to the devices specified in Schedule 1.
The HKIS printers, video interfaces and related equipment and technical
documentation shall be returned to HKIS at the conclusion of the development of
the connectivity for the associated System, except for equipment reasonably and
necessarily required by T/R to provide ongoing support to HKIS, which shall be
returned upon the termination or cancellation of the Agreement.
* Confidential information has been omitted and filed separately with the
Commission.
11
<PAGE> 12
13. Term and Termination.
13.1 Expiration. This Agreement shall commence on the
date set forth above and shall continue for an
initial term of * (*) 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> 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 Registration Statement 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), appearing in the Prospectus, which is a part of this
Registration Statement, and to the references to us under the headings
"Selected Financial Data" and "Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned report
also included the financial statement schedule of T/R Systems, Inc., listed in
Item 16. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Atlanta, Georgia
October 4, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT JANUARY 31, 1997 AND THE STATEMENTS OF OPERATIONS FOR THE YEAR ENDED
JANUARY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 4,036
<TOTAL-REVENUES> 4,036
<CGS> 3,387
<TOTAL-COSTS> 3,387
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 82
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,120)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,120)
<EPS-BASIC> (1.47)
<EPS-DILUTED> (1.47)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT JANUARY 31, 1998 AND THE STATEMENTS OF OPERATIONS FOR THE YEAR ENDED
JANUARY 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 3,527
<SECURITIES> 0
<RECEIVABLES> 2,544
<ALLOWANCES> 175
<INVENTORY> 1,116
<CURRENT-ASSETS> 7,415
<PP&E> 1,713
<DEPRECIATION> 944
<TOTAL-ASSETS> 8,184
<CURRENT-LIABILITIES> 2,298
<BONDS> 0
15,020
0
<COMMON> 37
<OTHER-SE> (9,796)
<TOTAL-LIABILITY-AND-EQUITY> 8,184
<SALES> 12,032
<TOTAL-REVENUES> 12,032
<CGS> 6,107
<TOTAL-COSTS> 6,107
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 200
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,218)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,218)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,218)
<EPS-BASIC> (0.37)
<EPS-DILUTED> (0.37)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT JANUARY 31, 1999 AND THE STATEMENTS OF OPERATIONS FOR THE YEAR ENDED
JANUARY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 1,966
<SECURITIES> 0
<RECEIVABLES> 2,792
<ALLOWANCES> 200
<INVENTORY> 1,810
<CURRENT-ASSETS> 6,759
<PP&E> 2,189
<DEPRECIATION> 1,178
<TOTAL-ASSETS> 7,770
<CURRENT-LIABILITIES> 2,867
<BONDS> 0
15,042
0
<COMMON> 41
<OTHER-SE> (10,279)
<TOTAL-LIABILITY-AND-EQUITY> 7,770
<SALES> 15,847
<TOTAL-REVENUES> 15,847
<CGS> 6,579
<TOTAL-COSTS> 6,579
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 25
<INTEREST-EXPENSE> 17
<INCOME-PRETAX> (623)
<INCOME-TAX> 0
<INCOME-CONTINUING> (623)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (623)
<EPS-BASIC> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AT JULY 31, 1998 AND THE STATEMENT OF OPERATIONS FOR THE SIX
MONTHS ENDED JULY 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JUL-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 8,340
<TOTAL-REVENUES> 8,340
<CGS> 3,514
<TOTAL-COSTS> 3,514
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9
<INCOME-PRETAX> (101)
<INCOME-TAX> 0
<INCOME-CONTINUING> (101)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (101)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET OF T/R SYSTEMS INC. AT JULY 31, 1999 AND THE STATEMENT OF OPERATIONS FOR
THE SIX MONTHS ENDED JULY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> JUL-31-1999
<CASH> 3,708
<SECURITIES> 0
<RECEIVABLES> 3,154
<ALLOWANCES> 82
<INVENTORY> 1,856
<CURRENT-ASSETS> 9,129
<PP&E> 2,378
<DEPRECIATION> 1,468
<TOTAL-ASSETS> 10,039
<CURRENT-LIABILITIES> 3,900
<BONDS> 0
15,053
2
<COMMON> 42
<OTHER-SE> (9,032)
<TOTAL-LIABILITY-AND-EQUITY> 10,039
<SALES> 9,889
<TOTAL-REVENUES> 9,889
<CGS> 4,210
<TOTAL-COSTS> 4,210
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9
<INCOME-PRETAX> 211
<INCOME-TAX> 0
<INCOME-CONTINUING> 211
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 211
<EPS-BASIC> 0.05
<EPS-DILUTED> 0.01
</TABLE>
